Welcome to Tamworth, England. Thank you. To all of you here and those joining us via live webcast, thank you for participating in LKQ's 2018 Investor Day. As you'll see from the agenda, we have an unbelievably exciting day, and you're going to see a lot of familiar faces that many have met on the road, and you're going to see a lot of new faces that we think you'll be quite impressed with and exemplify the LKQ culture here. Obviously, we're going to end with a site visit at T2, which again, I'm pretty confident that everyone will be impressed. Always important before we start, I want to thank a few people. Teammates that we call up behind the scenes that really played a critical role in today being what, again, is going to be a phenomenal event.
Not to highlight a few people, but I will. In particular, Martin Gray, our CEO of Euro Car Parts, who you'll see throughout the day, as well as present here this morning. Lois Rothstein, who may have communicated with a few folks in this room, is the behind-the-scenes person. She's been with the company since 1999, so I think that's a testament to commitment to what LKQ again represents. I tell people that you literally and physically wouldn't probably be here if it wasn't for her efforts. Again, thanks, Lois, for everything. To the agenda. Of course, we got to read the safe harbor, as we talked about. Most of you can read it, most of you have seen it, most of you have heard it on our earnings call, so we won't go in great detail. Pretty straightforward.
Nick's going to be giving us a company overview. Justin's going to jump into Wholesale North America, followed by Bill Rogers, who runs our specialty group. John Quinn, who many of you probably know along the path. Then we're going to open up for Q&A. I just want to be clear that during the presentations, because we have a lot of exciting content to cover, that if we can save the Q&A for those sessions, I'd appreciate that. Lunch, which will be served right out here. Then we're going to have a panel discussion with some presentations with the leaders of each of our European businesses, followed by an overview of our financials and an overall update on our financial matters. Another Q&A, and then what I think will be, again, the highlight of the day, the tour of T2.
When the tour is complete, the buses will begin boarding between 4:00 and 4:20. Safe to assume that a lot of people in this room don't want to miss their train back. Let's try to be prompt between those times. Let's see if there's anything else we need to cover. I think that's about the opening. One thing I'll request, because we are live via webcast, if you have your phones or your computers or your volume turned up, if you could turn that down, that would be great. I guess from there, we'll get the party started. With that, I'd like to invite Nick Zarcone, our President Chief Executive Officer, up here. Thank you.
Thank you, Joe. Again, I'd like to welcome everybody to our second Analyst Day here in May of 2018. I certainly appreciate all of you in the room making the trek to the rain-soaked, foggy fields of Central England. The weather is typical for the English countryside here. For those who may be participating on the phone back in the U.S., we thank you for getting up bright and early to be part of our Analyst Day event. We've assembled what I think is a terrific cross-section of our leadership team here at LKQ to really afford all of you the opportunity to peel back a couple layers of the onion, if you will, and really see the folks who make it happen each and every day. As Joe indicated, on the agenda is a list of everybody who will be presenting during the day.
In addition, we have some other colleagues here who will not be presenting, but I would like to point out. First and foremost, we have a couple of our directors, particularly our European directors, in the room, including Robert Hanser and Sukhpal Singh. Robert, as many of you know, spent most of his career at Bosch and was the Global CEO for Bosch aftermarket parts. Sukhpal was the founder of ECP and really built the business from nothing as an individual entrepreneur to a large and vibrant business that we ended up acquiring in 2011. Again, both Sukhpal and Robert serve on our board of directors. In addition, Michael Clarke, our Corporate Controller, is in the back of the room. Jack Brooks, who runs our treasury operations, is also in the back of the room.
Chad Cowan, who is our Chief Information Officer for Europe, is here with us as well. Again, a great opportunity for all of you to interact with a really broad cross-section of the leadership team. Most everyone in the room has the opportunity on a regular basis to interface with Varun and Joe and myself on a pretty regular basis. I'm going to keep my comments relatively short, so you all have the opportunity to hear from my colleagues, because that's what today is all about. I'm going to start by providing some perspective. Look, we all understand that in the world in which we operate, you're only as good as your last quarter. Okay? Q1 was a rough quarter for us, and we understand that. Perspective is important.
I'm going to take a little bit of time to give you an overview of the company, going back to our roots, and then we'll talk about what the future holds for LKQ. I begin every presentation with our mission statement, and whether I'm talking to folks in the investment community, whether I'm talking to potential customers, or whether I'm talking internally with our employees. At the end of the day, make no mistake, everything we do at LKQ around the globe ultimately comes back to the words on this page. Okay? This is our mission. This is where we're headed. This is the guidepost for LKQ for the years ahead. Quite simply, it's pretty bold and ambitious. We want to be the leading global value-added distributor of vehicle parts. That's a big ambition.
I think we're pretty well on our way of getting there, but we have a lot of work to do. Absolutely, we have a lot of work to do. There's three core constituencies that we need to serve each and every day. Obviously, first and foremost, our customers, the folks who depend on us to deliver the parts they need to either repair or accessorize vehicles. We need to provide them with good value, good solutions, and be a great partner with our customers. We have a second set of customers, and that's the 49,000 people who come to work each and every day at LKQ, our employees. I tell our folks all the time that while we may have $9.5 billion of assets on the balance sheet, the only true asset we have, folks, is our people.
We think we've got the best people in the industry. We need to serve our employees as if they were a customer as well. Then obviously, we need to be great partners in the communities in which we operate. Recently, over the last kind of five to six weeks, I've actually gotten some questions of people saying, do we plan on changing the direction of LKQ? Let me be clear. The answer is absolutely and unequivocally no. You don't change the forward mission of a company because of one soft quarter. You don't. While we are very cognizant, make no mistake, we're very cognizant that we need to make some near-term adjustments. Okay. The words on this page are the direction of where we're headed for the next several years. Okay.
Howard?
We've got a technical glitch with the slide. I'll talk you through it. The reality is, 2018 represents the 20th anniversary of LKQ. We were founded in 1998. The original goal was to consolidate the auto salvage business in the U.S. Over the past 20 years, the company has continued to grow and evolve quite significantly. Truly, what started out as a very small pure play in the U.S. salvage industry has developed into an incredibly complex, large, global diversified parts distributor. Okay. If you walk through the history of the company, when we went public in 2003, we were five years old at the time, 100% auto salvage. In the U.S., we had roughly 30 locations, 3,000 employees, and $300 million of revenue. We very quickly changed the game, in 2007 added aftermarket collision parts when we bought Keystone Automotive Industries. Okay.
That really changed the game forever in the North American collision marketplace, because LKQ became the only company of size and scale on a national basis that could deliver recycled parts, refurbished parts, and aftermarket parts. It was a clear game changer in the North American collision industry. Along the way, in North America, we added a variety of other things. Automotive paint. Why? Because every body shop needs paint and accessories to run their business. Automotive glass. We manufactured engines, transmissions, and wheels. We added a heavy-duty truck segment and division. Obviously, as you know, we have some self-service operations. Really built out the North American footprint. The next big move obviously came in 2011, when we entered the European theater, and we did that with Sukhpal when we bought Euro Car Parts here in the U.K. in October of 2011.
The next move came when we bought Sator, located in Rotterdam, outside of Rotterdam, really servicing the Benelux region. That was in 2013. 2016, we came back, and we bought Rhiag. Again, headquartered in Milan with operations in Italy and Switzerland in the west and 8 countries in the eastern bloc, if you will. Obviously, we announced the acquisition of Stahlgruber back in December. The other big change is in 2014, we added the Specialty Segment, where we bought a business called Keystone Automotive Operations. We refer to it as KAO. You'll hear that a bit today. Then tucked in 4 additional acquisitions around that to create a market leader.
Today, what we have is a business that on an annualized basis will be running at about just shy of $12 billion of revenue, up from $300 million 15 years ago when we went public. Over 1,700 locations around the globe, compared to the 30 back 15 years ago, and 49,000 employees compared to the 3,000, again, back at the time that we went public. Importantly, as you can see from the pie chart here on a pro forma basis, which includes Stahlgruber, we'll have about half, actually 49% of our global revenue will come actually from Europe. About 41% will come from the North American Segment, and about 11% will be coming from the Specialty Segment in total. As I mentioned, Stahlgruber is a major addition to the LKQ family of companies, I'd like to show a brief video introducing this business to you.
Our actions are based on a promise. A promise our customers have been relying on for almost a century. In times when everything seems to be changing radically, reliability appears to be the decisive factor within the business world. To meet growing demand from our customers, we have constructed one of the largest and most modern logistics centers in Europe. We guarantee availability manually and fully automatically. More than 6,000 employees ensure that our customers get exactly what they need, exactly when they need it. No matter what our customers need, we will supply the required item. To do this, Stahlgruber uses the most up-to-date technology and customized software solutions. We know what's in every package. We know every single spare part, every screw, and every single delivery deadline. We commission around 100,000 items from over 5 million storage compartments every single day.
Because we, at Stahlgruber, will do everything we can to keep our promise, even in the future. The fastest delivery for the best customers with the most modern logistics. Stahlgruber, always mobile.
Stahlgruber is clearly a very exciting company, and I am very pleased to announce that at about 10:00 A.M. this morning, as you folks were sitting down here for this session, we issued a press release indicating that late last night, we closed on the acquisition of Stahlgruber, save for the operations in the Czech Republic. Those activities have been carved out separately and will temporarily be left under the ownership of the seller. We will ultimately look to acquire the Czech operations, but we need to complete the antitrust review by the Czech authorities. We are thrilled, absolutely thrilled, to have the acquisition of Stahlgruber complete and closed. Varun is going to walk through the anticipated impact on our Q2 and our annual adjusted EPS in his presentation. I think Joe is going to distribute a hard copy of the press release so you have it here today.
Again, we are really excited that we have got Stahlgruber closed. We have a broad group of businesses around the globe, and people ask from time to time, what do these things have in common? Why are they all owned by LKQ? They all have quite a bit in common. First and foremost, all of our businesses are wholesale distributors of vehicle parts that really sell into the, what we call the do-it-for-me marketplace, or the professional repair and installation marketplace. They all participate in a very large and highly fragmented marketplace. That is important because large fragmented marketplaces provide us an ability to create very strong competitive positions. That is true with each and every one of our businesses. They all create an opportunity where the depth and breadth of inventory really can create a competitive advantage for LKQ. That is a real important concept.
We talk about fulfillment rates in each of our business, and nobody has the depth and breadth of inventory and the ability to fulfill parts quickly like LKQ. They all afford us an opportunity to use scale to create operating leverage and to ultimately enhance our margins. They all have attractive adjacent markets. As I think you are going to see today, they all have industry-leading management teams who are guiding them on behalf of our customers and obviously our shareholders. In short, the common element of all these businesses is a very consistent business model that spans across the entire enterprise. What may not be so evident is these different businesses actually draw off of a lot of the same support. This is a picture of what is going to be our new support center in Nashville, Tennessee.
We have more than 500 people in Nashville that support the North American and the specialty business, in terms of finance, IT, human resources, supply chain, and the like. Importantly, many of the global IT activities are also headquartered in Nashville. That is where things like our ERP planning and implementation team, our cybersecurity folks, our data privacy team, servicing our operations on a global basis, they are all located down in Nashville. You may not know that we have an offshore center in Bangalore, India, where we have 580 people that support all of our businesses. We actually acquired this operation when we bought KAO back in 2014. At the time, they had approximately 70 people supporting the specialty business. Again, today, 580 people, most 300 supporting the North American wholesale business.
They also support PGW, obviously KAO, and well over 75 people supporting ECP here in the U.K. As we move to run our European operations a bit more like a single business, as opposed to the multiple businesses that we bought along the way, we believe we can certainly leverage the infrastructure, either in Bangalore or perhaps a new center in the Eastern Bloc, to gain further economies of scale. Both Nashville and Bangalore are really great examples of how we can leverage the global platform of LKQ across all of our various businesses. Much for the past. I want to spend a few minutes talking about the future. We indeed have created a large and complex company with many individual operating units.
That said, there are some common strategic underpinnings, 4 key strategic underpinnings that are important for all of us at LKQ to address in the next 5 to 10 years. This slide that I'm about to show you is an exact replica of information I shared with my board in August of 2017, talking about where we are headed as a company. I've used this slide several times with the board, but I've also used it many times internally to reinforce the future direction of the company. First, we need to grow our customer offering. Really important. Today we're largely a parts distributor, okay? That needs to change a bit. We're going to continue to expand the global footprint. Obviously, we've done a lot of that here in Europe. I'll talk about that in just a minute. We need to adapt to the evolving technology of the automobile.
Finally, we need to rationalize the asset base that we have today. I'm going to talk about each of these, but when you put it all together, we're going to grow, expand, adapt, and rationalize. I call it GEAR Forward, okay? This is a name and a title that folks across the company are beginning to understand as to where we're headed as a company. Let's just take a few minutes and go through these one by one. Grow the customer offering. Many of you in the room know Rob Wagman, my predecessor as CEO of LKQ, Rob often used the phrase that the strategy is to put one more part on the truck. What did he mean by that? Simply that there was an opportunity for LKQ to continue to augment and add to the product portfolio of what we provide our customers.
If we can do that, we would be able to grow the revenue, basically leveraging the existing infrastructure, the existing warehouses, the existing delivery fleet, and the existing human capital, if you will. Lots of folks at LKQ are very familiar with the phrase, one more part on the truck. Indeed, while we've done that pretty well, I think, over the last several years, and we're going to continue to think of new part types that we can offer to our customers. I believe that services add a whole new dimension for LKQ. Now let's be clear. We have absolutely no intent to do anything that is in competition with our customers. Not at all. Those are not the type of services that I'm talking about. There will be an opportunity for us to actually create a service offering that helps our customers be more competitive.
That's at the end of the day what we're trying to do. We're trying to deepen the relationships with our customers. We've already added some services into the product offerings. Let me give you a couple of examples. Last year, each of Sator in the Netherlands and KAO, our specialty business back in North America, acquired software companies. People say, "Why did we acquire a software company?" These are software companies that really provide operating systems for our customers to be more productive and more efficient. Okay. In the case of Sator, it's almost an advanced CRM system dedicated to independent garages who are really good at repairing vehicles and less good about really tending and keeping track of their customers and the like.
We are going to provide our customers, the garages in the Benelux region, with an ability to get closer to the ultimate owner of the vehicle. In return, we think we can get a bigger share of the wallet from those repair shops. In the case of KAO, as Bill will talk about, it's a software program really dedicated to the RV dealers and the distributors that we sell to really help manage their business more effectively. Again, yes, one more part on the truck. We are going to continue to do that, but you can also look on a very selective basis for us adding services to the overall offering. Expanding the global footprint.
Again, we started the European expansion in 2011, over the past seven years, four key platform acquisitions, ECP, Sator, Rhiag, and now Stahlgruber, and then 50 tuck-in acquisitions to expand our presence. What it's done is it's created a business today here in Europe that is more than three times larger than our next largest competitor in the European theater. Okay. We operate in 21 countries. That represent about 68% of the total car park in Europe. While we don't need to be in 100% of the countries in Europe, sometime over the next five years or so, placing a few more flags will be a good thing for us, and you should expect that we will do that. Let's make no mistake.
We have just late last night closed on the largest acquisition in the history of our company, EUR 1.5 billion worth of revenue, EUR 1.5 billion purchase price, if you will, and today represents day one of the path forward. We are going to be very focused on making sure we get Stahlgruber integrated. We have our hands full at the moment. What do we know about the rest of the world? We know that by 2021 or 2022, there will be more automobiles in China than any other country on the planet. China will represent an incredibly large opportunity for a variety of players in the automotive industry. Again, nobody in this room should be surprised if sometime over the next five years, LKQ plants a small flag somewhere in the country of China to address that marketplace. Again, the Chinese market is complex.
It has inherent risk, not found perhaps in the countries where we've participated thus far, and so we're going to be slow, and we're going to be careful, and we are going to be deliberate. Lastly, there are other areas in Asia that have very large populations, very large car parks. India obviously comes to mind, and that may be on the agenda over the next 5 to 10 years as well. The evolving technology. There's no doubt that the automobile is going to see more change over the next 10 to 15 years than it's seen since people started making cars back in 1900. Okay. The reality is automobiles are becoming computers on wheels. Okay. As the car park changes, the folks who provide parts like ourselves, we need to evolve and change as well. Importantly, we need to be ahead of the curve.
