Good morning, everyone. My name is David Gallison. I'm the Vice President of Investor Relations at Stella-Jones. Many of you may recall our inaugural Investor Day in 2023, where we provided a closer look at the business and the team. Building on the success of this past event and on the strong foundations we've laid, today we'll outline our plans for the future growth of Stella-Jones as a leading supplier to essential infrastructure providers across North America. As such, the presentation today will focus on infrastructure businesses. Now, before I turn the floor over to Eric, some housekeeping. Please note that the comments made in today's presentation may contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties. Actual results may differ materially from these views expressed today. For further information on these risks and uncertainties, please consult our relevant filings on CEDAR Plus.
Please also note that all figures are expressed in CAD unless otherwise noted. During the presentation, the company may refer to non-GAAP measures, which have no standardized meaning under GAAP and are not likely to be comparable to similar measures presented by other issuers. For more information, please refer to the company's latest MD&A available on the Stella-Jones website and on CEDAR Plus. With this, I would like to welcome to the stage Stella-Jones President and Chief Executive Officer, Éric Vachon.
[Foreign language] Good morning, everyone, and welcome. On behalf of the entire Stella-Jones team, I would like to thank those joining us this morning, both in person and virtually via webcast. Today, we're going to walk you through our performance and evolution over the past few years and provide insight into the opportunities that lie ahead as we continue to build and grow our business. As you might expect, you will hear from myself and Silvana Travaglini, our Senior Vice President and Chief Financial Officer. You will also get to hear from our expanded management team, including Kevin Commerford, Senior Vice President, Utility Poles and U.S.
Residential lumber, Pierre Lavoie, General Manager, Steel Structures, who joins Stella-Jones from the Lockwell acquisition, Sylvain Couture, Vice President and General Manager for Railway Ties, as well as Wesley Borlin, our Senior Vice President and Chief Operating Officer, and Rhianna Carver, Senior Director, Project Management and Sustainability. I'm proud to be joined by these members of our exceptional leadership team as we share with you our vision of the future. Today, you'll not only hear from our management team, but also from Catherine Duff and Omar Saeed from the Boston Consulting Group, who will provide their valuable perspective on the transmission and distribution industry.
Before we begin, I would like to acknowledge that the land that we're meeting on is in the traditional territories of many nations, including the Mississauga of the Credit, the Anishinabe, the Chippewa, the Haudenosaunee, and the Wendat people, and is now the home of many diverse First Nations, Inuit, and Métis. As an organization, we are committed to deepening our awareness and understanding of Indigenous histories and cultures. We recognize that this is an ongoing journey, and our long-term focus includes creating mutually beneficial relationships and procurement opportunities that contribute to the economic growth of Indigenous communities. Over the last two decades, Stella-Jones has been focused on becoming a North American leader of treated wood products. We have successfully executed on this objective, driving growth both organically and through acquisition, with sales now approaching $3.5 billion.
Building on the strong foundation of our past success, we now turn our focus to the future with a redefined vision: being a future-ready, agile organization committed to serving the utility and railroad industries. This enhances our vision to support our mission to broaden our addressable market, opening new avenues for sustainable growth. In early September, we reinforced our new vision with an updated brand platform. As we developed this new brand, it enabled us to align as a business on our vision and our mission of supporting infrastructures to connect communities locally and across North America. Before we continue, I'd like to invite you to watch a short video that showcases Stella-Jones' brand platform.
The theme of the video and of today's event is "Stand Tall, Reach Wide." We chose this specific call to action because it speaks to the strength, stability, and breadth of our current business and our aspirations for growth beyond our traditional product offerings. It also evokes the pride we take in the way we operate, pursuing continuous improvement across all functions and leveraging technology to drive innovation. As David mentioned, in 2023, we hosted our first Investor Day, which focused on communicating the fundamentals of our business and showcasing the strength of both our product offering and our management team. Today's event is designed to build on that foundation. To start, I will share how we have positioned and evolved the business to capitalize on key opportunities. I will then dive into our focused areas for growth and how our infrastructure-focused vision is guiding our strategic path forward.
We see multiple opportunities to leverage our deep customer relationships, expertise, and asset base to expand our portfolio and earn a larger share of our customers' wallets. To support the next phase of organizational growth and operational excellence, we strengthen our leadership team with the addition of a Senior Vice President of Corporate Development and a Chief Operating Officer, both of whom were with us this morning. These key hires are aligned with our long-term strategy to unlock new market opportunities, drive strategic partnerships, and enhance innovation while driving operational efficiencies. Let's take a step back and look at what we have accomplished. Over the last three years, Stella-Jones has continued to focus on growing its infrastructure business. Utility poles, railway ties, and industrial products represent nearly 80% of the company's sales, up from 69% in 2022.
We have built a high-value, strategically located, strong cash-generating business that provides a solid foundation on which to build and allows us to efficiently fund our capital allocation priorities. Our extensive network and strong offering in utility poles positions us well to benefit from the meaningful investments required by our customers over the long term to replace aging infrastructures, meeting growing power demand and increase grid resiliency. For railway ties, our broad footprint and efficient procurement operations enable us to provide exceptional service to our customers while further strengthening our position and driving increased market share. Also central to our efforts over the last few years has been the implementation of our Enterprise Resource Planning, or ERP, system, which we began in 2019 and successfully completed this year. I'm proud to say that our team has delivered the project on time and on budget.
This new system plays a critical role in enabling better data-driven decision-making across the organization and supports greater operational efficiencies and scalability. Let's turn to our financial achievements. Over the last three years, we have increased sales by 14% while expanding our EBITDA by almost 40% and EPS by 45%. We grew EBITDA margins by more than 300 basis points to almost 18%, and we are well on our way to returning $500 million of capital that we committed to shareholders for the 2023 to 2025 period. Over the last few years, we have also invested about $130 million to increase utility pole capacity and completed $350 million in accretive acquisitions, including the recent acquisitions of Lockwell and Brooks. These acquisitions have broadened our reach, enhancing our solution offerings and positioning us to achieve greater penetration amongst customers currently served by our utility pole business.
At the same time, we have maintained a strong balance sheet, kept our investment-grade rating while successfully completing the issuance of our $400 million inaugural bond offering. Since our last Investor Day, we have also made significant strides in our sustainability journey, including setting targets for greenhouse gas emission reductions and further aligning our leadership's interests with those of shareholders through various initiatives such as the introduction of a minimum share ownership guideline. The company's success is anchored in our team's ability to service the utility and railroad industries with quality products and value-added services. Stella-Jones has established a reputation for timely delivery of products when and where they are needed.
In addition to our network of 46 manufacturing facilities across North America, we have made meaningful investments in value-added services such as finished good yards and transportation assets to ensure we can efficiently service customers in close proximity to their operations. Our expansive network enables us to respond quickly and efficiently to our customers' needs, an advantage that is especially valued when replacing critical infrastructure and one that is difficult to replicate. Our position as a longstanding supplier of choice has fostered a loyal customer base and contributed to our consistent profitable growth, and we intend to keep growing. Using our current asset base over the next three years, we expect sales to grow at a CAGR of approximately 4%-5%. We further expect to maintain EBITDA margins in the range of 17.5%-18.5%.
One new metric that we will be tracking as part of our 2026 to 2028 objectives is earnings per share. We are targeting an EPS CAGR of more than 10% over that period. I will let Silvana speak more about our targets later this morning. To support sustainable earnings growth, we are focused on targeted capital investment that leverages innovation and technology to drive operational efficiency and deliver enhanced value to our customers. There are multiple areas that we are currently evaluating, and this would include refining core functions such as pole peeling to minimize waste and ensure we can provide larger-sized poles that are required by our customers, reducing operational costs and safety risks by automating traditional manual processes, and leveraging technology and AI to streamline operational challenges, particularly around scheduling, workflows, and logistics. Our overarching goal on innovation is to be future-ready.
You will get the opportunity to hear more about this topic during my fireside chat with Wesley. Accretive acquisitions and investments have long been core to our earnings growth, playing a key role in building our industry-leading wood utility pole and railway tie business. In addition to pursuing acquisition of our traditional wood business, our commitment to serving North America's utility and railroad industries opens new growth opportunities that will strengthen our position as a supplier of choice for our infrastructure customers. Let's dig a bit deeper into these new opportunities. This will illustrate the market we're positioned to serve and the multiple avenues we have to create and capture long-term value. One of the products we are best known for is wood utility poles. The total addressable market in North America is estimated to be approximately $3 billion annually, in which we hold a leading industry position.
Of the wood poles we sell, approximately 80% support distribution, with the remaining supporting lower-voltage transmission projects. Within the transmission market, wood poles have limited use, which was part of our rationale for acquiring Lockwell, a steel transmission structure manufacturer. Most transmission projects use steel structures, either lattice towers or monopoles, due to higher voltage levels and increased load requirements. Higher voltage requires lines to be suspended at greater heights and span longer distances between structures, which in turn demand stronger support structures. The North American steel lattice market represents an estimated total addressable market of approximately $1.5 billion annually. In May of this year, we entered the transmission market with the acquisition of Lockwell, now Stella-Jones Steel Structures, stepping out of our traditional wood pole business, which focuses on the distribution sector.
An immediate goal was to scale our impact by doubling the facility's capacity from approximately CAD 55 million in annual sales to more than CAD 100 million, representing an increase in capacity to 20,000 tons of steel per year. Most of the U.S. lattice tower market is currently served by foreign suppliers. In recent months, discussions with our U.S.-based customers have resulted in a strong expression of interest for us to establish a production facility in the United States. This represents an opportunity to further expand our capacity as the market remains largely underserved by domestic producers. We are evaluating the potential for a greenfield lattice plant in the U.S. with a capacity similar to the Canadian facility of 20,000 tons per year, but remains in the early stage of this assessment. We will share further updates as our evaluation progresses.
Tubular steel poles, or monopoles for transmission projects, represent a more significant untapped market opportunity, with an estimated addressable market in North America of $3.5 billion annually. The market for tubular steel poles is composed of four to five major players, along with a handful of smaller competitors. Currently, our tubular pole exposure accounts for less than 5% of Lockwell's sales, but the expertise gained through this acquisition positions us well to pursue and capitalize on future opportunities in this space. While steel structures are a key pillar of our growth strategy, multiple other avenues of growth exist within the transmission and distribution market. We continuously assess the potential opportunities to broaden our product line and offer a wider range of product to our well-established customer base.
When we look at the areas that interest us most, we've identified alternative pole materials, such as composites, as well as several other products and services required by our utility customers to maintain or expand their network, such as inspection services and structural pole fixtures, a market we recently entered with the acquisition of Brooks Manufacturing. Our recent acquisitions demonstrate our readiness and ability to confidently expand into these new markets and capture a greater share of our utilities spend. While our utility structure business is expected to benefit from growing transmission and distribution demand, our railway tie business operates in a largely maintenance-driven market where demand has remained relatively stable for more than two decades, in the 18-20 million range of new ties annually.
Even in this stable environment, we continue to identify meaningful opportunities to strengthen our position in this product category through strategic investments, innovation, expanded offerings, and an unwavering focus on quality and customer service. Railway tie customers look to Stella-Jones for solutions that will help them optimize their business model. This positions us to pursue growth opportunities through targeted capital projects that will enhance Class 1 customers' operational efficiency, as well as through the development of more favorable working capital solutions and expansion of product offering in both wood and alternate materials. Class 1s have long been searching for a wide, viable composite tie solution that offers durability in high-moisture environments and can be responsibly disposed of at end-of-life. While composite materials offer numerous advantages, they still have several limitations that make continued research and development essential.
This presents an opportunity for us to explore expanding into alternate products that address Class 1's demand for long-life asset performance and their sustainability challenges. Delivering a reliable alternative to traditional wood ties for specific applications would enable us to strengthen our position as a trusted partner and industry leader. Over the years, Stella-Jones has successfully grown through acquisitions. When we evaluate potential acquisitions, we look at each opportunity through a strict lens to assess the strategic fit. Our proven set of criteria is consistently used to evaluate all acquisitions and investments. That has been and will continue to be an important part of our successful acquisition strategy. The first set of criteria assesses the strategic value of potential acquisitions that can deliver and the market dynamics in which they operate.
We look at acquisitions that build on our existing infrastructure portfolio and enhance our business resilience by leveraging our strong customer relationships and established distribution network. We target markets supported by favorable tailwinds, where customers are expected to continue investing to strengthen the electrical grid resiliency and maintain the rail infrastructure. When it comes to operational fit, our focus is on ensuring we have the right leadership team to effectively run the business while assessing alignment with Stella-Jones' culture. We aim to identify potential synergies and operational enhancements that can contribute to long-term value creation across the integrated organization. Ultimately, our decisions are guided by a clear focus on delivering sustainable long-term financial returns. Maintaining a solid return on capital employed, or ROCE, is a core priority. Each of our leaders is held accountable for ROCE performance and it is embedded in our compensation structure.
