All right, everyone, it's about 8:30. We're going to go ahead and get started in a minute. Welcome to Hubbell's 2020 Investor Day. Really appreciate you guys taking the time to come out, both in person and on the webcast. We're excited to share with you an update on the company and where we're headed in the future. We've got some Hubbell people up on stage with us today, senior management. You're going to hear from several people. We've also got Hubbell people out in the audience, both corporate and from a business perspective. If you haven't had a chance to interact with them already, they'll be in back during the breaks and lunch, so encourage you to go ahead and do that. Without further ado, I'll turn it over to our Chairman and CEO, David Nord.
Thanks, Dan. Good morning, everybody. Nice turnout. Thanks. Appreciate you guys coming. There's a few empty seats, but not many. That's great. Got a few things we want to cover today. See if I can figure this out. All right, Jeff, I figured it out. We're going to do a few things today. First half this morning, give you a chance to hear a little bit of update on our performance, a little bit on our strategy. Gerben and I are going to tag team this, give you an overview. There's a little bit of a grounding to those investors who may not know our story. Those who have followed us for a long time, it'll be familiar. Even for those investors, I think there's a lot of opportunity for simplification and reinforcement of our story.
Want to get to some of the basics, things like why we exist as a company, what problems we're trying to solve for our customers, and what makes us different, and can help drive long-term success. We're going to get to the deeper dive with some key issues. Two in particular, one on capital allocation, and Will Sperry will talk to you about that. On the other is on margin expansion. Those two things are really important for us on increasing our revenue and improving our margins. Second half, we'll get more into the business. Gerben will lead that discussion with our group presidents. Then finally, Will will give some insights into the initiatives, and how they're going to impact our financial results going forward. Before I get into it, just a couple of things, some near-term updates. Obviously, there's always interest in how's the quarter looking?
How's the year starting? We continue to feel confident in our ability to drive our short-term results. We said about a month ago that we expected to be a little bit better this year than last year in the first quarter, and I think we continue to see that. Obviously, we're all dealing with implications of supply chain challenges, coming out of the extended shutdown in China. Good news is we only have, as you might recall, 5%-10% of our cost of sales that are driven out of China, and a lot of our inventory was built up in advance of the new year anyhow. We don't see that as a significant impact in the first quarter. Utility business is doing great. Continue to have strong demand. The electrical businesses remain mixed. You'll hear more about that from the group presidents.
All in all, we think we're still on track in the first quarter. Obviously, we've seen some other market volatility from coronavirus. As I said, I think we're well-positioned there. Obviously, we deal with some productivity challenges, but we have one factory that is operating at about 75% capacity. Just around 90% of the workforce is back. We were able to get back in operations immediately when allowed by Chinese authorities. We passed all of the tests, and so that was helpful for us to get going. I think for now, we see our ability to navigate it. As I've told our team, and I think right now, we look at the coronavirus as this year's tariff. As we started last year, we had the uncertainty of tariff that we had to navigate. This year, we have coronavirus. We're obviously monitoring it very closely.
We don't see a major impact as of now. Let me get to some of the key messages for today. We're going to talk about why our business model is unique and different, what differentiates us. There we go. All right. I almost had it, Jeff. How we're strategically positioned to be for the present and for the future, the steps we're taking to ensure our long-term success, we're always looking out for the long term, and how we're putting the right people in place to make all of that happen. As I said, I think there's just a little bit of grounding on our history, a little bit of a snapshot. We're a 130-year-old company with deep roots in the electrical and utility space.
Just recapping very briefly in one sentence, 2019, we had strong financial performance, margin expansion, and really good, very good free cash flow generation, well in excess of 100% of our adjusted net income. Another highlight, it's always a highlight, our employees are always a highlight. One of the things that we've had to deal with is driving productivity. What you see is our 18,000 employees, that's actually down 5% from last year. We've had to work through that. We do a lot to work with those employees as we've reduced our workforce. Good example is our Newtown plant that we closed last year. We were able to help place outside of the company or inside the company almost 100% of those employees. We had job fairs, and we're really proud of that. No one was left behind. You see we have 70 facilities now.
We had 77 last year. We will continue to see that decline, and Susan will talk more about that. Our differentiators in our value proposition, let me set the table for the rest of the presentation. You see, first and foremost is the depth and breadth of our product offering. In a very fragmented market, serving a very fragmented market, our broad product offering makes us very important to the channel, to end users, because we bring a very robust basket of products to their solutions. We've got tremendous brand recognition in the market, whether it's Burndy or just Hubbell overall or some of the sub-brands under Hubbell. Very important, built up over decades, that brand recognition and the relationships with distribution. We often have a specified position in buildings, in utilities, in products overall.
That specified position gives us some longevity with those customers, and we can build on that. One of the interesting things, and this is always important, and this is particularly important we see in the power business, is while our products are critical to driving infrastructure and the reliability of infrastructure, in many cases, they represent a small portion of the total cost of ownership to that customer. Utilities is a good example, where our products, we have a very strong market position, but our products overall represent 5% or less of a utility's total cost. The products themselves, if they fail, can have significant negative impacts to the utility. They're very keen on our reliability, our quality, and less on the price of that. It gives us a good opportunity to maintain that product differentiation and not rely on price.
As I said, the customers are buying based on that quality, reliability, and service. We've talked about this in the past. The broad and deep product offering is great to make available to the customer, but can you service it? Can you deliver it? Is that product with that variety going to be as reliable as they need at an effective cost? That's something that we do very well, and that is a key element of our value proposition. Lastly, the repeating demand from our customers between the specification position, the brand recognition, the quality and reliability. We have a lot of continuity within the channel, within our customer base, and that all provides a lot of value for us. All of that can't happen without having a strong team behind it. I want to talk a bit about our team.
We obviously have a very deep and capable team, and many of them you're going to be hearing from today. We've been very active. One of our key pillars is developing talent, and we've been very active in doing that. When you look at this page, you'll see where there's a yellow triangle, an indication. Those are all people who are new in position and/or new to the company. Some of this is based on internal movement, promoting top talent. Some of it's going outside. This is all part of the evolution of our company. This chart has one, as I just looked at it, one, two, three. Since the last meeting, three new people, four new people in position, a couple new people to the company.
That's how we're building on the success and building on the foundation of the past as well as preparing for the future. I think one example of that, most recently, you'll see on this chart is we recently brought on Alexis Bernard. Alexis has joined us today, he's joined us as our Chief Technology Officer. That's a new position. We've never had that position in the company. We recognize that we need to accelerate the things that we've been doing for a long time on new product development and innovation. We've taken one approach through acquisition, we saw that with the Aclara acquisition, bringing in the technology capability from Aclara. The internally developed, looking at new markets, new products, is something that we had to accelerate. We're delighted to have Alexis join us. He joins us from Knowles.
Many of you who followed Dover may remember Knowles, and they spun off about five or six years ago. So we're looking forward to the things that he's going to bring to Hubbell and really accelerate a lot of our innovation. I also want to get ready to turn the presentation over to Gerben, but before I do, just to highlight his role. As you know, we appointed Gerben as our President and Chief Operating Officer back in June. For many years, you follow the company, you know Gerben led our Power Systems business, very successful in building that into a very strong brand. In his new role, he spent a lot of time working with the operations, digging into the operations, particularly on the Electrical side, trying to bring some of the successes and practices from the Power Systems business into the Electrical business.
We've really benefited, and I think you'll hear some of that today from the group presidents in the Electrical Solutions side, what they've gleaned and some of the things we're doing that are being transferred, skills and techniques and practices from the Hubbell Power Systems background. With that, let me turn it over to Gerben to talk more about our businesses, our markets, and how our portfolio is well-positioned going forward. Gerben?
Good. Thank you, Dave, for those comments. Good morning, everybody. I'd like to take the next 15 minutes or so to provide you some further insights into our businesses. Then the group presidents will follow it up to even go deeper into them. I'll come back with them to take your questions at that. First, our two operating segments. I was on the wrong one. You can see on the left-hand side of this chart, the Utility Solutions segment. We recently renamed this segment to better represent our leading positions of serving electric, water, and gas utilities. This was previously known as our Power Segment. Within that segment, you can see two primary businesses, the Power Business, representing about two-thirds of the revenues.
This is the largest and leading supplier in the electrical T&D market, supplying critical components to build the infrastructure and to maintain it. Secondly, Aclara, a smart infrastructure solutions company with meters and communications infrastructure for water, electric, and gas utilities. Combined, these businesses have an extremely important position in the utility markets. On the right-hand side of this chart, you see our Electrical Segment, made up of three groups about equal in size: the Construction and Energy Group, the Lighting Group, and the Commercial and Industrial Group. While within these group, there are specific product applications, and there's also market niches that these groups are going after, collectively, they serve a common set of end users and market channels, and as a result, we combine them together. These two segments are focused on a focused set, but balanced set of end markets.
