Commercial Metals Company (CMC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Commercial Metals Company's 2020 Virtual Investor Day. I'm Carol, and I will be your operator today. This webcast will be recorded, and a replay will be available on CMC's Investor Relations site shortly following the conclusion of this event. I will now turn it over to Jason Brocious, Director of Investor Relations. Please go ahead.

Good morning. My name is Jason Brocious, and I am Director of Investor Relations at Commercial Metals Company. It is my great pleasure to welcome you to CMC's Investor Day, our first in our 105-year history. We have titled it Strategically Transformed, Delivering Superior Shareholder Value, which we think is a good summary of our company during the last few years, as you will see and hear more about today. Turning to Slide 2. Let me call your attention to our safe harbor warning. Also, the fact that today's discussion will include non-GAAP presentations of our results. As you can see on Slide 3, we have a content-filled agenda for you today. Following a short introductory video, you will hear from Barbara Smith, CMC's Chairman, CEO and President, who will provide a strategic introduction to our company. She will be followed by Billy Milligan, our Vice President of Marketing and Enterprise Support, who will discuss CMC's macro environment and demand drivers. Ty Garrison, Vice President of our East region, will provide an overview of our operations; and Brad Cottrell, our Chief Supply Chain Officer, will update you on our national mill network optimization program. Following a brief break, Tracy Porter, Chief Operating Officer, will update you on our growth strategy, including our exciting new plans for a third micro mill, which we announced about an hour ago. Billy will return to discuss our sustainability programs; and Paul Lawrence, our CFO, will discuss the financial implications of our operating strategy and our financial results. This will then be followed by a 30-minute question-and-answer session. Had we met in person today, you would have had the opportunity to see our speakers depicted on Slide 4. They represent one of the most talented and diverse management teams in our industry, and I call your attention to their long tenure at CMC. All but one of our speakers have been with the company since our transformation began in 2012. Turning to Slide 5. Our Directors comprise a diverse and highly experienced Board with skills in various relevant disciplines. We routinely refresh our Board, and their average tenure is roughly 7.5 years. With that, let me direct your attention to a short video via our webcast. Before I turn the presentation over to Chairman, President and CEO, Barbara Smith. [Presentation]

Good morning, ladies and gentlemen. I hope you enjoyed that brief overview of our company. Let me welcome you again to CMC's Investor Day. We appreciate your interest in our company, and we have prepared what we hope you'll find to be an interesting and value-added presentation. Turning to Slide 7. CMC is today a successful, highly focused producer of long steel products serving North American and Eastern European markets. This concentration on a distinct area of the market is an important differentiator as compared to other U.S. steel companies. During the last decade, we have strategically repositioned CMC's assets. The effect has been dramatic, as demonstrated by our results during the last 6 quarters. As we will show you today, we are poised for continued significant organic and inorganic growth. We are a leader in 2 attractive end markets, rebar and merchant bar quality products, or MBQ, markets that are growing. We think that these end markets offer great promise. In the U.S. and Poland, we run our 3 lines of business, recycling mills and fabrication, as a vertically integrated value chain, not as separate lines of business, to maximize profits throughout the cycle. As we will show you, we believe that vertical integration is a key driver of our success. We possess a strong balance sheet, highlighted by our robust free cash flow and supported by a disciplined capital allocation strategy. Finally, our Board of Directors and senior leadership are focused on creating shareholder value. We run our business from the perspective of generating maximum returns for shareholders over the cycle based on our long-term view of U.S. and European steel market. Moving to Slide 8. CMC is a company poised for further growth with a wealth of opportunities in front of us. To really understand CMC, you need to understand our culture and values, which are what truly set us apart. CMC is a company that is driven by strong positive relationships with each other, with customers and with suppliers. Our values are what have enabled us to consistently deliver industry-leading customer service to introduce powerful and profitable innovations like our continuous micro mills and to regularly improve the production efficiency of our assets. Let me give you 2 examples. Our Mesa, Arizona micro mill today regularly produces more than 50% over its nameplate capacity. The results of consistent improvements made over many years, testifying to the ingenuity of our people. Another is how our organization rallied to support customers during the early days of the COVID-19 pandemic. Customers I spoke to said that they were impressed by the support and calls they got from CMC about how we can help them. Placing customers at the center of all we do allows us to win in the marketplace and cultivate loyalty. We always seek to create a safe engaging workplace for our employees that recognizes effort and results while providing rewarding challenges and personal growth. From an outside perspective, it's easy to view any steelmaker or manufacturer as a collection of assets. But the truth is the people are what make our operations successful. The new micro mill project we announced earlier today will be a perfect example of the power of our team. We will refer to this project throughout the presentation as Triple M. Yes, we are confident in the technology and equipment, but we know that the project's success will be driven by our people. We take seriously our responsibility to help improve the communities in which we work and live. Our employees are mothers and fathers, sons and daughters that fill important roles in the towns and cities in which they live. We never forget that, and I want to help them fulfill these roles. Our business model is sustainable, both financially and environmentally. We started business as a U.S. metals recycler. And today, our mills employ the cleanest technologies in the industry. At CMC, good business goes hand-in-hand with good environmental stewardship. Later on, Billy Milligan will share some highlights around CMC's community involvement as well as our environmental stewardship and ESG program. Commitment to our customers, employees and communities underlies the values we create for investors. By keeping customers satisfied and loyal and employees engaged and challenged, we feel CMC will generate good returns for our investors. Turning to Slide 9. We pride ourselves in our critical competencies, like our operational excellence, track record of innovation and ability to make smart acquisitions and integrate these assets effectively. Our competencies gave us the confidence, for example, to undertake our highly successful recent rebar acquisition. Our culture multiplies the power of our critical competencies, and these capabilities were, in turn, further refined by our successful acquisition and integration of these rebar assets. Each of our growth opportunities that lie ahead leverage CMC's best quality. Tracy Porter will speak to you later about Triple M, which we announced earlier this morning. This is an exciting investment that, once again, makes CMC first in the world to adopt a promising new technology, an MBQ-capable micro mill. On the rebar side, this investment will result in new efficient capacity that will replace the high cost production from California. Additionally, a significant portion of the capital to be invested will come from selling our current Rancho site. Later on, you will hear more about our SIOP program, which stands for sales, inventory and operations planning from Brad Cottrell. These efforts will allow us to maximize the benefit from our U.S. assets and involve optimizing our production and sales mix contributing to revenue while we squeeze out working capital and reduce logistics costs. MBQ is a key area of growth for CMC. We are winning profitable share in the marketplace through an enhanced product mix and share of wallet gains with customers. Flexibility gain from the acquisition of the rebar assets has allowed us to address opportunities that were unavailable previously, and we are making prudent, low-capital investments to better serve the MBQ market. Poland is core to us. It is a world-class operations with an asset network that mirrors our U.S. structure. We have a strategy to grow in that market by unlocking latent capacity and taking advantage of our low-cost position in environmentally friendly EAF-produced green steel while we continue to diversify our product mix. You will hear more about this from Ty Garrison, who has also provided us with valuable foresight into construction and product trends that will eventually show up in the U.S., where those rebar and fabrication automation, for example, were all developed from the European market before transferring to U.S. construction markets. Several product adjacency opportunities exist in concrete reinforcement that would allow us to leverage our leading position in the manufacturing, fabrication and installation of rebar. In addition to organic opportunities, we expect acquisitions to provide a solid avenue toward growth. As you know, we are patient acquirers and will not buy just for the sake of more revenue and volume. We know what types of businesses make sense for CMC, and we're always monitoring actionable opportunities. Before talking more about where we are and where we are going, I'd like to take a few moments to discuss how we got here. As you can see on Slide 10, CMC a decade ago was a very different company. It was a company lacking strategic focus and saddled with low-returning operations spread across the globe. It was a company that needed to define itself and define what it wanted to be. We undertook a multiyear process of shrinking to grow, which meant unlocking capital through exiting several businesses that did not fit our core. These were not necessarily bad businesses, but they had greater value to owners other than CMC. Meanwhile, we doubled down on our successful and highly efficient micro mill strategy, announcing a $350 million investment in Durant, Oklahoma, which came online in 2017. Ultimately, by executing on our strategy, we were able to harvest over $600 million of cash while also streamlining our business, boosting returns, giving greater visibility to our investors in creating a company that is easier to manage. The cash taken out of divestitures was nearly enough to fund our transformational and highly successful acquisition of the rebar assets in 2018. So while the phrase shrinking to grow may seem overused and was hollow at times, in our case, it was spot on. Let's look at what all of these strategic actions mean from a financial perspective. In 2011, CMC generated a return on invested capital of just 1%, and nearly 1/3 of our asset balance was in noncore operations. Today, we are generating returns in excess of 10% and have a completely realigned portfolio of strategic assets. Over that time frame, our ROIC is up more than tenfold but our invested capital has only increased by 15%. Slide 11 summarizes CMC's world-class assets and leading positions in each of our major products. We manufacture long steels with a strong focus in steel reinforcing bar and merchant bar as well as other long products like fence post, where we are the leading domestic manufacturer. Our position in long steel differentiates CMC within our industry, giving us a business mix and demand drivers that set us apart from makers of hot-rolled coil and other flat products. Our recent acquisition has enabled us to expand and improve our operations, providing a tailwind to the efficiency-enhancing actions we've taken. In a moment, Billy Milligan will walk you through our product lines, end markets and market drivers. Both our U.S. and Polish operations are vertically integrated. This is critical to understanding CMC. Our mills are the economic engine of both countries' operations, and we believe are among the lowest cost in the industry. This position is fortified by low-cost and reliable sources of raw materials from our recycling yards and stable demand pull-through from our fabrication shops. You will see later in the discussion that the way we structure our vertical chain is strategic and designed to make each link stronger than it would be standing alone. Slide 12 illustrates the vertical integration that is critical to CMC's success. While we report the 3 lines of business shown on this slide separately in our published financials, we run our business as a vertical organization broken into 4 geographical regions: East, Central, West and Poland. In the U.S., we overlay centralized coordination from our SIOP team to optimize production and inventory and logistics management. This removes the friction that would exist if each reporting segment were trying to maximize its own profit, potentially at the expense of other segments. Rather, our vertical management structure allows us to effectively coordinate operations, drive accountability and align incentives from upstream to downstream, maximizing total business returns. Along this coordinated value chain, each link plays its own crucial strategic role. Our recycling footprint is chiefly designed to support our mills. This provides a secure supply of low-cost scrap to our mills in the exact grades required. This business is not just a captive supplier. It also conducts third-party commercial activities, and we expect our recycling unit to earn at least its cost of capital through the cycle. As stated earlier, the mills are the economic part of our operations. We rely on them to generate optimum profits and returns that are significantly above the cost of capital. They do this best at high operating rates, and this is where our fabrication business comes into play. Fabrication provides a significant and consistent baseload of demand, equal to about 40% of total annual mill rebar shipment. This helps when imports increase because our mills can continue to supply our own fabricators. In other words, CMC can secure work in fabrication and direct source from our own mill footprint. Additionally, with so much of our mill output absorbed internally, we're able to reduce sales overhead and focus commercial efforts on optimizing margins on the remaining tons. Fabrication also gives CMC enhanced forward visibility through a real-time pull of the construction project pipeline, allowing for better production planning throughout the entire vertical chain. This means better near-term investment decisions as well as lower costs in the form of staffing, logistics and changeover times at our mills. Our fixed-price contracts in fabrication provide an internal price hedge when combined with a mill that stabilizes our earnings in times of volatility. Turning to Slide 13. As many of you know, 18 months ago, CMC completed the most transformational and strategically significant acquisition in our 105-year history. Overnight, this created a much more efficient competitor in concrete reinforcement, expanded our domestic operational footprint by 50% and added roughly 3,000 new members to the CMC family. Before walking you through CMC's expectations and realizations regarding our 2018 rebar asset transaction, let me take a few moments to provide a little background. The rebar mills we acquired were a target that CMC had monitored closely for several years. We recognized the enormous strategic value of acquiring these assets. The opportunity did not just appear one day. Conversations regarding a potential sale began a full year before the January 2018 announcement of a signed deal. We are patient and disciplined investors, and our interest in the transaction began several years before that. Listed on the slide, you can see our key expectations and findings heading into the transaction's close. Sizable positive gaps appeared in some areas, for example, between our expected and realized synergies. Many of these surprises were due to limited data access during the due diligence phase. This left us with imperfect knowledge, and we erred on the side of conservatism when making the assumption. Regardless of any informational gray areas, we were certain of the critical elements of the transaction, namely that, one, the acquisition was a strategic home run; two, we were buying at a good price; and three, the return on investment would be attractive. Now taking a closer look at our initial expectations, we, as an organization knew the rebar assets and operations well. Several key people at CMC had spent years at that company, in some cases, managing these same assets. We expected a good asset base with good operators in place. This is what we found. We anticipated about $250 million of needed capital expenditure during the first 5 years of ownership. On this, we were pleasantly surprised. Within the first few months following the acquisition close, we realized asset conditions were better than previously believed. We evaluated and underpinned the acquisition on about $40 million in annual synergies. As we've previously indicated, we are capturing double that amount. The big driver there was the impact of our commercial efforts. We brought CMC's commercial culture to the acquired mills with a focus on the customer and accountability for decisions. As a result, we've seen cost improvements, efficiency gains, corresponding margin benefits and improved customer service metrics from coast to coast. Sometimes you're good, sometimes you're lucky. In the case of market timing, CMC was lucky. We negotiated and signed a deal in a pre-232 world. We were handed the keys to the business in a post-232 world, which substantially accelerated our returns on investment. CMC's rapid and flawless systems integration is something our organization is particularly proud of. We fully expected to need integration support for an entire 12 months following the deal close. The ingenuity and hard work of our people allowed us to make a full transition in just 4 months, saving CMC almost $10 million. This move also greatly enhanced our financial and operational visibility into acquired assets and provided for standardized metrics at both legacy and acquired businesses. We did find that the safety culture and performance at our newly acquired facilities were not up to CMC standards. Taking care of our people and ensuring that everyone goes home in the same condition they came in is our highest priority. Since the acquisition, we have also implemented enhanced training, proactive safety measures and a culture of accountability that has helped to reduce our incident count and severity. Since the acquisition, we have lowered incident rates at the acquired mills by 60%. Ty Garrison will talk more about our approach to safety later today. The benefits captured from this transformational acquisition are significant, but there's still more to come. We are moving from the integration phase to the optimization phase. This means transitioning from an organization that successfully operated individual mills with individual market shares to successfully running a network of mills that is coordinated to make the whole greater than the sum of the parts. Brad Cottrell will talk more about our SIOP initiatives later this morning. Slide 14 illustrates the growth strategy we have pursued. It's important to recognize that it was our core competencies, that I showed you earlier and are noted on this slide, that gave us the confidence and ability to undertake and integrate the acquired rebar assets. The acquisition and our ability to integrate these assets, provided us with a strong position in the rebar market. From this current position of strength, we now have a solid platform for future growth with numerous potential avenues to explore. As you can see on Slide 15, we have a long runway for sustainable earnings growth at CMC. This graphic provides a good representation of how we evaluate and prioritize these opportunities. We target and invest in growth avenues that leveraged and in the case of the rebar acquisition, reinforced our core capabilities. Our critical competencies provide the filter through which we evaluate our businesses and opportunities to deploy capital to grow them. When you filter the set of potential opportunities through the screen, the result is an array of strategic winning opportunities on the right. The key drivers of success for each aligned with CMC's core strengths. And these are the market opportunities against which we will unleash our commercial culture and know-how, our ability to innovate and our ability to reach a level of world-class operating performance. When the investing community considers what the future of CMC could look like, we would encourage you to use this framework, which shows what fits with CMC's core capabilities and what does not. Noticing what is not on the right side of the slide is nearly as important as what is on it. CMC does not currently aspire to be a player in sheet, plate, SBQ or many other opportunities that pop up in industry publications from time to time. Let me assure you, we have plenty of meaningful opportunities that fit our strengths. We believe this fit will provide attractive returns through better actionability, higher success rates, available synergies and transferable best practices. We do not need to jump into unknown territories to find profitable growth. Moving to Slide 16. Through our actions, we have positioned CMC for continued success, and today, are better able to compete in any market environment. I have listed several major factors or perceived major factors that impact our market environment on this page. We know the domestic steel industry is the world's most efficient, and we welcome the implementation of Section 232, which for a time facilitated a more even playing field for U.S. steelmakers. Since enactment, we have seen the import market share decline from a peak 25% to a more historically normal level. However, imports remain a source of competitive discipline, and the only way to address them is to continuously improve operations and lower costs. Beyond Section 232, the domestic industry continues to work with lawmakers to adjust antidumping and countervailing review policies that will allow for a quicker and more meaningful action by U.S. trade authorities against illegal dumping. However, we know that trade relief is temporary. Again, our lasting success is in our own hands and is based on being competitive with any producer in the world, being able to serve customers and operating efficiently. We believe fears of excess supply may be exaggerated. Over the last year, the domestic steel industry has announced and broken ground on millions of tons of new capacity. Most of this has been in flat products. There have been far fewer new additions in long products. Additions have been smaller as a percent of existing capacity, under 10%, and most projects have already been brought online. Noticeable, though, that the market for rebar is more localized than most other steel products. No rebar does travel significant distances when the market demand calls for it. Finally, the impact of COVID-19 has, thus far, been manageable. As was evident in our third quarter results reported in June, we have learned how to operate without disruption in a socially distanced work environment without meaningful impacts on production while keeping our employees safe, which is our first priority. At present, end markets for long products we produce appear to be stable, with credible forecasters projecting increasing demand starting in 2021. Billy Milligan, who is our next speaker, will update you on the forward indicators we are monitoring. Before I turn the presentation to the rest of my team, let me share our view of CMC as an investment noted on Slide 17. While we are no doubt biased, we view CMC as a blue-chip company within our sector, which should be a core holding in your investment portfolio. With our strategic and transformational acquisition of the rebar assets, we have created a low-cost and innovative industry leader in an attractive growing market, and we will further leverage that position with our best-in-class customer service and asset base. We have developed a clear strategy for future profitable growth and are looking ahead an exciting pipeline of attractive opportunities that include the first-of-a-kind micro mill with merchant capability we announced this morning. We have proved that we are a wise steward of our shareholders' funds, investing prudently to generate strong returns and cash flows. We have managed our balance sheet effectively and have shown the ability to achieve high returns on the capital we invest. CMC's superior shareholder returns to date have been a function solely of our own financial performance without the benefit of higher trading multiples. With consistent execution and durable cash flow, we hope to see our valuation multiples expand in the future. With that, let me turn it over to Billy Milligan to discuss our macro environment and demand drivers.