The good news here, whether it relates to connectivity, kind of assisted driving and automotive safety, autonomous vehicles, electric vehicles, rideshare with Uber and Lyft and Maven and all the rest, or the Amazon of all things. The good news here is this is going to be an evolution, not a revolution. The car park and the automotive industry has evolved continuously since cars were put in production. It will continue to evolve. The pace of change, I think, is going to increase. We absolutely have the ability to adjust and adapt our business. The key here is we need to stay ahead of the curve relative to the rest of the competition. To that end, as some of you may know, we've recently established a new group, a new department within LKQ. We call it the Strategy and Innovation Team.
It's been up and running now for a few months. The goal here is not for the strategy team to define the future. The goal is to have the strategy team work hand in hand with our businesses, with our business leaders in understanding how do we best take advantage of those items up on the screen. Because here's what I know. These kind of, I call them disruptive forces, okay, are going to change the automotive industry, and they're going to change the parts distribution business. Okay. The small players in our space are going to have a really hard time dealing with these changes. What I know is we've got the scale, we have the capital, and we have the human talent to take these items and turn them into competitive advantages for LKQ. That's what we're going to be about.
We are going to continue to use what we have at LKQ to take market share from our smaller competitors, just as we have over many, many years. Lastly, I call it rationalize the asset base. This doesn't necessarily mean getting rid of assets, though in some cases we are. Those who have followed our acquisition of the glass business back in 2016, you know that we've started to integrate a handful of the PGW warehouses, which tend to be smaller, 13,000 to 15,000 sq ft, into our much larger LKQ facilities. There's a case where we get rid of a facility, we get rid of rent payments and utilities, and we can integrate it in. What this really has to do is putting our existing assets and using them more effectively and to increase the productivity of the infrastructure.
We're going to do this by driving higher margins. We're going to have better working capital utilization. At the end of the day, we will have an improved return on assets or return on invested capital. Okay. Long term, we're going to grow the customer offering. We're going to continue to expand the customer footprint or the global footprint. We're going to adapt to the changing technologies, and we are going to rationalize the asset base. Four key things that we're going to do over the next 5 to 10 years to make sure that we maintain a very strong competitive position. While these are really good long-term initiatives, we also recognize the need to balance that against the kind of the near term environment in which we're operating in. Four key near term priorities that I want all of you to leave here with.
You need to know that we are very intently focused on each of these four. First, organic growth. As you saw in Q1, we had a couple of our businesses where for the first time the organic growth came down, particularly in Europe and the specialty business. We finally got our footing back as it relates to the North American business. Again, we are focused on in each and every one of our business segments, making sure that we can sustain a above average rate of organic growth. The second, margin improvement. Again, we had a couple of our businesses, particularly North America and the European segment, that suffered some shortfalls in our expectations as to operating margins. My colleagues here today are going to spend a fair amount of time talking about these two items, I'm just going to leave it at that.
Obviously, we need to integrate Stahlgruber. Okay. We have a team that is going to be intently focused on making sure that we bring the Stahlgruber organization into LKQ in a seamless manner, and that we get all if not more than the synergies that we explained at the time that we announced the transaction back in December over the next couple of years. Lastly, maybe not so readily apparent to the folks in the room, talent acquisition. Again, the key to any business, clearly, I believe the key to our business is creating a world-class leadership team. Okay. We've actually made some significant progress over the last several quarters. We, again, created the strategy and innovation team. That's led by a gentleman by the name of Bob Reppa. We got Bob out of JCI, where he's part of their global strategy effort.
Prior to that, he was a partner at Booz, and started his career at Ford. Teamed him up with Josh Meyer. Josh spent most of his career being the director of North American strategy for Bosch. It's a great team. There's four people in total. We've added a Global CIO, Ash Brooks, headed down in Nashville. We've added a Global Chief Information Security Officer. Chad Cowan, who I mentioned. Chad was running the IT effort back in North America, and just probably about nine months ago, actually pulled him over to Europe. He offices out of Amsterdam to run the IT effort here in Europe. Tomorrow we have a gentleman starting who's going to lead the whole evaluation process for a potential back-office consolidation for our European operations, whether that be, again, in Bangalore or whether it be somewhere in Europe.
We are adding really key elements and people to the management team. We have, several months ago, started a formal search process for a chief operating officer of Europe. The whole goal here is to give John Quinn some additional help in managing the day-to-day activities of LKQ's operations in Europe. We are also looking to add someone to fill the HR role for all of the European theater. Again, we have added some terrific talent. We are going to continue to add talent to broaden the abilities of our leadership team to take LKQ forward for many years to come. With respect to our continued growth, again, there's three key ways that we grow at LKQ. First is to gain market share in each of our existing markets.
A lot of this has to do with greenfielding new facilities, warehouses in particular, adding to the distribution infrastructure. This is where tuck-in acquisitions come into play, where we can buy small businesses and just pull them right into the overall infrastructure. We will continue to do that. New product areas, as I said, one more part on the truck, right? We did this with glass. We did it with the specialty business, with remanufactured engines. More recently, remanufactured transmissions. We did this with paint. All down the line is we will continue to add new products for us to sell to our customers. The expansion into new markets. Obviously, the four key platform acquisitions in Europe represent that. A lot of this has to do with M&A activity, acquisitions, if you will.
No doubt, we've used acquisitions as a core element of our growth strategy over the last 20 years. Some of the transactions represented here by the logos represent either key product platforms or geographic platforms that we've added. It's important to keep in mind that the vast majority of the acquisitions we do are tuck-ins, where, again, we buy smaller businesses that are in our existing line of business and pull them into the broader infrastructure, and oftentimes eliminating most, if not all, of their back-office activities. With respect to platform transactions, what are we looking for, right? We're looking for good, well-run businesses. We don't fix things. We buy great businesses. We buy businesses that either have an existing position or the capacity to become a market leader in their respective markets.
At the end of the day, in real estate, they always say the three key factors in real estate are location, location. With respect to our businesses, it's management, and management. We are looking for companies that have great leadership teams, and importantly, leadership teams that are going to stay with us and run the business after we close on the transaction. Good cultural fit's imperative. We have a very entrepreneurial spirit to all of the LKQ operations on a global basis, we're looking for entrepreneurs. Obviously, and importantly for this crowd here, we need to earn a really good financial return on our investment. We recognize that the returns in the early years are going to be low because the capital has just been deployed. Our time frame, when we think about acquisitions, our holding period is forever.
Our holding period is forever. We want to make sure that we can earn a good return on capital over the longer-term horizon. As I like to say, what you buy is important. What you do with what you buy is more important. This is just a snapshot of three of the major platform transactions here in Europe. Think about what we've accomplished. We acquired ECP in October of 2011. It was doing about 270 million pound sterling of revenue. With Sukhpal and Martin and the broader team here, they've quadrupled the size of the business, really since 2012. Phenomenal growth. Sator, under Simon Galvin's leadership and his team, we bought that in 2013. It was doing the better part of EUR 290 million of revenue. Increased that by more than two and a half fold.
Importantly, converted a good portion of the business from a three-step distribution model to a two-step distribution model, which is much more effective and helps us create better margins. Rhiag, which is a very recent acquisition, just in 2016. We have dramatically expanded the footprint, particularly in Central and Eastern Europe. We have a really good track record of actually doing something different with the companies that we buy. It's keeping that core management team in place and giving them the resources they need to be effective and to continue to grow the business. This is just a chart highlighting the number of acquisitions completed over the last six years. Clearly, since the start of time, if you go back to 1998, we've closed on 275 acquisitions. Over the last six years, 131.
Clearly over the last four to five years, a significant portion of the capital has been devoted to building out our European platform. Obviously, given the size of the Stahlgruber transaction, 2018 in terms of capital deployed, will probably be an all-time record. We do not anticipate that we're going to do another 25 acquisitions in 2018 as we did last year, because the importance of integrating the Stahlgruber acquisition into LKQ. You should expect the number of acquisitions to come down. In summary, our company continues to be, I think, incredibly well-positioned to create successful outcomes. Those outcomes are for our customers, for our employees, and importantly, those folks who provide us capital, which includes our shareholders, our bondholders, and the banks who are part of our credit facility.
Each of our businesses operates in a very large, highly fragmented market, which has allowed us to create industry-leading market positions. We've dramatically diversified the revenue stream over the last 20 years. There are a number of positive trends which are really leading towards the continued increase in the use of alternative parts to repair and accessorize vehicles. Alternative parts being recycled parts, refurbished parts, and aftermarket parts. That really is due to the value proposition that we create for the folks who use those parts, our customers, the repair shops, the installation shops, and ultimately, the end consumer. Finally, we have a very sound financial model that is characterized by very good organic growth, strong margins, good free cash flow, and obviously, a capital structure that has limited near-term repayment requirements and a lot of liquidity.
I am extremely proud to be the CEO of LKQ as we continue the journey forward. Notwithstanding some of the near-term headwinds, I've never been more optimistic about the future of our company. At this point in time, I'm going to turn the podium over to Justin Jude, who's going to run you through the North American business.
Thank you, Nick, and good morning, everyone. As Nick said, I am Justin Jude. I'm the Senior VP of our North American Operations. I'm going to walk you through some high-level updates on our North American business. Last year, we finished off at $4.8 billion, just shy of five. We had just below 20,000 employees and almost 500 locations. If you look at the lines of business on the right-hand side, these are our three key top-performing, from a revenue standpoint, lines of business that exist in North America today. We have many other lines of business, but these are the three key drivers today. We are and continue to be the number one provider of alternative collision parts. That's both recycled as well as aftermarket.
We are also still the number one provider of engines and transmissions on the used, recycled side and remanufactured side as well. With our recent acquisition of PGW, we are now the number one wholesale provider of automotive replacement glass in North America. All of our lines of business still see fragmented markets, as Nick talked about, and good opportunity to have significant growth. If we take all the different lines of business that exist in North America today, we typically group them into three different segments: collision, mechanical, and heavy-duty truck. What you'll see up here is our private label brands that we go to market in each segment. Other than on the paint side, you'll see a few logos that we're key distributors of these product lines in the paint, body, and equipment.
We put glass into collision just because it's easier, but at the end of the day, there's not a whole lot of overlap with collision and glass, as we've noticed after the acquisition. On the mechanical side, like I said, we're the number one provider of used engines and transmissions. A lot of that is coming out of the strong growth that we've had at ATK. Last year alone, they produced 105,000 engines. With our transmission acquisition of remanufacturing plants and our new greenfield that Nick talked about before in OKC, we produced 25,000 transmissions last year. Our first line at OKC is up and running fully. We are now working to deploy our secondary run. ATK luckily is firing on all cylinders right now. We're also in the heavy-duty truck space, as Nick talked about.
We have 21 salvage yards across North America that will procure and dismantle everything from cement trucks to semis. We also are a large provider of aftermarket cooling products into the heavy-duty truck space, as well as some select collision parts. Since our core business is automotive, we take data from AAIA that shows the U.S. market from an automotive repair standpoint. This is what a $243 billion market, this is what consumers would pay to get their vehicles repaired. If we look at the next level down, we have a do-it-for-me space, and we also have a do-it-yourself space. We play in the do-it-yourself space a little bit with our self-serve, but our core business, as Nick talked about, is wholesale or the do-it-for-me side.
If we take that number and further break it down into the mechanical side and the collision side, then since these are at retail levels, we break out the labor, and we break out the markup that the shops charge the consumer to really understand the addressable market that LKQ plays in today. As I mentioned, we did $4.8 billion last year. That's inclusive of Canada, and that's inclusive of our self-service operations. That $71 billion obviously does not include Canada, and it does not include the do-it-yourself side. Still a significant opportunity for LKQ to grow in our space. If we focus on the collision side, a good trend that we've seen in the last five years and will continue to see is the enrollment of the DRPs.
DRP is a direct repair program where a body shop enters into an agreement with an insurance company, and that body shop meets cycle time, meaning they can get that car out faster. They can get that consumer in and out of that rental car faster and save the insurance company money. They also meet certain customer service indexes. They also meet certain repair guidelines, and they also meet effective use of alternative parts, reman and aftermarket. We see this as a great trend because insurance companies want faster cycle times, the shops need quicker parts delivered, and they also need a good quality. LKQ is the best provider in those areas today. I talked about the enrollment in DRPs is growing. The nice thing we're also seeing is the large MSOs are growing, and the independent body shops are on a decline.
In the last 10 years, the volume going through the large MSOs in the U.S. has gone from 9% to nearly 25%. Most of these MSOs are also DRPs, as these guys get bigger, LKQ typically wins more market share. We have agreements in place with nearly all the top MSOs, as well as the insurance carriers. When these MSOs, whether they're regional or national, they need a supplier they can count on coast to coast, and there's nobody else besides LKQ that can do that. Here's just a list of some of our key partners that we do business with today. It's everything from body shops to mechanical shops to insurance companies. You'll see ABRA Auto Body all the way to USAA Insurance.
We like to put this out there to our employees and to the investment community just to show that we're proud of some of the customer relationships and partnerships that we have today. In the past, you've heard us talk about the collision, the sweet spot in general, whether it applies to mechanical or collision. This graph kind of shows the collision sweet spot for LKQ. The majority of our parts that we sell into the collision world, whether it's aftermarket or recycled, is in that 3- to 10-year range. If you look at this chart showing what's expected in VIO, or vehicles in operation, on the oncoming years, you will see a couple hundred bips improvement of migrating vehicles in operation into LKQ's sweet spot. With the heavy SAAR rate that we've seen in the past couple of years, that typically causes a lag on our sales.
Those new vehicles don't get to the auctions quick enough. We have to tool up new aftermarket products. In some cases, when you have high SAAR rate, there is typically a lag in LKQ sales. We see some favorable tailwinds coming with our sweet spot. With that tailwind of our sweet spot as well as the complexity of vehicles, here's two other good trends that we're seeing ultimately occurring in the collision market. The first one is parts proliferation. We see more number of parts in the last five years entering an estimate, and we expect that number to grow at the same rate. As more parts are on the estimate, LKQ wins our market share. We will sell more products from that trend.
In addition, with the complexity of the vehicles, as I talked about, and the technical product lines that we're carrying, that's driving the average prices up as well. Another benefit from a revenue standpoint that we'll see coming in the short term. Whether we're talking collision or mechanical, this graph or this slide helps show average savings that we will show to a consumer or to the insurance companies. All the prices on the screen are at list price or at retail, essentially, and then we typically then give a discount to our shops and give them a net price. In many cases, you'll see kind of a depiction of what the average savings is to OEM. When we give our customers that discount, there's typically even greater savings. Now, we play in a space of highly fragmented competitors.
We always have to balance our pricing between the multitude of competitors that we have. I think in the U.S. alone, there's still 4,000 automotive recycling facilities. We always have to balance our pricing between that of OEM for the OEs, and then that of the multitude of competitors that we have in existence today. I mentioned the multitude of competitors. The nice thing about this space is it's still highly fragmented. Whether it's from expansion and consolidation or expansion is just good organic growth, we see it's still a good opportunity. There's a few key things that LKQ brings to the table that kind of sets us apart from our competition, and one is just economies of scale. We are 20 times the size of the next closest competitor we have, and it's a long tail after that.
In addition, our senior management team, if you look on the map on the far right, the color quadrants, we have regional vice presidents that manage these geographical areas, and the average tenure of these gentlemen in our industry is 22 years. We have a strong management team helping us get us to the future. In addition, our strong logistics. That first map you see of what we call the Southeast, that's a depiction of our typical network. In this instance, we can take a part from Miami, Florida, and get it to our Knoxville, Tennessee, and across the U.S. and across North America, we have good representation of these similar geographical network abilities. In many cases, these regions interconnect to each other so we can get parts across regions as well. This distribution footprint that we have is very costly to replicate from a competitive standpoint.
In addition, it gives us nationwide coverage for customers that need it, consistent warranties, as well as industry-leading fill rates. Talking about some key initiatives we have this year. I talked about the tailwinds and the fragmented market that we have. LKQ still sees, working with our strategy team, a good organic growth expected in the next five years of 3%-5%. As Nick talked about with that strategy and innovation team, they're working closely with my business leaders to understand offerings and new product lines that we can get into, either existing product lines going to our existing customers or adjacencies that might help us get one more part on the truck, as Nick talked about. In addition, they're helping us, as Nick talked about, monitoring the effect and timing of what's happening with autonomous vehicles, ADAS, and electrification.