You can see that in the center of this chart. If we start with the Electrical Transmission and Distribution segment, this represents about a third of our revenues. Within that, to the right of that, you can see that we're most heavily focused on the distribution side. We like this position as it represents most of the spend and most of the miles in the grid, and it also tends to behave more predictable on the demand. Growth drivers within the Electrical T&D market are grid hardening and grid modernization. Not only does it represent the largest piece of revenues for Hubbell, it also has the best growth potential, certainly in 2020, and we believe in the next few years. The Electrical segment serves industrial, non-residential, and residential markets, and you can see that collectively, that's about 50% of our revenues.
It also serves attractive niche markets of oil and gas. I just want to point your attention to that small slice at about 12 o'clock there of gas distribution. This is a small yet very attractive market that behaves much like the T&D market, with a very aged infrastructure in need of upgrading and safety standards driving growth. We're deploying, as you will hear later from Will and from Rod, a strategy very similar to what we deployed in the T&D market to growing this business with new product development, innovations, and acquisitions. Most importantly, this balanced exposure to our end markets reduces our cyclicality. We saw this, for example, in 2019, where in the heavy industrial oil markets and the C&I relied markets, we saw weaknesses, yet in our power T&D markets, we saw strength to offset this.
Looking at some of the mega trends that are affecting our business. Here we feel we are really well-positioned to take advantage of these over the long term. We start with energy conservation. This is driving renovations and retrofits in buildings. Our electrical portfolio is extremely well-positioned to serve those needs. Also in the utility markets, energy efficiencies and renewables are being deployed at rapid rates. We benefit from that with our transmission portfolio to integrate these renewable resources onto the grid. Also, as more of these renewables come onto the grid, it stresses an already aged infrastructure, especially as you get into distributed generation and the two-way flow of energy through the grid. Our portfolio of smart products, and with the inclusion of Aclara, we're very well-positioned to help utilities modernize this grid.
Climate change continues to affect extreme weather events, and we see storms and we see floods, and we now also see fires. Our portfolio is well-positioned to help reconstruct from these events, and also to harden the electrical grid to try and prevent these from doing the damage they do in future events. Urbanization is driving more of the population to the centers. As a result, non-residential and residential construction benefits. Again, our portfolio is well suited for that. Also utilities are affected by this, because as more of the population goes to these load centers, the electrical load gets concentrated on that. What the utilities need to manage is that peak load, and we can help do that with our portfolio. Finally, underlying all of this, advances in digital technology.
If we can provide the insights into the grid and to the operator of how effective, whether it's an electrical grid or whether it's a building, by layering technology onto our products, we can have a real important value proposition for our customers. Let's now see how this all comes together for Hubbell. Dave talked about our purpose as a company, which is to solve critical infrastructure for our customers with reliable energy components. We are indeed well-positioned to serve this need across the energy infrastructure. I just want to show you how we look at this internally, and it may help you look at us in a similar way. We kind of break this down in three pieces: in front of the meter, at the meter, and behind the meter.
If you can see on the left-hand side what happens in front of the meter, this is where utility companies generate, transmit, and distribute energy to their end customers. If you look at the center of what we call the edge of the utility grid, is where the meters and the communication infrastructure sits to link the utility customer to the utilities with their end customers. If you look at the right-hand side of this, what we call behind the meter, this is where owners and operators of buildings, factories, homes, and critical infrastructure utilize this energy. We look at this energy infrastructure in this form of before, in front, at, and behind the meter.
If you then layer over it our company and our two segments, you can see on the left-hand side our Utility Solutions business that really services the utilities up to and including the meters. We provide the components to build the transmission grids, the distribution grids, including the meters and the communication system. We are the primary supplier in this market. If you then look at the right-hand side of the grid, we provide the components from rough-in electrical boxes to switches and receptacles, to controls and lights to help the building operators manage that energy.
What's really exciting when you look at what the future could bring, and what I talked about earlier with the digital evolution as a mega trend, if we can provide insights throughout this energy infrastructure of what's going on and how we can help run that infrastructure more efficiently through sensing, through data collection and analytics, to communications and control, we can help operate this whole infrastructure more efficiently and effectively. This is one of the great future value proposition that we can bring to this market with our portfolio. I'd now like to turn it back over to Dave, who will talk a little bit on how our strategy comes together with our actions. Dave?
All right, Gerben. The prior page gave you some insight into individual businesses. The businesses are often managed separately. One of the keys to our successes is making sure that we're coordinated, and coordinating our efforts to make the best use of the full enterprise. We do that through four key pillars on our strategy. You've heard these before. We've had these in place for a number of years, and they really drive everything we do. Obviously, first and foremost is serving our customers. We talked about serving customers, and we do that with high-quality product delivered on time, a broad presence across our channels, as well as with e-commerce, and using a one Hubbell marketing approach to make sure that the market understands the full breadth and depth of our product offerings. Growing the enterprise is critical.
Long-term, mid-single-digit revenue growth, we do that through a combination of organic and acquired. You'll hear a little bit more about that, as well as from our new product development. In the future, you'll hear more about that from Alexei. Operating with discipline. We've got long-term goals of mid to high operating margins. We've been there before. We're working our way back there now. We're going to do that through a combination of things. Obviously, the footprint optimization is key. There's other things that we're working on under this initiative as well, whether it's despite the benefit of our broad SKU and product offering, we've spent more time on the analytics of which one of those are really adding value, which ones are not. The more you offer, the more complicated it is.
We have found opportunities to narrow our offering, and increase our value, increase our margin. Certainly, importantly, is developing our people. As I said, you can't do what we do without having a world-class workforce. We continue to work with that workforce. That's one of the things that has really been a great benefit on a coordinated basis. The employees love it. The employees have a greater appreciation for being part of a larger organization, and the opportunities that that provides. We have a responsibility to provide those opportunities, provide that training, provide that support throughout, and building on that capability. A lot of work's been done there. You're going to see this strategy as a common theme throughout the rest of the presentations later this morning, on the businesses.
As I said, I want to focus on two key strategic topics. One is our capital allocation. Will Sperry is going to talk about that. I have to say that, as owners, you should be very happy with the leadership we have in this area. I've worked with a lot of people in my career, and there's no one that I've worked with that has the capabilities, both the balance of the financial acumen and the strategic acumen, focuses on generating the capital and then how to deploy it. That's been a key element of our success. Look forward to hearing more from Will. Then we'll hear from Susan Hooper, who you know joined us a couple of years ago. Similarly, she has done amazing things for us.
The things that we've accomplished in the last two years exceed what we had accomplished in my first 10-12 years with Hubbell. I think there's a lot of good things and more to come. No pressure, but that's kind of how I view Alexei's role, and within a year or two, you're going to hear a lot more about what we've accomplished in that area. With that, let me turn it over to Will. Will?
Thank you very much, Dave. Great to see so many familiar faces, kind of causing me to reflect and think that it was a really good year. Most notably, I see Steve down there in the front table. Steve will recall about a year ago, he and I on stage in crutches and boots and casts and stuff. I'm limbering out and you look good. That's a year better. I'm excited. I got to move forward here. Excited to be, Susan and I, really talking about, I think two big levers that are really in the self-help category. Dave made some comments at the beginning about things that are outside of our control and the environment. Certainly, we can control where we invest and how we invest, we can control our operational excellence inside our four walls and out.
That's what our next two topics are about. As far as acquisitions go, we're really starting from a position of us being a leader in a highly fragmented market. That opens up lots of targets that we can go after. I'm going to share with you a picture that we think does a good depiction of the industrial organization of our space. There's really almost endless amounts of opportunity to make investments. I'm also going to share with you that we've been doing it for many decades. It's not something that's new, but it is something that we've been accelerating. One of the things I know you all noted about our performance in 2019 was the increased amount of free cash flow. There's going to be even more focus as we go forward on where we invest our strong balance sheet.
The third takeaway is we really are trying to find high growth, high margin situations. We think we can add a lot of value once we buy something. I'm going to share with you a little bit of our integration model. Fundamentally, I think we feel like we're investing on your behalf. We're finding private companies that you wouldn't otherwise have a chance to invest in. We're able to buy them in the 8 or 9x region, add value through cost takeout and synergies, own them at less than that, and have them available for you to own us and get access at these investments through us. I think the pyramid does a pretty good job of informing our strategy of how we reinvest.
You see an overall market size of over $110 billion, and this is at wholesale prices, so this is from the view of a distributor, in other words, from our revenue perspective. There's two parts of the pyramid that we don't compete in. The first is at the apparatus, and the second is down in the commodity products area. The apparatus, the source of, and nature of competition tends to be global presence and cost of capital, and those are places we choose not to compete in. We had our toe in that market a little bit in the high voltage test equipment area, and we sold that company this year and further concentrating ourselves in the yellow. At the bottom, you see some products that are related to what we do, but fundamentally harder to differentiate, harder to make margins.