Thank you, Barbara, and good morning, everyone. I am Billy Milligan, CMC's Vice President of Marketing and Enterprise Support. In addition to marketing, I'm also responsible for government affairs and trade matters, which means that I spend a good part of my time in Washington, D.C. or in today's environment, on the phone with our representation and government trade authorities. I joined CMC in 1999 and have held various leadership roles in sales and marketing, strategic planning, mergers and acquisitions, and business development. I have an engineering background and prior to CMC was Vice President of Engineering and Technical Marketing at another major U.S. steel company. Today, I'm going to walk you through the demand drivers for CMC in the macro environment that we find ourselves in today. As summarized on Slide 19, CMC serves growing demand from attractive end markets. We are strategically positioned in geographies, both in the U.S. and in Eastern Europe, with high demand for long steel products that we make. Demand for our products is supported by the steady need for increased infrastructure, repair and improvement as well as residential and nonresidential construction and the heavy industrial manufacturing markets. You will see in the next slide that the U.S. demand for our products is highest in the Sun Belt, where most of our mills are located. Eastern Europe is equally a region with high demand for rebar and merchant bar deal. Infrastructure spending, which I'll talk a little bit more about in a minute, tends to be stable through the cycle. Due to the stimulative nature of public infrastructure spending, it is, if anything, somewhat countercyclical to the nonresidential construction market. Given recent House and Senate actions on an infrastructure bill, we see significant potential upside in this end market. Nonresidential construction has grown consistently over the past 10 years, supported by robust economic expansion, and merchant bar, which Barbara mentioned as a growth area for CMC, is tied to manufacturing and industrial demand. The current supportive trade environment has been very helpful, but not an essential development. Today, U.S. steelmakers are the most efficient and productive in the world. We have no difficulty operating profitably when allowed to compete on a level-playing field. Additionally, our industry has been successful in bringing trade cases against illegally imported products, with rebar and wire rod impacting us directly. We would expect these cases to continue even absent tariffs. In addition, there is draft legislation in the Senate to ease the burden on U.S. producers to first demonstrate harm in order to bring trade action. But all of that said, I want to stress that regardless of the trade environment, CMC is well positioned for continued success. Finally, as Barbara mentioned, while COVID has created near-term economic uncertainty, its impact has been manageable due to our strong customer relationships and internal fabrication backlog, and industry forecast suggests a return to growth in 2021. As you know, things are changing daily due to COVID-19, and we stay on top and up-to-date on the drivers that affect our markets. So the view we're presenting today is our most current view that was derived from historically the most accurate construction forecasters. I will talk about this more in a moment. Slide 20 shows that CMC is well positioned geographically in the U.S. with mill locations in some of the highest demand states for rebar and merchant bar consumption. Demographic trends are also favorable. Population growth of our 5 largest volume destination states have outpaced the broader U.S. by 50% over the last decade. The 2018 acquisition really filled out our footprint as a national U.S. supplier. As you can see on this heat map, our mills are located in or adjacent to states that are benefiting from a population shift and also have the highest concentration of consumption of our products. CMC's mills can now reach over 90% of the U.S. population. Later today, you'll hear from Brad Cottrell on some of our national mill network optimization initiatives. Our geographic positioning provides several competitive advantages. First, shipping and logistics cost. Being local to the market reduces shipping costs and provides our customers a very competitive price. Second, exceptional service, which allows us to respond quickly to customers' changing needs and offer a broad basket of products. And finally, speed of fulfilling orders by offering next-day delivery in most markets, which adds value to our customers by improving their inventory positions. As you can see on Slide 21, CMC is also well positioned from an end market perspective with different sectors providing offsetting demand consistently throughout the business cycle. Drilling down, while we are construction driven, we serve large end markets with various sources of demand and timing within the construction industry cycle. Our steel supports the structures and equipment you see in use every day from houses to retail and office buildings to roads and bridges, to transportation and military vehicles and industrial equipment. Unlike flat roll, we're not as affected by the ebbs and flows of large consumer-based industries like automobile and appliances or the volatile energy markets. It's also worth noting that our end markets peak at different times in the business cycle, which provides stability as the economic environment changes. This has been the case recently as construction end markets do not behave like other steel-consuming markets. They are not driven by near-term discretionary spending and do not quickly shut down like was recently experienced in the automobile sector. Turning to our specific end markets. Infrastructure, which is by far the most rebar-intensive in the construction sectors, currently represents 37% of our shipments. It tends to be more consistent throughout the cycle, but expands at a faster rate, late cycle as tax revenues increase as a result of economic expansion. In today's environment, policymakers see infrastructure as a stimulant to kick-start the economy, recognizing it has significant early cycle benefits. Infrastructure represents a large and steady base of demand for rebar, and I will talk more about the potential upside from an infrastructure bill shortly. In nonresidential, which comprises 32% of our shipments, we see peaks mid- to late cycle, typically following strength in residential construction. As residential grows, you need support from schools, hospitals, retail stores and et cetera. Employment and vacancy rates also drive office building construction. We are seeing in the current environment that the nonresidential projects that are in place with funding are moving forward as planned. Residential construction, apartment buildings and other multifamily dwelling units encompass about 16% of our shipments and is typically strongest early to mid-cycle. Finally, the OEM markets represent about 15% of our shipments. Here, we're talking about merchant bar quality and fence post, products that are typically strongest when consumer goods pick up. So they are generally consistent throughout the cycle. A lot of the OEM products come from infrastructure activity as contractors buy equipment. And the OEM demand is also tied to employment and goods and services because a lot of the product goes into transportation and goods movement markets for heavy truck trailers, rail and barges. Before talking about where we're headed, I want to take a look at where we were prior to the COVID pandemic. As you can see on Slide 22, the end markets we serve has steadily grown over the past several years. In the U.S., both nonresidential and infrastructure construction spending has experienced significant year-over-year growth, allowing us to build a healthy backlog in our fabrication business. We have also seen significant demand growth in Poland over the last 4 years due to the investment in construction and the OEM markets that support it. We are well suited to serve the growing European economies, particularly in the Northern and Eastern Europe. In addition to the Polish market, we serve the German region from our Polish mill. Germany is a highly industrialized economy with consistent demand levels that continues to experience a high-intensity of steel consumption through its manufacturing base. Moving to Slide 23. Our backlog, bidding activity and industry forecast all suggests that COVID-19 will be a near-term disruption to our markets. This disruption was caused by economic shutdown as a result of an unanticipated pandemic, not your typical overheated economic cyclical downturn. As you can see on the left side of Slide 23, our fabrication bidding activity remains near record high levels and even accelerated during the early months of the pandemic. We have also experienced normal seasonal replenishment cycle during the third quarter with our backlog ending slightly below the all-time peak, and this trend continues into our fourth quarter. On the right side is the recent forecast from Portland Cement Association, which we view as one of the most reliable construction forecasters in the industry. Cement consumption is highly correlated to rebar demand. While total cement usage is expected to decline by about 5.5% in 2020, their economists are forecasting a return to growth in 2021 and beyond, demonstrating the resilience of the end markets we serve even amidst the backdrop of the global pandemic. Another forecaster, Dodge Data and Analytics expects a similar trajectory over the next several years. I might also note that these forecasts do not include the full effect of a more robust infrastructure bill, which leads me to Slide 24. Infrastructure is our largest end market and has the most intensive consumption of steel per construction dollar spent with steady growth over the past few years from the FAST Act. As the graph on Slide 24 indicates the percentage of government spending on infrastructure has steadily declined since the mid-1950s. Today, although the total federal dollar spent is at its highest, we are at the all-time low in terms of percentage of government spending devoted to surface transportation and infrastructure. The situation is so bad that even after decades of underinvestment across the United States, the American Society of Civil Engineers has designated the U.S. a grade D+ for the condition of our public works. Moving to Slide 25. It appears at long last, that both sides of the political aisle are aware of the problem, and talks of an infrastructure bill have made the possibility for significant investment more tangible. The FAST Act, which has a graduated scale spending, has been increasing about 3% per year. Although it's set to expire through end of September if an agreement cannot be reached between the administration and Congress, at a minimum, we expect to see a short-term extension at the current elevated spending levels. In addition, both the House and the Senate have put forth bills that represent a significant spending increase over the current FAST Act spending levels, resulting in between 1 million and 1.4 million incremental tons of rebar consumption per year. The current COVID-19 pandemic has pushed this legislation to the forefront in an effort to stimulate the economy and shore up state revenue shortfalls. While the final outcome is yet to be determined. For steelmakers, rebar stands to be a big winner. CMC is well situated regardless of the trade environment. As the chart on Slide 26 illustrates, our mill shipment volumes remain fairly steady, even at significantly higher import levels than we experienced in 2015 and '16, and much less than we're currently experiencing today. In addition, we've been successful in bringing trade cases against illegally dumped rebar and wire rod in the U.S. and in Poland. And we currently have antidumping margins and/or countervailing duties on multiple countries, including China, Turkey, Japan, Mexico and Taiwan just to name a few. Tariff environment aside, low raw material costs from our recycling operations, significant demand pull-through from our fab shops and our strong customer relationships, keep our mills highly profitable and well utilized. As a result, we believe CMC is well positioned for success in any trade environment. So recapping on Slide 27, we are well positioned in growing geographies and end markets. Despite the near-term impact of COVID-19, we continue to see favorable long-term demand dynamics and believe our end markets provide stability throughout the economic cycle. There is considerable upside potential from an infrastructure super cycle, which is increasingly likely given the current environment. While the 232 tariffs have been beneficial to CMC and the industry, we have performed well and are positioned for continued success regardless of the trade environment. Now let me turn it over to Ty Garrison, who will introduce you to our operations and our vertically integrated operating strategy.