In addition to ROCE, we also assess investments based on their potential for EPS accretion, margin strength, and sustained cash-generating capabilities. Looking ahead, we are well-positioned to execute our growth strategy supported by a strong balance sheet, consistent cash flow generation, and a proven playbook that has delivered successful outcomes time and again. In summary, we are constantly looking to leverage our scale, relationships, experience, and strategic network to expand and bring higher value to the markets and the customers we serve. We are focused on the next phase of growth for our company, whether it's through investments in organic initiatives or through acquisitions. We have the right resources and the best team in place to drive our vision forward. Our team of more than 3,000 dedicated employees has been and continues to be the driving force behind our profitable growth.
Their commitment has enabled our success to date, and they remain driven and focused as we enter the next phase of our journey. Thank you very much for your time and attention, and I hope you will enjoy the program that we've prepared for you today. With that, I'm pleased to welcome to the stage Catherine Duff and Omar Saeed from Boston Consulting Group to provide an update on the dynamics and trends of the T&D utility space. Thank you.
Good morning, everyone. My name is Omar Saeed. I'm a principal with Boston Consulting Group, and I'm joined today with my colleague Catherine Duff, who is a partner at Boston Consulting Group. The way we want to use this section is we want to talk about the capital and how it's flowing across the energy sector and where it's creating momentum.
The energy sector is the largest capital-intensive industry in the world, and it's currently undergoing some of the most meaningful changes that we've seen in decades, both in where capital is being deployed and how it's being allocated across the energy sector. Now, to better understand this, at BCG, Center of Energy Impact, we surveyed almost 300 of the largest global energy companies to understand who's spending what and where across the energy sector. The goal is simple: follow the capital, understand the shift in priorities, and understand how the sector is being reshaped. Now, with that, I'll start with the big picture. The prediction across the next five years is that the energy sector will deploy almost $7.5 trillion of capital in the next five years. Now, within that massive number, there are two key points that I want you to take away from this slide.
If you look at the green part of the slide, more than 50% of that $7.5 trillion will be coming from global power and utilities. This is a meaningful shift that I will unpack in the next slide. The second piece that I also want you to take from this is 20% of that $7.5 trillion will be coming from North American utilities. This is the second-largest investment bucket after national oil companies, and it is only by a small margin. Here, today, now, we are at the epicenter of this growth. Those two pieces that I talked about, I want to unpack in the next two slides. The first one is global utilities, and the second one is North American utilities. Let me start with the first one, with the global utilities.
If you look at this chart, what we're trying to show on the left-hand side is how much capital has been spent in the past and how the evolution has been up till today and what is being forecasted in the next few years. The gray bar on this chart shows oil and gas, and then the green bar shows power and utilities. If you look at this, there are three clear distinct eras. If I look at pre-2020, it's characterized by oil and gas dominance. They're spending more than power and utilities. It's clear, as you can see in the chart. If I look at today, so between 2020 to 2025, the second era, you see the oil and gas spend has almost plateaued, but the power and utility spend has been accelerating, almost coming to parity.
The most interesting part in this chart is it's being forecasted based on capital plan in the next five years. This is power and utilities are no longer playing catch-up. They're actually expected to outpace the spend of oil and gas by almost 30%-35%. This is a meaningful shift. This is a structural shift. The center of investment gravity is pivoting from extraction and hydrocarbons to electrification and infrastructure. That is a theme that we're seeing globally. Now, that's a global picture. Let's talk about North American utilities and what is the evolution that we're looking at from a North American utility perspective. Before I do this, I want to just level set what are the different archetypes that we see within North American utilities.
If you look at the bottom of the graph, the light green, and we call it integrated, those are typically vertically integrated, regulated power and utility players. They own and operate generation, transmission, and distribution. A good example of this would be Duke Energy. The second one is T&D. They only focus on transmission and distribution. They're also regulated. A good example of this would be Con Edison. The third is hybrid. They own regulated utilities, but also operate in the unregulated business, such as competitive generation. A good example of this would be Nextera. If you remember that $1.4 trillion number that I wanted to anchor you with, more than 50% of that will come from integrated utilities. Nonetheless, the message is clear across all archetypes. We're seeing a step change in demand.
We're seeing a step change in growth, and that is consistent across all archetypes. What I'm not showing in this graph, but it's still meaningful to mention, from the $1.4 trillion that is expected to be deployed in the next five years, $125 billion have been added only in the past nine months. Utilities are revising their capital plan targets, and they're revising them upward. The travel of direction is clear. Capital is going up, and it's going up fast for North American utilities. Now, everything I've mentioned so far, we just talked about capital and how it's flowing and where it's going across the energy sector. What we haven't unpacked yet is what's driving this growth and how our utilities are planning on tackling and funding this growth. With that, I'll pass it on to Catherine Duff. We can talk through this.
Perfect. Thanks, Omar.
Okay, maybe not the most obvious plot. I'll just orient us to what this is and then talk about the drivers. On the Y-axis, you see load growth. Not surprising. Load growth is driving capital growth. Capital growth is what we see on the X-axis. What we are looking at is, as Omar was talking about, a couple of these different archetypes of utilities, and we see that integrated players are capturing the most load growth, and commensurately, they are seeing the most increase in their capital plans, so higher capital growth than previously. Pretty straightforward, right? There is still load growth. Capital is going to need to be invested to meet that. Integrated utilities capturing the greater portion of that, but as Omar mentioned, T&D, hybrid, also right in there.
Now, as Omar alluded to, I want to talk about super positive growth, growth, growth, yes, but how are utilities actually going to meet that growth, and what are some of the considerations that they're going to have as they think about doing that? I want to just touch on three briefly. The first is, where do I deploy my capital across generation, transmission, and distribution to best meet that growth and best get a return? The second one is utilities operate within a financial framework. How are they going to fund this growth while keeping within the constraints that they have financially? The third is a key external factor. The one that I'll highlight being the most important is affordability. Affordability is headline news. How are they going to invest to meet this growth while keeping affordability in mind for their customers?
With that, what I want to talk about is that trade-off between generation, transmission, and distribution. What we have here is five integrated utilities, large integrated utilities, as we talked about, the ones getting the most of the growth. Here we have, in the light green, what they're investing in generation, and these are rolling capital plans, rolling five-year capital plans to show the direction of travel of that investment. Light green is generation, the medium shade of green is transmission and distribution, and the dark green is other. I want to highlight a couple of things quickly that we can see by just looking at these five examples, but it holds across the board. They do not all look the same, right? The trade-off between how much I'm putting in T&D, how much I'm putting in generation, how much I'm growing changes.
Some really all in on huge growth on generation. Some huge growth on T&D. Others evenly split. What we can say across the board, in all of these, their capital plans are growing, and in all of these, their capital investment in T&D and in generation is growing. It is a growth story on both, but it depends on that utility's individual service territory or service territories and where do they think they can deploy that capital to get the best return across the different options that they have. Now, I just want to do a double click because T&D is the order of the day on what do we mean by T&D CapEx and how do utilities consider T&D CapEx and what does that mean in terms of the types of investment.
Now, what we can see is a large portion of it is actually going to adaptation, hardening, and resilience. You got 27% in traditional hardening and resilience, 7% in advanced technology for transmission, distribution, 26%, and 12% for the hardening and resilience and then the advanced technology supporting that. The next biggest bucket is replacement, so replacing the infrastructure that they have as it ages, 34%, 30%, and then expansion, 29%, 27%. This is a historic view, right? This is based on EEI 2022 survey in North America. We do not have, I mean, this capital has not been spent yet. It is not perfectly fully allocated yet, so we cannot say what it is going forward. From conversations we are having, from what we are seeing, still about a third is on adaptation, hardening, and resilience. Unsurprisingly, that expansion portion is growing a bit going forward as we think about that.
Okay, the second thing I talked about, which is how are they going to fund this growth? Unsurprisingly, I think to everybody in this room, utilities have a financial framework. They need to maximize cash flow from the core business, invest for future growth, protect the balance sheet, minimize shareholder dilution, grow dividends consistently and predictably. How are they going to invest the capital in this growth and maintain that? Now, increasingly, to fund this growth, they're having to turn to external sources of funds. Still, that's the traditional debt and equity, but they are starting to explore non-traditional sources of capital, so minority stake divestitures, partnerships, to be able to stay within this financial framework, optimize within this financial framework, but go after this tremendous and exciting growth. Okay, so what do we want you to sort of leave this room with and remember? Demand surge.
U.S. load growth is rising at 4% CAGR through 2030, led a lot by AI, data centers, electrification, in some cases, population growth, all of the good factors. What this is leading to is massive CapEx expansion. $1.4 trillion of CapEx to be spent by North American utilities in the next five years. As Omar highlighted, that's 20% of all of the CapEx deployment in energy globally. Really at the epicenter of this growth. Great, but some key considerations I think we need to keep in mind. Historically, utility CapEx plans have been quite firm, but this is, as Omar highlighted, pretty unprecedented times, pretty massive capital deployment. A couple of things that we want to keep our eye on as they evolve to see how utilities will decide to allocate this capital where it's going to come. Demand.
Where and when will load growth materialize, particularly data centers, right? We hear about that a lot, but where matters and when matters. Given where and when will this demand appear, how will capacity actually match demand? Overbuilt, underbuilt, how's that going to play out? What will that do to how utilities think about deploying capital into the future? As I mentioned earlier, affordability. How will affordability evolve? Probably it won't be the same in every state and every province. How will that evolve going forward? How will that change how utilities think about where and what they deploy? We are in an ever-changing policy and economic environment. What will be the changes in policy trends? What will be the changes in the economic picture that will drive capital deployment?
Finally, doing this will require ramp-up of supply chains, ramp-up of capital being funneled into these utilities. How is that going to evolve? Is it going to keep pace? Where is it going to keep pace? Really exciting times to be in the power and utility space, and I think an area to watch. Thank you, guys .
Thank you, Catherine and Omar, and good morning, everyone. Excuse me. My name is Kevin Commerford. I'm the Senior Vice President of the utility pole and U.S. residential lumber business at Stella-Jones. I've been in this business for 33 years. Most of my career has been around the selling of the product to utility customers, and just in the last few years, it's grown to include all the other aspects of running the business, the resource operations and transportation aspects.
Stella-Jones is a leading supplier of wood utility poles in North America. We service large, medium, small, electric, and telephone utilities across the U.S. and Canada primarily. Our wood pole business has seen strong growth over the last several years, increasing at an annual rate of approximately 12% up to $1.7 billion approximately. Utility poles account for nearly half of the company's total revenue today. This sustained growth is more than simply a rising tide lifts all ships, but rather the result of a well-designed and executed strategy. We have strategically expanded our business through a combination of capital investments, organic growth, and acquisitions, as well as a purposeful strategy to invest in long-term relationships, both with our suppliers as well as our customers. I'll talk about that in more detail in a few minutes.
The North American electric system consists of, they say, 185 million structures, which serve both the transmission and distribution networks. Each year, it's estimated that more than 3 million new poles are placed into service to maintain, harden, and expand the grid. As highlighted by the Boston Consulting Group team, the utility industry is entering a period of increased investment activity. Headlines are increasingly talking about hyperscalers, AI data centers, even new nuclear power plants, etc., all of which are going to be important contributors to the power market in the future. However, there are several other major trends that will also drive strong growth in the distribution and low-voltage transmission markets, which is really our business, the wood pole business. Utilities are faced with the maintenance of aging infrastructure. We've all heard about that.
Reports estimate that 40%-45% of the distribution assets in North America are either very near or past their theoretical useful life. In recent decades, utilities have elected to defer maintenance to focus on other investment priorities, resulting in a substantial backlog of deferred work that still needs to be addressed, and much of it is in the near term. While individual utilities will manage these maintenance programs on their own timelines, we remain confident that this will translate into increased investment across this sector. At the same time, utilities must confront the growing challenge of weather events, which have become more frequent and more severe, straining some networks to the point of failure, as we've seen. Power interruptions and extended outages are costly for businesses and very frustrating for the average consumer.
As a result, utilities across North America are facing pressure to invest in system hardening to increase the resilience of these systems. As mentioned here a minute ago, there's also the need to manage the ongoing growth of electricity consumption just beyond AI and data centers. There's significant investment required to keep pace with the reshoring of manufacturing back in the U.S., the continued growth in renewable generation that today is usually further away from the transmission grid than earlier projects, which requires more transmission, as well as just general increased electrification. Each of these drivers requires investments by utilities. With the growth in demand for the electricity and the need to harden the system, combined with limits on access to right of way, utilities are increasingly looking for stronger, meaning bigger or taller structures or both.
This is important to our business as larger poles equal more volume. While what we sell to our utility customers is poles, what we're really producing and manufacturing is volume. There are usually between six and eight classes, which has nothing to do with the quality of the wood. It has to do with the dimension of the wood. In an individual length, there can be six to eight classes. An increase of one class moving to one size bigger results in approximately a 15% increase in the volume in that pole. Likewise, for poles that are in the same class but five feet taller, roughly a 15% increase in the volume. Let me explain it this way.