We're really focused on the yellow swath in the middle, that nearly $60 billion of components. We feel that this area much more lends itself towards differentiation, towards branding, and ultimately goes to market through distribution. I think one of the really important parts of that yellow slice is the fact that we have a very unconcentrated distribution channel. Our top 10 customers account for about a third of our volume. Numbers 11 through 100, the next 90, account for another third, and then the last third goes through more than 5,000 distribution customers that we've got. Fundamentally, those customers are looking for branded product from us that they know contractors are going to come and pull off of their shelves.
It's fundamentally that unconcentrated channel that we're providing, we think, a really valuable service by having the breadth and high-quality product that they need. I think the other important way this pyramid informs us is at $58 billion there in the middle, and us concluding 2019 with about $4.6 billion of sales, you'll see us just under 10% market share. We believe we could be much, much larger, and consolidate this space, without needing to get outside of any of our areas of core competency. The chance for us to continue to roll this up, we feel has decades in front of us. That's why we share this chart with you again, because we think it's important in informing how we think about it.
I also wanted to share with you our own picture going back. That first bubble on the upper left is 1958. This is going back decades to show how active Hubbell has been as an investor. Generally speaking, the top half of the page is looking at the pre-2000 era. You can see what characterizes that era is an investment, not necessarily every year, maybe a few years in between, and typically, only one investment in each year when an investment has been made. The bottom half of the page shows you essentially the 2000 till today. You can see essentially every year, activity, and in most every year, multiple investments being made. I wanted to highlight that programmatic nature and the accelerated nature of what we've been doing. There's no sizing on this. This is just activity.
If you try to think about what this is capturing, it's really a bolt-on level of add-on acquisition. There's a couple of noteworthy splashes back in 1994. You see the green name A. B. Chance at the top. A. B. Chance added 20% to Hubbell's revenues when it was acquired that year. Second on our list was 2018, Aclara added about 14% of sales to Hubbell when it was acquired. Burndy, which you're going to hear more about from Rodd Ruland, in 2009, added about 8% of sales to Hubbell. There's three notable cases of slightly more episodic additions to the portfolio. Generally, it's add-ons, and I'll show you later, the average has tended to be $40 million investing.
I think also what you can't see on this chart, but if you looked at the bottom of the last 20, and you looked and thought about the $3.3 billion we've invested in that 20-year timeframe, about 50% of that has been invested in the power segment and about 30% in industrial. We've really purposefully tilted our investing towards those markets that we found to be providing differentiation, higher growth, higher return on capital, and we feel that's our obligation investing your money. I just wanted to share with you a little bit of our process. It starts with Dave was commenting on the business development effort, Erik Christian is sitting at Steve's table there. Maybe Erik can raise his hand. Erik's responsible for our business development efforts.
Sadly, like me, he's a recovering investment banker and finding life inside industrial America to be more suited to him. Inside each group, we have dedicated BD resources, and each president feels and understands for them to hit their targets each year, they've got to go make acquisitions. We've got a lot of internal resources spending time on it. We purposefully are looking to target companies that we like. They typically either add a new product that we don't offer, a new technology that we don't have, a new geography perhaps. We tend not to look for fixer-uppers. We'd rather pay for something that's high quality already and something that is just much more valuable on our platform. Any time we can add brands, we like to do that.
We get a good pitch from the consulting universe each year telling us that we should eliminate our brands and just trade as Hubbell. We find that the brands, though, have a lot of equity inside of the channel, and we keep the Hubbell umbrella brand on top of all of that. After we've targeted something, and right now we're maintaining files on hundreds of companies. We know where we'll be looking and where we'll be investing in the future when the actionability comes around. We think about how do we create value? How is it worth more to us than it is to their prior owner? We find that we're able to use our dedicated sales force and help push and promote the product and grow it faster than it was growing.
We find we can remove redundant costs easily inside the G&A level. Susan, who's going to talk next, my activities make her life miserable because I keep adding sub-scale level facilities, and she's kind of sweeping up behind me and making sure we consolidate those and take those fixed costs out. We also are finding that often the small companies using agents to represent them in the market, we can go use our direct sales force and get them to market much more cheaply, much more effectively. We find that in short order, in a year or two, we've bought down the multiple we acquired at by several terms. We think that's how we can help create value for you.
We'll talk a little bit about our financial model that's going to be geared towards growing at twice what the markets are growing, given the amount of cash flow that we're generating. We'll cover that in a subsequent page. Want to share with you a little bit of a picture of our bolt-on level of investing broken into the last five years, the last 10 years, and the last 20. I think of note, you'll see that that average purchase price is still about $40 million invested. That really proves to be the sweet spot. We're sourcing companies really from three areas. Number one is private, usually family-run and owned businesses, often second or third generation. Second is from private equity firms looking to realize on their investment period. The third is really corporate orphans from inside of public companies.
I would say the first of those three is by far the deepest pond that we fish in. It's that private company. That's why you see the small size that we have been very successful at going at. Multiples have ticked up a little bit in the most recent five-year period. I think that's a function of how much money has been chasing the same amount of deals. Our ROIC remains very steady. It's one of the benefits of having a programmatic portfolio-based approach to this, we're not dependent on episodic results, but much more how a portfolio of companies in a five-year basket performed against our expectations. Again, year in, year out here, you can see that we've been successful at doing this.
I wanted to dive down a little bit into two case studies rather than just thinking about a portfolio, where do we pick our bets and how does that play out? The first, I'll start with the power systems business that Dave was referring to, Gerben's legacy there. You can see $100 million of revenue back in 1990 built up to a billion three today. Margins very attractive. Ultimately, that took 26 acquisitions to help us build that up at attractive multiples. What you end up with is a space where we have, we believe, the number 1 position with a market share advantage over our number 2 competitor of a factor of 2x. We feel that we are offering quality, longevity, customer service.
We stand behind our products, and we find ourselves in a position of having the largest installed base in a business that's largely MRO and replacing like for like. Our products represent a very small cost of building and maintaining a mile of network, and yet our products really are dictating the performance and quality of that network. We like how we've built that up. I think the only part that frustrates you all about this page is that it took us 30 years to do that. I think the question and how Erik and I and the operating team sitting at this table are thinking is, let's find out how to do that and telescope the number of years down and find ways to make those kind of strategic pillar investments faster. Another recent example I would point to is the gas connectors and accessories business.
Back several years ago, we had nothing. With four acquisitions over four years, we built up a $200 million position there. Very similar to Power Systems, the number one player from main to meter. Like Power Systems, a largely MRO business where we have the largest installed base and the tendency is to replace like with like. Similarly, the failures here are catastrophic. You get fires and explosions, having high-quality componentry that's updated is very important. There's an example that didn't take 30 years, but in four, you can build up something in a vertical that doesn't have a previous dominant player, and we kind of make our own market. Those are two interesting case studies, and I can't tell you what our third one is because we'll put it on our next year's slide, but that's what we're trying to do.
I also wanted to talk about basically the math as we think about the timeframe of 2020 to 2023. We're talking to you this morning essentially about a four-year outlook. That lines up with our strategic planning cycle when we meet with our board of directors in June. We tend to have a three-year cycle plus the stub period of the year that we're meeting in. As you all will recall, we generated about $500 million of free cash in 2019. That number will be going up each of the next four years. We'll be generating effectively in the $2 billion-$2.5 billion of free cash. Claim on that cash includes dividend, CapEx already out of that, obviously.
Our CapEx needs are continuing in that 2% to a little bit north of 2% of sales for the requirements we have for growth CapEx as well as productivity. The first call on that free cash flow will be dividends. We continue to think of dividends as being in the 40%-50% payout ratio of net income. That'll result during this four-year period in about $900 million of returned capital to our shareholders. We also tend to do order of magnitude of $30 million or so a year of share repurchases. That leaves us effectively with about $1 billion of cash to invest. We've put off to the right a second $1 billion, which is using the balance sheet.
I think we went through a very constructive exercise for Hubbell's management team as well as the board of directors with our Aclara investment, which was we went for when there was investment that we were very keen on, we used the balance sheet to borrow $1.1 billion. We took our leverage up to about 3.25 turns. We've got that leverage paid off now back down to about 2 x debt to EBITDA. We have, I'd say between cash and balancing capacity, about $2 billion to invest over this next four-year period. You'll remember from the Aclara slide, we've been doing $40s as an average investment size. If we did three, four, five $40s each year, we're not going to spend this much. I'm going to anticipate that in this four-year window, we'll also do something more substantial.