Thank you, Billy, and good morning, everyone. My name is Ty Garrison, and I'm the Regional Vice President of CMC's East region. I have been with the company for 21 years. After running CMC's West Coast operations for 4 years, I was made responsible for our 5 mills, 20 recycling facilities and 20 fab shops in the East region in 2015. These assets comprise 60% of CMC's U.S. throughput. I have several topics to cover. I will begin with a description of the strategic layout of our operational footprint, and then briefly describe each of our segments. I want to spend some of my time this morning walking you through the strategic benefits of our vertical integration from the perspective of a business leader. That is, the enhanced stability it gives our operations to react to ever-changing conditions and win in the marketplace. But first, I want to turn to Slide 29 and talk about safety. At CMC, we start every internal business update with an update on safety. We do not mention production or profit or any other metric until we have discussed how well we are doing at keeping our people safe, both how we have performed and how we will get better. At points in the past, we were not as focused as we should have been. And as an organization, we realized we needed to get better. The strength of our commitment to the safety and welfare of our employees becomes obvious as we look at our performance over time. We have dramatically reduced reportable incidents from 16.2 per 1,000 person hours in 1997 to 1.5 in 2019. To improve and become world-class, CMC developed its own innovative approach to not just measuring safety performance but instilling it into the way we think and work. We created proactive safety measures, or PSMs, to spot potential hazards before an accident could occur. We began tracking near misses to identify not only what did happen, but what could have happened. And most importantly, we ingrained a safety-first mindset into the culture at every one of our locations. Even though we are now among the industry leaders, we are not through. At CMC, we will continue working towards our ultimate goal of 0 injuries. Slide 30 illustrates how we have strategically built out our operational footprint. As Barbara mentioned, our recycling and fabrication operations are designed to support our mills, and our geographical presence reflects that. As you can see, our recycling facilities are situated tightly around our mills. This helps to ensure dependable local sources of low-cost scrap. There is also a strategic benefit to controlling our own mill feedstock, especially when local market conditions become tight, not only price, but availability becomes a concern. We have seen this scenario play out many times, but our recycling network has always ensured our mills have adequate scrap supply. Similar to our recycling network, our fabrication footprint is structured to support our mills in each geography. This network of fabrication shops provides our mills with the direct pipeline into the demand of major metro areas throughout the country. Our fab shops also provide stability of offtake for CMC mills through geographic diversification. If the volume of work declines in one area, the impact is usually offset by rising backlogs elsewhere. Again, as Barbara mentioned, we run our operations as an integrated whole within geographical regions: East, Central, West and Poland. This allows CMC to maximize profitability by treating the assets of all 3 segments as a single operation. This approach avoids internal conflicts and is different from how our competitors do it. Barbara has already walked you through the value of vertical integration, but let me show you on Slide 31 what that looks like in operational terms. You can see on this slide the impact of CMC's vertical integration on our material flows. In the U.S., our recycling segment sells about 60% of its volume to CMC mills, making up about 40% of the scrap consumed at our mills. The remaining recycling shipments are sold to third parties, including competitor mills. We have found that this mix of internal sourcing works for our mills and our vertical model. CMC does not need to be fully self-sufficient in scrap. Rather, the strategic value to our company is ensuring an adequate and low-cost supply in any market condition. As mentioned earlier, our sourcing approach is tailored to the dynamics of each mill geography, but our strategy is always the same: invest enough capital in recycling assets to protect our mills, but do not overinvest. Our mills are the economic heart of our company and are situated in the middle of our vertical chain, structured to optimize their performance with low-cost inputs and reliable volume outlets. The operational flexibility of our mills is world-class, but their costs are lowest, and the returns are greatest when operating at stable and high utilization rates. The fabrication business provides the stability. Our shops consume about 40% of the output from CMC's rebar mills. From a business leaders' perspective, this is an enormous benefit. In action, this means better commercial, production and inventory planning. Commercially, nearly one half of our mill rebar output already has a buyer. So sales overhead is reduced and sales efforts can be focused on optimizing margins on the external half of our shipments. The support from fabrication allows our mills to better plan production, which provides a number of significant benefits. Better knowledge of near-term demand means more efficient scrap buying. It means optimizing our production campaigns and reducing changeover costs. It also means avoiding unnecessary overtime and establishing reliable windows for preventative maintenance. The visibility provided by fabrication also allows for reduced working capital tied up in inventory. By having forward visibility into demand for certain grades and sizes, we can ensure stock of needed items and avoid excesses. This increases inventory turns and overall working capital efficiency. Fabrication also provides our mills with significant protection from the incursion of imports. This happens in 2 ways. In the near term, mill volumes are supported by our fabrication backlog. So while competitor mills without fabrication support might see immediate impacts in their shipments, ours are much more insulated. Over a longer period of time, CMC can use its fabrication business to acquire new work, which will be supplied from our mills. Fabrication is our closest connection with the end users of our reinforcing products. This gives us insight into developing trends in the construction market, allowing our enterprise to adapt proactively to needs of project owners and general contractors. Before we leave this slide, I would like to highlight that our operations in Poland have the same structure as our U.S. footprint. Captive scrap flows through our mill, which, in turn, is partially supported by downstream fabrication. Next, I would like to briefly discuss each of our domestic segments. Turning to Slide 32, CMC operates one of the largest metals recycling networks in the U.S. We are also the first domestic steelmaker to integrate mills with an associated recycling footprint. Our recycling business sources through every available channel, including industrial scrap generators, dealers, peddlers, ship breakers and demolition. Our facilities process and prepare nearly any type of metal. Our ferrous products are sold almost exclusively into the domestic markets. However, through our sales organization, we can ship nonferrous products to virtually any country on the globe. We previously discussed recycling's position within our vertically integrated model and its strategic importance to our company. However, it is vital to point out that we expect more out of our recycling business than simply supporting our mills. We are in the business for strategic reasons, but we work to maximize profitability within this segment. To get the most value out of each ferrous ton we process, much of our capital has been focused on downstream separation of nonferrous materials. To that end, we have invested roughly $100 million over the last 5 years to enhance our returns in this business, increasing by nearly 2/3 the amount of nonferrous metals we recover. Nonferrous materials are embedded in the ferrous feedstock we purchase, like light vehicles and appliances, so the economic benefit of recovery is twofold. First, any increase to the volume of nonferrous extracted provides a direct increase to our top line without any additional material cost incurred. Therefore, margin impact is significant. Second, by removing these metals, we also reduce the volume of by-product that is landfilled, which is environmentally friendly and saves cost. Moving to Slide 33. Our U.S. mills have the capacity to roll and ship roughly 6 million tons of long products annually. CMC has the largest portfolio of rebar producing mills of any domestic steelmaker and the third largest MBQ production capacity. Following the acquisition of the rebar assets, we operate a mill network that stretches from the Northeast to Southern California and can reach every major metro area in the United States. Our national network is supported by a world-class commercial function that is driven by a customer-first mantra. Our sales approach is as critical to our success as our operational performance. We strive to build loyal customer relationships through consistent and excellent service. This means knowing our customers' needs, making it easier to do business with us by using platforms such as e-commerce, meeting tight timetables that our competitors cannot and providing dependable order quality and accuracy. Our commercial focus has consistently landed us at the top of the Jacobson Customer Satisfaction Survey. Over time, customer loyalty leads to more consistent volumes and better margins. We offer the broadest range of reinforcing products, which enables us to sell into virtually any rebar application from a standard office complex to a residential high-rise to cryogenic storage. Over the last 3 years, we have acquired or introduced multiple product lines that now allow us to offer a one-stop shop reinforcing solution to our customers. We are the only player in the industry with this capability. Our proprietary products include ChromX, which is used for corrosion resistance and high strength in bridges, ports and other structures. Our CryoSTEEL rebar is applied in conditions ranging up to negative 274 degrees Fahrenheit and is used for applications such as LNG storage. Threaded rebar supports the foundations of skyscrapers in Manhattan and Miami. And our latest addition, GalvaBar, is a galvanized rebar solution we acquired just last month. This unique product serves the corrosion resistance market and unlike competing materials, can be fabricated and formed after galvanizing. In addition to the high margin provided by each of these products, we are able to use them to win business for our traditional rebar that generally accompanies specialty products in most applications. That is the benefit of being a one-stop shop. The last 2 bullets on the slide relate to our drive to get the most out of the assets we have. CMC consistently finds a way to exceed nameplate capacities through incremental low-cost investments that over time add up to significant benefits. This includes growing Steel Arizona's production to 150% of its original design. The other way we squeeze more out of our assets is by enhancing our presence in higher-margin products through modest capital investments. We have done this with rebar spoolers at Steel Oklahoma and Steel Arizona. And we have also expanded our merchant bar offerings in South Carolina and Alabama through innovation and targeted capital upgrades. Turning to Slide 34. CMC is the largest rebar fabricator in North America and 1 of only 2 with a coast-to-coast presence. Our shops fabricate approximately 1.6 million tons annually that are delivered directly to job sites. It is a business that is intensely customer service-focused. Time is money on a job site, and delays are costly. The way we compete and add value is by being the most reliable provider, getting steel where it needs to be when it needs to be there. We discussed the strategic value of fabrication to our mills, but having mill backing provides a significant strategic and competitive advantage to CMC's fabrication business. Customers can be sure that our fabrication shops can reliably provide rebar regardless of market conditions. Before moving on, I'd like to highlight the difference between CMC's downstream fabrication and those of our peers. Our fabrication business enters into fixed-price contracts in effect for the life of the construction project. These contracts go into a backlog that on average represent about 9 to 10 months' worth of shipments. The manufacturing process involves cutting and bending rebar to exact customer requirements. With the exception of Nucor's rebar fabrication business, the other downstream businesses of our peers are not comparable. Joist & Deck, our metal building business, uses different steel products, prices differently, has different average contract duration and sells into different yet sometimes overlapping portions of the construction market. In her section, Barbara detailed how the rebar acquisition exceeded our expectations. I want to give you my perspective as an operator on what we found and how we made the integration work. As noted on Slide 35, it was not the facilities or capital spending that made the difference. It was realigning the acquired assets while empowering good people to follow their instincts and serve the customer. After closing, we found there were silos between mill and fab groups with little coordination and alignment. When we shifted them to our vertical focus, it changed how people operate. Now those businesses are integrated and managed to maximize profits for the entire company. Another example is the gap we bridged between sales and operations. Previously, there was limited communication between the 2. We included both of them in joint planning and communication. This has had a huge impact, resulting in better production planning. And today, operations personnel often accompany salespeople on sales calls. Another example was completing customer service training. We had all of the new employees, whether in mills or fab, complete our extensive training program so they understood the role each plays in customer satisfaction. Now many of them are our greatest customer service advocates. Another critical action was aligning the pay structure with how we manage the business. The previous compensation structure was very line-of-business oriented, so there was no incentive to tear down the silos. CMC rewards based on how well the company performs. By aligning the incentive structure to support our vertical integration model, we have seen a major increase in collaboration. Also, there were direct productivity benefits from sharing best practices. For example, the acquired mill in Florida was running 2 billets through the rolling mill simultaneously, while, for many years, CMC has used the process of splitting a single billet into multiple strands. We brought this process to the Florida mill. The management team was eager to implement the process and was excited about the productivity improvement. By giving the same people with the same equipment access to CMC's system, we effectively doubled productivity on certain bar sizes and reduced production cost per ton. Moving to 36. As the examples I just discussed show, we found it was knocking down the barrier that got in people's way that made the difference. We kept the same talented steelmakers but transformed the culture. We inserted people from CMC at various levels to facilitate new ideas and The CMC Way, including town halls, different celebrations, service awards and Christmas parties. One of the most significant changes was providing people with data. The acquired assets have been managed with a focus on KPIs, which sometimes got in the way of overall lower cost. Certain leaders, for example, do not always have access to the cost data for the operations they were supposed to manage. We complemented this focus on KPIs with 4 Es: enabling management through systems and data; empowering the employees to make decisions. These folks are great steelmakers, and we gave them the autonomy to make decisions as long as they were in coordination with our overall integration model; engaging the employees so they felt heard and understood that their efforts make a difference; and energizing people. Once people felt they were involved in the decision-making, enthusiasm increased. I want to be clear. We did not say, "This is how we do it. Now you have to adapt to it." Rather, it was a discussion with talented people to understand why they did what they did and how we could improve it. We learned many things from our new team members, things very specific to the operations, which has been critical to our success. Summarizing, it was very much like combining the Red Sox and Yankees to form an integrated all-star team. When you do this successfully, people want to get on the field and win. Turning to Slide 37, let me discuss our Polish operations. As Barbara mentioned, Poland is a core business for CMC that has and will continue to provide strategic benefits. It is a world-class operation positioned in the fastest-growing portion of Europe. Since we purchased CMC Poland in 2003 for $50 million, we have invested an additional $275 million to modernize production, enhance product mix and increase capacity. The operational result has been a transformation into one of the most flexible and lowest-cost long products manufacturers on the continent. The financial result can be seen on the upper right corner of this slide. Poland has achieved impressive returns despite metal margins that are generally well below U.S. levels. The structure of our Polish operations is identical to our domestic business. A ring of recycling yards supports our mill in Southern Poland, while fabrication facilities provide baseload demand. Also, similar to our U.S. operations, we have leading positions within Poland in each major product we manufacture and can reach markets in all corners of the country as well as neighboring Central European nations. This is important as being structured similarly to our domestic footprint. The culture meshes perfectly with our U.S. operations. We have an outstanding talent pool equally engaged in providing leading customer service, driving down cost and finding innovative ways to bring value to the marketplace. Construction and steelmaking techniques are constantly changing, and we believe having a presence on both sides of the Atlantic gives us a unique advantage in staying ahead of the curve. Our domestic and Polish leaders often share expertise, including knowledge-gathering trips to learn and adopt best practices, study technological changes and discuss market developments. Several products and techniques have been adopted in our U.S. operations that originated in Poland. Turning to Slide 38. CMC Poland is always evolving. And through that evolution, we have enhanced its earnings power. Investments in new EAF technology have lowered costs, while investments in expanded product mix capabilities have increased selling margins. To that end, we're in the midst of adding Poland's third rolling line. Coming online in 2021, this project will convert about 200,000 tons of excess melt capacity into higher value-added finished products and further enhance our production flexibility. CMC Poland's product mix enhancement and production flexibility can be seen on the right side of the slide. It has the greatest flexibility of any CMC mill and can quickly adjust mix to capitalize on market opportunities, helping to keep the mill running at high utilization rates. On the left side, you can see the structural improvements in reducing our operating costs. Since 2013, we have reduced our non-raw material cost per ton by more than 20%. While not illustrated on this slide, over the same period, CMC Poland's underlying earnings power at historically normal levels of metal margin has increased nearly threefold by producing higher value-added products, leveraging our fixed assets and controlling variable expenses. Moving to Slide 39. We believe there is a significant runway for growth within our Polish operations helped by a favorable long-term market outlook and our continued investments. The Polish and German economies we serve remain among the most attractive in Europe. And while GDP in both countries is expected to decline in 2020 as a result of COVID-19, we expect to see a recovery in 2021 and beyond. In Germany, construction activity is expected to remain relatively resilient. Meanwhile, steel consumption in Poland will be underpinned by continued spending on infrastructure. In fact, as part of COVID-19 stimulus package, the Polish government recently authorized infrastructure investment equal to about 200% of its normalized annual spend. We also expect to benefit from increasingly stringent EU carbon restrictions. Unlike the U.S. market, blast furnaces are still the predominant method for making steel in Europe. This puts our cleaner EAF technology, which generates less than 10% of the carbon emissions per ton, in a strong competitive position. Any impact of higher carbon costs in Europe will be felt much worse by blast furnace competitors, potentially leading to higher margins for CMC Poland or market share opportunities or both. Growth through acquisition is also an option. Much like our U.S. operations, we are always monitoring the marketplace for solid opportunities that fit CMC's core strengths and capabilities. I covered a lot of topics. So on Slide 40, let's do a quick recap. It all begins with safety. Keeping our people safe is our top priority. CMC's vertical integration in both the U.S. and Poland are key to our success. A vertical structure allows us to manage for optimal profitability across our entire value chain. Our business lines are complementary, which helps to mitigate volatility, especially during significant market swings. The acquisition of the U.S. rebar assets has given CMC operational flexibility we have never seen before. Just as importantly, we feel our culture has unlocked the treasure trove of human capital. Our Polish operations are core. They are not only world-class on the cost curve, but make our U.S. operations better through sharing expertise and innovation. Thanks for your attention. Let me pass the baton to Brad Cottrell, who will update you on our national network or SIOP initiative.