If you take a box of, excuse me, 64 crayons that we all had sort of growing up, you know, with a little sharpener in the back, if you take one of those crayons out and you replace it with a piece of sidewalk chalk, which is a hopefully you know what a sidewalk chalk looks like, it does not really fit back in the box because it is bigger. Now, eventually, if you take all 64 of those crayons and replace them with sidewalk chalk, you have got a much bigger box than the original one that you started with. All that extra volume translates to more wood fiber that we have to procure and peel, more treating capacity, preservatives, more trucks and rail cars needed to get it to our customers.
A utility buying the same number of poles from us may actually be buying a much larger volume of poles from us. Taller and heavier trees to make these bigger poles can be a challenge to source as well, which makes the diversity of supply, which I'll talk about in a second, as well as species substitution critical to meeting the evolving demands of our customers. Thankfully, our procurement group excels at delivering both of these, which is a great segue into this. The map starts with the trees, the resource, the trees that will grow utility poles, which is not most of North America. It's just in these regions that if you're looking at the map, you can see. We have strategically located or positioned our network of 27 wood pole treating plants either in or very near this resource.
We do that to minimize the transportation costs and optimize the recovery of fall down. We source Douglas fir, western red cedar, southern yellow pine, and northern red pine in the Great Lakes areas. This large network of 27 treating plants also allows us to flex up and down in response to spikes in demand. Most of these treating plants have peeling equipment, what we call peelers in the industry, but we also operate 19 additional peeling facilities, and a bunch of dots just came up on the map to increase not only our total peeling capacity, but also to get access to every part of that resource. We have a large staff of forestry professionals managing the production of these unique trees.
I say that even within a good stand of trees where we're going to get poles, maybe one out of 10 will meet the strict specifications required to make a pole. Getting around and seeing a lot of trees is critical to getting what we need. This not only requires a deep understanding of the resource and the science of silviculture and forestry, but also long-standing, often decades-long relationships with the people who own these trees. Our supply chain, in some cases, extends, in many cases, over many, many years, where we purchase the trees or the rights to harvest those trees years before we actually sell them to our customer. Beyond this, we also have an extensive network of distribution yards, and those are all the other dots now filling in most of North America in strategic locations outside of the tree-growing regions.
This allows us to give customers the same level of service, the ones that are in the middle of the continent, as if they were right in the resource. It also allows our customers to outsource the complexity of managing their own inventories of poles, which is extremely easy to mismanage if it's not your primary focus. As I like to say, if you don't go to bed at night and wake up in the morning thinking about poles, you're not thinking about them enough, and you should let us help with that. Over the years, we've listened to our customers and evolved to address the challenges that they face. One of those is the handling of the poles. The handling of poles is a specialty. They don't go on pallets. They don't fit into containers. They're long. They're heavy.
They roll, all of which makes the loading and unloading and storing them dangerous for the employees around, as well as expensive. Our team includes a transportation management group of career professionals. They manage a dedicated fleet of more than 700 rail cars, more than 100 specialized company-owned trucks. Their unique experience in these logistical challenges and the ability to move poles hundreds or even thousands of miles into our customer service territories means that our customers are buying much more than just a utility pole from us, but rather a delivered product that is delivered right to the point of use, in some cases, literally right to the hole where the pole is going to be erected on time every time. Our customers value our reliability, supply, and our quality.
Coming through the pandemic with the resulting supply chain constraints, we took several strategic actions to position ourselves for the growth that we saw ahead. While our strategy has been consistent over the years, more recently, we invested in the expansion of our treating capacity, our resource, meaning peeling, drying, as well as our transportation and logistics capacity, specifically building new finished good yards, adding additional rail cars, and trucking equipment. As we brought this new capacity online, we focused on finding and partnering with customers who value long-term supply relationships. When supply was tight and demand and prices spiked, we did not chase after those short-term opportunities. We stayed home, and we prioritized our key strategic customers. For us, there is great value in maintaining long-term customer relationships. It fits together here. We can plan around their demand even when their demand is not always perfect.
We can use that information to optimize our network, including long-term commitments on the supply side, building new finished good yards, more rail cars, etc. That insight that we get from this just allows us to expand and optimize this network more effectively. On the technology front, our focus has expanded to include optimizing both of our internal processes as well as our manufacturing operations. Technology plays an important role in enhancing the equipment that we manufacture with and the efficiency we get from that. At our last investor day, we shared a recent innovation involving the use of robotics to frame poles.
We will continue to look into and invest in technologies that help us automate repetitive processes, which we believe are going to help increase the yield that we get from the trees that we buy and allow us to identify natural defects earlier in the process, in the manufacturing process, both of which result in significant cost savings to us. With the recent successful implementation of our new ERP system that Eric mentioned, we're entering into this sort of next phase, capturing and analyzing the vast amounts of data that we generate every day, and then turning that analysis into some actionable information. This enables us to make better and faster decisions, network optimization, and ultimately help us deploy our resources in the most efficient way. Our obvious key areas of focus here in the coming year or years include production planning, inventory management, and transportation decision-making.
As we focus on optimizing our existing network and systems, we continue to pursue new opportunities to grow. We believe that our deep, long customer relationships combined with this extensive network of equipment and the experts that we use to operate it are a perfect foundation for adding new products and services that our customers, I know, will find valuable. We will not touch on all of the areas that are listed on the slide, but it is sort of representative of options that we would look at and that are available to us. We will evaluate each one of these potential opportunities against our discipline investment criteria that Eric described earlier. Lockwell with steel lattice towers and Brooks with crossarms are the first two that we have acted on this year.
Pierre, in a minute, will talk about the lattice business in more detail, but I'll just take a second to talk about Brooks and why that's a good fit. Brooks is a long-standing supplier with a proven track record and a strong reputation for product quality and reliability, which is very much aligned with the reputation that we have at Stella-Jones with our customers. They manufacture and sell a range of products into the U.S. market from a simple tangent crossarm up to more complicated dead-end assemblies, all the way up to very complicated wood and steel assemblies for high-voltage transmission structures. We've got a couple of samples out there. I know some of you have looked at that, but if you'd like to stop by, I'd be happy to explain a little bit more what all those other things besides a simple tangent arm are.
One interesting element of this business is that on an average pole structure, utilizing a wood arm, and not all poles utilize wood arms, but those that do, that arm will need to be replaced up to two times within the life cycle of that pole, providing a nice recurring and reliable sales volume. As Brooks has historically been focused on the U.S. market, we believe there are opportunities for expansion both in Canada and maybe other parts of the U.S. as well. In closing, we are very confident that our strategy is the right strategy, that our current position in the market with our customers are a perfect combination, not only to capitalize on this growth that we see coming, the investments by utilities, but also for further additions to our product and services in the coming years. With that, I'd like to turn the podium over to Pierre to share more details about his busine ss. Thank you.
Good morning, everyone. My name is Pierre Lavoie. I was with Lockwell for 13 years, acting as the President and CFO for the last six years. In the decade prior to joining Lockwell, I held senior finance roles with several diversified industrial companies. I was one of the owners of Lockwell until we were acquired by Stella-Jones in May of this year. Two of my partners and I were retained to assume leadership roles at Stella-Jones for the steel structure. Lockwell's legacy began in 1947 as a fabricator of steel doors and windows. Soon after, the company pivoted to support large-scale development of electrical infrastructures in North America, a milestone proudly recognized during our 75th anniversary celebration two years ago.
Our culture has been built upon three critical pillars. First, continuous improvement. Second, health and safety, and finally, sustainability. Continuous improvement is part of our DNA and a day-to-day feature of our operations. The company has received significant recognition, including the 2024 Prix Performance Quebec, the highest distinction awarded annually by the Premier of Quebec, which highlights the work of our organization that has successfully implemented best management practices. As we speak here today, we are being presented with the Excellence Canada Platinum Award here in Toronto. This award recognizes outstanding Canadian organizations for their commitment to continuous improvement and pursuit of excellence. We are incredibly proud of our entire team for earning these highly coveted awards. Our core business is the engineering and fabrication of steel lattice transmission structures for the North American market.
Lockwell is one of the oldest and most experienced steel lattice fabricators in the world, and today, steel lattice represents the vast majority of our business. We have fabricated more than 100,000 towers to date, the equivalent of 32,000 km of transmission lines. We also fabricate steel monopoles, mainly for the Quebec and Ontario markets, and we have proudly manufactured the largest monopoles in the country at a height of 252 ft, or the equivalent of 25 stories, and a base diameter of 13 ft. Our portfolio includes additional innovative value-added products. One of our senior executives was instrumental in developing the Rock Anchor, which is used to install wood utility poles in rock terrain, an excellent complement to Stella-Jones' wooden utility pole products. We have sold thousands of units of these products, mainly in Canada, with zero failures in the field.
We look forward to growing our market in the U.S. for Rock Anchors under the Stella-Jones banner. Our plant is located in Canzac, Quebec, on the south shore of Montreal. It occupies 220,000 sq ft and sits on more than 25 acres of land. Our current annual capacity ranges from 8,000-10,000 tons annually of steel. Following an investment of about CAD 15 million in new equipment, we will double our capacity to 20,000 tons of steel by mid-2026. We proudly employ more than 200 employees, many with decades of experience in the lattice space. Let's now take a look at some recent trends that are impacting the industry. Following a period of modest CapEx growth between 2015 and 2021, as mentioned by BCG, we have recently seen an acceleration in CapEx by electrical utilities for transmission projects.
CapEx spending for North American transmission grid grew by 9% between 2023 and 2024 and is forecasted to continue to grow at that rate annually through 2029. Much of the increase is expected to be driven by investor-owned utilities in the U.S., but with meaningful growth also coming from Canadian utilities. Investor-owned utilities in the U.S., or IOUs, are expected to more than triple their CapEx with investments growing to more than 15% annually over the 2024 to the 2029 period. Total CapEx spend over that period is expected to be $275 billion USD. Looking at last year's actual CapEx of approximately $31 billion USD, more than one-third was invested in lattice towers, monopoles, and fixtures. North of the border, Canadian utilities' annual CapEx on transmission actually shrank by 3% from 2015 to 2024, as some utilities actively deferred CapEx or projects.
Similar to the U.S., Canadian utilities' CapEx is now expected to grow more than 6% from the 2024 to 2029 period. Looking at the 2024 figures, Canadian utilities invested approximately $6 billion in transmission lines, with two major utilities accounting for more than 60% of that total. Both are significant customers of ours. The lattice market in North America is generally served by large foreign players, mainly from India and Turkey, who have annual capacity in the hundreds of thousands of tons per year. Local Quebec players, with some having similar capacity to ours. One Mexican fabricator and minor U.S. fabricators with limited annual capacity. We are considered one of the two prominent lattice fabricators in the North American market. Despite U.S. tariffs on Canadian steel, we have maintained our sales in the U.S., with customers assuming the cost of the tariffs.
Currently, more than 80% of our sales are into the U.S. market. Due to the strong demand, our customers' primary concern is securing reliable steel supply for their key projects. The cost of steel represents between 10%-15% of the total cost of a typical transmission project. North American utilities are focused on product quality, responsiveness, fast deliveries, and service leveraging North American facilities and capacity. This is how we operate, and we believe this makes us uniquely agile and allows us to deliver exceptional value. Foreign players typically compete on price, and while they benefit from much larger capacity in the hundreds of thousands of tons annually, they also require longer lead times. Now, I want to dig a little deeper into the dynamics of the steel lattice and tubular market.
The steel transmission structures market is valued at $5 billion, $1.5 billion for lattice structures, and $3.5 billion for monopoles. Monopoles today account for roughly 75% of the market. However, lattice remains an important part, especially for higher voltage transmission lines. Up to this point, this has been more evident in the Canadian market. However, as the demand for high-voltage power sharply increases in the U.S., we anticipate increased demand for lattice structures to support 345, 500, and 765 kV transmission lines. With grid hardening and resilience being a priority for utilities, we believe steel lattice will remain in demand as a material of choice for the future. We have built specific expertise in the design, manufacturing, shipping, and assembly of lattice towers. It's a challenging product to work with. Think of it as a giant Lego kit.
There are multiple components that require a high level of precision to manufacture and assemble, and every piece is critical. If even one piece is missing or delivered out of sequence, the structure cannot be put together. When this occurs in the field, it can lead to significant project delays and cost overruns. This challenge is even greater for international suppliers who must deliver components across oceans. We have proudly earned a reputation of having some of the best logistics, precision, and fit in the industry. Our primary focus has and will always be on quality, service, and delivery. Thanks to our long-standing operating history, we have developed specialized engineering expertise and capabilities that are exceptionally difficult to replicate or build from scratch. It's worth noting that the industry has experienced an erosion of skills and knowledge, as seasoned engineers with specialized lattice expertise have retired or are nearing retirement.