We don't have our head in the sand. These guys are doing a pretty good research to understand the impact and timing that will come to LKQ. On the gross margin improvement side, if you asked all my regional vice presidents, the top thing is gross margin. Everybody's aware of it. Everybody's working on it right now. We're seeing continual improvements. We know costs are going up. We are pushing our prices up where we need to. We are optimizing our pricing to gather back and claw back some of our margins. In addition, on the salvage side, today it's a manual process. We are automating that and moving it to an automated system that can react to the market real-time and fast, and truly test the elasticity of salvage products. We see further enhancement on a margin side of salvage as well.
In addition, I'll talk about on a future slide, continuing to enhance our salvage procurement process. From the integration standpoint, Nick spoke a little bit about PGW. We have integrated some locations. We still have many more locations to integrate over the next two years. In addition, as of today, we have fully internalized their IT support systems as well as the back office side. June forward, we should start to see good cost savings on the PGW side. In addition, I'll talk about, today we have, I would say, the number one catalog in aftermarket collision parts. We also have the number one catalog when it comes to recycled parts, whether that's collision or whether that's mechanical. We are working with our IT team to develop a point-of-sale system and a single catalog where our reps can truly sell from one screen everything we have to offer.
There will be nobody else in the industry that has this today. From an operating leverage standpoint, we're working to minimize the freight impact. Everyone hears about it's a shipper's world. Shipping rates are going up, whether it's small pack or LTL or full truckload. We are moving as much as we can to our own trucks, where our cost of delivery is cheaper. In many cases, we're working through our warehouses to optimize our packaging and making sure that we're shipping the most efficient way as possible. Last time we had our investor presentation, I explained that we're rolling out Roadnet. It was kind of our phase 1. We have 4,500 delivery trucks in North America today, so it took us some time to get everybody on board, get the process implemented. Now it is just our culture to use Roadnet.
Now that we have gathered a good year and a half worth of data, we are starting to migrate to phase 2, where we feel more dynamic routing, more optimized routings will lead to 3%-4% efficiencies in our delivery. In addition, Nick talked about in wholesale North America, we have our North America headquarters in Nashville, Tennessee, which we continue to centralize and standardize processes to gain efficiencies as we move them to Nashville. In addition, we then have increased the use of our India operations. There's still opportunity for us to reduce our costs and gain a little bit more leverage. In addition, I'll talk about on the slide here in a few minutes that we have got some heavy focus on employee retention, and as Nick talked about, recruitment and talent acquisition.
I mentioned that we are enhancing our salvage procurement standpoint. Before we had a standalone system to do our salvage bidding, in the past we would just cast a big net. At the auctions today where we procure 98% of our salvage vehicles, there's roughly 4 million cars a year that come into our view to bid on. We only can absorb and produce roughly 8% of that volume. We've taken that system that was kind of standalone, rewritten it into our salvage ERP system, and made it a lot more efficient and a lot more customizable, as well as a lot more scalable. Now that 4 million vehicle that comes into our population, we can quickly filter out the vehicles we have no interest in at all.
Additionally, when we present these vehicles to our bidders of the cars, they have less and less decisions on is this a V8 or is this a V6? It's more of, hey, is the engine in the car? Does the damage look like it hit the engine? We're more and more automating is it a V8 automatically? Is it a GT? Is it an LX? The screen looks a little bit complicated, and I would say from a system standpoint it is, but from a user-based standpoint, we've simplified it very well. If you noticed on Nick's slide earlier, we've moved our key bidders over to our India operations, where we have 100 people doing what we call picture bidding today.
In most cases, like I said, all they're doing is looking at a screen and saying, "Is that left fender good?" More and more, the system is automatically determining what exactly is that left fender. Is it for a GT, an LX, a four-wheel drive, a two-wheel drive? We're taking, like I said, simplified the process pretty heavily. We expect to see improvements from an efficiency standpoint, as well as a gross margin improvement. I spoke a little bit about the retention plans that we have. We took a piece of our tax savings and applied it towards enhanced benefits for our employees, and we really wanted to invest back more into our people. What we did not want to do is get a one-and-done bonus that a lot of companies have done.
We wanted to have some long-term impact that our employees can benefit from. We attacked five key areas, I'm just going to highlight a few different areas that we touched within each one. From a healthcare standpoint, I will tell you if it's a single individual, we cut their cost by $25 a month. If it's a family plan, we cut it by $50 a month. As of April 1st, employees that had a family automatically realized an annual increase in their wallet by $600. That's something we expect to continue on. From a retirement standpoint, we enhanced our 401(k) matching. We also shortened the time period that it takes employees to be able to invest into the 401(k) plan. From a PTO standpoint, we have a lot of our field operations that we've enhanced and increased the PTO that they have.
In our world today, we live with the same macroeconomics that most other companies have. The lowest unemployment that we've seen in quite some time. That puts a lot of pressure on our recruitment, puts a lot of pressure on our retention. We feel that these enhancements that we've done will help us benefit keeping the employees, retaining them, as well as being able to recruit new talent. On the education side, we added a full-time employee reimbursement plan for college. In addition, we have a Joe Holsten scholarship fund, which we expanded to more winners. We also created some, as Nick talked about, serving our communities. We also created some charitable support where our locations, if they have a local charity that they need to support, the company can help offset some of that as well. We're excited about these benefits.
We've had nothing but positive feedback from our employees, we hope that this will once again give us some better opportunities to recruit talent, keep our retention, it'll ultimately drive some efficiencies. In closing, I talked about that value pricing slide, the value proposition that we have on the way we price our parts and how we're competitive. Still a high fragmented market that exists out there today. We think there's going to be future consolidation, but from a pure organic standpoint, we still expect to see that 3%-5% revenue growth over the next several years. Once again, a key initiative that we're working on is investing back into our people making sure that we have the right people, we can retain the right people.
From an operating leverage standpoint on the short term, once again, we are heavily working on our gross margin. We're seeing daily improvements on this. Along those initiatives on gross margin as well as a few other operating initiatives will get us back to our historical operating margin levels that we've seen in the past. Some of the other initiatives I spoke about are kind of a longer term or they take a longer time to employ. We'll see once we kind of stabilize our operating numbers back to where they need to be, we'll start to see another 10 to 20 basis points improvement for each year after that. That's all I have today. Everybody, thank you for your time.
I look forward to interacting with you through the rest of the day, and I will now turn it over to Mr. Bill Rogers.
Good morning, everybody. My name is Bill Rogers, and I run the specialty segment for LKQ, along with a great team, and I've been doing that for just over three years. With that, let's jump right in. As a quick overview of the specialty business, we've had last year's sales were around just over $1.3 billion. We have just over 3,000 employees. We have many customers and many suppliers. Our stocking position on SKUs is about 185,000 different SKUs in seven distribution centers geographically located in North America, in a great position utilizing 45 cross-docks to deliver to our many customers next day. If you look at the financial performance, the history of our financial performance, you can see we have done very well in terms of growth rates on the sales side. We're at over 13%, and we've leveraged the profitability well at over 18%.
We're in a strong number one position in the markets that we serve and very focused on continuing to retain that position and on profitable growth. We're very fortunate to have worked hard and established many very strong brands in our own company brand portfolio, covering both the automotive and RV sides of the market. Additionally, we have recently acquired Warn Industries, which is in last November, we acquired them, and that adds the premier off-road brand to our portfolio. This is really consistent with our strategy of going after and pursuing critical or marquee brands down the road within our specialty segment. This slide is what I call a growing list of special relationship brands. These are brands where we have some sort of a special relationship, whether it's an exclusive or some partial exclusive, or an exclusive within our particular market segments or a specific region.
This is a key focus for us going forward to go after more of the company brands and brands that we have special relationships with. Finally, we carry all the most recognized brands for the markets that we serve and really enables us to be the first or a call for all the customer base that we serve. We've worked really hard at establishing many key advantages that enable us to be the leader in the markets that we serve. Our logistics network and inventory position are the best and enable us to always deliver. We have a daily relationship with our customer base, and we do transaction processing very well. This is real work with real costs, and it's underestimated by many others out there. Our product application data is the best. Our sales team has extremely strong and long relationships with our customer base.
Our technology is head and shoulders above the competition. We work hard to maintain these advantages and our leadership position. I love this illustration because it's truly a representation of what we do every day in every location with the products that we sell. I'm going to step you through it. It's a little complicated and try to make it a little easier with the letters going around. If you look at the black box in the middle, you have a typical situation where a consumer comes into one of our customer locations. In this case, it's a construction worker looking for a toolbox for a pickup truck.
If you look at the A letter there, the customer, the jobber in this case, would call into one of our call centers, and we cover the country in terms of call centers from the East Coast to the West Coast, following the time zone. We're open early and late. He would call in. In this case, it goes through our Dallas. Due to his location, typically, it would go to our Dallas call center. There, they would help make sure he gets the right product. We put it into the system, or they could have done that with our business-to-business system, which is also the majority of the way our orders come in. In this particular case, we would start dropping our pick tickets after 5:00 P.M.
This particular product get loaded onto a tractor trailer in our Kansas City distribution center and get on the road and headed out for an overnight drive that eventually gets over to the D letter. In the middle of the morning or early morning hours, the truck arrives, and we have a team of the folks that do the local deliveries sitting there waiting to unload the truck. We get through that whole process in a few hours, and those delivery vans to the local markets head out. In this particular case, by noontime, our driver shows up at that same customer with that toolbox, very big and bulky item, and enables that customer, the jobber, to install it onto that construction worker's vehicle by 2:00 P.M. All order to delivery within 24 hours, which is extremely powerful. Again, this doesn't just happen in this location.
It happens the same way in all of our locations. We cover North America this way. The macro environment has been very favorable for us. If you look at the vehicles that we care most about versus the overall, they've all been on a higher growth rate than the overall. The overall growth rate's been very strong, so we've been in a good position for at least new vehicle sales for the vehicles that we care about. Additionally, RV, which is a big market that we serve in terms of aftermarket parts and accessories, has been having record years in the U.S., North American market from a unit shipment perspective. The recent numbers continue to be good, and the forecast also looks strong.
Another macro indicator that we tend to focus in on is the unemployment rate, which has been very low and favorable for the types of products that we sell. All in all, we feel like we're able to sustain a very healthy organic growth rate of over 3% every year. Our historical rates have been even higher than that, and we see no reason to think that anything would change. I thought it'd be nice to kind of give you a feel for how the vehicles that we, and the markets that we serve are modified, and the types of vehicles that we care about most. In this illustration, you can see the different types.
The top one is a muscle car, gives you some examples of the types of muscle cars that typically get accessorized more, and the types of accessories that we would most commonly use and our customers would demand. Utility vehicles is another big and growing market, and with more and more types of utility vehicles in the North American market, the growth rate's been very good. Pickup trucks have been a mainstay for us for a long time. There's really so much that you can do to a pickup truck, and that typically happens in North America. We have a huge selection of products that service those vehicles. A real growing segment is the SUV, CUV area, and we have many products that go with those. Many cargo management type products, and a lot of them are very application specific.
That really lends itself to our business model where we have big distribution centers with many SKUs and complicated application specific type data requirements. The majority of these vehicle types, in terms of overall vehicle sales, are growing. We see the market as being very strong. Another vehicle type that I wanted to dive in just a little deeper on is the Jeep. I don't know about you, but I don't think a stock Jeep actually looks very good. If you look at the market study that SEMA has done, it very much confirms that most vehicles, most Jeeps out there do get accessorized quite a bit. They're stating the amount at 62%. I'm sure if you were in North America and you looked at Jeeps, you could probably do your own off-the-cuff survey, and it might even be higher.
Most vehicles in the Jeep category end up being accessorized in some way. Jeeps are a huge influencer. Just a little bit further on the study, SEMA went through and talked about the different types of accessories that vehicle type uses, the timing in which those consumers would start to accessorize it, and how they would go about doing that. Again, very highly accessorized vehicle and a good example of what we see in the business that we do. Our overall M&A or acquisition strategy is very much in line with our overall growth strategy, and we have and continue to target some key areas. Acquisitions in the distribution area will continue to be a focus for us. We continue to look at areas within some of the existing markets that we have where we're less penetrated.
It would be really focused around complementary areas in those existing markets. It also would be focused in adjacent spaces where we have some element of the product mix already for an adjacent space, and it really makes sense to go after some distribution in customer bases in some adjacent areas, as well as different opportunities to continue looking at geographical expansion. Second area that is a focus for us are critical brands. The Warn acquisition is an example of that, where if a critical brand comes around, then we're going to be very motivated to pursue that and want to be in the mix on any of these marquee brands that come up. Lastly, on the technology side, as Nick said, we are very focused on adding and continuing to maintain our leadership position and the advantage we have.
Any software or technology or service-related option that might help us be more valuable to our customer base is something that we would try to pursue. Key initiatives for us are very focused on driving profitable growth by bringing on new lines and new products and services, adding new customers, increasing existing customers, and the customer penetration that is getting more lines within the existing customer base. This not only helps us, but it really helps our customer base as well. A lot of the customers get focused on what they do every day, and it's really our role to help introduce them to new products to help them grow and help them expand. They look to us for that, and we really pursue that role because it helps everybody in the end.
We continue to focus on expanding both our company and those special relationship brands that I talked about. Finally, we continue to grow our service capability to help customers grow in the online business. The online buying and selling business is a reality, and we have programs that help drive foot traffic to our brick-and-mortar customers and help them get tapped into the whole online reality. Just quickly to close and to summarize our overall value proposition. We are in a strong leadership position in the markets that we serve. We have multiple competitive advantages that are very, very difficult to duplicate. We're in a very favorable macro environment. We don't see that changing anytime soon. We have a very strong team driving market leadership initiatives aimed at profitable growth. This is all based on a very sound business strategy to expand both organically and through acquisition.
That concludes my remarks. Now I'll turn it over to John Quinn.
Thank you, sir. Thank you, Bill. Good morning, everybody. Thank you for coming. I am John Quinn. I'm the CEO of LKQ's European operations, and many of you have known me for many years as I used to be the CFO of the company, a couple of CFOs ago. I'm just going to talk about three topics, but I'll go into them in some depth. The three topics are just to give you an understanding of the European market, give you an overview of LKQ's operations within Europe, then finally, talk about LKQ's European strategy and how we're reacting to some of the trends in the marketplace. This is a waterfall that we've presented previously. It's very similar to one that Justin put out for North America. This is the European waterfall. It starts with the entire market at consumer prices of about EUR 200 billion.
Breaking it down very similar to what Justin did between the do it yourself and do it for me. The do it yourself in this case only includes e-commerce, so the market's actually probably bigger. Same theory, break between mechanical and collision, strip out the labor and the markups that our customers put on. At the retail or at the wholesale level, excuse me, at the wholesale level, it's about a EUR 102 billion market. The key takeaway is bigger market than you might see in North America. Justin's equivalent number is about $70 billion, you'll recall. I like to try to help people understand Europe by putting it in a compare and contrast a little bit to the U.S., and also try to explain where we are as a company in Europe today.
Starting just with the population, Europe is a much bigger population base than the U.S., about 374 million people versus 323 in the U.S. In the countries that we operate, we're not in every country in Europe. In the countries we operate in, we're representing about 486 million. More complex than doing business in the U.S. In the U.S., one country, one currency, typically one language. In Europe, you're looking at 21 countries that we operate in, 34 in the entire market. We operate in about 16 different languages with 13 different currencies. GDP in the total European theater is roughly the same size as the U.S., but you'll see the GDP per person is lower here in Europe. There are huge discrepancies.
There are places in Europe where the GDP per person is actually higher than the U.S., and there's places where it's obviously much lower, bringing down this average to what you see here. In terms of vehicles in operation, there are more vehicles in operation in Europe, which isn't surprising when I just explained to you that the market in terms of the actual repair bills are higher. More vehicles, more market size. Where we are operating, it's roughly the same size as the U.S. market, about 263 million vehicles. Another way to look at Europe, this is just an interesting graphic that Bloomberg put out a little while ago. The size of the bubble shows the GDP per capita, or excuse me, per country. You can see that the green line represents the Eurozone countries.
You can see the biggest markets in Europe includes Germany, the U.K., Italy, France, and Spain. Particularly with the Stahlgruber acquisition, we now have a presence in the biggest market, which is the largest both in terms of GDP and also the vehicle park. We are represented in many of these countries. We have a very limited presence today in France, the second-largest or third-largest market, and in Spain, we have virtually nothing to speak of there. European Union, just a nice graphic to explain how the European Union works, and when we talk about hard exit and soft exit, what's that mean? The purple line is the countries that belong to the European Union. When we talk about soft exit, it's really, does the U.K. end up inside one of those other boxes? For example, the European Free Trade Association, which includes countries like Norway and Switzerland.