Thank you, Ty, and good morning, everyone. For those of you who do not know me, I'm Brad Cottrell, CMC's Vice President and Chief Supply Chain Officer. I've been with CMC for 24 years. And before taking this role in January, was the Regional Vice President of the West region. Today, I will take you through our plan to optimize our mill network. I want to stress that our SIOP initiative has important revenue as well as working capital reduction and margin expansion impacts. Turning to Slide 42. SIOP stands for sales, inventory and operations planning. Some companies refer to it as S&OP, but we think it is critically important to integrate inventory into the planning as well. Applying a structured process for sales, inventory and operations planning to our national network signals a shift, an evolution from standard production planning at the regional or mill level, which we've done for many years, to a cross-functional, consensus-driven approach to optimizing our mill network with the company-wide product and customer planning, logistics and mill scheduling this implies. SIOP is a U.S. mandate as our Polish operations are already more integrated than our U.S. regions. But keep in mind that our assets in Poland have been managed for many years using an integrated SIOP approach as we took their product mix up market to favor higher-margin products. Moving to Slide 43. 20 years ago, each of CMC's U.S. mills pretty much did its own thing with its own general manager, supply chain and customer outreach. 10 years ago, we started to regionalize, bringing our scrap and fab operations into a regional management structure. Candidly, during the global financial crisis, it was our ability to efficiently manage and improve profitability in the regions that was critical to us successfully navigating that downturn. As you can see from the illustration on the left, before completing the rebar asset acquisition, CMC had 1 large mill in each region, and it was easy to not run into each other. For our rebar products, our South Carolina mill served the East. Texas served the central region. And Arizona, which has been sold out since 2009, served the West. The rebar asset acquisition was the game changer. With the acquisition of 4 new mills, we overnight had a vastly more complex network of production and fab assets to manage. As Barbara explained, we moved quickly in fiscal 2019 to integrate the acquired assets. We took early steps to get capital and operating efficiencies, the impact of which you've seen in the conversion cost improvement across our mill network. One such action was our decision to curtail melt operations in California and supply billets from other CMC mills, but I'm happy to say these were only the first steps. Substantial additional value will come as we systematically maximize the value of our operating assets network-wide. Turning to Slide 44. We are now well into our process for optimizing our network, concentrating on the major areas of opportunity you see on this slide. Much of the detail is proprietary, but let me give you some insights into what we are doing and why we think it will yield meaningful results. MBQ is an immediate area of focus. Merchants historically carry a higher margin so we can get a greater benefit for each ton sold. Moreover, customers already trust CMC and our customer service, so we believe we have the ability to expand our presence in this product area. But that said, MBQ is more costly to produce because the roll is slower on the mill and has shorter runs and greater customer intensity. So we're taking a systematic approach to deciding which products we run on which mill. As one example, Texas is a large merchant market, but we historically have not produced and sold as much MBQ in Texas as we would like. Why? Because Texas is also a huge rebar market, and we tended to focus our mill there a bit more on rebar. This is where utilizing the whole CMC mill network will payoff. By shifting production around to other mills, we will be able to execute on our MBQ product strategy while, at the same time, maintaining, even possibly increasing, our rebar volumes. Logistics costs are another area where we can optimize network-wide. We currently spend well over $1 million per day on logistics, roughly split 80-20 between truck and rail. With many more mill and fab locations, optimizing logistics costs is clearly a big opportunity for CMC. In a moment, I will show you a graphic that should make clear the complexity of our logistics network and the number of levers we can pull in our optimization efforts. I will also give you a powerful example of working capital management in just a moment. By production optimization, we are talking about planning and scheduling our mills to support our product strategy while, at the same time, improving their cost structure. In addition to the Texas example I discussed, we did this shortly after the 2018 acquisition by shifting some of our South Carolina mill's rebar production to our mill in Tennessee. This had the benefit of increasing the Tennessee mill's capacity utilization and improving its cost structure. At the same time, we were able to create dedicated capacity in South Carolina for merchant bar, supporting our strategy, and centralizing production there for some of our higher-margin specialty products. Another example of how our enlarged network enables us to grow our product line and expand margins is our Mesa, Arizona micro mill. An expanded network allows us to continue to support traditional straight bar customers from California while growing production of higher-value spooled rebar at our Mesa mill. By cost flexibility, we mean the ability to react quickly in the event of a downturn. Fortunately, this was not needed for our COVID-19 response, but we were prepared to do so. The example that followed shows how we intend to optimize all the assets in our network to improve our in-stock availability and customer service, which contribute to our industry-leading customer satisfaction scores. Slide 45 shows one of our most promising initiatives, reducing the working capital in the duplicate stock of key inventory items that each mill holds. Mills typically keep on hand safety stock of key inventory items to meet customer demand. This is critical for keeping customer satisfaction high, as measured by our Jacobson score. When you take an individual mill approach, you will end up with safety stock of key products at each mill. So in the East region, for example, you can see that with 4 mills, if the safety stock inventory is not optimized, our network can potentially hold in aggregate 4x the safety stock required. With SIOP, we can optimize shared safety stock where it makes sense and maintain or even improve our service levels. Knoxville, Tennessee and Cayce, South Carolina are good examples. These mills are close, about 275 miles apart. Freight lanes are almost equal, and we can easily share safety stock between them. We have similar pairs or groupings across our mill network and look forward to extending the safety stock concept to our fab locations. In total, we believe potential working capital reduction across our network is $50 million. The map on Slide 46 illustrates the current logistics lanes out of our mills and provides another example of the savings opportunities ahead of us. Using software and learned expertise, we are working to optimize transportation costs network-wide. You can see just how complicated our mill logistics network is. If we added fabrication and recycling to this map, the complexity we are showing you would multiply even further. This should give you a sense of tremendous opportunity in optimizing our freight lanes while, at the same time, optimizing our mill production. Summarizing on Slide 47. As I mentioned, we have already seen in our fiscal year 2020 results the improvements from our early actions. When Triple M replaces our California mill, the value we can mine from the SIOP process will increase further. Conversion costs for all products across our network will improve, while our ability to flex production levels and product mix will increase. Going forward, you will see evidence of our success in the growth of merchant tons. As I discussed in the context of Texas, a particular mill today might turn away merchant business because it can more profitably make rebar. Now we will not turn merchant away or have to decide between products. We will be able to handle the demand for rebar and MBQ by utilizing the network. As I noted earlier, better capacity and product planning will enable us to run our mills at higher utilization rates with lower costs and higher margins while, at the same time, improving our service levels for our customers. Longer term, all our melting mills need scrap. So over the horizon, we will be looking at steps we can take to buy better. In closing, let me stress again that because it also focuses on mill and product optimization, SIOP is as much a revenue as a margin opportunity because it will help us sell more tons. That's why we're so excited about it. Okay. We've covered a lot of ground already this morning. Let's take a 10-minute break. And when we resume, you will hear from Tracy Porter on CMC's growth strategy, including our exciting Triple M third micro mill, which we announced this morning.