There'll be a combination of what we're calling the bolt-on tuck-in, typical Hubbell size, and we'll be doing those multiple times a year. The example, even in December of 2019, just a couple of months ago, announcing two of those very typical type deals, and we anticipate continuing with that strategy in 2020 and through 2023. I think you should just anticipate that there may be also a substantial investment in there, and the capacity of $2 billion, I think, is noteworthy. The same as Dave finished with thinking about our four pillars, I wanted to share with you my perspective on how our acquisition strategy really supports the pillars. First of all, we think it really enhances how we serve our customers. It allows us to add depth and breadth to the product set.
We're specifically looking for white spaces that the customers are hoping for us to be the provider. It always intrigues us as we buy somebody that our customers actually like us becoming bigger. We get some interesting questions from your side as to whether the customers ever push back. Do they not like us becoming larger? The fact is, I think they like dealing with fewer vendors and suppliers who are reliable, suppliers who have quality, suppliers who stand behind their product rather than them having to manage mom-and-pop relationships. It's very much in keeping with serving our customer that we continue to do this. The grow the enterprise component gets back to our simple financial model. Our end products, as they face off against markets, they'll tend to grow at GDP type rates in and out of cycles.
We're going to generate earnings, operating profit margins in the mid-teens. We need about 2% CapEx of sales and the resulting cash flow, the free cash flow that equates to about our adjusted net income number, better than that it has been the last year or so. That creates the fuel with which we reinvest, and then we can grow at two times the markets. Being able to do that year in, year out is really quite important to the way our financial model works and how our strategy works. We get to operating with discipline. We feel over the last decade or two, we've developed a real core competency in how we integrate these acquisitions. When you're doing three to five a year, you become pretty good at it. Some of that is just plugging and playing and make sure it works inside of our platform.
Some of it has to do with getting them implemented onto SAP and our enterprise management system. Some of it has to do with getting the footprint right. We've become quite good at doing that. An example, as we said in December, we can close multiple deals in the same month, and it does not overwhelm our ability to integrate. We're quite proud of how we operate with discipline in this regard. I think what gets overlooked frequently is developing our people, and does acquisitions actually help develop our people? First of all, I think there are lots of interesting learnings for people who work on investments, and they become, I think, more savvy operators. Also there's an element, and you hear a lot of people talk about it, that you actually are acquiring talent as you acquire.
You're not just acquiring EBITDA or technology or geography or a new product. You're actually acquiring a team of people. From our perspective, it's quite noteworthy that the second half of our program this morning, you'll hear from our four operating presidents. Three of those four have come to us through acquisition. I think that's a pretty good testament to the fact that we really are looking to enhance how we develop our people. That covers my comments on how acquisitions are something that we control independent of the environment and how we're going to drive value creation. I want to hand it over to my partner, Susan Hooper, to talk about operational excellence and how some footprint rationalization also inside of our control and ways in which we anticipate adding a lot of value over the next four years.
Thank you, Will. I'm going to talk with you today about our footprint activities as well as more broadly about our operational excellence programs. Within the company, we are building a strong culture of operational excellence, functional specialization. Will mentioned something a moment ago about misery, so being the sweep, following up. That's not my normal state of mind, I would like to emphasize that in these bolt-on acquisitions, we are finding some great innovations, and we're capturing those innovations and sharing those best practices across our network. We are building this culture of operating excellence, functional specialization, in addition to our footprint consolidation activities. The footprint consolidation activities are generating, as well as the functional specialization improvements in our cost structure. These are generating savings, which in turn are driving our margin expansion.
I'm going to highlight in the upcoming minutes here some of the details associated with the operational transformation, as well as the sharing of best practices, and how we go about our footprint consolidation activities. I'd like to look at it from two different perspectives. From outside the four walls, considering how do we knit it all together, how do we consider the brick-and-mortar that we have, as well as inside of the four walls of whether it be a factory or a warehouse. When we consider outside the four walls, we're looking at the brick-and-mortar of what we have, the economies of scale that we can be achieving with our people, with our machines, and with our technologies.
In addition, as we look at our supply chain, we are driving towards a more regional, a tighter supply chain for our regional consumption, so the United States primarily, and as well as we're connecting the front end and the back end. We're looking at that extended supply chain, maybe not necessarily and exclusively our factories, but looking at our supplier base, looking at where our customers are. That is our holistic approach that we're reviewing and optimizing in the supply chain area. Internally, we're connecting cross-functionally with our business partners to ensure that we're aligned, having the right inventory in the right place for our customers. When we shift our focus, and this is our dual focus that we have, we look at inside of the four walls, material and warehouse management. We are driving a harmonization, a standardization of how we operate.
We have introduced within the last year standardized scorecards of performance at each and every site. We're taking a look at productivity, quality, people metrics, including safety, as well as delivery. This has been a very important effort for us throughout our entire network, and we are driving that comprehensive view, including those four different components that I just mentioned. However, I would like to highlight that at each and every node, we are strengthening our automation and our digital factory. Drawing your attention to the center of the circle, we're looking to optimize the capacity that we have today, as well as investing in the future. I like to talk about organic productivity, so doing more with what we have, with the people that we have, with the processes that we have, as well as inorganic productivity, where we're investing. Will was talking about investing in bolt-ons.
We invest as well within our factories, within our warehouses to become more efficient. At the top, you'll note that in our five-year journey, the multi-year journey that we have, we are reducing the number of sites by 25%, taking a significant chunk out. We're doing that in a thoughtful way, and I'd like to reiterate that we are looking to tighten our regional supply chains. We're shifting our production to larger facilities in lower cost regions, and at the same time, we're deepening the pools of technology that we have in those locations. We're increasing our talent pool, our degrees of specialization in those factories. By bringing, for example, molding machines together, we're able to afford more talent, specialized talent, and engineers who can run those decks of equipment. We're also looking to bring core product lines together.
We're looking at it from a couple of perspectives on how we're going through our consolidation and strengthening activities. Very important for us, we're driving increased investments in our automation. Dave talked about our product portfolio. We have a high mix, low volume, for the most part, in our operations. We are going to be maintaining a degree of redundancy in our footprint. We're not looking exclusively to go to one factory doing foundry operations. However, we are reducing the number of sites that do the foundry. You'll hear my Group President colleagues talk about different consolidation activities that they are going through in order to bring these pools of technology together. I've highlighted a number of different areas here, including the foundry, which I just mentioned, metal stamping, molding, machining, casting.
These are core areas of competence for our organization that we're investing in. Historically, we've operated our portfolio in more of a decentralized way. We're looking holistically now at our entire portfolio across all of the businesses and bringing these like processes together. Rob, in particular, will talk a little bit later about our sand casting activities, where we've consolidated two factories, one in Bethel, Connecticut, and the other, the receiving factory in Leeds, Alabama. We will continue to do these types of activities. When you look at our investments that we've made in the year that just closed of 2019, looking forward to 2023, you see that we've had an accelerated program of investment. $37 million in 2019 is what we invested, and we will continue to invest in the upcoming years. It will level off in the order of $15 million-$20 million every year.
What we're generating are ever-increasing savings. We anticipate this year generating savings of $15 million, and as we look out in this multi-year journey, we're anticipating $40 million. These are great projects for us. They're typically a three-year payback, and we continue to have a very strong pipeline, working with each and every part of the organization to realize these projects. We're driving margin expansion 20 to 30 basis points. As we look at where we've come from in 2018, when I joined the organization, to where we're going to be in 2023, we're reducing the number of sites. I'd like to, in particular, point out to you how we're going about it. We are a high-mix, low-volume organization. Our product portfolio can be described as such. We're looking in particular at subscale facilities.
We're categorizing those along the size, and that is manufacturing locations of less than 100,000 sq ft , we are scrutinizing very carefully. You'll see that in that focus area, we are dramatically reducing the number of sites that are smaller, as well as the number of warehouses that we have that are smaller than 250,000 sq ft . What that allows us to do is to invest in our resources, invest in our people, invest in the automation and infrastructure at those sites. In total, it's a 25% reduction. It's 35% in those focus areas of subscale facilities. Please note, we will continue to be active in acquisitions, and we will continue to drive consolidation. I'm not including anticipated acquisitions in these numbers. I bring back to you the four pillars of our organization.
The projects that we're going through of consolidation are not without their challenges, but what we've been able to demonstrate in 2019, as well as what we will continue to do in these upcoming years, is maintain our delivery service performance as well as quality. We have introduced playbooks, guidelines, procedures across the organization on how these projects are done. Through this increased harmonization of how we operate, it will be easier and easier for us to continue to bring these organizations and factories and warehouses together. We are also strongly engaged in our inventory optimization efforts. Making sure that we understand the products that our customers need. We've been investing in tools as well to monitor our customers' demands to make sure that we are producing the right products and getting to them in the time that they need them. We're optimizing our capacity.