Based on our years in the business and our accumulated expertise, we have effectively mitigated these challenges. We have the engineering capabilities and skill to support our customers and, when needed, to enhance their internal capabilities. Our in-house engineering skills mean we can offer customized solutions to address specific challenges. We are ideally positioned to compete on projects, especially those with faster turnarounds or that demand greater flexibility. With more than 75 years in the business, we have long-standing relationships with key customers and their internal buying and engineering teams. As a North American supplier, we have the ability to be on-site with customers in a few hours. This is just one advantage we offer when they are choosing a supplier who can provide fast service and assistance. Lastly, I want to talk about why Stella-Jones and Lockwell went together as a combined organization.
From the start, there was a natural fit. We both highly value quality, service, health and safety, and continuous improvement. In terms of synergies, Lockwell shares 15 key customers with Stella-Jones, who also serves over 1,000 utility customers, creating opportunities to leverage these relationships. This acquisition also provided opportunities to cross-sell products like our Rock Anchor I just mentioned earlier and to expand our offering to both existing and new customers. With a strong balance sheet and access to capital, Stella-Jones has enabled the Lockwell business to fund its next phase of growth by making investments in capacity and technology. Since the acquisition, there has been investment in new state-of-the-art equipment that can perform multiple operations, such as cutting, punching, shearing, and clipping. These new machines are also faster, doubling capacity and improving efficiency by 60%.
Supporting our confidence to expand capacity, we were recently awarded the largest contract in our history with a major provincial utility, a 60,000-ton contract to supply 735 kV towers over the next 10 years. In closing, we think this is a very attractive time to be in the utility infrastructure business. We are embarking on a multi-year period of increased investment on the part of utilities. This represents an opportunity for established players with strong reputations and the resources to capitalize on this long-term growth potential, qualities that Stella-Jones Steel Structures possesses. With that, I will now turn the podium to Sylvain Couture to talk about the railway ties business. Thank you.
Thank you, Pierre, and good morning, everyone. My name is Sylvain Couture. I'm the Vice President and General Manager of the Railway Ties Division.
I've been with Stella-Jones since 2004, managing operations across our different product categories, including utility poles and residential lumber. I started my career in railway ties. I have a background in chemical engineering, and as part of my industry involvement, I was also the previous President at Wood Preservation Canada. In my more than 20 years with Stella-Jones, my roles have ranged across operation, project management, health and safety, and environment. As a reminder, Stella-Jones is an industry leader in the manufacturing and distribution of wood, railroad cross-tie, switch ties, bridge timber, prefab bridge, crossing panel, and preplated products. Our railway ties business continues to account for approximately one-quarter of the company's annual revenue. Out of our 46 facilities across the U.S. and Canada, 10 are dedicated to the production of railway ties.
Our operations are typically located on or very near our customers' main rail lines and routes, ensuring we can deliver ties with efficiency when and where they need them. This includes manufacturing facilities and procurement yards. Our facilities are near the forests, where we source both the oak and mixed hardwood species from approximately 600 sawmills. This strong and diverse network of relationships, combined with our scale, ensures that we can source raw materials that meet our customers' specific requirements. There are an estimated 500 million wood ties installed across Canada and the U.S., representing 90% of the total installed base. These assets require regular maintenance, creating a recurring revenue market for the tie producers. The benefits of wood ties are their shock-absorbing characteristics, ease of installation, and cost-effectiveness related to steel, concrete, or composite ties.
With many of the main roads established for more than a century, replacement ties account for approximately 90% of the market. Ensuring the proper maintenance of a wood rail tie network can be a daunting task and requires suppliers with the foresight, capacity, and regional presence to anticipate customers' large-scale maintenance needs. Stella-Jones has the capacity to supply more than 10 million new ties each year, which represents a significant portion of the total addressable market in North America. The railroads spanning Canada and the U.S. control nearly 140,000 track miles, and Class 1 accounts for about two-thirds of the roughly 20 million new railway ties needed each year. Commercial railroads, which include short-line, transit lines, and contractors, account for the other third. Traditionally, Class 1s prefer to work with multiple suppliers, given the large volume of tie required each year to support their ongoing maintenance requirements.
However, they favor reliable partners who can provide a high-quality, long-lasting product that is readily available and can be delivered quickly. At Stella-Jones, we have built a reputation for doing all three. While others compete on price, we choose to compete on quality, availability, and service. Quality starts at the sawmill. A wood tie cut from heartwood of a log must meet certain specifications to ensure strong performance once installed under the track. We have 25 procurement specialists on the road to visit 600 sawmills annually to discuss our customers' requirements and tie specifications, and we operate 17 tie procurement yards to consolidate untreated ties purchased. A wood tie must be air-seasoned for nine months on average to ensure optimal treating. Our ability to maintain this level of inventory underscores the strength of our balance sheet and our commitment to customer service.
In line with our customer-focused approach and commitment to availability, we also assemble a fleet of 900 leased railcars that help us deliver the millions of ties we supply each year more quickly, right where they are needed. The railway tie market is a mature, replacement-driven industry characterized by modest steady growth in the low single digits, roughly in line with the rate of inflation. Despite the market's maturity, we see several opportunities for additional growth. First, we can grow the volume of our existing product with current customers by supporting their key projects. We can broaden our offering with higher-value products and solutions that meet evolving customer needs, and also, we can continue to pursue strategic acquisitions or investment offering adjacent products and services, helping us expand our capabilities and reach. Let's dig into each of these areas individually.
As Class 1 contracts come up for renewal, we believe we're well-positioned to secure a larger share of each customer business while building efficiency into our processes and optimizing our footprint. We continue to pursue price adjustment at contract renewal to address cost increases that are not captured by pass-through provisions. We recognize that price remains a key consideration for our customers. That's why we are open to exploring different solutions that balance value for Class 1s while effectively managing our risk profile. These solutions can include investing in capital projects that enhance our customers' operational efficiency and drive volume gains. In such a case, we may consider structuring pricing based on volume levels. Solutions may also involve offering treated service only, where sales dollars are lower, but we maintain the same dollar margin, and we can reduce our working capital requirements.
All of these approaches will allow us to deliver value to the customer, strengthen relationships, and grow volumes, all while preserving profitability. We have already successfully renewed one of our long-term Class 1 contracts this year and are actively working on additional renewals as they come up on a staggered basis over the course of 2026 and 2027. Another key way we can generate more growth is by offering a broader range of high-value solutions, all backed by Stella-Jones' reputation for quality and service. Our customer needs are evolving, and they're looking for partners who can bring new ideas and solutions to the table. Specific opportunities include solutions like preplated tie. When cross ties are delivered, steel plates need to be attached to them in order to fasten the rail, as you may have seen outside in our product showcase.
This is a laborious and manual process that is largely completed in the field, typically often under extreme weather conditions. While Stella-Jones has been growing its supply of preplated ties, we believe greater automation of this process is the next step in driving efficiencies and volume gains. We have two preplating lines and intend to leverage advanced machinery and robotics to further increase quality, reduce labor costs, speed up installation times, and improve safety from start to finish. Recently, we secured a supply agreement with a Class 1 where we were able to double the volume of preplated ties, leveraging an automated process. It is a demonstration of how innovation and customer focus translate directly into additional growth. Another example of our customer-focused approach is the work we have done around wood treatment alternatives, collaborating with customers on specification and engineering change.
Stella-Jones has historically delivered ties treated with creosote but, in recent years, we have added other preservatives at the request of the customers, such as DCOI, borate, and QNAP. The disposal of old ties has always been a challenge for customers. At their request, we are collaborating on an end-of-life solution. We are currently evaluating alternative ways of offering this value-added service. By broadening our range of high-value solutions, we're able to solve more of our customers' challenges. This type of collaboration positions us as a trusted partner, not just a supplier. Lastly, we continue to evaluate opportunities to grow share through strategic acquisitions or investments. While we've made significant headway in this area historically, there are still select opportunities in the wood-treated railway tie market.
While treated wood is expected to remain the material of choice for the vast majority of railway tie applications, we continue to evaluate alternative materials that are better suited for specific applications. As Eric mentioned, one area of focus is composite ties, where we are exploring options that are better suited for harsh environments. In addition to sales growth opportunities, we're focused on enhancing overall business performance and driving efficiency improvements. Across the organization, we are continuously leveraging lean manufacturing, best practices, and new technology to modernize our operations. These efforts are supported by a consistent CapEx plan and are making our facilities safer, more efficient, and more reliable. An example is our work on the bridge production line. The framing of bridge ties is complex, so there are numerous opportunities to improve throughput, precision, and safety through greater automation.
We are currently evaluating the feasibility of these initiatives, which align with our objective of advancing the industry and driving automation for improvement, product quality, and efficiency. Stella-Jones' operational footprint is second to none in the industry. In combination with our significant inventory levels and industry-leading capacity, we stand ready to consistently supply quality products while retaining the agility to meet emergency needs and surge demand if needed. Over our operating history, Stella-Jones has developed a strong reputation for quality and service, and we want to be known as the supplier of choice. Many of our railway ties customers have used our ties for decades, and this has allowed us to build strong relationships with all of them. Further deepening and strengthening these relationships is critical to our long-term success.
We also take an active role in the industry, attending conferences and trade shows, and participating in industry associations, ensuring we remain top of mind. We want to be the leader in the space at the forefront of innovation. In closing, we feel strongly that Stella-Jones is ideally positioned to remain a key supplier for railroads across the U.S. and Canada. We have the scale, reach, track record, and relationship to succeed. With that, I will now turn back to David. Thank you, everyone.
Thank you, Sylvain. This brings us to our halfway mark. Let's take a short 15-minute break, and we'll see you back here at 10:35 A.M. to kick off our fireside chat with Wesley Borlin.
Thank you, everyone. Hope you enjoyed the little break we had. The next part of our presentation this morning is a discussion with Wesley Borlin, our Chief Operating Officer, who joined Stella-Jones in April of this year. I figured we thought that a fireside chat would be a great opportunity to have a conversation and get everybody to get a sense of what Wesley's thinking and what he's working on. Wesley, let's kick it off with our first questions, and I'd like to know a bit more about your background and what you bring with your experience at Stella-Jones.
Yeah, sure. I come to Stella-Jones with nearly 20 years of manufacturing operations experience. It's been across multiple industries, from hardwoods, steel infrastructure, wind towers, even railcar production. A lot of my family served in the military, so I started my career early on as a lieutenant in the U.S. Navy. I served aboard a minesweeper, the operations officer, operating mainly out of the Arabian Gulf. It was there that I learned a few key lessons that I think translate really well when you're talking about manufacturing, right? Understanding precision, discipline, and how teamwork can really apply there. I bring that to the table, I think. When I moved to the civilian world, though, I led multi-site operations across North America. I've had full P&L responsibility and led transformations utilizing kind of lean manufacturing and continuous improvement as a method of getting things moving forward.
With Stella-Jones, I think I bring a focus on building solid teams, driving disciplined execution, and really building on the culture we have here, driving results through that collaboration and teamwork.
Great. Definitely some great experience on the hardwood side and on the steel structure side. We are very happy to have you join the organization. With that in mind, what attracted you? What convinced you in the end that Stella-Jones would be a good next step for your career?
Yeah, there were several things that actually attracted me to Stella-Jones. I mean, Stella-Jones has a very strong track record in product quality, right? A customer focus and resiliency in the markets that it's been in.
This is a business that's proven itself and has an opportunity to focus on modernization and technology and things like that as we move forward and work towards being future-ready. It's a great foundation to work on. When you and I first met and you talked about your vision for the company, I could tell you and I were very aligned in that my skill set and experience fit with that vision going forward. Stella-Jones, again, it's a leader in the market. It's a company that's ready to move forward and be future-ready. I'm excited to be a part of that.
Great. When you think about 20 years of experience and your background and so on, what have you learned in those 20 years that you're bringing to Stella-Jones and how does it apply to us?
Yeah. Every manufacturing operation has a different culture. Every site has a different culture, but there are some things that span across that make companies successful. It's that discipline process. It's engaging the employees and the workforce. It's looking for measurable improvements and making sure we're driving those all the way down to the shop floor and back up to the executive level. I'm a big believer in continuous improvement and how we drive that through the organization. We want to look for the best way to solve problems, but we also need to treat it as not just a tool or an action, but as a way of working when we go forward. I think if we bring those sharper tools, better data, and do things like that, we'll continue to drive the outcomes forward. We're building on a strong foundation here. There's an opportunity to combine the culture of Stella-Jones with those tools and drive that accountability to build momentum across the company.
Great. When I think about what we just discussed here in the last few questions, and you want to summarize it before we get into some of the more technical things that you'll be doing with us in the next coming years, what are your thoughts on us creating a CEO position at this point in time in our lifecycle as a company?
Yeah. Stella-Jones has gone through a long period of growth, done very well. A lot of that's been through acquisitions, some of those family businesses that have come in.