Ladies and gentlemen, we will indeed now take a 10-minute break before resuming the event. [Break]

Ladies and gentlemen, welcome back. I would like to introduce your next speaker, Tracy Porter, Chief Operating Officer of CMC. Please go ahead.

Welcome back, folks, and thank you for joining us this morning. It's a pleasure to talk with you about one of my favorite subjects, CMC. Well my second favorite subject now that I have a grandson. I am Tracy Porter, Executive Vice President and Chief Operating Officer. I have been associated with the company for more than 30 years and serving in an executive operational role for more than 10. Turning to Slide 49. Echoing Barbara, and as you may have already seen in our press release this morning, we are pleased to announce Triple M, CMC's third micro mill. Triple M, as we are calling it, will be another first of its kind steel mill. This new mill fully realizes the potential for what we can achieve in the U.S. long steel market. Once completed, this mill will replace our current mill in Rancho Cucamonga, California and produce both rebar and merchant bar, serving the West Coast market. Triple M will reduce our environmental footprint significantly and add an expected $50 million of incremental EBITDA due to its high efficiencies. You might be wondering the significance of the name Triple M. It works on several levels. This is our third micro mill. This is a micro mill with merchant capabilities, and it's our second micro mill in Mesa. As summarized on Slide 50, we are enormously excited about the significant strategic and financial benefits of Triple M. First, this mill requires low net investment. This will be accomplished due to monetization of high real estate value of our Rancho Cucamonga site. We've always liked the close access the Rancho mill provides to one of Mesa's largest rebar consuming markets. Upon acquisition, our intention was to invest in Rancho to make it competitive with other West Coast mills. However, 2 big obstacles emerged. The first is the cost of regulatory compliance, and we have determined that the investment required to modernize the facility to make it cost-competitive would be too high. Given these factors, a greenfield investment provides a much better strategic position and financial return over the long term. Utilizing the value unlocked through the Rancho land sale made the choice even more compelling, lowering the net outlay and boosting return on invested capital. Second, Triple M will help to optimize CMC's asset portfolio. Once completed, Triple M will produce the same amount of rebar that we produced in Rancho Cucamonga. At the mill level, we are effectively swapping an older, less efficient asset for a world-class, state-of-the-art micro mill that will be able to access plentiful local, low-cost scrap supply. Equally important, we are adding merchant bar capabilities to serve the West Coast market, which is a strategic growth opportunity I will touch on more in a few moments. Brad has already discussed our SIOP initiative and the potential it has to help generate revenue and increase the efficiency of our U.S. operations. Triple M is a major component of our SIOP strategies that will have ripple-out benefits for other MBQ capable mills in Texas, Alabama and South Carolina. Finally, the new micro mill will be a more environmentally friendly way to serve our end markets. Triple M replaces an older facility with newer, cleaner technology. It will be the first steelmaking operation in North America to adopt a groundbreaking new power system, which will allow for direct connections to wind and solar energy sources. As part of the Triple M project, we intend to invest in an on-site solar array to provide a meaningful portion of the mill's energy needs, taking advantage of Arizona's 300-plus days of sunshine. I would also note that by connecting directly to our power source, we will avoid the loss of electric current that occurs with a standard grid-connected transformer, which can be up to 10%. With the innovation of both our new mill and its electricity source, we will significantly reduce our emissions and energy usage. Moving to Slide 51. One of the great benefits of being an innovative company is learning from our past projects, and Triple M is no different. This will be CMC's third micro mill, and we are taking significant learnings from our Mesa and Durant mills, applying them to this new project and then upping the ante. As you know, CMC was the first in the world to run a continuous process rebar micro mill. Triple M will use that same continuous rebar technology and will also be the first in the world to run a continuous process for merchant bar. Brad discussed the complexities of merchant bar. The ability to run merchant bar continuously is a real technological advance. Our track record of innovation and our deep experience with micro mills give us full confidence that we can revolutionize the merchant bar manufacturing process, creating significant efficiencies. This will also add key merchant bar capability on the West Coast and will offer easy freight access to Southern California, the region's largest consuming market. One of the key benefits of a micro mill is the ability to size the operation appropriately for the target market. This will certainly be the case with Triple M's merchant output. Our expected merchant bar output amounts to less than 20% of the West Coast consumption and only 1/3 of the California consumption. Turning to Slide 52. Let me take a moment to share some more details about project Triple M. The new facility will be located in the same site as our existing Steel Arizona micro mill. We anticipate commissioning to begin in 2023. The project will have a net investment of approximately $300 million, including proceeds of the land sale, which we will use to partially finance its investment. Based on that net investment, we anticipate a very attractive return. The project's nameplate capacity is 500,000 tons with an intended MBQ production of 150,000 tons. But I want to highlight the flexibility this mill has to produce higher levels of rebar or merchant bar to cater to any market environment. We chose Mesa, Arizona for the location of this one-of-a-kind mill from a list of several potential sites. We know the jurisdiction. It is business-friendly, and we like operating there. We also expect meaningful benefits from leveraging existing infrastructure and transportation access. Locating on an existing site will also allow us to share key staff, particularly in areas that are difficult to recruit, like engineering, maintenance and experienced supervisors. We know the local talent pool well and is a very competent workforce available to us in addition to our own excellent employees. Leveraging preexisting local vendor arrangements will also be a plus. The last advantage of this is possibly the most important. Our experience with micro mills started in Mesa, and it is still CMC's biggest repository of know-how. Steel Arizona not only has experienced steelmakers, whose assistance will be key to successfully launching Triple M, but they also excel at creating new steelmakers. This ability to recruit and train will be a vital resource for our project. When fully operational, our new mill will bring 185 full-time manufacturing jobs to the Mesa community and support nearly $0.5 billion of annual economic activity. This kind of multiplier effect demonstrates how vital manufacturing is to the economic health of our nation. When including employment at vendors and local business, Triple M will support roughly 1,000 new jobs in the State of Arizona. Summarizing the project on Slide 53. You can now see why we're so excited. Triple M is a smart, strategic opportunity for growth with 3 key benefits: First, it will feed the strong underlying West Coast demand for rebar and MBQ that Billy outlined previously; second, Triple M provides meaningful bottom line growth while replacing rebar capacity in our Steel California facility and appropriately sized merchant output; finally, the project monetizes significant value in California real estate, which reduces our capital outlay and increases returns. Moving to Slide 54. Triple M isn't the half of it. As Barbara and Ty mentioned, we have a wealth of other organic growth opportunities that pass our strategic filter. Growing in the MBQ market is one of them and with a mill-optimized network, will be a key focus area. Demand in the MBQ market is over 5 million tons per year. CMC currently has a share of less than 20%. There are several aspects of the MBQ market we like that fit with our strengths. High-quality service is paramount. Customers stock anywhere from dozens to hundreds of SKUs. We strive to balance having inventory available to consume or sell against the need to minimize working capital. This provides an opportunity to generate value through our proactive and attentive customer engagement. That kind of high-touch service is an area in which CMC excels. MBQ offers significant end market diversification. It's sold into virtually every steel-consuming channel, with the exception of automotive. Opportunities exist for downstream expansion similar to rebar that would provide baseload demand for our mills and the ability to apply our vertical integration model to maximize returns for the entire value chain. And perhaps most importantly, growth in MBQ would entail low capital costs for CMC. We already have the assets and the people. Now that we've discussed what makes MBQ attractive, let's turn to how CMC is addressing the opportunity. The construction of Triple M will provide CMC with its first-ever direct access to West Coast MBQ market. We will be low-cost and have the shortest transportation route into Southern California. When Triple M comes online, we will have a network of merchant-capable mills extending from coast-to-coast across the Southern United States with no areas of service gap. Our network optimization efforts are unlocking MBQ capacity that was previously tied up with the production of rebar. We're shifting some of the rebar work lift from our legacy mills to the acquired mills. This frees up capacity to increase our participation in MBQ by also utilizing the acquired mills at higher rates. We're working to enhance our customer reach via expanded product offerings. Given the number of SKUs stocked and consumed in the MBQ supply chain, solid market participation requires a wide range of products. We're in the process of widening our range. Last fiscal year, our Steel South Carolina mill produced 65 new products, and our Steel Alabama plant has just completed investments that will broaden its size range, adding dozens of new offerings. We have also invested in enhanced climate control storage and handling capabilities at our Steel Texas mill. Our creation last year of a centralized MBQ sales force is intended to be the thread that ties all the other efforts together. Our commercial approach is to not only be product experts but also experts in customer needs. Our sales force is able to draw on the combined capabilities of CMC's 3 existing MBQ producing mills, ensuring that customers have access to the products they need when they need them. Turning to Slide 55. We have a number of exciting organic investments underway, each expected to provide strong returns and enhance our ability to win in the marketplace. Our Danieli 3 Polish rolling mill is currently under construction with an anticipated completion in late fiscal 2021. This $80 million investment involves the addition of a third rolling line that will provide our operations with several meaningful benefits. First, it will unlock 200,000 tons of excess melt capacity, growing our volumes of finished products and increasing margin per ton. Second, the project will further enhance our production flexibility, allowing us to roll more product types simultaneously and then quickly react to market opportunities. The new investment will also help to increase melt shop utilization, which will lower conversion cost. Once fully operational, we expect this project to generate $20 million in annual EBITDA. CMC was the first domestic steelmaker to produce spooled rebar. This product provides handling, operating cost and yield benefits to our fabrication customers internally and externally. Currently, we operate 2 spooling lines, one in each of our existing micro mills. We also operate 3 respooling lines, 2 in Poland and 1 soon to open in Florida. These investments represent CMC positioning itself to benefit from the potential broad domestic adoption of this product. Spooled product makes up nearly 30% of rebar consumption in Europe. And like many other construction trends, we anticipate Europe will be the blueprint the domestic market follows. To put 30% penetration in context, today, less than 10% of rebar consumed in the U.S. is in coil or spool form. Long-term adoption of spooled rebar goes hand in hand with the next area of investment listed. Automated fabrication shops can reduce labor intensity per ton by up to 75%, which significantly lowers both conversion costs and the potential for safety incidents. Today's automated fab lines can consume spooled rebar in place of straight bar for many applications. This is the path forward toward higher market penetration for spooled rebar that I just mentioned. So as the number of automated fabrication shops grow, so will the demand for spooled rebar. We recently opened the domestic industry's first fully automated fab shop in the Houston area. Initial indications are positive. Cost per ton are lower than traditional fab shops and consistent with investment assumptions, while our production flexibility is greatly enhanced. We see the growth of fab automation in the domestic market as another long-term development that could yield attractive returns for CMC. Like spooled rebar, we have positioned ourselves to be at the leading edge of this trend. In addition to the larger projects in our CapEx budget, CMC is always working on a steady stream of smaller dollar investments that drive meaningful improvements to our operations. Our Steel Arizona mill we have spoken about throughout the day is the poster child for these types of low-capital, high-return projects. Steel Arizona was the world's first micro mill. And when it was commissioned in 2009, it had a nameplate capacity of 280,000 tons. In just 10 years, output has increased by 50%. This was accomplished through multiple projects, in aggregate, amounting to less than 10% of the original cost of the mill. It's important to note that every one of these projects was initiated by our own people, not outside vendors. It's that level of innovation and drive that gives CMC confidence that while Steel Oklahoma has been a solid success today, there's even a brighter future ahead. With that, let me hand it over to Billy Milligan, who will discuss CMC's sustainability program.