We've spoken with you over the years of the opportunity that we have to improve our overall organization as it relates to capacity utilization. On the right-hand side of one of the pages that I slid over, I talked about a metric, and that is $ per square foot. This is a metric which is commonly used within operations. What are you pushing through your factories? Are you increasing that number? It's a measure of productivity. We monitor that as well. We do a lot of internal and external benchmarking. We're driving improvements in our capacity utilization, increasing the number of $ associated with the square footage that we have. We don't simply pick up a factory that we may be closing down, move it lock, stock, and barrel to the new location. We are critically taking a look at the product portfolio that we manufacture.
The SKU rationalization effort, as well as we take a look at are we really the best people to be manufacturing this product? We go through a make or buy exercise. By doing so, what you'll see is that we are increasing steadily year-over-year the number of dollars that we have associated with the square footage. We also have established within our company, and this is relatively new. Organizational clarity as it relates to operations. We have a Vice President of Operations in each and every one of the groups. Within those organizations, we have automation engineers, supply chain experts. We're investing in our talent. These people, together with the business leaders, are driving these performance scorecards that we're reviewing each and every month. That's in addition to, of course, taking a look at the daily tactical operations. I'm on the road a lot.
We do a lot of Gemba walks together with the local site management, root cause analyses, really driving that culture and that approach and that ambition for continuous improvement. One of our foundational important areas is environmental health and safety for our employees, and there's opportunity for us to continue to improve, and we will drive that. Finally, I'd like to focus a moment on developing our people. I talked about the organizational clarity. I talked about the investment that we've made in our people. We have required annual trainings. Through a sharing of best practices, we've been introducing guidelines on how to do certain things, a day in the life of a planner, a day in the life of a scheduler. How do we go about using SAP? Really driving and strengthening and investing in our people and how we operate.
We're empowering our people to make the right choices, to make the right decisions. Hopefully you've gained an impression for how important this effort is for our organization, the successes that we've had, and the pipeline of great projects which we'll be addressing and realizing in the upcoming years.
All right, I think we're going to open it up for some Q&A, about 15 minutes. We'll have two different 15-minute sessions. Please keep it to one question and a follow-up, and then I think at the end, we'll have some time for Dave, Will, and Gerben to address any follow-ups. Open it up. Jeff, I saw your hand go up first.
Great. Thank you. Maybe actually for Susan, and maybe Will you jump in too, because it's kind of around the numbers. Just thinking about your slide 29, with kind of the restructuring savings and the cumulative benefit. It looks like you're spending $120-ish, if you look at what you're planning for 2021 to 2023. You're talking about cumulative benefits of $40 million. That sounds low. It sounds like I'm missing something. That's kind of the first question. The second question is it does look like your efforts are bearing fruit very quickly on cash flow, and maybe that's one of the first things that falls out of this exercise.
Could you provide a little bit of color on how to think about your working capital and really cash flow execution, perhaps expressed in turns or however you happen to measure it internally, to give us some guideposts to measure your progress? Thank you.
Maybe I'll start, Jeff. I think you're right that working capital has become very important to this senior management team of Hubbell because of its impact on free cash flow. Included in this year's senior executive long-term incentive is a measure of trade working capital. Everyone who's in this room can talk to you about all of the pieces of that. I would tell you that between receivables and payables, inventory stands taller than those other two, Jeff. It's pretty clear that the work that Susan's been helping us to implement through footprint rationalization, you're going to end up with less raw, less WIP. You're going to touch something fewer times. It's really going to help that inventory situation. Susan does a good job of leading benchmarking analyses of us versus peers. We do that both across competitors.
We also look back, Jeff, over the last 10 years of our own internal history. We try to measure ourselves against getting back to being best in class there. The payoff, I think everybody realizes, is ultimately the free cash flow, and that creates the ability to invest more. I don't know if there's more to add on that.
I'd like to emphasize that inventory management is a strategic objective of ours. We are looking at where do we have pockets of inventory. Is it in the raw materials? Is it in the WIP? Is it in the finished goods? We are looking to increase the flow that we have, flow from our extended supply chain into our raw material stores, flow in the factory. We are introducing tools to monitor that movement of product through the site, as well as making sure that we have the right inventory at the right levels. I mentioned briefly that we're introducing digital tools to connect the front end with the back end, so monitoring our customers then to ensure that we are producing, in the right quantities, that product.
On the savings front.
The savings, we spend, as capital allocators, we look at acquisition projects. We look at restructuring projects, and we run them on paybacks, we run them on ROICs. I would say that the productivity projects continue to be at the very high end of our spectrum of returns. What you saw there, $40 million return on $120 million, basically a 30% return, actually ranks very high on our project lists. As we contemplate those as a team and as people are competing internally for capital, Susan's projects have been landing pretty high on the list. Yeah.
I would add to that, Jeff, that one of the things that we've talked about, and the team has recognized the importance of delivering on the commitments. I'd suggest that we tend to be conservative on the savings and conservative on the costs. Some of those returns certainly should only be better. The key is to make sure that we're not unduly conservative, that then causes us not to take the actions. We've had that history in the past. We've worked through that, and I think we're now in a different model, having an appropriate level of conservatism on both sides.
Dave, you guys commented on the first quarter. Thanks for some of the moving parts. It sounds like the messaging is you're managing through reasonably well for what you know today.
Yeah.
Have you punted on anything to the extent, you talked about 2020, a lot of companies are saying there's too much going on, we're not going to talk about it. Is there a risk that there's some kind of lingering stuff that are you comfortable with the rest of 2020 as well? Just wanted to make sure.
Based on-
kind of real.
Based on what we know today, yes.
What are some of the dynamics in the end markets? Anything moving around here in the first quarter?
Nothing meaningful. It's pretty much tracking. As I said, I think the utility business is a little bit stronger. The electrical side is mixed, but pretty much on track.
Just on the 20 to 30 basis points you're getting from the footprint reduction, that seems to be the entirety of what you're planning for the next several years in margin expansion. You said there's offsets from price, productivity, and then investments and other. Can you talk about that part of the bridge and why basically the kind of the core business, if you will, without footprint reduction, is kind of struggling to grow margin? Should we look at it that way? Or you're kind of in a more discretionary way, taking some of the upside or maybe there's a hedge in there. I don't know. What are some of the moving parts as to why you're not getting real kind of core margin expansion?
Yeah. It looks like the student flipped to one of the last pages in the deck. We will talk in a couple of hours about a margin expansion of 20 to 30 basis points. We kind of have as this construct, which is not new, Steve, to what we've talked about with everybody. We're trying to have price offset commodity moves, and we're trying to have productivity offset non-commodity inflation. If we can balance that, you'll end up with volume growth delivering incrementals at better than average margin. We're thinking about having the ability to reinvest that into future productivity, and so kind of have an unbalance that way, which is why that $40 million of Susan's savings has become so important, is to be able to kind of have that vibrantly continuing to invest in the future.
That's how we're thinking about it.
You used the term flywheel again, too.
Yeah.
I recall.
Yeah, exactly.
Yeah. Your sales per square foot get to about, I think, five. Is that mine?
Yeah.
Sales per square foot gets about 550 by 2023. How does that benchmark to, obviously, you've got a group of companies you benchmark to. Where does that get you to versus sort of a median or best in class? You talk about automation spending. What exactly is that? That's obviously quite monolithic when you think about what that encompasses. Is this robots? Is this enterprise planning software, et cetera? I mean, what exactly is that? Could there be a kicker on top of that as you make these investments?
Okay. I'll take that. We consider ourselves in the middle of the pack right now with respect to sales per square foot. We've done extensive reviews over the last couple of years to where our peer group is. There is upside potential for us to continue to improve and increase the amount of $, cost of production that we're pushing through our factories. We have a nice pipeline of projects that we will continue to execute upon.
Just before automation, I think the way we've looked at it is where we are now is at kind of median. Shooting to the end of that period would get us towards best practice, yet our assumption is our peers are not standing still either. I think we'll want to keep moving that target upward as competition surges. Right now, we're shooting past the target with that for now. Then automation, I mean, question.
If I can spend a moment around dollars per square foot as well. We have a number of projects that are concluding that didn't show up in our 2019 10-K. You'll continue to see that dramatic reduction of sites over the course of 2020 as well as 2021. A number of projects there. With respect to automation, you may have seen that within the last six months, we bought an automation company based up in New Hampshire. We are using that company's services to develop larger scale machines, but also we're continuing to invest in smaller mini robots that we can be placing on a pedestal and moving around manufacturing, similar to a pick-and-place. We are considering and implementing the full gamut of automation, whether it be small islands of automation or larger interconnected mechanical processes.
Yes, at least I used to think you needed a 24/7 high volume, low variety process, that you needed to do a massive investment to automate. I think with the advance of technology, we're able to think about automating in cases that are not 24/7, right. They're lower volume, higher variety situations or single cells, nodular, and in a low unemployment kind of environment, it's proving to be good investing.