It would be a soft exit. If it ends up completely outside of all those boxes, it would be a hard exit, and obviously with harder borders. Just a little bit of compare and contrast. Very high level here. Western Europe versus Eastern Europe. There's a tendency in vehicles in Europe to move west to east, so new cars bought in Germany, the Netherlands, for example, oftentimes will end up in Poland or maybe even moving further east into Romania. The market growth in the car park in Western Europe is growing, but it's growing more slowly, typically less than 3%, whereas in Eastern Europe we are seeing very high levels of growth. Not reflected necessarily in the new car sales, but it's because the car park is growing because of all the vehicles that are moving out of countries like Germany into those countries.
Average age, not surprisingly, the average age in Eastern countries is much higher, roughly around 15 years average age versus about nine years in the Western countries. The number of vehicles per inhabitant is much lower in the Eastern Bloc, so about 500 cars versus 600 cars. All these statistics in the East are coming up as the countries get richer. This is a graph we have showed previously. We used this when we announced the Stahlgruber acquisition back in December. We are very pleased to be able to explain how strategically the acquisition that we announced this morning, that's being closed yesterday, fills in the footprint. We now are able to literally drive from the Netherlands to the Ukraine continuously through our footprint. This is centrally located in the biggest car park, in the biggest GDP economy in Europe.
You can see from a logistics point of view, it's beautifully strategically located for us. Nick talked about us being roughly three times larger than the next biggest competitors in Europe after this transaction. On this graph, we're including the turnover for Mekonomen, which is a public company in Scandinavia, headquartered in Stockholm that we own 26.5% of. Including that company, we're roughly, on this slide, EUR 5.2 billion turnover, which is a little over three times the next biggest, which would be probably Alliance Automotive Group, which is owned by GPC out of the U.S., or Wessels + Müller, which is about EUR 1.5 billion out of Germany. What does LKQ look like in Europe? This slide shows a pro forma. It takes the LTM results for Q1 for LKQ and then added Stahlgruber results from 2017.
In these figures, we've pulled out the Czech Republic, which Nick mentioned we've not closed on. It's subject to competition clearance still. With that, you can see on a pro forma basis, we're roughly EUR 11.9 billion. Nick mentioned almost EUR 12 billion in turnover, and European operations are representing about 48% of that revenue. The company on a pro forma basis is generating $1.3 billion worth of EBITDA, with the European operations coming in a little bit under EUR 0.5 billion at EUR 589 million. Germany will be, with this acquisition, the largest of our European markets coming in at 29%, just topping out the ECP, which is going to be around 28% of the business. Nice geographical diversification in some of the biggest markets in Europe.
A lot of questions have been around European margins and what is going on there and what are we doing, why is it happening? What are we going to do about it? I thought I'd just take that head-on. The graph on the right shows the EBITDA trend. You can see from the orange bars, the EBITDA has been growing. The line on that graph is EBITDA margin, which has been deteriorating. A couple of reasons for that. Some of these are what I would consider to be temporary. Some of them are structural, and some of them will be turned around as a result of some of the initiatives that I'll talk about in a minute. Going back to 2016, we bought a company here in the U.K. called Andrew Page. It was in receivership, which was equivalent of going bankrupt. We bought the assets out of receivership.
It was a money-losing negative EBITDA company. We ended up in a whole separate agreement with the competition authorities, which meant we were not able to integrate that. We cleared that hurdle earlier this year. Martin will talk a little bit about that. Until we were able to get our hands on the business, we weren't able to do anything, and it continued to lose money. That caused an immediate dilution in our margins, obviously in Q4 2016, until we anniversary-ed that in last year. You can see the impact. We also did an acquisition. It was a small acquisition in terms of the cost of the acquisition. AD Polska is a large revenue, but a low-margin business. Very good ROIC, we believe. Ji ří will maybe talk a little bit about that later, our CEO for the CEE region.
We think we can double the EBITDA in that business, which would give us a very nice ROIC, but it is a lower-margin business, and the businesses in Central Europe tend to be a lower-margin business. Ji ří will explain some of the reasons for that. The businesses there are growing very quickly, not only ours, but our competition's. There's a lot of fragmentation in that market still. Those markets have not been consolidated. Structurally, I suspect that for a couple of years, it's going to be a lower-margin, higher-growth environment. Ultimately, I think as that market matures and consolidates, the margins will come up. Today, it's growing faster than the company as a whole, and it's causing a mix dilution on our margins. That is a structural thing that is going to continue for some time.
T2, we took possession of this building in January 2016. We've been incurring costs since that time. Some of those costs were just to build out and kit up this facility. We had to start incurring rent and so forth. We also are continuing to carry duplicate costs. We've had a number of additional facilities, and we've also had some costs associated with the commissioning of this building. Those costs, the way the GAAP works, we end up capitalizing the cost of this facility into the inventory, and then it gets amortized over the inventory turns. The cost for this facility, cost for the legacy warehouses, which we are not all completely out of yet. We've got one more facility to get out of from the legacy ECP business. We also have business, the NDC coming from Andrew Page.
Those costs will continue through Q2 and Q3. We're really going to get those completely out of the system early Q4. That's a temporary thing. It's structural. The die is largely cast with respect to that, both in terms of what we're going to see coming through the margins in the next two quarters, but also with respect to the way they're going to fall apart. Excuse me, fall away. Not fall apart. The way they fall away in Q4. We already talked about mix. Stahlgruber, 38%, that is going to be a bit of a challenge in the sense of it's a large acquisition that's going to influence the margins. We've announced some synergies in that. We're very, very confident in that. Even if we were to achieve the synergies tomorrow, again, this accounting issue causes those to take some time to show up.
We will not see the benefits of those probably coming through until next year, some of them. Obviously, we're going to hit the ground running tomorrow morning when the Germans get off their holiday, which is there today. We're very confident. The question was, why haven't we get back to 10% margins? When I came to Europe three years ago, Europe was running at lower than 10% margins. One of the questions a number of the analysts asked me is, when are you going to get the margins to 10%? I was very confident at that time that we would. We got them back to that within about a year. Some of these things that I call the margin drivers occurred with respect to Andrew Page and Poland and T2 and so forth. I'm very confident we will get them back to that level.
We do have to eliminate the temporary pressures. We have to get the strategic benefits of the integrations going, which I'll talk about in a moment. Just to give you a little bit more color and a little more granularity when I talk about these initiatives and what the impact of these various things are in more specifics. The graph shows some potential ranges. There's a high and a low for each of these initiatives. Just eliminating the legacy and the burning costs associated with T2 and the other legacy facilities that we're carrying today, we believe that's going to add between 1% and 1.5% to our margins once this building gets up to the productivity levels that we pro forma-ed. The building's running extremely well today, the facility is, but the productivity levels are still not where they need to be or where we pro forma-ed.
They're certainly on track in terms of the pro forma, meaning that we are where we expected to be, but we are not where we expect to be ultimately. At this time, the productivity is where we pro forma-ed, but it's not as good as it ultimately will become. Second item on this is. It says AP, which stands for Andrew Page, on accounts payable. Andrew Page continues to have negative EBITDA margins, getting them up to a company average and maybe even a little bit better because on an incremental basis, hopefully we can do better. That'll add another 30-50 basis points. Procurement, you'll hear from Ferdinando Imhof, our head of procurement, later today. We've been making good strides on that. We still think there's more to do.
We think that the Stahlgruber acquisition will give us more headroom. That should generate an additional 70-100 basis points over this time period. A couple of projects that you'll hear about later. Cataloging and our data analytics projects. These are longer term. If you start this graph, moving left to right is probably a good way to think about how these projects are going to come down the stream. The data analytics projects and the catalog, we think that could add another 100-200 basis points of margin. Longer term, once we are able to get Stahlgruber integrated and rationalized, we should be able to get some logistics savings. Nick has talked about the back office that we are starting. Well, we have somebody starting tomorrow that is dedicated to that project.
Those two items combined should add somewhere in between 80 and 130 basis points. Everything except logistics has been already launched on this slide. You'll hear more about that from our European leaders, who are going to be joining me on the stage later today. A little bit about our European strategy, which we are convinced is the right strategy, and that it'll lead us to the best margins in each of our markets. Three key elements. One is maximizing the existing footprint, which is really about integration and leveraging our current scale. It's really about digesting what we've already got on our plate and proving out the synergies that we've promised the world. The second one is create an environment that addresses the evolving market.
Nick has talked about some of the trends in the market. I'll go into a few of them in a little bit more detail. Creating an environment where LKQ is the first choice to customers. This is a little bit about what Nick talked about, adding some services, but also about creating an environment where the customers can rely on LKQ for not just parts, but other elements that they need to run their business. Acquisitions. We'll continue to do acquisitions where they fit our criteria. I'm not going to spend any time on that because Nick has already spoken to that. Very quickly, in terms of if you think of before and after, here's a little bit of a roadmap. LKQ, as Nick mentioned, we buy market leaders.
The companies in these bubbles on the right-hand side, ECP, Sator, Rhiag, these are all market-leading companies in their respective markets. Our goal is to take those good companies in their respective markets and make one great company that's a pan-European footprint. We'll move from individual, very fine companies to one great company that's an integrated business with rationalized procurement across the footprint, a rationalized DRP landscape, optimized back-office infrastructure. We're going to continue our growth in private label offerings and rationalize the way we deal with those. Make further inroads into leveraging our warehousing and distribution network. As an example, you'll see a lot of what we call long-tail inventory today. We have duplicate long-tail inventory in each of these companies.
Ideally, if we could get everybody on one system, if we get the logistics all working, we could reduce the working capital fairly significantly to get rid of all that long-tail inventory down to one set or maybe two sets throughout Europe. Procurement. Ferdinando was going to go over some of this earlier, but just to give you a high level, we've broken this down into what we would call phases. Phase 1 was really about getting some pan-European agreements in place with a couple of our key suppliers and improving our cross-trading. That is largely done today. We're starting to see the benefits of that roll through. Phase 2 and Phase 3, those are initiatives. Phase 2 is well underway, and Phase 3 is just starting as this year.
That's to expand some of those agreements to at least 50% of our direct spend, rationalizing our private label, and streamlining some of the portfolio of products that we sell. Phase 3 will be more focused on indirect spend, harmonizing our central procurement, and then moving towards the actual taking costs out of the logistics system and working very closely with our suppliers to try to get direct delivery from the warehouses, as an example. I talked about maximizing the existing business, and the procurement's one example of that. In terms of European initiatives, this is not everything we have going on, but I'll just give you a flavor of a few of the things, because these are the kinds of activities that we believe will ultimately create a world-class company here in Europe for LKQ Corporation and our customers.
The first trend is more complex parts, cars and parts proliferation. Nick talked about this. We believe that the complexity of vehicles, cars becoming computers on wheels, it's going to make it very difficult for smaller garages to repair cars. The technology and the infrastructure that they need to identify what is wrong with the car, what the right part is, and so forth. We mentioned that is very expensive. Smaller garages are going to struggle to do that. We think that that's a trend that actually plays to our hand. However, responding to it is providing what we call best-in-class catalog. When we have a catalog, it's not really talking about a list of parts. It's really a piece of technology that identifies which part goes on which vehicle to repair the vehicle based on the computer diagnostics. Customer training. Our customers need constant training.
In many places in Europe, you have to be certified if you're going to work on a vehicle. They need training. They need to be able to get certified. Something called Workshop Concepts, which I'll explain in a second, is basically a branded name for a garage. Second big trend is that there is a trend towards fleets. We're seeing that not only with the Ubers of the world, but also with respect to leasing companies and private fleets. We are expanding our fleet offering, and we're going to try to use that to lever our relationships with our customer in a favorable way. E-commerce, which is both B2B and B2C, obviously is expanding because it's general trends in the marketplace. ECP has a very nice e-commerce business and a lot of talent in that. We've been using that to try to expand that talent and capability across Europe.
Big data is something everybody talks about. Big data, machine learning, and AI. We have started a project looking at our data, and I'm going to explain that a little bit. We've created centers of excellence around each of these areas. Different things are happening in different places. What we've tried to do is, throughout Europe, look at who is best within the portfolio that we have, use those people, for example, in the ECP case, using their e-commerce, leveraging that across into Italy, for example, that you'll hear about later on. A busy slide. I'm not going to go over all this. This is just explaining a little bit about our European catalog, which we call the European Master Data Manager. Again, I explained earlier, this is really about identifying which parts go on which vehicles. There's a tremendous amount of value if we can do that correctly.
We can sell additional parts. We can help the customers identify the right part. We can reduce the number of returns. We can find out which parts we don't have, and we can fill those gaps. We've just rolled this new version of the catalog out. I've been talking about it for over a year now. We've just rolled it out to Euro Car Parts. Euro Car Parts had an excellent catalog previously. We think the new version is a little bit better. We're going to be taking this and rolling it out across Europe later in the next 12 to 24 months. Just to give you an example why this is so important.
Again, this is a lot of data, and it's based on a fairly small sample, but what we did was we looked at parts that we had in stock, and we knew that they fit some vehicles. With the new catalog, we were able to identify additional vehicles that the same part would fit. By being able to help the customer identify the right part, they were able to get the repair done, and we were able to increase sales of those parts. We used the benchmark of parts that had not been identified for new vehicles versus the parts that we had identified at least one additional vehicle that that part would fit on. A small sample, but earlier this year when we implemented this, we got about a 9% uplift in the turnover of those parts.
The real benefit is not only just the sales, but it also gives us lower returns, as I said, because otherwise, a customer might order two or three parts trying to figure out which one really fit. It reinforced our reputation as being the go-to company when you want to get the parts. Ultimately, having a single catalog across Europe will lower our costs. Today, we're carrying the cost of probably eight, maybe with Sator over nine or 10 different catalogs. Each one of those is a piece of technology that has to be manned and maintained. Ultimately, we'll end up with one system and one catalog running all of Europe. Just a couple more examples. This is an example of a training center. This is what happens to be in the Czech Republic. We have these throughout Sator and at the U.K.
We bring our customers in, we provide them training. They can get certified on various parts, brakes, clutches, whatever. They use the equipment that's in our facilities. This gives us an opportunity to sell them additional equipment. This is a very important way of establishing a relationship. If you think about the competitive environment, the smaller distributors are not going to be able to invest in this kind of thing. They're not going to have enough customers in order to make this economical. Nick talked about services. This is an example of a service that we provide. We do charge for this, typically. It is a way of increasing our customer relationship while also providing a service to them that they clearly need. I talked about concepts. What we mean by concepts in Europe is really a brand on a garage.
Many of the garages in Europe like to be associated with a concept or with a distributor. We own a number of trademarks around these, and we have literally thousands of these garages branded with these types of trademarks. You've got ELIT and Auto Kelly in Central Europe. Those are legacy Rhiag brands. Aposto is a legacy Rhiag brand in Italy that's very popular. AutoFirst is an example that comes out of the Netherlands, and the U.K. adopted that. The customers like these. They get access to training, some of our systems, helplines, technical support, and we will give them better pricing in exchange for a larger share of wallet. Car fleet services. We talked about that continuing to grow. Today, we do offer fleets assistance with their maintenance.
In the future, we're going to expand these relationships to include a much stronger link with our garages' customers. Our goal is to help our customers use more parts by helping their businesses by repairing the vehicles owned by the fleets. The goal would be to connect the fleet customers with our garages, allowing a three-way win. The fleet customer gets a guaranteed repair from a network of facilities. The garage gets work referrals and additional revenue from that, and we get to sell more parts. It's a tripartite agreement. We can do that with fleets. This is an example of our e-commerce business. The one up on the top right is Euro Car Parts and recently launched this week will be Combi in Italy. This is another example.
Today, much of this is B2C, but we're also using it and have plans to expand this to integrate it into our customers as well, so that when you go to the checkout basket, we'll give you an opportunity. Would you like that part installed rather than that part delivered to your house or just delivered to the garage and you can take your car over and get the part installed. It's a great way of creating customer connectivity. It's a service that we can provide to our customers. We get to sell more parts, they get to sell and install more parts, and the consumer is happy. Final one, just business analytics as a service. This is what we refer to as our data project. Last year, we initiated a program with Newcastle University. Newcastle University has a data science specialist.