Thank you, Tracy. Turning to Slide 57. Sustainability is integral to CMC's company culture in all areas, including environmental, social and governance. We have a framework that outlines our initiatives in these areas. And today, I'm going to walk you through our sustainability programs, all of which are core to the way we operate. I also encourage you to visit our website to download our full sustainability report, which contains additional details on the areas that we will discuss today. Looking at Slide 58. CMC was founded as a recycling company in 1915, then forward integrated into steelmaking and then fabrication, effectively closing the loop on the vertical integration chain and the process of steel life cycle. While our operations have expanded, recycling has been core to our business since our founding. CMC's operations are industry-leading from an environmental perspective. We effectively operate in a closed-loop cycle of steel recycling, production and fabrication, with materials being returned to our recycling operations at the end of their life for use as raw material in new steel production. Steel is the most recycled product in the world today and is infinitely recyclable, which is something that we take advantage of in our operations every day. Our finished steel products have the highest recycled content in the industry at over 95%, thereby, reusing scrap metal to produce new products that would otherwise be landfilled. Our metal shredding operations take recycling to the next level by passing products through additional processes to extract virtually all metals, which we sell or use in producing new copper and aluminum for products that are used in your everyday life. Also, because we only operate scrap-based electric arc furnaces, otherwise known as EAFs, we have a much lower carbon footprint than the overall steel industry. Our leading-technology EAF's scrap-based micro mills are inherently greener than traditional blast furnace operations, which use our natural resources by mining iron ore and limestone or even the environmentally friendly EAF mini mills. This environmentally responsible process of making steel reduces our scope 1 carbon footprint over 13x as compared to the global average for steelmaking, and our energy consumption is more than 6x less than the industry average. Geographically, our footprint is optimized to collect and process scrap locally, serve and deliver products to our customers, reducing carbon levels generated in transportation or delivery process. This strategic footprint was enhanced by the added flexibility from the recently acquired assets. With Triple M, we're now moving to the next era of steel production with the newly announced micro mill, the third of its kind in our system, to serve the U.S. Southwestern markets. Mills of this kind are the most environmentally friendly way to produce steel, and this new facility will replace obsolete assets with state-of-the-art efficient EAF micro mill technology located closer to the customers and markets that we will serve. Triple M will employ new technology, which allows us to consume 100% of our electricity requirements directly from renewable, solar and wind energy sources. Moving to Slide 59. At CMC, we're committed to best-in-class environmental profile and to operating with a minimal carbon footprint, in addition to the new Triple M micro mill in Arizona that we have discussed, which Tracy noted will be the first in North America to direct connect to potential sources of renewable energy. Our SIOP optimization program will take advantage of our expanded geographic footprint and reduce transportation carbon emissions by shipping products at shorter distance. We are increasingly active in purchasing long-term commitments to energy produced through renewable sources and reducing our energy use through partnerships with our providers like SRP in Arizona and Statkraft in Poland. We're also making investments in advanced recycling, processing equipment in our scrap operations that enable us to extract greater value from the nonferrous materials by producing a cleaner, more furnace-ready material for our copper and aluminum customers at a premium price. All of these efforts not only reduce our carbon footprint, but also reduce cost and incrementally grow our bottom line. Turning to Slide 60. As you've heard from Barbara and Ty, safety is at the heart of everything we do. Safeguarding our employees is the utmost importance, and we've made significant strides in implementing safety programs that predict, take action and prevent incidences before they occur. All of our operations have proactive safety measure metrics with goals that are reviewed monthly. This holds everyone accountable and ensures we're actively engaged in working to improve our safety awareness and our work environment. We proactively and thoughtfully monitor data around areas we know our hotspots from a safety perspective. Historical trend data shows areas like new hires, fingers and hands, slips and falls are the most vulnerable, and we continuously monitor these areas, analyze the data and put measures in place to ensure the safety of our employees. These actions have significantly improved our individual safety accountability and ultimately improved our safety performance, as shown in the graphs. In addition to having a historical safety record, significantly below industry average, we recorded the lowest incident rate on record at CMC in 2018 of 1.3. We experienced a slight increase in 2019 to 1.5 as we integrated our newly acquired facilities. Our global total recordable incident rate, or TRIR, for our legacy operations was 1.2. Our U.S. legacy mills rate for 2019 was 2.0, below industry average, as shown in the graph in the lower right. We have now integrated and implemented our world-class safety program in the acquired facilities and have already seen improvement in 2020. Moving to Slide 61. We never forget that our employees are moms and dads, sons and daughters and active members of the communities in which they live. For that reason, we're focused on doing what is right by our employees and getting back to the communities in which we live and work. It should be no surprise that we're laser-focused on making sure our employees are engaged and that we have a strong company culture that supports our communities. Things like our expanded leadership development programs lead to high employee satisfaction, which in turn, promote success externally. Our high Jacobson Customer Satisfaction Survey scores are direct results of CMC's commitment to our people. We have found that if you educate and empower your employees to do the right thing for the customers and all stakeholders, you can never go wrong. You've heard some very specific examples of this in Ty's portion of the presentation today. And finally, the communities in which we operate are intrinsic to our success, and we look for ways to get back to the organizations, which are at the intersection of community and employee interest. Some examples of this are our work with the American Heart Association, the American Cancer Society, the Gary Sinise Foundation and the Habitat for Humanity. With a pillar of our community involvement directed to assisting our veterans, we have helped construct or contributed to the construction of 8 smart homes for veterans that were wounded in action. Additionally, to assist our local first responders and medical professionals during the current COVID-19 pandemic, we have donated mask and testing equipment, organized multiple blood drives, distributed hand sanitizer and partnered with local food banks to help those in times of need. These are just a few of the amazing examples of CMC's community engagement. So in summary, for the last 105 years, our guiding principles have been our North Star. We place the customer at the core of all we do. Without satisfied customers, we would not exist. We are committed to our employees. Our employees are the most important resource we have and are truly a reflection of our success. We get back to the communities in which we live and work by being good environmental and social stewards. And finally, all of the above in aggregate, helps us create value for our investors. Now let me turn it over to our CFO, Paul Lawrence, who will discuss our financial strategy and show you how our vertically integrated operating structure drives our financial results.