There becomes a point when a company gets to size where there's an opportunity to leverage that scale and take that complexity and start to knit those pieces together, leveraging the opportunities, sharing best practices, driving things forward that way. I see this as a role that can help align that operationally, systematically, and culturally, right? Reinforcing the current culture, continuing to build on it, especially as we look at moving into adjacent markets outside of our traditional ones. I think the goal and my focus is to make sure that the culture grows and adapts as the company continues to grow.
Great. You've been with us for seven months now. How do you think you make an impact on our business?
Yeah, yeah. No, seven months. It's been a long seven months, but it's been a lot of fun getting around and seeing everything. I see my goal as building on what works already. I'm not here to change the DNA of Stella-Jones and what's made it successful. There are a few things I want to look at and make sure that we're trying to leverage and build on. There's the scale I've mentioned. In the past, the business units have handled procurement and transportation independently and on their own. As we've grown, there's an opportunity to look at that, to leverage that scale, to improve the costs and bring efficiencies across the businesses. There's the continuous improvement mindset that we have, but how do we deepen that now?
How do we get sharing across the different business units and make that grow and become a part of what we do and how we measure? There is technology and capital deployment. We have talked about the capital deployment and what we have done. I think there is an opportunity to continue looking at that, how we are automating, how we are using analytics and smarter systems to help improve our consistency and build efficiencies and value for us as well as our customers. Finally, we have to maintain a relentless safety-focused mindset. Our record is good for the industry, but we need to be continually improving. We need to keep that first and foremost in what we do. A strong safety culture is a strong operating culture, and we have to believe that zero is possible.
Yeah. I fully agree with that. As you know very well, every meeting we start, we do with health and safety, as we did today, actually, with our health and safety notice to the audience here, which makes me think about the employee aspect of our business, right? I said earlier in my prepared comments on how our success is based on 3,000 employees that are dedicated. Trust me, I visit facilities, I talk to employees, and I'm always impressed on how people are dedicated and enjoy and want to work for us and want us to win as a company. How does the people aspect fit in your view in what you're describing?
Yeah. You do a great job of that when you visit the sites, engaging the workforce. The people are our business. They come to work every day, right?
They bring their skills, they bring their experience, and they bring pride to the products that we make that go out to our customers. It is our job as leaders to make sure that we are encouraging that, whether that is through that safety mindset or engaging employees in problem-solving, operationally, safety at the line level, but also measuring that, as I had mentioned already, right, from the shop floor up through the leadership team. We need to recognize those contributions and make sure that we are developing that workforce, looking at cross-training and things like that, creating capabilities and versatility in the people at our shops, which gives us flexibility. When we give them room to grow, I think the company grows.
Yeah. Fully agree with that. We have talked about innovation and so on. If we focus a bit more on technology and AI, what are your thoughts there?
How do we bring this into Stella-Jones and create efficiencies in our business?
Yeah. I think there's definitely opportunities to look at technology and innovation as we look at it. As we think about that, we tend to look at targeting the high-cost, high-variability processes. When we do that, we want to ask ourselves, how can technology help us make this more efficient, make it safer, provide value out there? There are a few things that we're looking at. You've heard about some of them already from the earlier speakers. We're looking at log scanning technologies, right, that help improve the yields in our pole peeling or pole operations, allowing us to provide a better class to our customers that they're asking for. We're looking at automating our bridge line.
It's a very complex product with lots of individual pieces serialized to be delivered to our customer. How can we bring that consistency and improve that production rate there? We also have the pole framing and the preplating. We're in the process right now of getting into robotic preplating, as Sylvain had mentioned, negotiating with our customers to move forward with that advancement. It brings value to us in efficiencies and safety, but it also gives it to our customer, truly making it a value-added product and eliminating some of the work they would have to do normally in the field. There is the AI piece or monitoring some of the equipment and systems that we have.
How do we integrate controls into those that provide us data that we can then begin to analyze and start to anticipate things, improve our treating processes, understand how we can be more efficient in some of the things we're doing? There are partnerships with universities and suppliers looking at alternative preservatives. We need to be looking for things beyond what's in use today, just being future-ready, understanding greener preservatives that may be out there, still providing the protection that our customers want, but have less of an impact on the environment. These technologies, I think they make us safer, right? They can make us more consistent, and they bring value internally and externally. That's a positive for both us and our customers.
Agreed. When we had our initial conversation and ongoing conversation, I guess I look forward to seeing that technology being applied to our everyday processes where we can actually monitor business equipment and we're not monitoring, getting to better preventative maintenance, for example, and so on. Those are all exciting ideas that your skill set and the engineering group that you're building will help us achieve this at Stella-Jones in the coming years here. That's interesting. I mean, the ultimate question is like, how do we measure success?
Sure. Sure. Stella-Jones has a lot of data and has always looked at data, but near term, we've agreed to monitor a few key operational metrics that fit across the business or businesses, I guess I should say.
We're going to be looking at things like tons or cubes per man hour, right, which will allow us to measure our productivity and set expectations there. We're going to look at costs per cube or ton. That's going to track our efficiencies, help us understand our cost discipline and how we're doing that in the businesses. We want to measure customer complaints per unit. We talk about our quality and the success we've had there, but we want to measure how we're impacting our customers and make sure we're making changes and adapting as appropriate based on that. There's cross-training. I think that's an important measure for our people, how we're engaging them, how we're giving them opportunities and developing that flexibility in the organization. There's the near misses or safety observations.
Getting into a very proactive look at what's going on at our sites, driving that down to the shop floor again to get that engagement. At the end of the day, right, the real success is going to be developing accountability to those measures at every level. Again, I know I've said it three times, I think now, but it's important from the shop floor up through the executive leadership team because when we build a culture where people surface opportunities and are solving those problems proactively, we move forward very fast.
Great. When you mentioned cost per cubes, we're actually talking about how we can be more efficient on a cost per cube basis, which means reduced costs and savings. For those of you who might remember, a cube is referred to a cubic foot of wood. So 12 inch by 12 inch by 12 inches.
It's a volume. For those of you who attended our first investor day, I actually had a physical representation of a cube of wood. For those who recall that, that's what that actually is. Maybe a few more. What does the future look like? Long term, where do we end up? What is the future state for Stella-Jones?
Yeah, sure. Before I answer that, I'll say with the Lockwell acquisition, everybody's grateful you didn't bring a ton of steel up here. Long term, it's about building the strongest, most resilient organization possible. It's about that future-ready mindset that she said. To do that, I think we have to align that vision throughout the organization, right? We have to align at the site level, the BU level, even to our shareholders.
It can't just be about what we're doing, but why we're doing it and helping people understand how the work that they do impacts our success as we move forward to that. We are going to build bench strength. We are going to focus on cross-training. We want to engage people because when they understand that vision and see how they contribute to it, we will be successful.
Great. Any last thoughts for the audience?
Yeah. Stella-Jones has a very strong legacy, a very strong history. Has been very successful. I am grateful to be here a part of that. As we look forward to becoming future-ready, innovating, building capabilities, technologies, and modernizing, moving outside of our traditional products into those that are adjacent, this is an exciting phase of growth.
We want to be smart about it and focus on that innovation, those resilience while we do it and become future-ready. I get the pleasure of building on that strong foundation, honoring what has made the company successful. I am very excited to be here.
Great. Wes, thank you for doing this. I appreciate it. I am sure in coming quarters or years as you develop your structure, we will be talking about potential cost savings for the organization and so on. With that, we will get a free up the stage. It might take a few seconds. I will give the podium to Rhianna Carver for a discussion topic on sustainability. Thank you, Wes. Thank you.
Yeah. Thank you.
I feel I should help you take those off.
I feel I need to go help him actually here.
Great. Thank you, Eric. Hello, everyone.
I'm excited to share with you today a little of what we've accomplished since the launch of our ESG strategy back in 2023. I'll also provide a preview of what we have planned for our sustainability goals and initiatives over the coming years. The ongoing evolution of how ESG is viewed, measured, and reported has received a good deal of attention recently. Our approach is that ESG must be appropriate to Stella-Jones. We've remained consistent because we've developed a strategy that is important to us as a company. Our intent is to continue to focus on initiatives that are strategic to our business. Our strategy centers on ROI-positive projects and risk mitigation measures that are based on sound and practical governance and business principles. As we move towards climate-resilient, socially just, and equitable economies, Stella-Jones is ready to be part of that progress.
It's been two years since the launch of our foundational ESG strategy, which included many process-based goals that are important markers of our early progress and really set the foundation for some more outcome-based goals in the future. Since launching the strategy, we have reduced our total recordable injury frequency rate by 16% and implemented environment, health, and safety third-party audits across our facilities. We've also implemented and published our greenhouse gas reduction roadmap, outlining the technologies and investments required to meet our greenhouse gas reduction goals and commitments. We have also gathered diversity data for the entire workforce and benchmarked each facility's demographics against the local community, helping to identify areas of opportunity. We've also launched a leadership development program that more than 54% of managers have either completed or are currently undertaking.
Lastly, we've completed a desktop ESG risk profiling assessment for 37% of our tier one suppliers. At Stella-Jones, we have six priority sustainability topics, but today I'm just going to touch on three of those. That is climate change and greenhouse gas emissions, indigenous peoples, and risk governance. Beginning with climate change, I'm pleased to announce that we issued our first climate report within the 2024 annual report this year. Our greenhouse gas reduction pathway for our 2030 goal of a 32% reduction compared to 2022 encompasses five different project types. They are renewable energy, transport routing and mode optimization, energy efficiency and energy monitoring, utilization of biomass for energy production, and identifying electrification opportunities for our equipment and processes. ROI-positive projects utilize new technology to reduce energy use and improve the performance of our equipment.
One example that is quite exciting that's undergoing engineering feasibility studies is high-efficiency heat pumps to generate steam for our wood-drying kilns. The pilot project is based on a site in Quebec that, combined with the low-carbon electricity grid in Quebec, could help reduce this site's carbon emissions by 75% and, importantly, a 40% reduction in energy-related operational costs. Under the topic of energy efficiency and energy monitoring, we are rolling out our real-time monitoring solution to six sites this year. This system tracks information on energy consumption from the key equipment and ties it with the operational data to provide our operators more accurate performance figures and enable faster reaction times when operating outside of accepted parameters. This solution is bespoke to Stella-Jones and is going to be managed by our in-house team of automation experts.
Although at the early stage, we also have seen some exciting developments on the topic of biomass. We are assessing combined heat and power technology that would utilize the wood byproducts at our sites to generate steam and electricity. This strategic initiative includes the assessment of co-location of peeling and drying equipment to ensure a stable biomass supply and the assessment of energy network buyback options available. Using our wood byproducts for energy generation is a central part of our greenhouse gas reduction roadmap, helping to expand renewable energy use across our network whilst also lowering energy, transportation, and waste costs. Renewables are by far the largest part of our strategy, and I am pleased to announce that we've reached 2.5 megawatts of installed solar capacity across the network. A significant portion of the future planned reductions come from our renewable energy credit purchase that was completed in 2024.
The 10-year contract for 100,000 megawatt hours from a wind farm in Texas will cover nearly all of our scope two emissions. Complementary to this, we have also completed the installation of a one-megawatt battery at a treatment facility in Quebec. The battery is allowing the facility to avoid drawing energy from the grid during times of peak demand, also known as peak shaving, and that can help us reduce operational costs at that site by approximately 30%. Moving on now to indigenous people, a topic where real progress is being made by our teams. In 2024, with the help of a third-party indigenous expertise, we developed our detailed indigenous people strategy focused on more structured relationships with the indigenous communities in British Columbia.
After sending our initial letter of intent to five priority bands in late 2024, we are now in the process of developing a memorandum of understanding with one of those bands, outlining the desire to develop a more formal relationship agreement. Our intent is to ensure we collaborate and work towards mutually beneficial goals, including community resilience, fostering economic opportunity in the forestry sector, as well as continued protection of healthy working forests across Canada. We are also pleased to announce that we are entering the final stages of an investment in Lizzie Bay Logging, an indigenous-owned logging operation in British Columbia. The investment of approximately CAD 4.5 million will provide Stella-Jones with a one-third ownership stake in the company, along with the other indigenous bands involved.
Stella-Jones will benefit through reliable access to utility pole fiber in Western Redcedar and Douglas Fir, in particular, large transmission poles, which tend to be more limited in supply. This partnership is a positive step towards more mutually beneficial collaborative business partnerships and procurement opportunities with indigenous peoples in Canada. In addition to these two significant milestones in our indigenous people strategy, I wanted to touch on some other commitments we've made as part of our ongoing relationship building with indigenous peoples in British Columbia. While Stella-Jones is not a significant land manager or tenure holder, and the vast majority of our fiber supply still comes from third-party procurement, we do have a dedicated woodlands team that manages our modest tenure in British Columbia. This team completes the indigenous consultations for every harvest permit and maintains our land stewardship plans.