One thing, LKQ has an enormous amount of data. Last year, we partnered with the Newcastle Science Center to explore how we could start to analyze and use the data for competitive advantage. This gave us access to the data scientists and helped us build models to analyze the business. The data teams using ECP's data as an operations testing ground. We're looking at four broad areas. I won't go into all the level of detail that's on this slide, but quickly, on the finance area in particular, we're looking to understand the elasticities of demand and modeling price and volume scenarios for the company. We're understanding our customers better. We've been able to identify segmentations based on the numerous characteristics to try to understand their behaviors and their particular needs and pricing elasticities. Analyzing our employees' performance and behavior.
Finally, on the operations side, looking at our inventory profiles, looking at ways we can increase sales or reduce the capital. We're looking at inventory that's not turning fast enough and looking at inventory where there's places where there's customer demand, but we don't have the right inventory in the right place. There's some graphs down in the bottom. They're just small examples, but they're very effective. What we've found is that we've been able to reduce some inventory in some levels, but also increase the number of products, either by introducing new products or just stocking a local branch with a particular product. Those are just a couple of the examples. You'll hear more about those today. We're going to have some of the European leaders come and give a little bit more granularity on some of these, a little more color to them.
Hopefully, that gives you an overview and some insight into why we're very excited and extremely confident about our ability to grow the European business and grow our margins. I think we have a few minutes, I was going to ask Nick to come back up, and Varun, and we can respond to questions. Questions?
Are these slides available?
They are. They've been posted on our website, yeah, they're live as we speak. A lot of content. Thank you. When I got us started, we were a little overwhelmed, I think you got a good sense of the magnitude of work that we put in today. We're going to, as mentioned, have the first group that presented have the chance for some Q&A. I'll speak on behalf of everyone here. I think we did a great job at the opening. I think that clap's for everybody here in the room. It's a big commitment to come all the way here, again, thank you on behalf of LKQ. We're a little behind on schedule, we're going to try to go through the questions as quick as possible.
You'll have more time with management and other folks on our team to speak while we're having lunch in there. Past the lunchroom, on the right-hand side, are the restrooms if anyone's been in here for a while and needs a break. With that, we'll open it up to the floor. We have about 10 minutes, John. Yeah. Bill and Justin, you want to join us up here as well? We have a few minutes, John, to go over.
On the slide, margin. You start at eight for your marks this year. Do you add everything there to get to the 12 and 14?
Can you walk me through the 12 to 14 version?
Yeah, sure. Yeah. For those on the internet, the question is on slide 63, that's the slide I think you're referring to, there's scenarios with respect to the proposed initiatives in Europe to get the margins up. If you look at the margins that companies achieve in the U.S., in our states, best in class, call it O'Reilly, AutoZone, those companies have in excess of 20% EBITDA margins. If you look at the best in class in Europe, they tend to be around the 13%. Mekonomen, Wessels + Müller, some of these companies we've seen, maybe not today, but historically have had sort of low teens margins. Our investment thesis is that we will not get to the 20% because companies like AutoZone or O'Reillys have a much larger component of do it yourself, very high margin, what we call in front of the counter product.
They also have many of the things that we talked about that we're trying to do today. They have an integrated ERP with integrated logistics, with integrated warehousing, very strong use of private label brands, and so forth. Those are some of the initiatives that we have in place today. We're very confident that we will get the margins up. I don't think the 13%, there's no timeline on this, but I don't think to get to the teens. When I talk about getting into best-in-class margins in each of our markets, we're probably not going to get that in anytime soon in the Central and Eastern Europe markets, where the margins are much lower. I don't see any reason why in some of the more mature markets that we won't get there, as we're able to implement these kinds of initiatives.
Everything has to fire on correctly to get to the top end. Even if you take the low end, we'll be back in the double-digit margins.
Part of it is timing. As you look on this slide, John mentioned as you move from left to right, the items on the left are more immediate, and the items on the right are going to take some time. The logistics in the back office, that's three to five years out. Okay? We've publicly stated that we're confident in our ability to get Europe with what we own today back to 10% within 36 months. That's not our goal long term. Think of it as an intermediate goal. Obviously, the goal is to continue to grow margins after that.
Bret.
Again, first of all, the strike used a lot of work. I wanted to get into North America, if I could. Actually, I have two or three real quick questions, if I might. You're mentioning long-term 3%-5% organic growth expected, 10 to 20 basis points of operating margin improvement. By my math, that's about a 16%-18% incremental margin long term. First question, does that assume that your price and costs will cancel each other out, that you'll pass through whatever cost inflation you have? That's what that assumption is, I'm guessing. Related to that, if the OEMs do not raise prices going forward, what arrows are in your quiver to try and offset inflationary pressures, which I think a lot of us in the room would like to understand. Lastly, at what point do you begin to leverage your operating expenses?
If you grow at 3%, you get a little bit of leverage, but what is the growth rate in North America at which you begin to leverage your operating expense? Sorry for the three questions.
Mike.
If I cut all those questions, the first key one is, I think what happens if OEM does not raise their prices. We have kind of two price levers. We have the list price that we start off with, and we give a customer a discount. There may be some marginal improvement that we can get relative to OEM. The second lever would be working on rationalizing our discounts that we give the customers off that price. We also have a large spend in our Taiwan and Chinese locations or suppliers, we would have to go back to our suppliers in some cases as well. The next question, I apologize, I'm not sure if I
Staying on that.
Yeah
If I might then. Why has it, to date, has this been a struggle? If you have a 20%-40% spread between your list and OEMs, why has this been a struggle to just get maybe a point or two or whatever the case may be, to be able to offset the inflationary pressures, be it freight or. What's been the friction point to date?
As I talked about earlier, OEM is a price point that we have to be competitive to, but we still have a large amount of different competitors in our area, whether it's salvage yards or aftermarket facilities that we're always working with insurance companies to kind of sell LKQ on why they should use us, because we're not the cheapest price guys out there when you look at alternative parts. In some cases, we had some of that margin pressure because of that, where we couldn't just move immediately quick. In addition, we struggled on the top-line side. In some cases, we may have gotten a little bit too aggressive, and that's where we're looking at rationalizing some of those discounts that we may have given to kind of obtain some of that pricing or some of that revenue growth that we've had.
The other two questions. Your 16%-18% incremental margin assumption, does that include flat gross margins ultimately going forward, or what's the assumption for growth in North America?
Yeah, Tim. The reality is we're going to get back to our kind of historical gross margins. Most of the pressure experienced there has been on the aftermarket product. We talked about that in the Q1 call. The salvage margins have been rock steady, if you will. We got a little bit of gross margin compression due to the self-serve business. That's just the impact of scrap. You don't get the same kind of lift, and so as scrap prices have gone up, effectively, the gross margins of the self-serve business have come down, if you will. There's a little bit of a mix shift there. Longer term, though, the 10 to 20 basis points that Justin talked about, that really is the operating leverage of the business, if you will. We have largely a variable cost model. Okay?
It may not seem like that when you've got hundreds of warehouses across the country, it seems like every other week, myself and Varun are approving warehouse expansions or lease renewals at a slightly higher rate. Consistently throughout the year, you've got a cost structure that is growing as the business is growing. You can't continue to grow, even organically, at 3%-5% and not expand the infrastructure, not expand the warehouse space, the fleet, the staff, and all the rest. On the margin, you get a little bit of a lift, and that's where we think 10 to 20 basis points a year. You start laying that out once we get back to our more normal margins.
Not to call you out, Sam, but in the interest of time, if we could keep the question to one so that other people will have a turn.
Craig?
Yeah, thanks. John.
Yeah.
As you benchmark your business in Europe versus the U.S. auto retailers, you mentioned the margin side where they have superior margins. What about working capital efficiency? We know about the negative inventory situation at O'Reilly and those ones. Is there any potential long term for you to get better terms from your suppliers?
Yeah. For the internet, the question was working capital efficiency, is there an opportunity to get better pricing or better terms from our suppliers? There's definitely an opportunity. The companies that we benchmark ourselves against, the O'Reillys and AutoZones, investment grade, they've got the vendor financing programs in place, which we've talked about in the past. Today, we typically buy at the salvage yard. We have to pay for the product before it leaves the yard, so there's no zero days, essentially. Product coming from Far East, we often pay for it when it hits the water. We get favorable discounts on that. In Europe, we've been getting favorable discounts with respect to cash, early payment terms. It's a trade-off whether or not we can get to the point where we would able to actually use a vendor financing program. I'll speak like a former CFO.
I think we probably are getting close to the scale in Europe to do that. I don't know our investment profile. Our ratings today are going to allow that arbitrage as effectively as somebody might in the U.S. It is clearly something that I think there is opportunities to improve the working capital in terms of the inventory levels. Some of those data that we're looking at, some of the rationalization of the logistics will help those things. To truly get to a negative working capital, you really have to have those vendor financing programs where you're paying your vendors in probably nine months or some, whatever. I think AutoZone is around nine months, if I remember correctly. We're a couple of years off that, and even when you start those, it takes a long time to build those programs.
I won't say never, but it probably is not in the short-term horizon. Is that fair?
Yeah.
Yes, please.
I have a question for Justin. Just trying to understand in North America you talked about kind of parts Given that aftermarket
Yeah, some of our numbers are factoring into what's going on with the accident avoidance systems, where there's some negative downward pressure on actual number of accidents. We had a 0.8% increase in Q1. We expect that to kind of remain flat. In addition, some of the prior inflation prices that we've seen is on maybe higher OEM parts. We may not necessarily get 100% of that through. In some cases, the 3%-5%, we kind of modeled out as seeing as a good base number for our improvement. Yeah, there's tailwinds on the sweet spot, kind of what you're talking about, the parts proliferation. In some cases, that sweet spot will help drive that standard parts proliferation, though.
In some cases, we can't double count the numbers, but I'd like to say we're able to get more than that, and we'll fight for our fair share, but in some cases, we want to be cognizant of I don't want to go after revenue if it's margin dilutive.
It's a question on North America gross margin again. My question is, I want to clarify, are you making progress on improving gross margin? That's the first question. Secondly, are you still on track to grow the margin to normal by fourth quarter?
As I said earlier, on a day-to-day, we are improving our gross margin. It is a top initiative of our RVPs and our sales force today. From a Q2 standpoint, I haven't really understood where we expect to be on a year-over-year basis, but we're definitely closing the gap.
Well, we're not going to get all the way back to where we were in the second quarter. Okay. It's going to take some time for some of these initiatives to really take hold. Again, all the pressure we experienced in the North American wholesale business was on the aftermarket side of the business. We're starting to see some progress, but again, it's not going to jump back. You're not going to see it in the Q2 numbers as jumping all the way back to where we were. We are making some progress. Some of the things like the negative impact from the scrap, that's going to stay with us as long as scrap prices stay relatively high. That's more of a kind of a mixed issue. It's not a fundamental issue in the business.
You had a two-part question, I think, Ryan.
Well, I think the commitment was by second quarter of 2024 for North America.
That's my expectation, yes. Of all my RVPs, that is what we've kind of set as a guideline, as a minimum.
Thanks. Could you help us just bridge the Stahlgruber accretion you provided in today's press release with the accretion that was given at the time of the announcement of the deal? Just a comment on lagging purchasing and turning inventory.
The question for those on the phone is, can we talk about the accretion that we identified in the press release related to the Stahlgruber acquisition relative to the accretion we provided back in December when we announced the transaction? We didn't know when we were going to close back in December, we knew we were going through this whole antitrust process. The accretion we gave you was for the first full year of operation and the second year of operation. Think about that now that we've closed, say, June 1st, it will be from June 1st to June 1st. We're only going to have the business for a part of the year this year. The first thing you have to do is you have to rationalize back down for the number of months that we're going to own the business.
That's point number 1. Point number 2 is most of the synergies will be achieved in the back end of that first full year. It's not like all of a sudden on June 1st, all of a sudden we start generating procurement synergies. It takes a while to put those in. Some of our contracts provide for higher rebates based on any LKQ value. With some of our big suppliers, we won't get the benefit of that until January 1st when the new contract rolls in. We get benefits from a procurement perspective, the cost of inventory comes down, you don't get the benefit of that until you sell the inventory. You have to wait for the inventory to turn.
A good portion of that EUR 10 million of synergies in year 1, think about in the back part of the year of operation, which means 2019 as opposed to 2018. The other impact is we went to the market and raised EUR 1 billion of financing at what we thought were incredibly attractive rates. Blended together, 3.75% on the billion, that's EUR 37 million of interest a year. We had a couple of months where we were paying interest on the bonds and we weren't getting the benefit of the operating income. That's EUR 0.02 a share. When we talked about in the second quarter, we expect the transaction to be dilutive by a couple EUR 0.01 a share. That's really the interest carry cost on the bonds. Nothing has changed from an overall value of the transaction, if you will, from an earnings perspective.
We think the earnings for Stahlgruber will be right on track with the plan provided to us when we were doing our diligence and the like. You've got a EUR 0.02 kind of one-time event because we were basically warehousing EUR 1 billion worth of money, paying 3.75% to the bond holders for a couple of months, while at the same time, actually in Europe, you've got negative rates for cash, there was a negative arbitrage on that. Hopefully that answers the question.
The only other thing is we pulled the Czech business out.
Yeah, the Czech business is out. To just put it in perspective, the Czech business is not big. It's about EUR 100 million of revenue. It's Eastern Bloc revenue, the margins are lower, Stahlgruber only owns 52% of it. From an impact perspective, pulling the Czech business out is not material, and that's why we noted that in the press release as well.
Keeping us on track, we'll take one more question and then everybody can break for lunch.
We'll be available at lunch to circulate around as well. Michael.
Could we revisit 1Q for a moment with North America and the freight-related issues? How much of that was more discretion than inflation, that you were seeking to respond to the pressure of the rate of growth, meet your delivery times, use more expensive delivery, and didn't necessarily pass that on? Maybe in hindsight, you could or you couldn't have as opposed to freight shipping.
Sure. The question was kind of like the cost that we saw on freight increases in Q1, how much of that was impacted by just inflation prices of third party freight versus how much of it is kind of rebalancing inventory to kind of support the sales? I would say roughly 30% of our overall freight spend was probably on rebalancing inventory. I'd have to look at those numbers to be more exact, but we had an extensive amount. If you look at We've had a normal winter in the last three years. This past year was not normal. Now it's kind of normal if you go back four or five years, but it wasn't what we were expecting based on the most recent trend.
The other core part of our business, I mean, we've seen UPS hikes, FedEx hikes, we've seen LTL go up on average of 13%. In many cases, we're trying to mitigate that as much as possible, as I mentioned, by putting it on our trucks. In some cases, we weren't reactive fast enough in Q1 to get it onto our own trucks. I would say it's probably, once again to your question, probably a 70/30 split.
All right. Great.
Okay. Lunch is right down the hall. You walked right past it. Out these doors on the left. We're going to try to get back on track. Think about 35 minutes or so to be back in this room.
If you want to bring a coffee or
Thank you.
Good to go?
Absolutely.
Apologies to the folks on the internet, you are picking up mid-presentation. I will continue from where we were here. Trust me, is not necessarily something you can take to the market for a nervous customer of yours that thinks somehow you are now going to be competing in his market very aggressively. We developed an innovative program called Full Force Partners, where we basically said to all of our traditional third-party customers that we did not acquire, that we would offer you basically the same terms as we give our internal wholesale customers, as long as you meet certain volume requirements and loyalty requirements. If you look at the 2017 year-end results, you will see that the Netherlands segment that actually grew in terms of our market share with those third parties. This heat map is to scale, so you can infer what happened across the business.
As Nick mentioned, we have grown the business about 2 times plus, while at the same time picking up 200 basis points overall. It is a nice achievement for the Benelux market. If I was you, I might be asking: How did you do it? Is it sustainable? Can you replicate it to other markets, right? The next slide I will put up there is what I will call a post-acquisition efficiency curve. It is not purely a theoretical curve. It is actually what happened to our EBITDA results over that time period since we acquired Sator in 2013. Partial years have been prorated. You will see basically the 200 basis points pick up at the far end. By the time you are done integrating and leveraging some of the natural synergies and scales that come along, those investments start really paying off in the year and a half timeframe after.
In January, February of 2017, we announced a similar model for the Belgian market. We are currently probably somewhere at that trough level for integrating the Belgian business. At the moment, you are not seeing that in anything you would see from our Netherlands results, because in the Netherlands, we are having a decent year covering those drags on the market. We expect that by the end of Q1 2019, we will be back to those folks really accreting and adding to our results within the group. Where do we go next, and what is the margin improvement model for us? Down at the bottom, I have got that same post-acquisition improvement curve. Incrementally, it builds on itself, but that is all at the margin. How do we really take it to the next level? There is some structural revision that has to happen within the group.