Thanks, Billy, and good morning, everyone. I am Paul Lawrence, Chief Financial Officer of CMC. As cleanup hitter in today's lineup, I will walk you through the financial impact of what you have heard today from our team regarding the transformational actions taken over the last few years. I will then look ahead to the expected benefits of the current slate of strategic initiatives before sharing the principles that guide our capital allocation and investment decisions. And along the way, I will touch on a few common questions that CMC frequently encounters during our conversations with the investment community. Turning to Slide 63. Barbara led off this morning, outlining the near decade-long strategic shift CMC undertook to divest our noncore operations and focus on the vertically integrated manufacturing model. The last 2 years represented the inflection point in this effort. CMC moved beyond the shrink-to-grow stage and achieved a true transformation of our portfolio with stronger earnings power and higher cash flow generation. The first step was in early fiscal 2018. We divested the last piece of our former marketing and distribution business. This brought to a close CMC's 65-year history in the physical trade in Cometals. The sale of Cometals and the wind down of Cometals Steel strengthened our balance sheet ahead of the rebar asset acquisition. Equally as important, it simplified our business and allowed for a reduction in support overhead. This simplification was a benefit both from an internal managerial perspective as well as externally as the key drivers of our business became clear and easier to understand. The second step, also in fiscal 2018, occurred when we commissioned CMC Steel Oklahoma, our state-of-the-art micro mill, featuring the first rebar spooling line in North America. The ramp-up pace and financial performance of this facility has exceeded our expectations and added meaningfully to the bottom line. The long-term strategic potential of spooling technology led us to our third strategic action, investing in a second production line at our Arizona mill. When combined with our Oklahoma operation, this project demonstrates CMC's ability to lead in this growing product category. We believe we are in the early innings of market adoption for spooling rebar and expect strong financial returns from these spooling investments. The last item listed was the most significant undertaking of our 105-year history. As you have heard today already, the acquisition of these rebar assets has been a strategic and financial home run. The important takeaway is that there is even more value that can be achieved from the SIOP activities Brad outlined. Turning to Slide 64. I'm truly excited today to present for the first time how we expect this transformation will lead to meaningful increases in our through-the-cycle EBITDA. You can clearly see the remarkable impact of CMC's recent strategic actions on our earnings. Adjusting for average metal margins, the $240 million in new incremental EBITDA represents higher normalized through-the-cycle profitability that we expect our actions will achieve. In just 2 years, the earnings and cash flow capability of our company has nearly doubled. We believe our EBITDA should now average approximately $540 million over the course of a business cycle. We also anticipate being better able to protect the level of earnings compared to past cycles, given our greatly enhanced operational flexibility that will improve our ability to react to changing market conditions. It is worth noting that we achieved the transformation you see on the slide, while rapidly delevering our balance sheet and reaching our long-term leverage target of 2x trailing EBITDA. However, $540 million is just the start. As Slide 65 illustrates, we have the potential to generate an additional $135 million in through-the-cycle EBITDA. This slide layers in the financial benefits of the major strategic projects we have discussed today. We believe the current initiatives, network optimization, Triple M, the Polish mill expansion and other growth initiatives will increase CMC's average through-the-cycle EBITDA to approximately $675 million. So as exciting as the transformation outlined on the previous slide was, there is even more meaningful growth to come. Outside of the investment in Triple M, this $135 million of anticipated earnings growth is expected to be achieved with relatively modest capital investment. As Brad highlighted, one of the goals of our SIOP process is not only to optimize costs but also reduce working capital. So the first step on this bridge should actually be achieved with a capital inflow. Next is Triple M. As Tracy outlined, a significant portion of the cost of this trailblazing mill will be recouped by unlocking the value of land from our Rancho Cucamonga facility. Therefore, we will obtain the full earnings benefit of this new low-cost mill against the greatly diminished net capital outlay. The final 2 legs on the chart capture the other organic growth of projects. Our Polish mill expansion is similarly frugal from an invested capital perspective. Our $80 million investment will unlock 200,000 tons of capacity, equal to about $400 per ton of new product output. This is a fraction of the typical costs associated with new production. One final note is that we expect to fund these growth projects through our free cash flow generation and not incur any incremental debt. Moving to Slide 66. Through all the transformational change over the last several years, we have focused on maintaining a strong balance sheet and healthy liquidity. Today, CMC has one of the strongest leverage profiles in the entire metals and mining sector. We are particularly proud that this has been achieved in just 1.5 years following our transformational acquisition that closed in the first quarter of 2019. After temporarily levering up to complete the transaction, we quickly paid down debt and now have a leverage ratio consistent with many investment-grade companies. Our internal goal, which was shared with the investment community was to achieve a gross debt-to-EBITDA ratio of 2x by the end of fiscal 2020. Because of the financial success of the acquisition, we hit this mark well ahead of schedule. Today, we are very comfortable with our current leverage and net debt levels as we feel it strikes the correct balance between financial flexibility and the cost of funding in this current period of economic uncertainty. As you can see on Slide 67, the debt amounts and maturity profile provide us a high degree of strategic flexibility. Our next sizable maturity is not until 2023 when our first tranche of bonds mature. At the end of May, we had over $600 million of availability on our financing programs in addition to $462 million of cash and cash equivalents, which provides us plenty of dry powder to pursue other inorganic opportunities that may arise. Now on Slide 68, I would like to change gears and share with you how the financial performance of our operations support each other. You have heard a lot today about our vertically integrated value chain and the vital role each of the businesses within that chain play. I want to spend some time discussing the interaction between mills and fabrication from a financial perspective. And Slide 69 is a good illustration of the complementary nature of the businesses. Let me take a moment first to describe the mechanics of our fabrication selling price, which will lead to a better understanding of the economics between our mill business and our fabrication business. The average selling price we report for the fabrication segment is a function of the price of work we ship out of our backlog in a given quarter. Generally, we carry between 9 and 12 months of backlog. Some projects are longer, some shorter. During a normal construction project negotiation process, fabrication bid prices are generally based on a value over and above current mill rebar prices. This means that the average price on work shipped in any given quarter was essentially based on market prices of rebar roughly 12 months prior. Practical economic effect of this arrangement is that the sale of about 1/3 of our volumes are essentially at a fixed price. Or said another way, our vertical structure reduces the impact of short-term volatility on our overall business and financial performance. The margin we optimize along our vertical chain predominantly occurs between the rebar cost at our mills and the backlog price at our fabrication shops. While this is what I'm outlining today, it should be noted that we also have a similar dynamic in the recycling segment that buffers volatility of scrap costs through the network. So now to the teeter totters. As you can see on the left side, in an environment of declining steel prices, mill margins are often compressed, while at the same time, margins within the fabrication business expand. This occurs because the rebar costs consumed with the fabrication business decreases, while the revenue is supported by the fixed price coming out of the backlog. Conversely, when steel prices rise, as illustrated on the right side, mill margins expand, offsetting the adverse impact on fabrication margins, which will be compressed because they are [ expensed ] for higher cost rebar to fulfill the fixed price contract. These dynamics meaningfully reduce earnings volatility through the business cycle and allow us to manage the entire value chain for optimal returns. On Slide 69, let me share data that proves out what I just said. The upper right-hand graphic represents mid-fiscal 2015 when steel prices and more specifically for us, rebar prices began to decline significantly. Fabrication earnings more than offset the ensuing reduction in mill EBITDA, allowing CMC to experience less profit and cash flow volatility than several of our peers. The reverse scenario is depicted on the graph in the bottom right, which occurred more recently in fiscal 2018. As a result of the implementation of the Section 232 Tariffs, steel prices, and again, for us, rebar prices, rose by over $100 per ton. This resulted in fab performance being negatively impacted as we serviced our pre-232 fabrication contracts, but overall CMC results improved due to the expanding mill margin environment. As you can see, there is less real volatility in our business than is often perceived. Looking over the past decade on the chart in the middle, apart from the growth we have generated, CMC's consolidated domestic EBITDA levels have been relatively stable. Turning to Slide 70. Let me briefly share several questions we receive frequently from our investors. The first hinges on the volume of new steel capacity set to hit the market and whether this is the right time to construct a new mill. While a valid concern in many circumstances, in our product space, we continue to believe we are well positioned. As Tracy mentioned, our new Triple M plant will replace Steel California with more efficient capacity to serve the Western U.S., adding no new rebar capacity and only incrementally increasing merchant capability. Both products will deliver into the key California market at a cost advantage in comparison to competitors, particularly the largest-consuming market in the West Coast, the L.A. Metro area. We expect a strong return on invested capital from this project, given our past experience with micro mill technology and the capital offset from our California land sale. With respect to competitor actions, the incremental capacity in products we compete against is not significant in relation to overall market demand. And it should be noted, it is reported that some of the new capacity will result in a shift of production from existing operations, thereby reducing the amount of incremental capacity that is being added to the market. The second topic we are often asked about is the volatility within our recycling and fabrication segments, which is admittedly somewhat fueled by the way in which we report our segments. While our mills consistently generate strong EBITDA levels, earnings in recycling and fabrication have a tendency to fluctuate more significantly. The reality is, and as we have detailed today, our mills are able to perform at the strong level because of the vertical chain, in which both our recycling and fabrication businesses play key roles. Our scrap operations provide a low-cost, captive source of scrap for our mill operations and operate primarily in tighter scrap supply markets. Our fabrication operations provide pull-through demand of material from our mills, providing a solid base level of volumes and adds stability to our revenues while protecting against surges of imports. When our performance is viewed as a vertical stack, the perceived volatility vanished, as I mentioned before. Lastly, in terms of earnings growth, CMC's in-flight initiatives have much further to travel in terms of their earnings potential. We have an array of growth initiatives and even our game-changing rebar asset acquisition will continue to contribute more as the result of the network optimization and SIOP efforts. In addition to the organic projects that we have discussed, we are also continually monitoring for M&A opportunities, which could range in size from bolt-on to very significant. These profit contributions would be over and above the through-the-cycle EBITDA improvements we've shown you. We are confident we have the financial resources and capabilities to execute the integration playbook to leverage M&A and drive value for our shareholders. So based on discussions today, it should come as no surprise that our priorities for capital allocation are currently: one, funding growth projects; two, returning cash to shareholders; and three, repaying debt. As we have detailed, we have several exciting high-return growth opportunities in progress. We expect these projects to provide returns well above our cost of capital and, therefore, create meaningful value to our investors. The success of our rebar asset acquisition demonstrates our ability to generate significant value through M&A. As previously mentioned, we want to ensure we have the dry powder for additional opportunities that could materialize. For the right target, we would again lever up to around 3 to 4x on a gross debt-to-EBITDA basis as long as we have a path to return our leverage to long-term target of 2x. That said, we are prudent acquirers and look for opportunities to ensure they will provide meaningful return to our shareholders throughout the earnings cycle. As long as we are able to find and execute on attractive organic and inorganic opportunities, we feel the best use of capital and the most shareholder-friendly use of capital is to fund accretive growth. Absent a large M&A transaction, priority #2 is returning cash to shareholders. We have paid 222 consecutive quarterly dividends and are definitely committed to maintaining this track record. We believe the yield associated with our quarterly $0.12 dividend is competitive. And for 2020, this represents a payment to shareholders of approximately 20% of our net income. In addition, we have the willingness to repurchase shares under the right conditions. However, we would not lever up to fund a program. This route would be used to distribute excess cash that is not needed to fund growth, dividends or debt repayments. As I have mentioned, we believe 2x is a prudent leverage target that provides flexibility both to fund growth and navigate a business cycle. Our emphasis on debt repayment will ebb and flow based on the distance that we are from this target level. However, our gross debt-to-EBITDA today is well positioned, so little value would be gained from additional debt repayments. In closing, turning to Slide 72, I would like to reiterate the key tenets of our financial framework. Firstly, we strive to leverage our portfolio of assets to maximize returns. We have a company capable of generating through-the-cycle average EBITDA of $540 million. And to that, we expect to add roughly $135 million from in-flight projects. Secondly, we will target a cycle average return on invested capital above 10%. This is consistent with best-in-class levels and would generate meaningful economic profit over our cost of capital. Thirdly, keep the balance sheet strong with leverage of 2x EBITDA, flexing as necessary to take advantage for the right opportunity when it comes. And finally, return excess cash to our shareholders. Thank you very much for your attention this morning. We have enjoyed taking the time to share with you some deeper insights about CMC, and we are truly excited about the opportunities that lie ahead. We are now ready to open the floor for Q&A. I would like to call to your attention the slide that's currently on the screen with details on how to register for Q&A. Operator, we'll take our first question, please.

[Operator Instructions] Your first question this morning comes from Chris Terry from Deutsche Bank.

I had a clarification question just on the Triple M facility related to the Californian land sale. I just wondered if you could clarify, you've obviously closed the melt side of the business. Does that mean that the rolling will also close? And I just wondered what you're implying for the land value within that $300 million net?

Yes. Thank you, Chris. So it is our intent to conduct an orderly exit of the operation. So that would mean shuttering the rolling operation. And as you pointed out, we previously announced that we were shuttering the melt shop due to the factors that Tracy outlined in his presentation around high-power costs and high cost of regulatory compliance. With regard to the land sales, we knew when we were going through our due diligence process to acquire the assets. There was significant value, and we have had ongoing interest in that real estate. So subsequent to this announcement, we will begin a process to competitively market that land. And at this time, I'm not prepared to give you an exact valuation that will be a result of this competitive process, and we will be happy to update you on the development as that progresses. But suffice it to say that we've studied it carefully. There's been ongoing interest and there is significant value to unlock.

Okay. And I just had 2 other questions. So just in the context of deciding to do the Triple M facility. Does that -- what sort of returns were you looking for? Or what the hurdle did you need? You said 10% through-the-cycle return on invested capital. Is it above that 10% for this project? Or can you just talk about the sort of returns and how you've made the decision to greenlight that facility?

Yes. This is a project that we've been studying for a number of months. And any investment like this, we would target a return above that 10% through-the-cycle return on invested capital because we know there's always a number of assumptions that are taken into consideration. And we want to make sure that we have some additional upside, if, for example, an assumption does not play out as we expect. In this case, with the capital that we expect to unlock with the land sale, we would expect the returns on this particular project to be well, well above 10% and possibly approach double that.

Okay. And the last question I had, just to be clear on the capital allocation framework that Paul went through. Given the debt currently, the leverage ratio is below that 2x and trending down still. Does that mean that with the commitment to Triple M, you still have quite a bit of firepower to do other decisions? So it's not an exclusive decision on Triple M, and therefore, other decisions that you can make in the company now put on hold, there is still opportunities for acquisitions, organic growth. That's the message you're sending, right?

Exactly. In order to draw in a few others into the conversation, Paul, maybe you can elaborate a bit.

Sure. Thanks, Chris. Yes, we have sufficient working capital -- sorry, sufficient liquidity available to us and expectations that our free cash generation over the life of the construction of this project will more than fund the growth initiatives that we've outlined. And so through this, we believe we will have the dry powder and, frankly, the balance sheet in order to take advantage of any opportunities that should come up for both organic and inorganic growth.

[Operator Instructions] Your next question comes from Alex Hacking from Citi.

My first question would be for Paul. Paul, when you talk about the $540 million of per-cycle EBITDA, what are you assuming there on tariffs, in particular, the Section 232 Tariffs? And I know this was discussed a little bit earlier in the presentation, but what do you think will be the impact if those tariffs got removed?

Alex, thanks for the question. In terms of the presentation of the through-the-cycle EBITDA, we looked at this from the aspect, we know we're in a cyclical business. And that the cyclical nature of the business is going to have a number of factors, economic and tariff-potential impact. And so if we look through the cycle, essentially, we are looking between 7 to 10 years of historical averages of where we've been with the key drivers that drive our business. And so it's not really with or without tariffs. You've seen in the presentation today that really regardless of the tariff environment that we're in, we're able to generate stable earnings and stable levels. So really, this is looking at the handful of key drivers that are really important to us in terms of both market demand, metal margin and cost environment. And in all of those cases, really, you can -- there's not a lot of variability over a long-term cycle. And those are the averages that we've used in coming up with the $540 million.

Okay. And then my second question, I guess, maybe for Barbara, I'm not sure. But Slide 15, where you kind of lay out some of the growth opportunities. On the left there, you're kind of ruling out flat steel, tubular, saying that's not really what you guys are into. But there are other kinds of long steel that are not kind of featured on this slide, in particular, sort of maybe structurals or engineered bar. Should we think about those things that are not in CMC's kind of near-term future, but you wouldn't rule out longer term? Or are those just things that you wouldn't be interested in?

Yes. Thank you, Alex. I think we wanted to highlight the areas such as hot rolls that clearly are a great distance from our core. And we are a growth company, and we look to deploy capital where we can get the highest returns possible. And we also look to take advantage of our core capabilities. We are in the long products business. So I think you can assume that we will look at all possible opportunities that are in that space and also take advantage of our core capabilities.

Your next question comes from Seth Rosenfeld from Exane BNP Paribas.

I have a couple of questions a few, quite basic, I apologize. So going back to Triple M. And with regards to the CapEx target of $300 million, can you confirm, is that number already net of assumed land sale proceeds from Rancho or is on a gross pre-land sale basis? And then connected to that, when you look at the Rancho operation, you obviously already shutdown the melt shop last year. We announced that last year. The rolling line at Rancho that's currently being supplied with some straight from elsewhere, is the one you're going to continue to operate? Or is Rancho shutdown entirely on a go-forward basis? I'll start there, please.

Okay. I'll answer the first question, then I'll ask Tracy Porter to explain the orderly exit of Rancho. The $300 million that we indicated is a net number, Seth, net of proceeds. And we will obviously update that as we conclude the sale of that real estate. Tracy?