Very much matching the production portfolio that we have, the high mix, low volume that I mentioned before. There are automation solutions that tend to be smaller, that are dedicated and perfectly specialized for that type of operation. In the back of the room, we have a video, which captures some of the recent automation projects that we've realized. Some of them are larger scale, but you'll also see some smaller scale investments that we've been doing.
Rob?
Yeah, thanks. I guess Bill, looking at your $112 billion U.S. electrical product market and your sweet spot, the $58 billion, the lower end, and I don't want to steal the thunder for the back half of the presentation, but there is a debatable presumption whether lighting fixtures and controls really fits in there or is worth getting more commodity. You guys did talk about providing some kind of strategic update on lighting at the St. Paul's day. At the risk of stealing that thunder, what is the route for lighting? Is it just continue to invest and take cost out, become eventually a winner? Clearly, other entities have made a different decision in terms of some of the sales we've seen.
Yep. Jim Farrell, who's known to everyone in the room, I think, is going to basically, later this morning, unpack lighting into the components of C&I versus resi, and within C&I, controls versus fixtures. He's going to walk through a little bit. At the starting point, you can see in that yellow swath, it fits with our customer base. It's the same customers selling all of those products, who want to sell lighting. Lighting's important to those customers from a volume perspective. Jim will talk about some of the impacts of competition and where margins have been squeezed and where the need is to reduce costs, but also where there's ability to differentiate and what role the agents play in helping to get business and differentiate.
We still would argue that it's core in that yellow piece, and Jim will put a lot more interesting texture than I did just then.
As a follow-up, obviously T&D spend, going to the EEI day yesterday, clearly, everyone's focused on not only the theme, the growth, the sustainability of the growth. Given your acquisition strategy has been, let's just charitably say, fairly deliberate over the last couple of years, and you've highlighted the fact that you want to telescope for a higher opt tempo of acquisitions. You spent about $1.1 billion on Aclara. In contemplating your funnel for acquisitions, would you consider using equity if there was a larger property out there that made some sense to accelerate your development in what could be a very fecund, strong secular growth market?
I would say, yeah, we would consider all options on the table, including using equity. Those of you who remember back in 2009 when we invested in Burndy, we issued a small amount of equity back then to help finance that. I would say that was, Rob, from my perspective, a good practice round to show us that it's doable and can make sense. We certainly, for the right asset, if it were compelling, would think about that, yes.
I think we got time for one more.
Thank you. Bill, the $2 billion portfolio, the money that's available for future M&A, which end markets or which geographies or which products do you think have the more opportunity to do substantial deals in?
Yeah, I think that the last 20 years is a decent gauge, where we spend 50% of that inside of the utility space and about 30 inside of utility, and the balance on, I'm sorry, inside of industrial, and the balance of 20 inside of commercial. I think Deepa, that's a pretty reasonable guide. The reason I say that is we think the growth opportunities, the margin opportunities, lean that way. We had an interesting situation that Darrin was pursuing earlier in the year that fit a lot of the things that we liked, and it ended up having, as we got inside a much lower margin profile in the commercial space than, and we were actually a little surprised by that. We want to make sure we're increasing the margin profile and investing in those places where that higher ROIC is available.
I think that's where, I think industrial and utility will be the lion's share of the investing.
My follow-up is on footprint optimization. Susan, you mentioned 25% takeout of that footprint. Where are we in the process? Are we like halfway there? More than halfway? These things take time to actually bear fruit. Just curious, how do we think about how much that adds to the 20 to 30 basis points of margin expansion, annual margin expansion, and how much of that is kind of reinvested back?
Over the course of the last year, so if you compare 10-K to 10-K, we've taken out more than seven sites. That's about a 10%. Calculating it out, and we do have a number of projects which are coming to quick conclusion in 2020. We are continuing to drive that footprint consolidation project. We're pretty far along, I'd say. Your second question, I'm sorry, so the add-on to that?
The comment of the savings actually, is the cost of that savings agreed to the margin expansion versus how much of that is invested back?
That's maybe more for me, and it kind of overlaps with, I think, Steve's question, where that's essentially providing that margin expansion. We'd be investing the price, cost, productivity, and lift from the incremental margins being higher than average. That's where we'd be the source of the investment.
All right. Thanks, everybody. We'll take a 15-minute break and see you back here about 10 after.
[Break]
We're going to get started in about three minutes, so if you can start filtering back to your seats whenever you get a chance. Thanks.
All right, everyone. We're going to get started with the next section. If you can make your way back to your seats. Thank you.
Be careful with the.
I'll go stage right here for you.
If we can have everybody get back to their seats. Okay, good. Let's get started here with the second half of the program. As I stated earlier, this is where the Group Presidents will take you into more depth into each of the businesses. I've had the pleasure to work with these guys for quite a while. I can tell you they are highly passionate and competitive inside their businesses as well as when we do other activities together, really driving a focused strategy in each of their business. As I've had more time in my role to spend time in the field, really what we've been trying to do collectively is to drive an operating rhythm that drives more consistency, more discipline, not only us collectively, but with the VPGMs that run many of these businesses.
We'll get started with Allan, who will talk about the Utility Solutions business, the two pieces of it, and how they fit together, and really the exciting areas that we can go in with these two businesses. Rodd, Jim and Darrin will talk about the Electrical segments, the markets that they serve with their attractive portfolio, and what they are focused on to drive growth and margin expansion in the business. Without further ado, Allan, welcome.
Thanks, Gerben. It's great to be here with you this morning to share the story about Hubbell Utility Solutions. This is a fabulous business done well. We also really like where it's positioned. Before I get into the meat, though, I want to comment a little bit more about the change of name and the rationale and why we made the move. We really feel that Utility Solutions is a much better representation of what we do as a business. Hubbell Power Systems has a storied, fabulous history, but it's grown, and it now covers, on the utility side, a lot more than just power. Our water and gas exposure is significantly higher, and we're equally excited about those utilities as we are about the power segment, and for similar reasons. The product portfolio is significantly broadened.
We still have those critical components, but now we've added sensing, communications, and some software, so it's more of a broader portfolio. We think Hubbell Utility Solutions better represents the totality of what we do. The key messages, the main focus for us this morning, the secular T&D growth we're seeing in utilities, we do not see shrinking. We've got an industry that has spent year-over-year successively more CapEx and OpEx for 24 of the last 25 years. Yet the basic metrics that are used to establish the performance of utilities are, at best, staying flat, but in reality, in most cases, declining. SAIDI, CAIDI, outages, performance, reliability, for a variety of reasons we'll get into, continue to deteriorate. We don't see any change in that spending pattern, at least not in the short term.
Power Systems has benefited from that, I think a big part of that credit goes to that team. Because of their execution, their brand, and the quality of the product, they've really managed to take a good chunk of that market. Again, I love where we're positioned and where we're going to take the business. Aclara expanded the capabilities of the business, bringing both commercial and technical skills as well as a broadening of the portfolio. We're now exposed to a broader piece of the portfolio spend, as well as bringing in the water and gas. There was a little bit of gas in the business before, now it's a significantly bigger component. Water and gas are suffering from the same issues as the power utilities, chronic underexpenditure then some critical issues driving them.
In the case of water, it's scarcity, unavailability, along with loss because of aged infrastructure. On the gas side, it's about safety and environmental. There's been a major utility gas explosions most years for the last decade, as well as some significant methane leakage into the environment that's led to EPA scrutiny. Both gas, water have critical underextenditure just like power, and they face their own challenges. For us, we believe we are well positioned to take our share of that space. The Hubbell Power Systems business, this is the heritage components business. It's actually led by Mark Mikes, who's here with us today. Would you want to raise your hand? Mark is a long-term veteran with Hubbell, particularly within the Hubbell Power Systems business. We've asked him to focus on this heritage part to make sure that it continues to hum in the way it's been doing.
We really look at this business as three major components: distribution, the transmission and substation, and enclosures. When it comes to distribution and transmission, we like to say that everything you see on a pole, except the pole, we provide. I think it's a pretty accurate description of the breadth of the portfolio in both of those segments. The enclosures is both above ground and underground, but enclosures also brings us some exposure to not just the electric utilities. We've got telecom and water and a little bit of gas. Enclosures helps our exposure to power, but also moves us into those other utilities. The drivers, again, chronic underinvestment, need for maintenance and upgrade. We've also seen on the transmission side a significant increase in the demand for transmission projects, primarily driven by distributed energy resources. More distributed energy means more transmission. You get a double play there.