Working with the local indigenous bands to understand the environmental and cultural stewardship objectives for each tenure area has led to some additional commitments from Stella-Jones. These include allocated protection areas for caribou with no harvest designations applied, the agreement to replant harvested areas within 12-24 months ahead of the government's requirement for 60, as well as avoiding the harvesting of specific tree species such as white bark pine to help at-risk species. Overall, our woodlands team and Stella-Jones take a really long-term view of the management tenure, and we intend to continue to work collaboratively and respectfully with indigenous peoples. The last topic I will talk about today is ESG risk governance, where our approach is all about setting a solid foundation and a culture of risk ownership across the business.
We recently completed a supplier training course on human rights, where we provided guidance on identifying and addressing human rights risks in operations, as well as our expectations for suppliers regarding fair labor practices and working conditions. Suppliers representing 11% of total annual procurement spend attended these trainings, which is a positive start for our engagement on sustainability-related topics. We also completed a pilot on the Task Force on Nature-related Financial Disclosures. All Stella-Jones treating and peeling locations, as well as 443 third-party fiber sourcing locations, were assessed for nature and biodiversity risks and opportunities. Some of the risks analyzed included water stress, critical habitat, protected areas, forest loss fronts, and habitat connectivity. As a company dependent on healthy working forests, the TNFD approach is important to better understand the link between biodiversity and financial risk for Stella-Jones.
Having completed the assessment, our next steps are going to be more formal disclosure reporting and embedding these findings within our enterprise risk management process to ensure governance and oversight of any actions taken. Despite the evolving regulatory environment at Stella-Jones, we believe transparent disclosure on risk and opportunities, including those related to climate, are integral to building trust and confidence with our many stakeholders, including all of you in this room today. For the first time in this year's annual report, we included financial disclosures on the physical and transitional risks posed by climate change, and we are on track to meet the recommendations of the Canadian Sustainability Standards Board's disclosures. You will see our sustainability disclosures further integrated into our financial reporting in years to come.
This is not only about transparency, but it's also about setting Stella-Jones up for sustainable success for many years to come. That is all from me, and I'm going to pass it on to Silvana. Thank you very much. I'll take my water back.
Thank you, Rhianna. Good morning, everyone. I'd like to begin by expressing my sincere appreciation to our shareholders for your continued support and your engagement in our long-term strategic direction. Your commitment is instrumental to our success. So far, you've had the opportunity to hear from Eric and our business leaders on how we operate and the opportunities that we foresee to continue to deliver value to both our shareholders and our customers. Now I'll walk you through some of the key financial priorities that will shape our path forward.
Before I do that, I did want to take a few moments just to take a step back and look at our past financial performance and how this has informed us when we have set the objectives for the next three years. As you all know, we hold a leading position in the markets that we serve. They do benefit from strong secular tailwinds and recurring maintenance-driven demand. Our business is highly cash-generative. It is supported by an extensive operational network and a well-established industry-leading customer base. A large part of our sales is to infrastructure businesses, with the majority secured under long-term contracts, underscoring the strength of our customer relationships. Our presence on both sides of the border means that we routinely supply finished goods using domestically sourced inputs, helping us to mitigate the impact of potential changes in tariffs or trade disruptions.
These attributes do contribute to the sales stability that we have seen over the years and our strong financial performance. Despite the evolving market dynamics and macroeconomic headwinds, we have delivered an enviable track record of growth, a testament to the strategic focus, the discipline that we have within all our teams, and the caliber of talent that is driving this organization forward. Since we have yet to report our full year 2025 results, I will be referring to the trailing last 12 months ending September 30. I do also want to mention that all the numbers that we are quoting here do exclude a gain on insurance settlement that we recorded in 2025, which we consider non-recurring of $28 million, $21 million net of tax.
If we start with our sales, we can see here that over the last three years, we grew our top line by an annual compound rate of 4.5%, with our sales from our infrastructure business accounting for 80% of the total, up from the 69% that we had just a few years ago in 2022. Our infrastructure sales delivered 9% of that growth, with our wood utility poles and railway ties increasing by 12% and 4% respectively, while our residential lumber product category sales declined by 5% over that period of time. Following the reporting of our Q3 numbers, we remain on track to deliver the $3.5 billion in sales for 2025, which would mark the 25th consecutive year of growth for Stella-Jones. In 2023, we did set out an ambitious profitability goal.
We were targeting an EBITDA CAGR of 9% for the three-year period ending this year. By Q3, we had exceeded that target, delivering an EBITDA CAGR of approximately 12%, which significantly outpaced our sales growth. From a margin perspective, we aim to expand our historical 15% margin, and we delivered this almost immediately, reaching 18.3% margin in 2023, up nearly 400 basis points from the 14.6% that we had realized in 2022. This is well ahead of the 16% target we had initially set out. We've maintained an over 18% margin in 2024, and we continue to trend at about 18% in 2025. A meaningful portion of this increase was driven by the growth in our higher margin product category, as you know, which is our utility poles business.
Just wanted to remind everyone that these results were delivered against a backdrop of inflationary pressures, more competition, and growing macroeconomic uncertainty. As a leading manufacturer of our infrastructure products in North America, we have consistently leveraged our scale and strategic capital investments to strengthen execution and deliver value. Turning to our EPS, while we grew our EBITDA to more than $600 million, we drove the improvement in our EPS even further as we did buy back shares. We have delivered a 13% CAGR in EPS since 2022. As Eric highlighted, we have strategically built a strong cash-generating business, allowing us to expand our operation and efficiently fund our capital allocation priorities. Since 2023, we have generated free cash flow of about $600 million, keeping us on track to return the targeted $500 million to our shareholders through dividends and share buybacks.
Supported by improving profitability, we have consistently increased dividends, averaging an increase of 15% over the last three years. We also repurchased shares in the tune of more than $300 million in the 2023 to 2025 period, resulting in the cancellation of more than 4 million shares, or roughly 7% of our shares. This did help drive further EPS gains. Our strong cash flow has enabled us to make disciplined investments that have strengthened our operation and positioned us for continued growth. We have maintained inventory levels to reliably support the demand for our customers. We've invested in our facilities to preserve operational efficiency, ensure safety, and support higher levels of service across our network. We've expanded capacity, as Kevin mentioned, completed strategic acquisitions to enhance our capabilities and broaden our market reach.
All of these accomplishments, we believe, reflect our commitment to deploying capital with rigor and focus, always with an eye towards the long-term value creation. Now turning to our outlook. Today, we are introducing a three-year objective that we plan to roll forward each year, starting with the release of our Q4 2026 financial reports. This is in order to always maintain a three-year horizon. This framework will allow us to incorporate any investments or M&A activity that may occur while keeping our focus firmly on the long term. Based on our current portfolio of assets, we anticipate that our total sales will grow by approximately 4%-5% on a compounded annual basis between 2025 and 2028. This would translate into a 15% increase in sales to approximately $4 billion by 2028, compared to the $3.5 billion that we anticipate for 2025.
If we look at it on a product category basis, we expect our wood utility poles to continue to account for approximately 50% of the company's total sales and be the highest growth business with a mid-single-digit organic growth. This growth rate is consistent with the expected annual spend, the expected increase in annual spend by utilities for distribution installations in North America. In addition, we expect that our recent acquisitions of Lockwell and Brooks to contribute about $225 million in annual sales by 2028. This reflects the additional capacity at Lockwell following the completion of its CapEx project by mid next year. Based on our current railway tie business, which is predominantly a black tie offering, railway tie sales are expected to grow at a stable, low single-digit rate.
As noted by Sylvain, we do continue to explore various value-added opportunities, such as offering treated services only to our customers. This type of offering would allow us to preserve our margin and also reduce our inventory requirements, but may also moderate the railway ties forecasted sales growth. For our residential lumber product category, we are reaffirming our previously disclosed annual guidance in terms of CAD 600 million to CAD 650 million in annual sales. Our confidence in sustaining the sales performance reflects the strength of our business model and the differentiated value that this product category provides. We have also relied on several multiple industry reports that do point to a very constructive backdrop, indicating that renovation and remodeling activities should benefit from improving trends in home renovations and existing home sales. From an EBITDA perspective, we anticipate sustaining elevated margins in the range of 17.5%-18.5%.
Part of this margin uplift will be driven by operational cost reductions, primarily resulting from improvements in supply chain processes. As Eric noted earlier, we will now be tracking EPS. We have selected EPS as a target measure, as it offers a clear and comparable view of our performance across the various capital deployment strategies. For our three-year guidance period, we expect our EPS to continue to outpace the growth in sales. Our EPS growth would be higher than our sales growth. We are targeting an average annual EPS growth rate of more than 10%, which we expect will be driven by multiple profitability levers as well as share buyback activity. This next chart walks you just through how we expect to achieve the $4 billion that I referenced earlier.
You can see here the impact of the contributions from our wood utility poles, from our railway ties, as well as the contribution from our completed acquisitions. Our disciplined approach to capital deployment has been essential to our growth, and it will remain a core pillar of our strategy. Over the next three years, we expect the EBITDA to free cash conversion rate to remain consistent with the average performance over the last two years, which represents a conversion rate of about 50%. Our strong free cash flow conversion underpins our capital allocation strategy, which is centered on four priorities. First, a key priority for the business is always to reinvest in our asset base to maintain the quality and the efficiency of our facilities, ensuring that they remain reliable, safe, and well-positioned for the long-term performance.
To that end, we anticipate investing about 2.5% of annual sales, which is consistent with our historical rate. This will translate to approximately $85-$95 million in capital expenditures per year. In addition to this regular maintenance CapEx, we will continue to pursue growth CapEx opportunities that meet return requirements, such as the capacity expansion project that is currently underway at Lockwell. As Eric mentioned, other potential growth investments could include a greenfield expansion in the U.S. for lattice production, as well as targeted investments in technology and innovation, as highlighted by Wes earlier. As we shift our focus to acquisitions and investments in new markets, we are placing greater emphasis on strategic growth in our capital allocation approach.
We cannot commit to any specific level of M&A at this point or timeline, but we are committed to ensuring that any investment that we make will align strategically, will offer meaningful synergies, and demonstrate a strong financial performance with attractive margins. In terms of our acquisition playbook, our two most recent acquisitions, Lockwell and Brooks, align well with our strategic approach and demonstrate the disciplined execution of our M&A strategy. Both businesses serve the growing T&D market with product offerings that expand beyond our traditional business. They are expected to generate solid margins in line with our utility poles and based on recurring sales, and they do also offer meaningful growth opportunities. We also see opportunities to leverage our sales and our distribution network and capital resources to drive incremental growth.
Lastly, each acquisition came with an experienced and motivated leadership team that we have retained and whose values align closely with ours. While growth opportunities will continue to play a key role, we do remain committed to returning capital to our shareholders through a consistent payout of dividends, which is a staple of the company's capital deployment. We are maintaining our current dividend policy, which targets to pay out dividends between 20%-30% of prior years' EPS. We take great pride in saying that we have increased dividends every year for the last 21 years. Lastly, in terms of capital allocation priorities, we will consider share buybacks based on the timing of M&A and on our leverage position. As such, we are moving away from a continuous buyback program to ensure that we do have that flexibility to act quickly should a growth opportunity arise.
We continue to view buybacks as a valuable capital allocation tool, particularly during periods of slower growth deployment. However, the pace and the frequency of the buybacks may be more variable than what you have seen during the last three years. Our approach to buybacks will be a little bit more opportunistic, allowing us to return capital to shareholders when it makes sense. A strong financial position that we have is supported by our investment-grade credit rating, as well as our targeted leverage range, which is between 2% and 2.5% of net debt to EBITDA ratio. That said, as we have said in the past, we are prepared to temporarily deviate from that leverage target range in order to be able to either fund our working capital investments or if some strategic capital initiatives come around.
We remain focused if we do exceed and go beyond the range, we remain focused to be able to return that leverage ratio back within that range within a very reasonable timeframe. We may also deploy excess capital to reduce our leverage ratio below the 2%-2.5% in order to be able to preserve financial flexibility if we believe we would need it for some strategic opportunities. In summary, as we embark on our next phase of growth, our value creation priorities are clear, and our teams are all strategically aligned to drive growth. We aim to maintain strong EBITDA margins and an asset base that will consistently generate strong cash flows. With a strong balance sheet and access to capital, we are well-positioned to execute on our strategic priorities.
Our solid financial performance reflects the entire team's dedication to disciplined execution, delivering results not only for today but for the long term. With that, we will take a brief moment to set up the stage for the Q&A portion of our event. I will ask the other speakers to join me on stage. We will be taking questions from both the room as well as online. For those in the room, if you do have a question, please raise your hand. David has a mic, which he will come up to you so you could ask your question. For those that are online, you could submit your questions, and our moderator, Stephanie, will share those questions with us.
That was fast and efficient. Great. This is the last section of today's conference.