We currently have 5 significant distribution centers all within 90 kilometers of each other. We have 2-step and 3-step vehicles crossing paths throughout both markets. We have 7, there is a little more than 7, back-office operations because even today, 5 years later, we are still on 3 different ERPs within the Benelux operation. How do we make that next leap? We take a cut out of the business as usual, integrate our same-day delivery centers out of our 3-step model into our 2-step folks, and also consolidate much of the back office in our ERPs. What is interesting in the 2-step integration of our 3-step delivery process, so in our 5 main DCs, we run a 1 delivery a day for a same-day center. If product in, order is in by 11, you will get a delivery.
Within that same geography, our two-step guys, our original wholesalers, they run six to eight deliveries a day to the customers. If you want to start thinking about what might be a moat Amazon invasion, it's that level of service within a company, right. We can integrate our traditional three-step deliveries into our two-step network, hit them with just nightly deliveries, much more economical, bigger loads, and maybe achieve the next level of margin improvement within our group. These are some of the key initiatives for Belgium. We're moving much more quickly down there in terms of our integration. We had 21, 22 acquisitions companies, five different ERP systems, 14 different instances. I think that's about my five minutes. I could stand up here and talk to you for a lot longer.
Thank you, Simon. I think it's time for Jiří.
Thank you. Jiří.
Hello, everybody. My name is Jiří Novák, I run for LKQ, the operation in Central and Eastern Europe. It's quite a complex operation because EUR 660 million 2017 turnover realized across eight different countries. Actually, from today, even 10, because we had to add two more together with the acquisition of Stahlgruber. It's the Czech Republic, Slovakia, Poland, Romania, Hungary, and Bulgaria, which are part of the European Union, plus the Stahlgruber's Croatia and Slovenia. We have Ukraine and Bosnia and Herzegovina. We speak 13 different official languages. We use nine different currencies. Only two countries, the small ones, Slovakia and Slovenia, are part of the European Union. We have one of the largest distribution network in the region. Almost 400 branches, 11 national warehouses, all linked together in order to visualize to our customers the fastest and the widest availability.
We have more than 4,500 employees. As Nick said, this is our asset in Eastern Europe. You've heard already today that it's a growing market, CE region. We have stable economics with growing GDPs. We have growing car parks. Used cars imported from West to East needs more repairs, maintenance. Density of the cars, fast-growing, still below the West average, but the true, in the same time, very low margin markets. Why? Because we speak about relatively small markets, except Poland, of course, with very price-oriented players. Many of the local champions and followers which are trying to get or maintain the market share through aggressive pricing making a lot of exports and cross-border selling because they want to improve their purchasing volume towards the supplier in order to obtain the supplier's rebates and the bonuses.
Disturbing by these export activities, the neighbor countries' price levels because they have no infrastructure there, they can spoil the market by their prices. However, in some markets, for example, Czech Republic, where we have really strong position we are able to generate margins which are very close to the margins of LKQ average, you can call it. Of course, in some markets, we are investing into the market share to get to this position through acquisitions. 2017, we acquired company AD, company Sim Impex in Bosnia and Herzegovina, organically, we open every year 30 to 40 branches operating in a low-cost countries. We really can get the break-even within 12 months and full profitability within two years.
Together with the power of the LKQ, with the variety of the synergies especially in the procurement, supply chain management, cataloging, some initiatives like customer stickiness, we call it, bring customer to the customer with the fleet services. We strongly believe that we are driving the consolidation and creating the higher discipline on the market, which has to bring the higher margins at the end. That's it for me.
Thank you.
Yeah.
Thank you.
Martin, your turn.
Thank you. Okay, well, welcome to our humble home. It's great to see you all here in Tamworth. I'm going to try and dive straight into slide number two. We've been around a while. I think you know what we look like, and time is time. Also 2018 is a really special anniversary for Euro Car Parts. Our Sukhpal, he's out there somewhere 40 years ago, more or less to this day, opened up our first branch in Willesden, North London. The rest, they say, is history. For us, we're blessed it isn't history. It's also the present and indeed the future. Sukhpal, I'm sure won't mind me saying, his DNA is very much embedded into Euro Car Parts today as it ever has been. Under Sukhpal's leadership, since the year of acquisition, 2011 by LKQ, we have indeed quadrupled our revenue.
We also have claimed, and we have no intentions of letting it go, that number one spot of distributing parts into the U.K. independent garage sectors, and also a number one now in the Republic of Ireland. In the last few years since acquisition, we're also really proud that we have grown into the market leader number one in the aftermarket for paint. Number one for consumables, number one also for collision parts. We're also proud that we have maintained a number one position in U.K. e-commerce in the B2C channels of automotive. Now, just think for a moment, every single day, Chris, who heads up our e-commerce business, is actually next door. We sell 50,000 items online to the consumer. Best news of all is that 80% of those items are actually collected by the customer in our branch network, so no extra delivery charges. Fantastic business.
Also, of course, T2, let's not forget it. Four years of hard work and real investment from LKQ Corporation to be able to host this investor day today, we are genuinely honored. A new initiative that we're working on for the last 12-18 months, I'm convinced will be key in the future, John Quinn's already mentioned it, is what we call locally big data business analytics. I'm sure even in a few months, certainly no more than a year and a half out, we'll be looking at this as a genuine, real margin driver in the U.K. and throughout Europe. I think the message is very important that the U.K. management team wanted to give you all today is yes, there has been pretty substantive growth in the last six, seven years. Well, let me assure you it ain't done.
Also want to be very transparent that the U.K. management team absolutely embrace and appreciate that today is also the right time for us to now put the same attention and same focus in cost elimination and really driving margins across every area of our business. You'll see that flow through in T2 into the next year to 18 months. Steve Horne is at the back there. He's our COO. Worked together for 10 years. In fact, most of the original team at acquisition is still here, Steve Horne and I will talk about that in some more detail. One stat that resonates with me, I just want to share very quickly, I'm sure Steve Horne will remind us again, no harm in that. Just really recently, we were achieving industry pioneering and leading productivity levels of 120 cases picked per man-hour.
Today, we are picking over 400 cases per man-hour, that number will improve substantially further in the next 18 months. I'd like you also just to focus on a couple of our new branch networks. First of all, in the Republic of Ireland, secondly, for the acquisition of Andrew Page. As you've heard, we can now get our arms fully around that. With both the Republic of Ireland and also Andrew Page, I would like to remind you this is our bread and butter. Even though we're just starting to integrate that, it will be swift and highly effective. You should have high expectations on the results there, to be frank, we will deliver.
Also, now that T2 is behind us, we have learnt a lot as a management team, as a business, we are applying that methodology and also hindsight learning for a number of other cost initiatives throughout our own business. That includes productivity and headcount and organizational design with fresh eyes because of the business that we now have become. We are capturing, obviously leveraging benefits from our European initiatives, we're very excited about now being in a position to grow what we call adjacencies alongside our infrastructure that's existing. None of those will be entered into unless there's a proven ability to really enhance margin. We're looking forward to the completion of our ERP upgrade and the benefits, of course, that will bring.
Last but by no means least, I refer you to big data, and I'd like to close off by sharing, I think the final slide, just three examples, but there are so many more. Making a noise in my paper. First of all, imagine a branch full of stock. How you profile that stock, of course, impacts margin. Historically, we've had to rely on human beings and 40 years' worth of knowledge, and that's kind of set us apart. Now we can actually analyze millions of bits of data in virtual real time. More importantly, that data can get served up to our management team in nice, digestible, intelligent chunks you can act upon at a SKU level more or less immediately. When you do that in the branch trials that we've rolled out, you overnight get a revenue uplift of between 2% and 3%.
Similar three pilots have carried on through customer behavior. A narrower set of data, but very effective about how you can actually capture customer behavior around products that we don't actually stock in that location. When you analyze that, and once again, the information can give it to you at a SKU level, no great surprise, you put that SKU in and you get an instant uplift in revenue. I'm particularly excited about also how big data can influence, I almost said control, our 1,300 sales advisors. Just bear with me. You may have a sales advisor, for whatever reason, is not converting a product at the same margin of those colleagues. You can then limit their ability to discount. When we've done that, there's been no loss of revenue, but crucially, once again, overnight, an uplift in margin directly.
Just to sum up, growth, it ain't over, and as a team, we recognize that we can deliver more on the cost elimination and margin improvement. Really looking forward as well to showing you around later on. I'll hand over to Paolo now from Rhiag.
Yeah.
Is it yourself? Who's up? Thank you. Off you go.
Thank you, Martin. Good afternoon, everybody. My name is Paolo Valsecchi. I am the CEO for LKQ operation in Italy and Switzerland. A quick review about our business model, our most important initiative in these two countries. Starting from Italy, we are in a perfect three-step model. We are a network, distribution network based on 17 branches that cover all the countries. In Italy, we deliver every day to 3,000 wholesalers using more than 1,000 delivery routes. We have an average in delivery to the wholesalers about 2.5 hour, and we can deliver up to four times a day to our customer. Most important thing to say about the market in Italy is a stable market.
In the last two years, there is a big improvement in the new car registrations, this is an important thing because in the medium term, the number of cars to repair, to need maintenance, will improve in the next four or five years. At the same time, we have a very long experience in partnership with the fleets. In Italy, the weight of the fleets is increasing a lot. For example, in the last year, we have an increase in the turnover with the fleet double digit in Italy. It is a very interesting target because we can also push the development of initiatives following this kind of trend. For Switzerland, it is a little bit different. There is a mixed model. 30% of turnover is a two-step model and 17% a three-step model.
We have only two branches, but for Switzerland, the plan is to cover more the countries because we need to improve the service level. We need to improve the number of delivery a day for the customer. Second slide is about the most important initiative, mostly in Italy. Thanks to the two years of now collaboration and sharing the most important project, mostly from the side of ECP for the B2C, for the side of Sator, for involving wholesalers. This is the three main initiative. First is the B2C platform for e-commerce go live in this week, two days ago. The official launch of this new initiative will be in the half of the June with a press conference and a very important launch into the market. It is interesting to underline that there is two different kind to sell online. First is the traditional with on delivery.
Second, with a click and collect model, because in this case, we need to involve our customer, our wholesalers. There is the first website that involves about 150 shops buy from our wholesalers for the first step. The target is to reach about 300 shops in the country to help the customer into delivery of his goods. Second initiative is to start with a new business like collision part and paint, because again, using the huge experience from LKQ, mostly in the procurement side and the new sources from Italy, to have a huge offer in collision part and paint. Again, not only for wholesalers, but for implementing the two-step model, and again for implementing the partnership with the fleet, because the huge value of sales in business with the fleet about collision part.
Finally, the last action is to increase the loyalty, increase the partnership with the most important customer we have in Italy. With a special agreement, again, following the best practice in Netherlands from Sator, share more royalty for more services, best price. But finally, a way to increase the integration between us, our most important customer. That's all.
Thank you, Paolo. I am explaining, Ferdinando, up to you. Procurement initiatives.
Good afternoon, everyone. I am Ferdinando Imhof, and I am responsible for the European supply chain. Today, I am going to briefly describe the huge opportunity an integrated European supply chain offers and what we are doing to achieve our goals. First of all, I would like to start from a key fact. The size and the geographical reach of LKQ in Europe today is absolutely unprecedented and unrivaled. Now that we have achieved this position, we want to capitalize on our economies of scale, leverage our acquisition strategy to achieve and maintain a unique competitive edge in the European aftermarket. This means even to increase our EBITDA substantially thanks to our ability to maximize our synergy potential. Of course, we have a clear strategy to achieve this vision.
First of all, we are already in the process to make use of our scale, to capitalize on our scale, to really massively improve our purchasing conditions from suppliers. That means, of course, economic concessions, having a most favored customer status in all European countries, but even optimizing our access to products in terms of width, of depth of the product portfolio in all European countries, and even very important today, information. Information related to the parts to repair the cars in a professional way. We can reduce our global complexity by cutting the huge number of minor suppliers we have today. A more efficient structure will allow us to reduce overheads and to obtain better purchasing conditions. Furthermore, we are transforming the great complexity we have in the private label area into a source of synergies.
Because, of course, each company we have acquired has brought its own portfolio of private labels with own suppliers, own economic conditions. Bundling now all the volumes and launching European tenders for each product family allow us to get substantial cost reduction from suppliers. Finally, an exceptionally lean supply chain, that means with streamlined processes, flows, and inventory, will allow us to increase revenues, thanks to a better service level and reduced loss sales, to cut inbound and outbound costs, to improve gross margin, for example, with innovative flows directly from suppliers' factories, as John mentioned this morning. Particularly to enhance our trade working capital and our cash flow, reduce write-off, thanks to a much higher inventory turnover. Okay. It is paramount in the execution of this strategy to balance short-term achievements, low-hanging fruit, and more structural activities aimed to pave the way for our future financial success.
We've made good initial progress. Today, unfortunately, time is scarce, but I would like at least to give you some more details on four of those initiatives. First of all, the contracts, our pan-European blanket contracts. They combine additional European rebates with enhanced payment conditions that we can use both to extend our payment terms or to get substantial discounts for shorter payments. Already, 30 big suppliers have signed those contracts, covering 40% of our purchases. What is really important is that this is a scalable system. They allow an automatic extension to newly acquired companies, six months after closing on average. Second point that I would like to focus on is cross-trading. In Europe, price lists today are extremely different from one country to another country because of car manufacturers' price lists and of a dramatically different composition of the car parts in the different European countries.
We want to leverage this opportunity to get, of course, always the best available price for each part. I would skip the next three points because I already mentioned them before, when I talk about the strategy. I would focus on our IT portal, because I'm very proud to say that this is really a unique state-of-the-art solution in the European aftermarket. It is able to collect each night all procurement information from the different ERPs in our 21 European countries, combine them on SKU level, or on multiple solution in terms of aggregation of those information. This is really a fantastic tool to negotiate with suppliers, to enhance and to support cross-trading activities, private labels, because we have really a complete view and knowledge about our prices and our relevant purchasing information.
Again, this is a scalable system because in the past we were able to take on board, to integrate, to plug in newly acquired companies in usually in three months on average. Finally, a new initiative, but very promising, that is the focus on indirect spend management. Of course, we expect to reduce costs, thanks to the increased buying power. We want even to create visibility about this kind of cost across LKQ. Even more important, to pave the way for future centralization and shared services centers. When I look back at 2016, when we basically established the European LKQ supply chain department, I recognize that the situation, the starting board was of course, very promising, but more than a little complicated. Today, we are the largest distribution network in Europe, and we have a clear sense of direction.
We know how to capitalize on our scale, streamline our processes, and reconcile, because for us, it's very critical, local and central functions. We know that doing these things, we will achieve this unique competitive edge that I mentioned at the beginning of my presentation. Thanks for your attention. I hope I'm on time.
Yes. We are few minutes behind schedule. Just one quick question, Ferdinando. We announced the closing of the Stahlgruber deal a few hours ago.
What's your view about the synergies that we can expect?
Okay, just one simple question. Okay. Sincerely, I'm really optimistic because scalability is a little bit the hallmark of all our procurement initiatives. I'm quite confident we will be able to integrate Stahlgruber in our procurement system quite rapidly, and to reap substantial benefits from this because I know it, because this is what we did in the past with success with other acquired companies.
Thank you.
You're welcome.
Now it's time for Varun. Thank you.
Thank you, all, Joe. Thank you, Ferdinando, Jiří, Simon, Martin, everyone.
Thank you.
Listen, it's great to see everyone here this afternoon. I know you've taken a lot of time out of your busy schedules to come over to Tamworth and to be with us out here. I sincerely appreciate your commitment to our business. Again, great to see a number of familiar faces from the sales side that we interact with regularly, a number of our long-term investors, but also members of our bank group. A sincere thanks for all the efforts that all of you have made. Early this morning, you heard Nick talk about the longer term priorities of LKQ, essentially in terms of what the roadmap for those were. In addition to that, in addition to the longer term priorities, you also heard from Nick something more specific around near-term priorities, more specifically, about margin enhancement.
Subsequently, you also heard from our three operating unit presidents as they talked about an overview of their respective businesses, the secular trends that they see benefiting their businesses for the years to come, enjoying the continued organic growth, yet again, a very specific emphasis on margin enhancement. I'm hoping, as I stand out here, that all of you have a good appreciation of the income statement side of things, specifically regarding our margin enhancement initiatives underway. I'm going to focus on balance sheet, specifically. Again, from a balance sheet perspective, talk about leverage, talk about liquidity, talk about maturity dates, interest rate risk, then more fundamentally, some guiding principles around capital allocation. Okay?