You've got the need to upgrade the existing infrastructure and at the same time demand for new infrastructure to support distributed energy. The overall spend within utilities continues to grow, but it's also shifting. It's shifting away from the generation side and more into the transmission and particularly into the distribution. This is why we really like our exposure to the space. The segments that are growing the fastest are the ones that we have the biggest play in today. We don't see that trend changing anytime soon. Just to give you a pictorial example, this is the sort of breadth of products we provide in the distribution space. 85% of what you need to put on a power pole, we provide today. Not only do we provide the equipment, we also provide the critical tools and safety infrastructure you need to actually do the installation.
We have an exposure to the installation piece as well as to the equipment. We have the broadest array of products in the industry. That doesn't mean there's not room for growth. We've got a lot of opportunities and sectors we can move into. Distribution is obviously a big part of it, but it's a big spend within the utility space. There's two ways to come after that market, either through new product introduction or through M&A. We're looking obviously at both. Just some classic examples. The first we're really proud of, it's a fire-rated distributor arrestor. By fire-rated, we mean it meets CAL FIRE spec for an arrestor that can be placed into fire risk areas and prevent the risk of a fire from the sparks coming off the arrestor. A lot of work's gone into the design. There's not many who have it.
It is not a huge market. It's more of a niche market, but it's very attractive. The margins are good, but it also, two big pluses for us, enhances our position with big customers like PG&E, and it allows us to start to break into customers who we don't have today but are looking for this product portfolio. Similarly, NV circuit breakers allowed us to move into the new market in an international sector. Grid hardening, the composite crossarms, a nice play. It took our experience with composite manufacturing, let us make a crossarm that goes on the top of a pole that's stronger and lasts longer. One of the biggest causes for fires is a dropped conductor. Anything you can do to make that pole tougher and stronger is not only a reliability play, it's a fire mitigation play.
There's a lot of work going into sensing. Having a product line that allows us to have precision transformers and CTs lets us play into that space of putting sensing under the grid, which we'll talk a lot more about on later slides. These are some of the trends we see in the industry. We're going to look at distribution first, and then we're going to look at transmission. You can see that year-over-year spend we mentioned earlier in the top right. What's driving it? Why is there this continued need? We've really got four factors at play. Chronic under-investment for years, and it's finally come home to roost. We've now got a network that is fundamentally changing. Three of the last four years saw more wind and PV put in than gas. There's no coal.
You've got this shift towards distributed energy, which makes it fundamentally more difficult to run the grid. If you go back 50 years, it's a very simple architecture. Big centralized power generation sends power through transmission lines, through substations, out to the distribution network. There was one natural given, power went in one direction, from generation out to the consumer. Now with photovoltaics on roofs, with proliferation of wind, we get asked what sounds like a trivial question: Can you tell us which way the power is flowing? They don't know. Running this grid is harder than it was even 10 years ago, and that complexity is only going to increase. Third factor really hurting utilities, aging workforce. They can't get the right talent. They're losing people. They are facing a pretty chronic wave of retirements.
Just as the grid is getting older, we're asking it to do more, they don't have the people to do it. All of those initiatives make it very tough today to run a utility. If you're in our position, providing a critical infrastructure to make those problems easier to deal with, it's a great business to be in. Similarly, on the transmission side, same spend, a little bit more lumpy. You got the ramps and flats, it's a similar macro trend driven for the same reasons. We have the same exposure to that same spend increase. There's a few interesting things happening in this space that are worth noting. This really gives you an example of just how old the infrastructure is.
If you look at that plot on the bottom right, this is from one of the largest IOU in the country, self-report, annual report. This shows a Pareto of the age of each transmission line. You can see that section to the left, every transmission line in that left section is more than 75 years old. Some of it is more than 100 years old. We have a major IOU utility running power through transmission lines that are a century old or more. It's going to be replaced. Add to that, as I mentioned earlier, the growing need for transmission lines for distributed energy. We expect this space to really continue this momentum. Another big advantage for Hubbell is there's now a need, though, with the utilities, because of the volume of the work and the lack of workforce, they're shifting it to EPCs, engineering procurement construction companies.
They literally have no choice in some respects. They need the help to get it done. For us, that plays to us. We have a field team of 60 who are focused on helping customers design and develop these projects. Dealing with EPCs, there's a handful of them. We get to deal with a handful of major EPCs versus trying to sell to 1,000 utilities. We also have a lot of infrastructure that a lot of our competitors don't, particularly when it comes to high voltage testing capabilities. The brand and the quality plays well with the EPC market. Exposure to that growing segment is really positive for us. Moving on to Aclara. We look at this as three different segments. Metering, which is the old GE Meters business, AMI Communications, and then our Installation Services business.
Kumi Premathilake, who is here with us today as well, she runs our AMI and our installation businesses, and Jason Suriano, who's not here, runs our meters business. Smart meters is an evolving business. A lot of people think of it's just there as a device to provide billing capabilities to a utility. That's what it was, but it's become a lot more than that. We've seen over the last 15 years, a pretty significant rollout of the first generation of AMI infrastructure for the big IOUs. That first wave is coming to a bit of an end, but we do expect the refresh cycle to start in the next couple of years. What we're seeing now is utilities want those meters to be a significantly more sophisticated device than it's been in the past. Similarly, the AMI infrastructure is what makes those smart meters useful.
Our installation services business is about installing those systems. The Meters revenue 2017 to 2019, greater than 20% CAGR. Last year was, from a volume perspective, the best year in this business' history. As I said, this is the GE Meters business that dates back to 1881. A lot of history, a lot of proof in the industry, really good last couple of years. We do expect a little bit of a dip in the IOU side, but they've made nice inroads into the public power, which will help mitigate some of that, and there's pretty significant opportunities outside of the U.S., particularly in the U.K. and Latin America. By the time we get to 2023, we expect that refresh cycle to come around, and the IOUs will come back into the market.
Our history in the AMI part of the industry is not as well known, but we were the original inventors of the core technologies. Aclara, in its pre-reincarnation, developed the first effective AMI system for the electric utilities in 1983. We developed the world's first practical water and gas AMI systems in 1993. We're the world's leaders. We've been in the business a long time. Some of the world's largest systems. The world's largest single AMI system is actually not an electric utility, it's SoCalGas. 6.5 million endpoints that we put in from 2012 to 2016. We've taken that water and gas expertise, and we've pushed it through the rest of the business. Our power line carrier technology is a great part of our business. We want to maintain it, but it is somewhat of a niche.
We made a decision four, actually five years ago now, to take the RF technology we had in our water and gas business and poured it into the electric business. This should've been done 15 years ago. Unfortunately, the decision was not made then. We made that decision when we took over the business back in 2014. We are very happy with this technology. We think it has some extremely attractive characteristics that give it some real differentiation, particularly when we get back into large electric IOUs. We launched the product in 2016, two utilities, seven, then 18 utilities in 2018. Got up to 31 last year. That momentum continues to grow, as does the size of the utilities. We like our positioning, and I'm going to take you through some of the technology in a minute.
While we like our position for that 2023, 2024 refresh of the infrastructure. Installation services, this is more than just bodies on a street. It is a software-enabled service that uses real-time hardware and software to, as efficiently and possible, roll out one of our systems. We bought the business initially because we thought it really would help us with public power, it's done just that. The munis really like single turnkey projects as opposed to trying to break it up. They don't have the in-house procurement skills typically to break these large complex bids up into its pieces. They do have a significant preference for one individual or one company who can provide meters, installation services, the communications, the software, and the support. About half of our muni projects have gone this way. It's been good from that perspective.
It is, however, suffering from one rollout, a significant rollout, that's been challenged. We just have to get through that. That will be finished in 2021. The projects we've been adding, we're very happy with, and the primary reason for the acquisition to get us into those muni bids, it's paid off well. Pipeline. We have a distinction between total pipeline and qualified pipeline. Qualified is the one we really want. One question I've got in every industry I've worked in, how much of the pipeline actually turns into revenue? The nice thing about this business and utilities, that qualified pipeline will turn into someone's revenue. To get to the qualified phase, they're typically an RFP or an RFI stage. They've invested real money. The utilities have done real work with the utilities to convince them the investment's necessary.
They get to this point, they're going to award to someone. We see that almost invariably turn into revenue. We're seeing good growth in the portfolio, and we expect that pipeline to keep growing, particularly as we get into that 2022 timeframe as that refresh on our IOUs start. Getting back to the discussion we had earlier about problems utilities face. Look at those issues with managing distributed energy, dealing with climate change. Distributed automation is seen as a key factor in helping utilities address the majority of those issues. Five years ago, when we started doing major projects with utilities, distribution automation was talked about almost as a nice-to-have when it was associated with smart metering. Now it's almost become a price of entry.