We'll take the Q&A from the room and from anybody who's attending via webcast. I'll open the floor. Who would want to kick off the Q&A period? I see Benoît is all ready to go.
Hey, Benoît Poirier from Desjardins. Great job, everyone. First question is for Kevin. When we look at the revenue growth over the next few years, 4%-6%, could you maybe be able to break that down between volume, upsizing, pricing, and also given the capacity that you have, how much revenue growth could you support before investing further into CapEx, Kevin?
Sure. The volume growth, the Crayola Crayon example that I gave you, is happening. For sure, it's happening. Thankfully, it's not happening everywhere all at the same time, but we see it in various parts of the continent, various customers, but it absolutely is happening. Okay. I'm sorry.
The question on the capacity, how much growth in volume can we sustain with our current network? I would say in some parts of our network, we could sustain lots of growth. In the next three years, I do not see any real issues with anything. Like I mentioned, there are going to be challenges sourcing a very narrow mix of trees that will make those heavier class poles. Like I talked about, hopefully, we are leading that target by the network of appealing facilities, and the resource team that we have gives us a real strong advantage in the ability to do that.
I did not really talk about species substitution other than saying it, but what that means is we are doing some of this where a customer may need a specific mix of wood immediately, and their preference is to buy Southern Yellow Pine, and we can offer them Douglas fir or Western Red Cedar to meet that kind of spike in demand today.
Maybe my second question, and I will pass the mic right after. Pierre, just in terms of SteelPol, obviously, I am just wondering, what about the next steps to make the decision toward a greenfield in the U.S.? Is it mostly commitment from the utilities? That would be the question. Also, if you could break down how you would characterize lattice versus monopole, you are exposed to both. It is only 5% of your total revenue at Lockwell. Is it a different margin profile?
Now that you have kind of both expertise, could you go into the Big Pole organically, or your preference would be toward M&A to build kind of more credibility?
Maybe Pierre, you can answer the first part on the plant criteria, and then we can talk about M&A after.
The criteria for a greenfield in the U.S., there are multiple criteria to consider. The first one is where do you go to galvanize your black steel? You need to be close to a galvanizer because we do not have the intention of setting up a galvanizing plant. It is very expensive. It involves also environmental issues, so we do not have the intention of doing that. Second, where are you going to supply your steel, your black steel? You need to be close to sources to reduce transport costs for the black steel.
Third, it's going to be the labor. Is there a pool of labor over there enough for a greenfield or a plant to operate? Also, where's the market? The fourth criteria, where's the market? Where's the work going to come from? If you're closer to your work, then you have less freight afterwards. Those will be the criteria mostly for setting up a greenfield or a plant in the U.S.
Benoît, with regards to how do we grow our business in the, I would say, the transmission market, right? For me, it's a combination of the lattice and the monopole. Obviously, we're focused on doubling the capacity in Candiac. We're studying that expansion into the U.S., as Pierre just mentioned. Obviously, in my prepared comments, I talked about the monopole industry being an opportunity.
There, we need to be mindful about adding capacity. We do not want to start a pricing war in the market, right? I think there is work to be done there to study exactly how we enter the market, but it is definitely our intention to keep studying it. Obviously, Mark Owen, business development here, is doing a lot of work on that front to identify potential acquisitions. I would like to come back to your first question, if you do not mind, because I think either part of the question we did not quite address. As you can imagine, we prepared a three-year guidance. As we did that, we put the organic growth behind it. We sort of said, how does that capacity fit? We know that for the next three years, we are pretty much okay. Otherwise, we would have announced a growth CapEx this morning.
I think we're in good shape right now. In that bucket of, whatever, CAD 85 million-CAD 95 million, there's always a bit of improvement, efficiencies, and some capacity moves. With regard to the pricing, because I don't think we touched that point for you as you asked the question. As you know, very fortunate to have 75% of our wood utility pole business under long-term contracts. That's a bit of a shield for us to some extent. As they come to renewal, there's always the potential of other competitors bidding and so on. You know that we've seen some pricing adjustments or normalization in that spot market. I think we've hit some sort of leveling off at this point in time. Difficult to predict the future. I guess what we need to monitor as a company is how our customers are going to invest going forward.
If we see this uptick impacts Stella-Jones or the wood treating industry, as BCG explained this morning, I do think that the spot market suppliers, those other competitors of ours, will benefit from that, and then we should be fine. If for some reason some of their customers go a bit dry on the capital and they can't support it, they might be more aggressive. We feel very confident with our portfolio of customers, over 1,000 customers, that we're seeing some of them getting ready, being really active and having some capital to deploy, and some of them are still a bit slow out of the gate. I do think it's a trend, as I've been saying, and we've been saying for a long time. It's coming. I think we're seeing good signs of it, our Q3 results. We're good on the volume front.
I just wanted to get back to you because I wanted to make sure that we get those answers for you.
Thank you very much. [audio distortion]
Hey, this is James McGarragle from RBC. I just had a question on the margin outlook and some of the assumptions that you're building into your guidance there. Can you just talk about what you see the risk from pole pricing right now in the spot market in terms of meeting that guidance and maybe some of the opportunity you see around creating the efficiencies that you alluded to in the fireside chat? Just trying to understand the drivers that kind of get you to the 17.5% versus the 18.5%.
Good. Thank you, James. I think you can handle this one. Yeah.
Basically at the higher end, the 18.5%, that includes some uplift, as I mentioned, from operational efficiencies and the work that WEST is working on in terms of centralizing certain of our supply chain processes and getting some operational efficiencies there. That is factored into the higher end. The higher end also does include just the fact that we do have a greater weight with Lockwell and Brooks into the higher margin product category. In terms of risk, the lower side, the 17.5%, that has factored in the potential risk in all of the spot markets, right? Not only utility poles, but there is also a spot market for railway ties and let's call it a dealer's market for residential lumber. Those are all factored into the lower end of the target EBITDA margin range.
WEST, not to put you on the spot, but could you speak about where do you think your initiatives can drive or contribute to our margin targets?
Yeah. No, I can add to that for sure. As we're starting to build the structure around that, bringing in a new Director of Procurement, making sure we're focused on that, as Silvana hinted at, as we've grown, there's an opportunity to leverage our scale there, drive costs down, and bring some benefits to the company. Rhianna has also stepped over to the side and has taken over project management as well as the ESG. As we look at that, how we're deploying our capital broadly and prioritizing in a way that gives us efficiencies, drives the road sheet targets and things that we talked about.
Then engineering, helping us look at those processes, getting engineering internalized a little bit more than it has been so that we can focus on that going forward. We'll all contribute to those things.
Thank you, West. As I said, as we progress, we'll be reporting on a regular basis on our progress and how that's moving along. I just want to take a couple of questions we got from participants that are attending remotely. Quick question on what is our ROE or ROIC? I guess I referred to ROCE earlier, target. For those of you who spend time reading the other public disclosures other than the annual report, such as our circular and so on, you would understand that the target for management is actually, for ROCE, set at 12% as a target.
have been exceeding that for the last three years, over 13%, 13.5, I believe, last year. Doing very well on that front. Quickly, there is another question here, and it is how do we, as we expand into the steel business, how does this impact our legacy wood business, and how do these two businesses complement each other? To be clear, we have grown our business for the last 30 years on the wood treating industry, and we are not moving away from it. We are going to keep investing. It is a great business. Today has got us in a leadership position in North America. However, as I explained, we are less exposed to the transmission market, which is really 80% plus based on steel products.
That is why the Lockwell acquisition sort of unshackles opportunities for us to be able to go explore confidently and either build or consider M&A in that space because now I have got our benches just increased significantly with experts in the steel industry, how to procure, how to manufacture, what to consider, and so on. Very fortunate to have this team with us. They are actually very complementary. Obviously, we are leveraging the customer base. We have, as Pierre mentioned, 15 of the key customers at Lockwell were Stella-Jones's, but we have over 1,000 customers in our portfolio. On top of that, we have a distribution network. We can leverage that distribution network to move products across North America closer to the customers when they are ready. Could we potentially stage projects at some of our yards? Those are all things we are looking into.
Definitely complementary, very excited about the tailwinds coming with those two businesses. David, we've got some more questions from the room.
I just had a quick follow-up, then I can pass the line. On the EPS growth guidance, it seems like that includes acquisitions from 2025. Are we understanding that right, that it should be kind of outsized growth over the EPS guidance that you gave, and then maybe a little bit lower than that in 2027 and 2028? Just how are you thinking about your long-term ability to grow EPS? Is that kind of 4%-5% top-line growth combined with 2%-3% share buyback gets you to a high single-digit type of level longer term? Just how should we be modeling and thinking about that going forward?
Silvana?
For the EPS growth, the target that was set was really looking at different capital deployment strategies, right? On one end, we basically, based on the projections on our current asset base, which we mentioned the 4%-5% growth of the top line, and with that EBITDA margin, that growth plus buybacks would give us the target of 10%. We also modeled it at the other end where we would have M&A activity and less buyback. That is how sort of that comfort zone we got on the 10% because on both extremes, we were able to get comfortable that we would be able to exceed that. Going beyond that three-year period, a little bit harder for me to answer that as we'll see how the business evolves over the next three years.
Sorry, James, I sort of cut you off, but thank you for following up. Maxime is next, I believe.
Yeah, thank you so much. So Max Fisher with National Bank Financial. I had a question to go back to poles. I mean, if we look at the organic growth, it was, I think, 1% in Q3. And one of the things that we hear from utilities is the fact that it's been very difficult to pass on the rate increases onto the rate-paying base. Do you mind maybe talking about the sentiment right now, kind of like on the ground, and whether that's sort of evolving because inflation has come down in terms of, again, being able for your clients to actually invest while there's still that perception of high inflation backdrop? Thank you.
Definitely, thank you, Maxime. I'll let Kevin chime in, but I just want to add maybe one or two comments there. You're completely right. H2 last year, H1 this year, but softer on the volume. Definitely feel that a lot of our customer base were conscious of their capital deployment and how to be able to address that, acknowledging that there's the requirement for affordability for the end user, but also there's also the pressing matters of building a stronger energy grid and actually more generating assets. We have seen, as we've reported our Q3 results, some improvement on that volume. I would say over our 1,000 customers, it's a bit spotty here or there. Some of them are organized and well-structured. Some of our customers that are public have been very clear on how they have restructured their capital and how they've issued equity or found financing.
We're seeing those move a bit more quickly. Others are saying next year is going to be our year. It's a bit, but we're very fortunate since we have a presence in North America, Canada, U.S., in every region. Obviously, the strength of the portfolio helps us very much. Maybe more specifically into the details, Kevin, you can talk about.
You did a good job of answering that question. Certainly inflation, affordability are things that our customers have to tackle all the time. Maybe to Eric's point, one of those slides that BCG, the Boston Consulting Group, put up there, which showed five utilities that are basically the same utility, all do it differently. Everybody's got a different path because they've got different priorities, different constraints, different PUCs that are telling you have to do this or you can't do that.
We absolutely have seen an example of a customer that said they're going to buy a lot of poles to do their replacement and hardening. Then halfway through the year last year, they said, "Nope, we're cutting that back to here because of some issue." At about April this year, they said, "No, we're going back to this now suddenly." That is just one customer. As Eric said, that is one customer in one area. The good news is that they all kind of march to different drums, but we're everywhere. That averages, laws of averages, sort of tend to work in our favor.
Good, Maxime?
Thank you so much.
Great.
Thanks. Hamir Patel, CIBC. Eric, you had the slide showing the TAM in tubular of $3.5 billion. I know it's a modest part of the Lockwell business today.
If you do decide to expand there potentially through acquisitions, how sizable are potential targets on that side of the market? How should we think about valuation multiples?
Amir, we're doing the homework today. I know I mentioned, and I mean, you might think there's not much to do because there's only four to five big participants and then a handful of smaller players. We're definitely out there talking to individuals, meeting with different companies and understanding what are their plans first and foremost. Obviously, they might not want to sell. That's an easy one to conclude on. There are some opportunities out there. Some of them are private equity-owned. Obviously, that brings a whole new dynamic of when the processes occur, expectation on multiples and so on. We're very mindful of the multiples we pay.
I don't think we'll be in our traditional six to seven times in this specific space. I guess I could go as far as that. We know where our trading multiple is today. Overpaying on our multiple, we'll need to come up with a lot of great arguments to justify it to our shareholders as to why we think it's a good idea. There is a limit there also as to where we can go. Again, we're mindful of the valuation and so on, but we do acknowledge that we will have to do that extra effort to be able to get a presence in the space that is growing and has significant opportunities for us.
Fair enough. Thanks, Eric. Just last question I had on railway ties for Silvana. Can you speak more to the composite tie opportunity you referenced there?
What sort of volumes could that be? Would you have any interest in steel or concrete ties?
We are in discussions. We are looking at alternatives on the composite tie, but it is not a market that will necessarily increase the volume. It is more like a targeted area with our environment or high humidity that we look at. It is a more like value-add product that is specific for the area. Other opportunity, we are always looking. We can confirm that we look really seriously on the composite side of the business because there is interest, right?