I'll finally finish off with giving a quick update on Q2 trading performance, also the news that broke earlier this morning on Stahlgruber, I'll certainly give you some insight on that as to how we're thinking about the accretion for the balance of the year. Starting off with a quick snapshot of the business in today's date, $10.1 billion in revenues, TTM Q1 2018. Segment EBITDA of $1.1 billion coming through. Equally importantly, as you would have gotten a sense of it, our single biggest segment in today's date, pre Stahlgruber, is our North America business that Justin Jude runs. Certainly is a great margin benefit to the overall business. The 49% of revenue, but 59% of segment EBITDA. Our specialty unit that Bill Rogers runs is at the company average, 13% of revenues, 13% of segment EBITDA.
Europe from the one that John Quinn runs, rapidly growing and has been rapidly growing. Before Stahlgruber, about just under 40% of revenues and just under 30% on the segment EBITDA side. I do want to highlight, about a week ago, we did get an update from one of the ratings agencies. S&P essentially reaffirmed our ratings about a week ago, being a double B with a stable outlook. Certainly want to highlight on this slide also. As we kind of look back and as we think forward on a pro forma basis, we know that over the past five years, this business has essentially doubled its revenue from about $5.1 billion up to about $10.1 billion. This is pre Stahlgruber, before we get on to close to $12 billion, versus TTM Q1 2018, once Stahlgruber is also included. Same thing with segment EBITDA.
If you think about that over that same period, segment EBITDA is up 80% from about $629 million up to $1.1 billion in that same period, TTM Q1 2018, and fast approaching $1.3 billion on a pro forma basis with Stahlgruber included within it. Adjusted diluted EPS follows a very similar trend with 2018 guidance at the midpoint being at $2.25. Obviously, this does not include Stahlgruber, and we will update the balance of year guidance for 2018 in the coming weeks. As we think about operating cash flows and CapEx, again, just historically, this has been a very steady business with regards to operating free cash flow coming through. If you look at our capital expenditure, while it's been a steady number for the past three years, around the average of $175 million, it's actually been declining as a percentage of revenue.
If you look at 2015, 2016, and 2017, as a percentage of revenue, it's actually down 25%. You now see the blip up come through for 2018 guidance that we gave, partially to do with some of the unspent programs or unfunded programs for 2017 moving into 2018. Essentially, the vast majority of our capital expenditure is growth-oriented. Where do we invest? It's going into our North America salvage yards, some additional warehouse space that's coming through. Warehousing, forklifts, racking that comes through also. Again, all growth oriented in any case. Again, Stahlgruber is not included in any of these numbers. What's the free cash flow profile? Fairly simple. A significant operating cash flow offset by acquisitions and also funding capital expenditure. This is TTM Q1 2018. The past five years is, again, a very similar story.
Close to two and a half billion of operating cash flows, some financing, and again, offset by acquisitions and CapEx. You can see the large number come through well in excess of $3.3 billion in terms of acquisitions and other investing activities that we've essentially undertaken. More importantly really is, given our substantial capital outlay over the past few years, what are our thoughts that we go through when we think about capital allocation? A couple of points to keep at the back of your mind. One, from a risk management perspective, we want to make sure that we have sufficient liquidity and flexibility to sustain the business through a downturn. Right? The second point is to be cycle aware. I think for those of you that follow modern economic history, we do know that there is a very regular occurrence of a downturn that takes place.
When that will take place is difficult to predict very accurately. Listen, there are some fairly common sense metrics that exist out there. You think about interest rates going up, you think about labor market tightness, you think about commodity prices up, you pretty much get the picture. Right? Part of that is, while there is no business that is recession-proof, we do believe that LKQ is largely recession resistant. I'm hoping you got a sense of that when each of our three operating segment presidents spoke earlier this morning. The other point to kind of think about it is how we think about capital allocation and the guiding principles behind it, we need to read it along the lines I've laid this out.
The M&A over the long term, on a risk-adjusted basis, will still be the best use of capital, as we have demonstrated over the last 20 years. Notwithstanding Q1, out of 20 years, you think about the number of quarters we have successfully gone through, that we still believe will be the best use of capital. It is difficult to predict the timing of when attractive inorganic opportunities come up. When they do come up, we want to make sure that we have a legitimate seat at the table, to be able to go and pursue those assets. Second, if there are no attractive growth opportunities, either organic or inorganic, what will we do? We will actively de-lever. As we have proven previously, I'll show you some slides further down in the deck in terms of our ability to de-lever very quickly.
Finally, opportunistic stock buyback potential in a low leverage scenario and/or a market dislocation as the flexibility of that specific action doesn't commit us for the longer term, yet at the same time, it allows us and aligns well with the future growth of our business. I want to be very clear about it in terms of how we think about capital allocation, risk-adjusted basis, that's what will drive long-term sustainable shareholder value. If no growth opportunities, organic or inorganic, we de-lever, we have done that. Subsequent to that, in a low leverage scenario, as we continue to de-lever, we certainly hold the opportunities to be able to take advantage of certain dislocations. Our financial policy has been stable.
I don't plan to go through every single bullet point out here, just to kind of reiterate what we've talked about previously, the focus on free cash flow generation, that continues. Secondly, maintain the liquidity that I just referred to previously. Retain the capital to grow the business, maintain reasonable debt levels, and manage interest rate risk. I will shortly share a slide in terms of what that means on a pro forma basis given the recent Eurobond offering that we led just over a couple of months ago. Trade working capital was another comment that Ferdinando brought up. I think there was a question to John also previously. This is just a historic view in terms of last five years, how trade working capital has come through.
To define trade working capital for the broader team out here, very simplistically, accounts receivable, add the inventory offset by accounts payable. Okay? Over the past, let's say, three years, there has been an uptick on trade working capital in the 200 basis points-250 basis points as the business has grown. For a business to grow, we need to have inventory. Without the inventory, we cannot sell. A growing business will also have a growth in receivables. The other piece to kind of share with you is, as we have expanded our European footprint, the cash flow dynamics are slightly different to what our historic North America business has been. We've seen a slight uptick come through in our trade working capital by about 250 basis points.
I will share with you that we are actively working on ensuring that this upward trend does not continue, That is a core mission for the business, as Nick also referred to earlier in his comments this morning. I will give you a very simple example in terms of some of the programs from a balance sheet perspective, not from an income statement or from an operating perspective, but from a balance sheet perspective that we have already undertaken, We will see the benefit of that within the current fiscal year. In fact, one of our key banking partners out here is a European financial institution, We've essentially undertaken a cash pooling program. You might think, well, what does that have to do with overall integration of the European business? Quite frankly, we do not need an all-singing, all-dancing ERP, for example, a certain gating items.
We have historically run our European business as five different islands. There was a slide in John's deck which talked about how even we are between Italy and Switzerland and Central Eastern Europe, Stahlgruber, Sator, ECP, running their independent businesses with independent balance sheets. There's capital in each of those. That capital belongs to LKQ shareholders. By doing a notional cash pooling, We are well underway on that in any case, As I said, we expect to complete that program before the end of the year, we believe there is some trapped capital which essentially belongs to LKQ shareholders and our ability to flush that piece out. Is this a simple example? It isn't rocket science. It's been done before, This is something that we already have underway. Okay? That will benefit our business in any case. Moving on to key return metrics.
There's been a lot of conversation about return on equity, return on invested capital. If you go back to 2013 of a ROIC of 10.9%, As we think of TTM Q1 at about 9.6%, I will share with you over that period, over that five-year period, our average invested capital has gone from $3.3 billion to just under $7 billion. That's a substantive increase coming through on the level of invested capital. Where has the capital gone? It's gone to acquire market-leading businesses to make our existing North America business incredibly strong, Also for us to be able to build a market leader with Bill's business on the specialty side. Again, good market-leading businesses underlying each of our operating segments.
The other piece is when we acquire a business, or for that matter, when we invest in a new yard or a warehouse, or for that matter, into a new sales branch, there is always a lag effect that takes place. Think about putting up a new branch. On day one, it doesn't hit the level of maturity that an existing branch will be hitting, call it 12, 18 months down the road. As we have continued to have both inorganic and organic growth, there is some of that lag effect that comes through. That really is what comes through on the ROIC numbers, which kind of tend to show about 100 basis points dilution from just shy of about 11 points.
That's the point I want to impress upon you, that as the business continues to grow, we are very, very thoughtful in terms of how we allocate capital, and we will continue to be so, but also to understand as to some of the key underlying dynamics of what drives some of the ROIC metrics out here. The other piece that Nick mentioned is that while invested capital will again take a massive blip up in 2018 with the closure of the Stahlgruber acquisition, the absolute number of transactions we actually expect to rein back in. While the absolute value will be up, number of transactions will be down.
Essentially what we're saying is we are intently focused on enhancing margins, integrating our businesses, and while we've deployed a fair bit of capital over the past few years, we really want to try and get those businesses under the one umbrella in all three of our operating segments. That, we believe, will actually add significant more shareholder value, at least in the next two to three years. Moving on to our weighted average cost of capital, fairly straightforward. I think most of you probably much done this math in any case, at about 8.1%. Debt to enterprise value about 31% in current day today. At the bottom of which you really see in terms of how it moves, as we keep paying down debt, at 20% debt to enterprise value, WAC would actually jump from about 8.1% to about 8.5%.
Again, you have the slides, you can see all the key inputs, that kind of goes into this. Moving on to capitalization and liquidity. A couple of key points now that we have closed Stahlgruber as of a few hours ago. These perhaps should not be pro forma, but again, we have now closed it. You see a number of the footnotes in the slide, which till five o'clock last night when we went into a freeze mode, was still pending the Stahlgruber transaction. Subsequently, when we got the news that it was all systems go to close it, obviously that is not pending any longer. Total debt goes to $4.6 billion on the left-hand side as you see. Total availability under credit facilities of about $1.4 billion. Again, as I mentioned, we stay close to the ratings agencies.
We certainly share with them what we are thinking about. They have essentially reaffirmed by S&P most recently, the double B with a stable outlook rating. This is a quick chart. For those of you on the phone, slide 111. From 2013 till pro forma for Stahlgruber, in terms of total debt of $1.3 billion up to about $4.6 billion. The red line really is the weighted average cost of borrowing. You see out here, the 3.2% kind of marginally moves up to 3.4%. The key piece to think out here is we have a balance sheet in a very, very strong position. With the capital that we raised a couple of months ago, as Nick mentioned, we actually got a better rate from where we went to the market two years ago. Again, off the back of improving credit profile for the business.
Even with that, we go to about 3.4%. Importantly, is the little takeaway box that you see on a pro forma basis, over 75% of our debt is fixed rate. If we now step back and think about it from a specter or a backdrop of rising interest rates, if it's more than 75% of fixed rate, in any case, with no near-term maturities, you can do the math. Every 100 basis points uptick in interest rates will lead to about a $10 million-$11 million increase on an annualized basis of interest expense. In any case, have a think about that, because while it seems it's a large number on the balance sheet, the free cash flow we can de-lever, the variable component of it is just over $1 billion.
That's the one that could be exposed, because what we do have, apart from fixed rate coupons that we essentially pay for our bonds, we also have some interest rate hedges that are out there. Every 100 basis points will lead to about a $10 million-$11 million increase from interest expense on an annual basis. Net leverage, we've talked about previously. It's at 3.4 times on a pro forma basis. Again, going back to 2014 or going back to 2016, when we acquired Rhiag, but also PGW, our ability to de-lever and come down to within the parameters that we've set for ourselves, we feel strongly about that. I will share with you, in the first quarter of 2018, when we essentially did one transaction of an immaterial sum out in East Ridge, Tennessee, we paid $120 million of our debt in that 90-day period.
Where the cash flow go, took some towards CapEx, the rest we basically paid down our debt. $120 million we took off in Q1 alone. Leverage and liquidity. Again, just a quick highlight out here. On the right-hand side, you'll see what the total capacity is. What we currently have, with regards to our borrowings under our credit facilities and the total capacity of about $1.4 billion that we still retain where we are as of now. More importantly, is we have no near-term debt maturities coming through.
The first one of any magnitude really comes up in 2023, it's a combination of not only what we've done with our bonds out there, but also going back to last December, when we extended and upsized our credit facility and tacked on just over a couple of more years with regards to the revolver that we have out there. Again, no near-term maturities should, again, give you some insight in terms of the strength of the balance sheet. In closing, what I will share with you is what LKQ's investment thesis. We've talked about the market position. We've talked about the diversity of customers in both North America and in Europe. Two stable environments where in each of our 3 operating units, North America Wholesale, Europe, and also Specialty, market leaders. Market leaders by an exponential factor.
Cash generation and a strong balance sheet, we've talked about that, a proven record of generating substantial cash flow. The ability to de-lever rapidly and no near-term maturities coming through. Finally, the revenue and earnings growth that this business has proven time and time again of our ability to grow top line, to grow top line profitably. While there may be some near-term pressures in terms of how capital is deployed, over the long term, we fundamentally believe that this is a business which is incredibly strong, given the market position, given the financial dynamics, given a strong access to capital and balance sheet that we have to complete the overall story. Finally, the diversity of each of our segments provides further opportunity for growth and driving operating leverage.
I'm hoping you got a sense of each of those pieces, whether it was North America Wholesale with a 3%-5% organic growth, a 10 to 20 basis points operating leverage year in, year out. Specialty, which has essentially been growing top line growing still with operating leverage. About 13 points CAGR on top line, about 18 points coming through on the EBITDA side. From a European perspective, while it's seen a slight slowdown on a margin percentage basis, absolute margin dollars continues to increase. Really the key initiatives, which really have been the centerpiece of the investor day today, is to give the confidence to share more details associated with the various initiatives that we have associated with the recovery on the European margin profile side of it.
With that, I just wanted to share in terms of how we think about the business. We obviously appreciate your interest and your continued interest in our business in any case. What I would now like to do is spend a few minutes and just give a quick update on the second quarter. We do not provide interim updates, I know there's a lot of interest in terms of how the business is doing. I will share with you, the month of April is the only month we have closed. We close books every month. Later tonight, at close of business, we'll get into the May close also. I'll give you a quick update in terms of each of our operating units, both from a revenue perspective, really what we see on the margin side also. Starting up with North America.
Revenue in the second quarter has continued to be strong. It's just coming through from what we started off in the second half of 2017. It carried through into Q1. For those of you that are either from the Midwest or the Northeast know that through April, we had some inclement weather, although we in our business say it was very favorable weather. That has continued. Revenue continues to be strong thus far. Obviously, June is yet to come. The margin actions that we have underway already, they will help us some. Literally, the ramp-up on the margin recovery comes in the second half for our North America wholesale business. Specialty, organic growth on the revenue side in January, February was strong. March, as we've talked about, was muted given the weather.
People weren't exactly going and rushing out to buy accessories or to deck out their RVs. Back in April, it has come back, and May also continues to meet our expectations. From a margin perspective, the specialty business is rock solid. As the business also proved in Q1, despite the softness on the organic revenue side, they delivered on the profitability side. I have every confidence that that business will continue. From a European perspective, as you think about the revenue side of it, not only did all of Europe get hit by weather in Q1 that came late. As I've kind of shared with a number of you, as Nick and I were landing here on that calendar, the 18th of March, there were complete white-out conditions across Southeast England. It just did not impact us. It impacted entire industries.
I believe the housing construction industry had a multi-year low. Quite frankly, all of Europe had muted growth from a GDP perspective. We were not immune to that. Nor were our customers or, for that matter, our competitors. Weather has been more favorable going into Q2. Easter benefit, we certainly see the pickup of that also in Q2. We had some challenges on the T2 side, in a few moments, you'll actually get to see it for yourself in terms of how this operation works. I am very confident that you will be suitably impressed in terms of what you see here shortly. Revenue from a European perspective, we are cautiously optimistic will show a good rebound coming through in Q2.
Margins, as we've talked about, will come back some. Some of the higher level of COGS that we're running with, based on U.S. GAAP accounting for national distribution center pieces, will have a damping effect on European margins in Q2. We expect to be out of that by the middle of Q3 as the inventory turns over. Again, just to reiterate, April is the only month that has been closed as of now. Financially, that met our expectations. May, we will get into that close cycle in a few hours. June is yet to be played out. I thought there'd be some interest in terms of getting a sense of how we see the business in the current quarter. Finally, I do want to address the Stahlgruber transaction that we finally closed earlier this morning.