Yes. Thanks, Barbara. The question about the closure of Rancho, yes, absolutely. We're going to go through an orderly shutdown of this mill in the time to be worked out in the near future. But we don't know how long we will continue to operate. Currently, the billet supply is coming from our own mills. We're long in several of our mills, and this has worked out really well. But we are not really getting specific about the absolute closure date there. As I said, there's things to be worked out. And we want to be respectful of everybody's role in place there in the company. And so we'll be talking more about that in the future, but not today. Thank you.

If I can ask 2 additional questions, please. You talked about, I think, $50 million of additional EBITDA benefit going forward from further network optimization. Can you give us any color on kind of what will be included in that? I know this has been an area of focus already over the past several years [indiscernible]. But how should we think about that network optimization going forward as you continue to get larger? And is there any material costs, you should keep in mind, either in terms of additional dollars you're investing or volumes to be walking away from in that process?

And since Brad is responsible for that area. Brad, why don't you answer this question?

Sure. I think as Paul mentioned on his section, the $50 million of EBITDA over the next 4 or 5 years. And then obviously, we talked about the $50 million of working Capital. Tracy just alluded to some of the gains that we've already seen in our process by supplying billets from our other mills into the Rancho mill. So we're already down the path and doing well and we'll just continue to look for those opportunities to optimize. But really, it's about top and bottom line growth, this network optimization initiative and unlocking the value that we know is in the business today and we just got to go after it by taking a national approach.

Okay. And last question, sorry if I missed this earlier in the presentation, but any commentary on the scale of structural working capital release that you think can be achieved over the coming years.

Yes. The working capital release that we indicated associated with the SIOP optimization strategy, we believe, is in the range of $50 million in addition to the $50 million of other optimization benefits that would come through further EBITDA generation.

Our next question comes from Alex Hacking from Citi.

I'm back in the queue already. I had a couple of follow ups. Thanks again on the MBQ side, which it sounds like an area that you're interested in doing more. Could you maybe discuss the market opportunity? Is it similar to rebar, where you see certain kind of geographical areas that are underserved where CMC might have logistical or other advantages to gain market share? And then just secondly, on MBQ, if you increase your MBQ production, does that potentially open up more downstream opportunities?

Yes. Ty Garrison has been playing a key role in this MBQ strategy and he has the accountability for 2 of our existing MBQ mill. So I'm going to draw Ty into the conversation here.

Sure. Thank you, Barbara. It's a great question. And we're excited about the merchant bar opportunities we have, but I think we have to be clear. We've been a significant merchant bar player for many years. So this business isn't new to us. We have an established customer base that I believe appreciates the customer service approach we bring. I think probably 2 events have put MBQ in the spotlight more maybe than what we've highlighted in the past. The recent rebar acquisition gives us more flexibility on some of our current mills, our legacy mills, to further participate in the MBQ market. And as we highlighted in the presentation, we've already begun to take advantage of that by deploying small amounts of capital in some of our existing mills to enhance our MBQ offerings. Also, the announcement of Triple M gives us access to the West Coast, which we traditionally have not had. I want to be clear, we participate in MBQ market on the West Coast already, albeit not at the level that we hope to participate in the future. And obviously, having to travel from some of the mills we go from currently, there's been a little bit of a cost disadvantage. So I just want to be clear that we do have an established customer base, coast to coast. And I think for many years now, dealing with our MBQ customers, they've asked us, if we're going to get into the MBQ business coast to coast. And so we're happy to be able to do that with the Triple M announcement. And I think last year, when we established a fully dedicated MBQ sales team that was really our first step in making sure that we could take advantage of MBQ opportunities that are out there. And lastly, I'd say that the micro mill technology should give us the same cost advantage on the merchant as we enjoy in rebar today. And that's what's so exciting about the Triple M project as well. And keep in mind here that the Triple M project, kind of on a little bit different note, does not add any net rebar to the overall market here. So it just gives us more flexibility. So hopefully, that answers your question, Alex.

Yes. Thanks, Ty. Just to clarify on the Triple M. You mentioned there, it sort of would be net neutral on the rebar side, but it would be adding capacity on the MBQ side. Is that accurate?

I think that's a fair assessment, yes. And I think outside of just adding additional capacity, it adds additional flexibility for our entire network.

If I could further add, though, Alex, there has been some MBQ capacity that was taken out of the market. And the West Coast market, in particular, is underserved in terms of having local capacity. And third, we believe that the amount of incremental capacity we're adding here will not be disruptive to the market.

Your next question comes from David Gagliano from BMO Capital Markets.

And before I ask, I would also second the commentary regarding the presentation, very helpful. Very helpful in differentiating Commercial Metals versus most of the U.S. peers. So I really appreciate the extra details here. The question -- and I'm going to apologize in advance, I've been jumping around a bit between calls. I was wondering if you could provide a little more detail regarding what you are seeing in the end markets with regards to obviously, the outlook for, for example, for the next 12 months. Obviously, we picked up the commentary on the earnings call and in terms of stability in the near term, but has there been any changes from a slightly longer-term perspective?

Yes. Thank you, David. Billy Milligan is really a key member of our management team that studies this very carefully and provides a lot of really great analytics for our own internal planning. So I'm going to ask Billy to address your question.

Thank you, Barbara, and thanks, David, for the question. We track probably 6 or 7 different construction economists in their forecast. And interestingly, they all are really on the same trajectory today as to what they're forecasting. But let me first explain to you why we use the Portland Cement Association forecast as really the basis of our outlook, and they do tend to be a little more optimistic than others today. First of all, they have the best historical track record among all the forecasters that we look at. Secondly, it encompasses all rebar consuming markets, that is infrastructure, nonresidential and residential. So while a lot of the forecasters just looked at the nonresidential side of the business, it does not capture -- and only captures about 1/3 of the construction spending. The third reason is the PCA, Portland Cement Association, outlook is a volumetric forecast. So it removes all of the inflationary measures that are associated with product cost. We think that the PCA forecast gives us a much cleaner view of what we actually care about, how much rebar demand is expected over the next few years. And their current forecast levels are -- they're down about 5.5% this year and then an increase of about 1.5% next year and beyond.

Okay. And that doesn't sound like it's changed much in terms of what you said previously. So recently, there's been really no -- I don't want to put words in your mouth, but have there been any meaningful changes in, for example, backlogs, bidding activity, order books, that kind of thing?

Yes. I think -- go ahead, Billy.

I think if you look at our bidding activity, it has been very strong even through this pandemic, and that's a leading indicator for us as to what's coming down the pipeline. So from a leading indicator perspective, that backlog and bidding activity really gives us insight into what's coming down the market, and it still continues to be very strong.

Yes. Thank you, David. I would add further that we are continuously monitoring the situation and the revised forecast. And as you move forward in time, there will be more clarity, and we look forward to giving you our best view when we release our earnings in October, and we can update you further then.

[Operator Instructions] Your next question comes from Tyler Kenyon from Cowen and Company.

First question I had was, could you speak to the cadence of some of the capital outlays for Triple M over the next few years? And maybe remind us of the time line for the Poland investment, where I believe, I think as of this point, maybe you've spent about $40 million of that $80 million investment.

Thank you, Tyler. I'm going to ask Paul to respond to that.

Tyler, as far as the Triple M project goes, if we start there, we are looking to start that facility from a commissioning stage in early 2023. And the bulk of the spending is likely to occur in the back half of that time frame. So we'll have some spend this year. Probably through next year, we'll have about 1/3 of the spend and then the final 2/3 really in 2022. With respect to the Polish investment, you are correct. The total investment is $80 million. It is scheduled to commence commissioning roughly a year from now, and we have spent around $40 million of the project.

Okay. That's helpful. When we look to bridge your EBITDA from kind of through-the-cycle levels of $540 million currently to $675 million as you execute on these strategic investments. Could you perhaps walk us through each segment and discuss your view of what normalized EBITDA per ton is now and where you see that going, taking into account all these strategic investments?

Tyler, as far as from a segment view perspective, we are really looking to manage this business as a value chain. And it's really what we're doing here is continually enhancing not just 1 segment, but how we can get the most out of the entire chain. And so some of the network optimization will come in different parts of the business. And so the way we look at it is not so much from the contributions of the individual segments. They all have a charge in which to maximize the capital that we allocate to each of the segments. But really, a lot of these actions really are from the benefit of how the segments work together and really overall provide us the full return. So I won't go into much detail in terms of where specifically this increase will come from.

Okay. And just -- could you just remind us the rolling capability at Rancho Cucamonga, currently? Is it around 0.5 million tons?

Tracy, would you like to address that?

Yes. Thanks, Barbara. Yes, it's got the capability of that. We're running somewhere south of that right now. And so as we said earlier, the rebar -- we're not adding any new capacity to the market. This will just be a replacement with a greener footprint, a more efficient way of making steel. And so yes, it's just swapping one for one.

Got it. And just one last one. Could you maybe give us a sense as to where you see just the MBQ mix versus rebar shifting to over time? And maybe remind us again of kind of the difference in profitability perhaps on a per ton basis between MBQ and rebar, like on a through-cycle basis.

Maybe Ty, you can talk about the mix. And Paul, you can respond to the margin differential.

Sure. From a mix perspective, I'm not sure that we'll see a significant change in what our current mix is. It will be taking additional tons in a market that we're currently not serving in the capacity we would like to serve it in. However, to save a percent or 2 additional gain would maybe be fair to take into consideration. But again, I think we have to be clear, we're not just getting into the MBQ game for the first time. We've been doing this for a long time. We're a major player. So it's really just going to be taking advantage of optimizing our entire network. And with the acquisition of rebar assets, this gives us the opportunity at some of our existing mills to make more MBQ than what we have in the past. Paul, maybe you can address the difference in margin.

Yes. So with respect to the margin, the way we look at the business in terms of return on capital employed, it's relatively similar between rebar and merchant. And the reason for that is merchant runs generally a little bit slower on the mills. There's more changeovers, more different SKUs, as Tracy was mentioning in his presentation. So there's a higher metal margin, also offsetting that is slightly higher costs associated with the slower throughput. But at the end of the day, from a return perspective, where we are today, it's relatively similar from an overall return on the capital that we put in the business.

Your next question comes from Seth Rosenfeld from Exane BNP Paribas.

Just one follow-up question, please. In your presentation on sustainability, you touched on perhaps getting superior prices for green steel products, I believe. Can you just come back to that and talk a little bit about how you view the outlook for cleaner steel for green steel in the U.S. going forward, particularly with the new micro mill [ offensively ] being fully fed with renewable energy. How do you think the potentially higher cost associated with that energy supply might be offset with higher revenues going forward?

Yes. Tracy, maybe you can take a crack at question and clarify that.

Yes. Seth, I think part of the -- the way you're asking the question is interesting because this really hasn't been a mandated thing in the United States. I think the EU is a lot more active in terms of the carbon issue than we are in the U.S. today. Part of our initiative is to do this because we also live in these communities, and we can [ kind of ] see where things are going. But basically, it's good business at this point in time, and it's sensible business. We've got -- there's a big movement in the shareholder community and the investment community towards looking at this sort of thing. So that's a little bit secondary to our thoughts here. It's just good business. It's good economics. And we don't think it will fetch an extra margin, I guess, in the marketplace until it's more widely accepted and maybe even mandated. But at this point in time, we're doing it for the right reasons, I believe.

And I would like to further clarify, we did not indicate that it's a higher cost of production. We actually see lower cost benefits associated with this. And we have the flexibility to tap into the renewable sources but also conventional sources. But we're not anticipating an increase in our power costs. There's actually consumption benefits associated with it. And the capital outlay for this versus tapping into traditional is also net neutral. And as Tracy indicated, we will be good stewards and our whole business was environmentally friendly from day 1 as we started in the 1915 as a recycling company. And we work hard every day to reduce our overall environmental impact because, as Tracy indicated, it makes good business sense and in nearly every case, it also contributes to lower costs.

Ladies and gentlemen, this concludes our question-and-answer session. I will now turn it over to Barbara Smith, CEO of CMC, for closing remarks.

Thank you. And thank you, everyone, for joining us this morning. We had originally planned to hold this event face-to-face. But unfortunately, we had to convert that to a virtual environment, but we really appreciate your attention. And if you have any further questions, please reach out to our team, and we would be happy to speak with you further, and hope you all have a great afternoon.

Ladies and gentlemen, this concludes our event. Thank you once again for joining, and you may now disconnect.