No, there is interest. I was going to say, and it is a good point. All our class one customers buy composite tie. They have a small program. I do not want to quantify it for everybody, but it is a very small volume.
They're essentially trying it out and trying a lot of different suppliers. There are different qualities and different price points for these products out there. One comment we regularly get is like, "We'd love to see Stella-Jones be able to come up with a solution and we can leverage, obviously, the distribution and so on." What we do believe is that it's not a growth aspect, but it's a substitution, right? It won't be wood. It'll go to composite, but we're going to be offering something that's a better value-added and has more resilience in the network and perform better. Once you've got the right product and it gets adopted, does that have traction? Does it become 500,000 ties a year, a million ties a year when we do 7-9 million ties a year, depending on the years?
I'm just giving you orders of magnitude, but today, class ones, I would say, would order on average less than 200,000 ties a year, if not 100,000 in some cases. It's nothing big. They spread it amongst right now several suppliers because they're putting them in track to try the same way they're doing it with DCOI, for example. I referred to that earlier. A lot of our customers have taken DCOI treated ties. They've put it in service, and now they're monitoring and they're trying to figure out the experience and what does that mean. Will they one day have the idea to meaningfully move away from a Creosote treated tie? That's not for tomorrow, for sure. They're definitely willing to work and to do some R&D on it.
We're super happy that they're talking to us about it because it gives me the signals that if we come up with something that's meaningful, we would have an opportunity to have great discussions with them.
Yeah, Benoit from Desjardins. Moving into that same vein, Kevin, you mentioned that you were exploring also at adjacent opportunities on the pole side with inspection with composite also. How do you assess those opportunities and what would you like to see to make you confident to go ahead going forward? What are you assessing when making a decision about those adjacent opportunities?
I would say that there's a big universe of things that could kind of fit into, pardon me, our approach to an acquisition. You guys are familiar. Eric has described that. From my perspective, it also has to sort of complement what we already do.
There could be a lot of things. I don't know that I could start listing what they are, but certainly there's a big business out there supplying, like you say, the in-situ inspection, repair, maintenance side of the business. There's also smaller items that utilities buy that sort of go through distribution. Our products don't really go through distribution per se. We put them through our distribution yards, but they don't go through those third-party distributors. Brooks, crossarms do. About half of their volume goes through that channel. I think that the Rock Anchor is another item that we're not going to be shipping full truckloads of to customers. Those will likely go through a distribution channel as well.
That opens a whole another range of things that, as we, it's early days, don't get me wrong, with Brooks and this business, but there are things in there as well that I think would complement the business that we've got today and utilize some of our distribution network and really the relationships we have with our customers.
Benoit, I would add to that, and we've had this conversation before. When I look at a distribution pole, in some occasions, there's as much hanging on that pole in value as the pole itself. Crossarms is a very good example. Brooks manufactures with crossarms.
Now that we're in the business, we understand, we can talk to our customers, "Can we get into steel and fiberglass crossarms?" As we enter this room, there are a few more doors that we can knock on and open up and understand what's there. It might not be for us. It could be for us. I once said, "Stella-Jones does not aspire to be the Amazon of nuts and bolts for the utility industry." That is not what we want to do. There are still some meaningful components that have very attractive financial profile that are recreative, that our customers are going like, "All day long, Stella-Jones, if you guys want to do this, use your network, consolidate, and be that supplier for us, we'll do it." Those are the customers that we're targeting.
It's not 1,000 of these customers that want us to do this for them all day long. We do have a few great partners. We are a big organization, but our utility customers are significantly larger. When you have their support, it's easy to build a business model around that. Oh, yes, Michael.
Yeah, Mike's up on TD Cowen. Thanks very much. Eric, question about the contracts in the utilities business. I guess we've heard in the last several years some discussion about how there's been a lengthening of the duration of the contracts on the wood pole side. I'm wondering if you can provide a bit of an update on that. Secondly, talk about on the steel structure side, how contracts look. What does the duration look like there? What does the structure look like for those contracts?
Thank you, Michael. I'll pass that on to my colleagues. I'll let Kevin start it, and Pierre can answer for his division. Go ahead, Kevin.
Sure. I mentioned in the presentation that going through this COVID cycle of constraints, etc., I said we didn't run after and chase short-term opportunities. We met with a lot of utilities that weren't our current customers. Really, we were both interviewing each other, if you will, for us, looking for longer-term relationships where we can build yards and start planning for the resource needs. That remains strong. As we've talked about, there is a balance there. Actually, I don't want 100% long-term contracts because it gives me no flexibility. There's a certain amount that I need, as I'd call it discretionary, or customers that I have not made a promise to. That's that spot volume.
I use that spot volume to turn off or turn on to fill in where a contract customer slows down or speeds up. That's kind of part of the calculus of how to make that work.
Thank you, Kevin. Pierre, you want to give us the perception on the steel side?
There are two types of clients. The first type, some clients are really good at forecasting their demand. Those clients will ask a long-term contract on that period. That's why we got a 10-year contract for 60,000 tons. That's one of those clients. Other clients focus more short-term. They do not know their forecast, but they want a contract. On those contracts, what we are going to do is set up the price for, let's say, towers between 0-5 towers, between 5-10 towers, between 10-20 towers.
There is our contract for that. When they are ready with their forecast, they come to us and say, "Okay, price it." Then we provide a price, and they will issue a PO. Both contracts, there are clauses for indexation for the steel, for the zinc, for the labor, and the overhead. Everything is indexed. The contract that is starting today will be good for many years in the future because of those indexation clauses.
Perfect. Thank you. One follow-up, different subject. On residential lumber, not a lot of discussion about that today. I know you have reiterated the CAD 600 million-CAD 650 million of revenue guidance. How do you think about that business strategically going forward? I mean, it is not targeted to grow the way the others are. How does it fit into the portfolio in your mind at this point?
Thank you, Michael. I'll start if I take a step back. It's funny, we had a conversation yesterday about that, but the same rigor we put around M&A, when we look at the criteria for financial performance, we do with our current business. That's a review that happens once a year at a strategic meeting with our board. Obviously, residential lumber is often a topic of discussion because it's been brought up by a few shareholders and a few analysts over time. My answer hasn't changed. Obviously, we give a range of CAD 600 million-CAD 650 million because really we want, first, it's not a business that we're going to invest and do more M&A. We've been clear about that. It will grow depending on how well the customers we support grow their market share. Could one day that range change? Perhaps.
You're right for the guidance, we've kept it where it is. Today, it's a business, and we don't segregate profitability, but it's slightly under a corporate average. That inventory turns four to five times a year, which is not the case for wood or utility poles. It generates a lot of free cash flow for us. It does well. There are metrics that it does hit very well on. That being said, anything's for sale for the right price. It's not as if it's something that we would not consider. If it's a great offer that comes to the table, we'll go to the board and have a discussion. It might be something that we need to do eventually if we want to consider transformational acquisition. You can see that more or less we're still at the same place, but for now, it's a great business.
It does very well for us. I got a question right here on the screen, if you do not mind, because it has been there for a little while, but it is for Rhianna, and I will read it out. So Rhianna, you alluded to a changing political and regulatory landscape around ESG. And how do you see that impacting Stella-Jones' ESG initiatives going forward?
Yeah, great. I think the short answer is not much. Our ESG program we have developed is really pragmatic and valuable to our business, which is why it has remained consistent. That said, we do obviously stay abreast of any changes in regulation, whether it is ESG-related or other. Our team of legal experts make sure we understand what those changing expectations or regulations are. If it happens, we, of course, will make sure that we are going to be compliant in both sides of the border. That is a commitment. Yeah.
Good. Thank you.
Yep, Jonathan Goldman, Scotiabank. I guess going back to the poles outlook, the mid-single-digit organic growth target that you have there, is that aligned broadly with your utility customers' growth CapEx plans? What would you see as the high-side and low-side risks to that organic growth target?
Great. Thank you, Jonathan. That is your dear architect behind our guidance. I'll let you give some feedback.
Yeah. It is definitely supported by both market industry data that we get. As you saw, BCG also, obviously, they are not going into that much detail, but we do get reports, and it is based on their market industry data as well as projections that we do internally with Kevin and his team in terms of the volume growth that is expected. Maybe just to answer, I think it was Benoit's question.
When we put out the projections, 4-6%, we always assume in there that there is just inflationary price increases. Part of that is pricing. Let's call it 2%, with the remaining being the volume increases, which are in line with the expected increase in CapEx spend generally for the distribution wood market in North America. In terms of upside and downside, I think you've heard the team. There is always the timing of projects from utilities. Obviously, that is mitigated in part by the scale and scope of that business and the customers that we have, but there is always that risk. We talked about the strength of our business with the contract pricing. Fairly confident that putting an inflationary price increase in our projection is reasonable and modest.
David, anybody else?
Looks like that might be it.
Oh, there's a hand up right here.
Michael Tupholme, TD Cowen. I know you're still evaluating the possible greenfield opportunity in the U.S., but can you give us a sense for what the capital cost of something like that would look like if you proceeded and what the development timeline is to bring that project online if you go ahead with it?
Still early days to come a number. I could definitely think about a range of, could it be like $45 million-$55 million in capital investment? Obviously, we're not clear on different state incentives, so we're actually working with someone that's sort of guiding us through what would be the right place to meet Pierre's criteria. There are also different incentives in different states, not necessarily fiscal incentives and so on, or subsidies for labor and so on.
I would say that would be a fair range, more or less, for that 20,000-ton steel facility.
Sorry, the time to actually develop that and bring it online, yeah.
I would say from the day we formally announced it, I would say probably 18 months.
Thank you.
Hi, Eric. Dan Hanson, American Ag Credit. Real quick, I saw on your slide you had an AI bullet up there, more or less. Could you just talk about your strategy around how you guys think this may impact you, given obviously the physical limitations of your business and being able to apply it? Maybe you can talk about your strategy around it and what you guys are doing with it.
Thank you. I like the question because we do not often get those types. It is interesting because you do not think about AI when you think about Stella-Jones.
The first thing actually we're doing, and we're in the process of putting first and foremost a framework, right? We will have by the end of the year our own AI internally, which is supported in the backdrop by one of the well-known generative AI, but it ensures confidentiality for us internally. Once we have this internally, we also need to make sure that, for example, all our employees don't have access to salaries, right? We need to make sure that we have a good, robust framework internally. That'll be done here by the end of the year and also provide training to our employees of the opportunities, the risks, and what is possible with AI. We're definitely working on those fronts.
When I think about what we can do as a company, we just completed our ERP implementation, a very sophisticated system that gathers a lot of data just on the costing perspective. For example, there are several buckets of costs where I can monitor things in a more finite way. How do I navigate this and quickly get information to make me take better decisions on that? That would be an example. On the residential lumber side, I know we just said we talk about residential lumber, but our main customer there provides us with a boatload of data. Actually, we have someone in our IT department who's trained in business intelligence, but he's actually a data scientist. We sort of unleashed this young man a few weeks ago with this data, and he's finding trends in what we do for our customers.
We're going like, "Huh, that's interesting. This SKU sells super well in Western Canada, and nothing moves in the east, but it's not even listed." Actually, we got our minds sparked with that idea because last year, one of our salesperson figured out like, "Why don't we put this in Ontario?" Lo and behold, sales spiked for that SKU. If I think about what Wesley wants to do, if we can put enough gizmos on our pumps and our different pieces of equipment, and we can gather data, we can actually do predictive maintenance on it, right? We can understand how that goes. Pierre's project at Lockwell, all the equipment we're ordering is generating data as it produces every day, and it's actually funneled to a big database.
We can actually use AI to understand what is more efficient, who is actually working better, what is the best practice in our facility, and how we can sort of use that and deploy it internally. As we learn more and do more, we realize maybe we can apply this to the business. I mean, it will not peel poles better. It might treat better, actually. You do not know how that can work. I guess there is some level of excitement there with small initiatives internally that is going to get us to the next step. Part of Wesley's department with a few young engineers that can think outside the box and actually maybe move the needle for us. It is again like, how big can you dream? What is possible? We have to try things to learn more about how we can apply it.
Any further questions? I know we've got lunch outside, and we can definitely keep talking for those who want to hang around for a little while. I will conclude the Q&A period. I want to thank all our speakers, everyone who joined us this morning in person and online. It's very much appreciated. I want to thank the Stella-Jones team who dedicated their time to prepare the event. Obviously, a lot of time goes into this, and really happy with our speakers because obviously we do not do this very often as a group. I think we did extremely well. Thank you so much. As you have heard many times today, our value creation priorities are aligned with our vision and mission to be a partner of choice for the infrastructures that connect our communities.
We have the right team, the right assets, the right customers, and the opportunities to stand tall and reach wide. With that, I wish you a very good day and a safe one as well. Thank you very much again for attending our second investor day.