By the press release, you would have seen, essentially what we're saying is, given the fact that we raised monies essentially for coming up to about two months, there's a negative carry both on the coupon but also the escrow amount. That's costing us the better part of about $5 million a month. However, now that we close the transaction, we pick up about a month of that in any case. That will essentially be about a $0.01-$0.02 dilution in Q2. On a remainder of 2018 basis, we expect Stahlgruber to be accretive on an adjusted diluted EPS basis of $0.04-$0.06. What does that mean? On a gross basis, if you were to take the dilutive effects of the negative carry for the first two months, it's about a $0.06-$0.08 accretion for the balance of 2018.
Finally, what we will do is, no different to what we've done in the past for any major transaction, when we do meet with all of you in a few weeks' time, we will give a full-blown updated guidance with Stahlgruber included, which will include free cash flow, CapEx, and all the other elements that we have also shared in the past. Okay. With that, I'm pretty much done with what I wanted to share with the team out here, and I'm going to ask Nick to come and join me. I think we have probably another 8 to 10 minutes where we can certainly take some Q&A before 2:00, and we'll be right back on track. Any few more questions.
What we will do is there'll be a short break, a quick bio break, and then Martin and Steve Horne, our COO for ECP, will give directions for the rest of the afternoon, as we would like everyone to get a sense firsthand about this phenomenal facility that the management team has built up. Over to all of you. Yes, Peter.
John, there were a lot of nice graphs going upwards.
Peter, let me just put up the relevant slide that you're referring to.
It's the wrong one.
Yeah. I know, exactly.
There's some noise with the fact that Yeah. The question goes to the free cash flow.
Some of the zigs and the zags, if you will, historically. Let's go back to 2014. You see the free cash flow came down a little bit. For those of you who've been hanging around the hoop for a while, you will remember that in the third, fourth quarter of 2014, we were very concerned about potential port strikes, particularly on the West Coast. In early 2015. We pre-ordered an advance ship, a lot of inventory. Because the worst thing that could have happened would be for our inventory not to be in the warehouses but out on the ocean. The inventory kind of ballooned up in the fourth quarter of 2014, and you see that's really why the free cash flow came down from 2013 to 2014. You see it bounced right back up in 2015. Why? Because we sold through all that inventory.
A little bit of the same thing here in 2017. As we highlighted at year-end when we had our earnings call back in February, we intentionally bulked up our inventories headed into the end of the year. Part of that was due to the fact that we had the hurricanes on the salvage side of the business, in the third quarter, which led to some very good buying opportunities in Q4 down in that Dallas and Florida marketplace. We increased our salvage inventory, and we anticipated a return of winter. Now, we've had no winter in the U.S. to speak of in 2016 and 2017. We anticipated that there would be a normal winter, maybe not as lopsided as it was from a regional basis. We bulked up on our aftermarket inventory as well.
You see that's what really drove. It's really working capital that drove this down. The $650 million, just to be clear, does not include Stahlgruber. Okay? It does not include Stahlgruber. We would anticipate that the EPS guidance, the free cash flow guidance, and the like, once we roll Stahlgruber into the mix, will increase proportionally, given the size of their business. Again, a couple of working capital flips in 2014 and 2017. We expect obviously a nice increase here in 2018.
Yeah. Peter, I'll add 2 additional data points for you, specifically for 2018. Free cash flow, operating cash flow at $650 million, just to kind of line it up with net income and adjusted net income. Net income, as you know, we've kind of given guidance between $611 million and $641 million to call the midpoint of $626 million versus a $650 million. On an adjusted net income basis, adjusted net income is in the range of $685 million and $715 million. Call it a midpoint of $700 million. If you're kind of trying to marry up net income with kind of operating cash flow, I think those are 2 key elements on a more current basis for you to be aware of. Yeah, no, listen, I can certainly talk about taxes also.
I think as most people are aware, with the Tax Reform Act that came through at the end of last fiscal year, LKQ has been a big beneficiary of it, right? We were pretty much a full rate taxpayer. Our new effective tax rate that we've guided for 2016 or 2018, sorry, I'm losing my mind with the years, is 26%. Right? We certainly get the benefit of that. Again, as part of that entire piece, there are two key elements which essentially had to be put into place as of Q4 or as of December 31. With regards to deferred taxes, we actually have deferred tax liability, so we actually are beneficiary of that because the liability has now come down by a lower tax rate.
There is the kind of deemed repatriation piece, which has actually hurt a bunch of businesses. We did have an impact on that one that we called out at the end of 2017, roughly about a $51 million thing. That is paid over an eight-year period. For the first five years, we essentially pay about $4 million. First five years, we're paying about 8%, and then year six, seven, and eight really kind of steps up 15%, 20%, 25%. Again, that is not a big move. It's about $4 million, specifically regarding the Tax Reform that comes through. Again, there is some of that that came through. Sure, Greg.
Thanks. I think when you provided initial guidance around Stahlgruber, the expectation was year one, the first year would be $0.14-$0.16. The second year would be $0.17-$0.19. Is that still the right way to think about it?
Yes. There has been no change from that perspective as of now. The $0.14-$0.16 for the first full 12 months is how we had called it. Given the mid-year close, essentially, year one will straddle 2018 and 2019. Really, as John mentioned earlier in his section, the synergy is really kicking into the second half, just given the way accounting works and as to how procurement will work and when the turn of the inventory takes place. If you think of it as of now on a gross basis without the $0.02 negative hit as such, with the bonds that we've raised, we're talking of about a $0.06-$0.08. Again, given the $0.02 dilution in Q2. Potentially what we're saying is there'll be $0.06-$0.08 accretion in the second half of 2018. Right?
You can calculate that piece on a full 12-month basis. It's pretty much in line with the $0.14 to $0.16 on an adjusted EPS basis, Moiz.
Just going back to capital allocation a little bit. When you think about the priority of M&A versus buyback like that, given that the business is growing out there, why do you think it is more kind of
Yes, I think our equity is costing us just a lot about 10% as of now. I think what you're saying is, for those folks who are kind of joining us on a webcast, why we would tend to de-lever versus buy back stock, which obviously has a higher cost associated with that. I think this is the way we kind of think about it, Moiz, because this is a fair question. From a leverage perspective, we know what our covenants are, right? We can kind of get up to about four times. Again, in the case of strategic acquisitions, we can get an extra half turn. We believe there are further growth opportunities out there, in any case. When those opportunities will come to the market, we do not know.
For us to give back the capital today, only for those opportunities to come out in the next 90 or 120 days, then we are scrambling in terms of to try and pick up that level of capital. That's one point to think about. The second piece, as I called out, is just being cycle aware. Where we are in the overall cycle. It's difficult to accurately predict exactly when that may happen. Really when that will happen, we do believe there will be even more opportunities out there for us to be able to kind of even further solidify our market position.
Part of it is keeping some dry powder back with us, in the absence of not having either the right transaction opportunities that may not have the right growth profile, or for that matter, where the expectation from the seller is significantly higher than how we can make our models work. Those certainly play into our overall capital allocation thought process to say maybe we are better off de-levering. The good part is we have a large revolver facility, quite frankly, it acts as a shock absorber to be able to de-lever very quickly with no friction costs. Right. We have a good amount of permanent capital that we kind of raised as of now, which helps us in the respect of a rising interest rate environment.
It's only the variable debt, which is less than a quarter at this point of time on a pro forma basis, which would be exposed to a higher interest rate piece. That's how we're thinking about from a capital allocation perspective. Could there be scenarios where there's a significant share price volatility and we do want to do something along those lines? That opportunity remains. Sorry, Nick.
Yeah. Again, just keep in mind that over the last 20 years, even over the last five years, the financial capability of being able to close on any transaction that we want to do without any financing contingencies, that has absolutely been our friend. Our ability to go into an acquisition scenario and situation and have no financing contingency included in our offer has set us apart on several occasions from everybody else who was at the table. Maintaining that flexibility and that optionality, if you will, is important to us. Once you buy back a share of stock, that capital is kind of gone forever. Okay. Part of it is just protecting our liquidity and making sure we have enough capital to act on whatever opportunities may come along.
There could be a point, this is something new for all of you in the room, we've never gone here before. There could be a point where the opportunities slow down from an M&A perspective, we've already de-levered the balance sheet to a reasonable amount, not to zero, but some sort of reasonable amount, where then other capital allocation priorities may rise a bit from where they've been in the past.
Listen, I'm conscious, Michael, I know you have a question out here. We are about five minutes past the hour. I know we have a lot more time later this afternoon in any case, but I do know Steve and Martin do need to try and get this piece moving. We have a bunch of folks waiting outside. Perhaps if we could try and take it, we have a long ride back later this evening also.
Well, I hate to disadvantage the people on the webcast. There is a reconciliation issue. You're showing $173 million as adjusted on page 60, but you show $128 in your appendix.
The EUR 128 is in EUR.
EUR. I think the EUR 128 is in EUR versus you're using US dollars.
The 173, I think that's what it means.
Actually, it's the two pieces. The 128 is EUR. The 173 is the $20 million of synergies, the 148. 148 converted into US dollars is your 173. That's how the reconciliation works. I don't believe we have an error with the reconciliation.
I apologize. I'm just flipping through quickly.
Sure.
Your point 3, your capital allocation, do you have a buyback in place?
We do not have a buyback in place at this point of time.
Okay.
If we did, we certainly would have put in a filing for sure, as you know, one would. Okay, great. Thank you very much. Martin and Steve, if you just want to come over and just give a quick rundown on what we've got planned for this afternoon, then I think everyone has a few minutes for a quick bio break before we get started.
Just very quickly before we dive into the whole presentation, we'll say it again in a minute. On your badges, there's a colored dot or a colored star. Just make a note of that mentally, and we'll have six tour leaders come at the end of this segue, and we'll divide up into six groups and take you through Tamworth Two. I'll remind you about that again in a minute. If you do miss the group or anything else, we won't leave you stranded. It's just a way to try and get things moving. We'll try and get you down there as quickly as possible. Just very quickly before we do, there's obviously anticipation in the room which we'll be quick here like. Get you all right down, Steve. Just very quickly. We have had a few bumps in the road.
This has been a four-year project. I'm not going to apologize for being hugely proud of what we now have. I have just included a couple of customer testimonials. If I was in your shoes, I'd want to know what our biggest customers think about Tamworth Two. Very quickly, Halfords national retailer, but some of you might not know, they also have 400 very large garages across the U.K. that service all makes. We take care of 90% of their fulfillment of parts and accessories. 90%, we're linked electronically. You can imagine if we feel pain, they feel pain. A great quote from Halfords. We've never been closer to them. We've worked with them. They had some pain. We're out of that, they've acknowledged that, and they're really looking forward, like we are, to getting more benefits from T2.
RAC, we put them up there. We've worked with them closely for five years. We caused them a bit of pain. They've got 1,500 mobile units throughout the U.K. that work at the roadside. Their whole model is fixing the car for their customers there and then, and they obviously need a part for it. Once again, we supply 90% of the parts to them for these 1,500 mobile units. We also exclusively stock a whole range of branded batteries for them. Once again, think about that. They've been with us through this journey, and they've come out the other side. They're very happy with where we are. Just very quickly, I was going to, before we move on to Steve and to explain what you'll be seeing.
A number of people, especially in the last couple of months, have said, "Why T2?" Just very quickly, in all seriousness, T1 that you have seen just a few short years ago to us was pioneering and new. What you have, though, is a limit around $350 million in terms of sales, and you've seen how we grow. We could open another three or four or five really big sheds, but clearly, that's cost prohibitive. You're never going to get the efficiency like Stahlgruber enjoying, and we will soon be enjoying as well. We tried to get a site. This is the golden triangle of the U.K., where we're sitting right now, and it took some time. We put a plan together, and we moved forward with this site. Also we have future-proofed that going forward.
I'm going to hand you over to Steve, our COO, who's really responsible for all of this. If it's gone well, it's down to me, and any problems, it's Steve.
No change. I'm just going to quickly run through some milestones, how we got here today, and a bit about where we are today and what you should see. There's some fun statistics up there. I won't go through them. You'll have them in your slides. But it kind of gives you an idea of the scale and shape of what T2 is about. After a lot of planning, spades went in the ground in January 2015. As Martin said, the idea would have been to have one unit, 1 million sq ft. The reality was in the U.K., that wasn't available at that time. Once this bit of land come available, it become an obvious option to move, particularly being able to retain our existing workforce as well.
The build took itself about 11 months. We were handed a shell in December 2015. That allowed us and TGW to start our fit outs. The ECP fit out was completed in 2016, sorry, in July 2016. TGW still had a fair bit to do. They had to finish their build, plus they had to commission and test the systems and software. That was finished in May 2017, where we signed off the system. It was officially handed over to us. We went into what we call then C trials. Effectively, that's where we're responsible for the system. It gives us a period of time to stress test it, find what it can't do, train all the employees. Not just in processes to make the system work. Also when it goes wrong, what do we need to do? That finished in July.
We went in to start migrating the ECP branches from T1 over the road, hopefully you saw that as you were driving in, into this environment. We finished that migration in December. In December, all 220 branches will be fully served overnight, 6 days a week from here. In that same period, we also exited Bonehill warehouse and also emptied T1 stock into here. Things were great until then. It was in December we started to get inclinations that there were some system issues. The issue with December was volumes are low for ECP. With the Christmas holiday, it wasn't until January until those issues really manifested themselves. There was various system issues. What happened was they slowed down the productivity and what was going on on the site.
The impact that had was we had a backlog of goods in and picking. The only way to deal with that backlog was to bring in temporary resource. I think you all know, bringing in temporary resource is never productive. I'm pleased to say today, we are back on track. We are back to planned resource levels. In January this year, we commenced the fit out of T1. We bring ourselves up to where we are today. That fit out's complete. T1 is now fully operational. Also in T2, we've now migrated 25% of the Andrew Page branches. The aim is to complete that migration by end of June, beginning of July. What that will allow us to do is to close our Swadlincote warehouse, to exit the Andrew Page NDC, taking more cost out of the business.
Today, we've got a stock holding of about GBP 85 million in T2. We're servicing the 220 ECP branches, as well as 25% of the Andrew Page branches. The daily throughput is about 220,000 items. That's 225,000 items in and 225,000 items out. Our service level is 99.7%. That might sound good. That's still 600 parts that we're failing to get to branches on time. Our challenge is to get that to as close as we can to 100%. To summarize, we have achieved everything we planned to do three years ago. We've integrated the Republic of Ireland acquisition and Andrew Page. Did we have issues on the way? Absolutely. When you compare those issues to the magnitude of the project, especially to well-documented implementations through other businesses, those issues were minor. No other competitor in the U.K. has anything like T2.
It allows us to improve our margins by minimizing logistics costs. In particular, and what's very topical in the U.K. at the moment, is protect us against wage increases. The great news is there's still plenty of opportunity to optimize. Although our pick rate, as you've heard several times today, is around 400, and that's four times more than we were doing in T1, our aim is to get that to above 500. To really maximize automation, it normally takes about two years. That is our target, to exceed 500. T2 today not only supports ECP, but with the future-proofing we've put in place, and you'll see that as you walk around, it will support ECP long into the future. Here's an overview of what you should see today. Goods in. At goods in, there's decisions made where the stock goes.
Anything that goes into automation goes via the decant station. You'll see some very narrow aisle racking used really for dense storing. The unique element here is we go 18 meters high. There's no one else in the U.K. that goes that high. You see some wide aisle storage. The difference between wide aisle and very narrow aisle is wide aisle, we pick from the first two levels. Above the first two levels is storage, but the bottom two levels are picking locations. We have a fast pallet area, which is your fast-moving product on pallets. Rather than replenishing, it's gravity-fed from behind. Then moving into the automation, which accounts for about 70% of the pick here. You'll see miniload, which is a storage facility.
You'll also see the dispatch sequencer, which is where anything picked into tote goes, the dispatch sequencer holds and then releases in time to meet the transport deadlines. You'll see our goods-to-person pick area, which is really where you'll see most of the productivity. As in any warehouse, it's not worth investing in automation for slow-moving items, in our view. We very much made sure we didn't automate just for the sake of automation. Where there's slow movers, there's actually no better way to store them just on shelves, and you'll see that as you walk around. You'll see the dispatch area, and something we're very proud of is the robots. They're static robots, but they actually stack, lid, label, and band all the totes ready to go out into the vehicles. We're very proud of what we've got today. It's been a long journey.
Hopefully, that's given you a quick appreciation of it, and I look forward to showing you around.