Every bid we see hitting the streets, the first thing they ask when we roll out an AMI system is, "Can I use that infrastructure for Distribution Automation?" What is Distribution Automation? It is putting sensing devices, control devices on your network so a utility can see in real time what's happening, and then take corrective actions. It's becoming more and more critical because capacity constraints from under-investment is making it harder to get power through the grid. Wholesale price volatility means you want to be able to control your power demand and your usage in real time. The demand for customer interaction, and we expect this to significantly increase in the next decade, is tough to be able to provide if you don't know what's happening in your grid. Particularly notifying customers when there's been issues, and they can move on.
You've got to deal with regulatory issues, the aging workforce and the aging infrastructure we talked about. How do you get that infrastructure in play? It's not just good enough to have the devices. You've got to be able to communicate with it and control it. Grids and utilities that have better distribution automation have a safer place to work. They know when a conductor comes down. They know where to send a crew, they can keep people away. They get higher reliability. They get infrastructure to manage the problems with distributed energy. They can balance off load when they get wind and solar coming in and off the grid. They reduce truck rolls. It provides a whole host of advantages. The focus areas for us are in smart switches, sensors, controllers, and some of the central software.
A lot of it is stuff we do today. A lot of it is near adjacencies. We see a lot of opportunity to develop this in-house through NPI. We see a lot of opportunity to do acquisitions of near adjacencies that are very similar to the classic targets that Will laid out earlier this morning. Relatively small but sophisticated businesses with great products and great brands. Let me give you a classic, concrete example of how this is happening now that we have the Hubbell Power Systems business combined with Aclara. What do the two businesses look like now they've come together? We're the first utility component supplier in the industry to now add communications, and we're the first communications supplier to become part of that T&D components business. When Hubbell first acquired Aclara, we were curious to see how would the utilities react?
What would they see of the combination? The response has been universally positive. They saw Hubbell as a great long-term owner, and they've seen the trends. They know we can combine our communications technology with the components and infrastructure of Hubbell to provide a much better solution. Product on the right is what we call a three-phase recloser. This is a device that sits out across the distribution network and tries to deal with what we call intermittent faults. Think about a distribution line close to trees. There's a storm. The wind knocks branches up into the line. You start to get intermittent faults. It'll trip. That's an intermittent event. It disappears. What a recloser does, instead of a load break switch, is it keeps trying to reclose a certain number of times, and that way you can mitigate the outage.
After a point, it'll decide if it can't clear the fault, something's critically wrong, and then it'll open permanently. They're an okay device on their own. If you can communicate with it and understand what's happening remotely, it's a far more powerful device. What we've developed here is a three-phase recloser combined with Aclara's communications. You can now put one of these wherever you want. In the past, they were limited to locations that were easy to access, where they could probably get communications by other means. Now that we provide a communications infrastructure that covers the whole territory, that constraint's gone. They can put it where they need to put the infrastructure. We designed this unit to work with the entire industry's head-end software. Doesn't matter whether they use GE, Siemens, ABB, OSI for their high-end software.
This system, we have the agreements in place to be able to use this infrastructure on any of them. Utilities have different preferences for the local controllers that get used with this device. We have agreements with all of them. We've now solved one of the problems. We're not locking utilities in to other partners. We'll work with whoever they're using to get this piece out. This adds great capability anywhere a utility wants, working with all of their existing infrastructure. The barriers to entry for us are very, very low. What are the focus areas for us moving forward? The first, our customers run critical infrastructure. It can't go down. Electric, water, and gas, fundamental infrastructure to the country. We have to be able to respond.
We've got great brand, got great history around our products, but what we're probably most well-known is service delivery. When people need stuff, we get it to them. Having the right inventory, having the right products in the right places, and to be able to ship, particularly in critical situations like storms and floods, tornadoes. Maintaining that service level is a critical part of the business. We now have a great combination in terms of critical components, sensing and software. Done a lot of work doing the integration. That three-phase recloser was a good example of our first product, but there's a lot more to come. It's a big part of the market we can move into. From a growth perspective, we really look at it as two ways to grow.
Through enhanced and through our existing products and continued excellence with the execution, we want to take share. That's the obvious first step. Through true new product introduction and selective M&A, we think that there's a significant component of the utility market that we're not in today that we can enter. There's an organic component and inorganic, and we need to execute on that NPI. I think that's one of the things that Aclara brings to the Hubbell side of the family. Obviously, we're going to continue the bolt-ons. Discipline is key, and this is the trade-off for us. Obviously, we are, as you've heard, focused on working capital, but we also have to balance that with having the right ability to support this industry and really continue to do what we've been doing, which is take share and build the top line of the business.
There is significant footprint rationalization, though. One of the major projects that Susan was referring to earlier is actually within this business, and we expect to have it done in 2020, and it'll be a significant move in that total square footage. The last piece is about commercial expertise. We bid large, technically complex, long-term projects. I think the industry is pretty disciplined, particularly when it comes to price. We need to maintain that discipline in terms of what projects we go after and making sure we bid the right products at the right price. Last is our people. This is a highly technical business, really reliant on technical and commercial capabilities. Bringing in the right talent, developing the right talent is probably the most important part of this business.
We can't maintain these service levels or develop these sort of products without developing that employee base. The focus for us then becomes the Distribution Automation. It's really two businesses today. We see it coming three over the next couple of years as we build out that Distribution Automation. It'll be a critical components business, a Distribution Automation business, and a sensing and controls business as the sort of evolution over the next couple of years. With that, I will hand it over to Rodd to take you through the electric part of the business.
Thank you, Allan. We have three distinct groups within the electrical segment. You're going to hear from each of us today. As Gerben mentioned, we all go to market predominantly through the electrical distribution channel, and we share a commonality within the channel and the markets we serve. With that said, we all have unique customers that we serve, and we all have specific market niches that we focus on. You'll hear today when each of us speak, that we have attractive niches that we think provide Hubbell greater than average growth. We also believe that we have new products that were recently introduced that are going to drive and focus specifically on unique customer needs.
Last but not least, each of us will talk to and touch on some of the footprint consolidation efforts that we've worked on to support what Susan spoke about, and each of these driving efficiency, productivity, and helping us expand our margins. I'll kick it off with an overview of Hubbell Construction and Energy. Within our business, as you can see on the slide, we have three primary lines of business. Within connectors and grounding, the cornerstone of that is Burndy, which Hubbell acquired in 2009, which is when I came to the company. In the back of the room, Kevin Ryan's with me today. I've turned the mantle of Burndy over to him, so now he has the responsibility to grow and protect that high-margin business. You heard Dave talk about our key competitive differentiators.
For me, Burndy really is a poster child of that in our company. You'll see in a few slides a picture of a Burndy lug, and while it may look simple, it certainly has significant differentiation, and again, one of the highest parts of the portfolio. The differentiation comes from the fact that Burndy has a very, very strong brand. You go to our customer base, they immediately associate Burndy with reliability and quality and exceptional service, best in class. In addition, we have predominantly unique spec positions with the customers we serve. At the SKU level, virtually every one of our products is specified. That makes it difficult for our customers, once we're specified, to change the spec. There's a very low cost of ownership, as Will touched on, and there's a high cost of failure if they don't get it right.
Which leads in very well to our tagline, which is, why take the risk? Secondly, you'll see our harsh and hazardous business. That's had some significant change since the oil collapse in 2015. At the back of the room is Warren Jenkins standing. His broad shoulders has had to bear the burden of trying to deal with the oil collapse and how we refocused our efforts in that business and restructured. In addition to significant headcount actions, we also certainly moved some of our facilities around and reduced our footprint. More importantly, Warren moved forward with a change in our sales model. We typically had been going to market through agents, manufacturers' reps. We've changed that model to where roughly today, 60% of our sales coverage is through factory direct people that are Hubbell employees.
We use the model that's been very successful within Burndy, within Hubbell Wiring Devices, obviously, Hubbell Utility Solutions. That pays dividends for us because we're able to get much closer to our customer. We can drive that spec position. Back through the channel, we can pull that business to our distribution partners and also get flow goods business associated with it. We also had a shift in market focus. In 2015, roughly 80% plus of our sales was in the oil and gas business. If you look today, that's a little bit less than 70%. Over five years, we had to transition the business away from pretty much a pure oil and gas play and diversify into areas like grain and agriculture, food processing, renewables, and transportation infrastructure.
Lastly, on the right, Will touched on our gas business growing virtually from nothing in 2013 to over $200 million today. Tim Hoagland, who's not with us today, had a vision. That vision was, "I see things changing in the gas space between the main to the meter. I think we can put together a string-of-pearls acquisitions." Fortunately for both Tim and I, we got the support of Dave and Will and the board to move forward with that strategy. Much like what Allan talked about in the electrical utility business, we see all those same dynamics in the gas space. It needs to be heavily spent to refurbish and replace antiquated systems out there. There's over 26,000 mi of pipe in the ground that needs to be replaced.
We see with our strategic brands that we've put together, a really unique opportunity for Hubbell to grow in that space. When talking about the growth, I'll continue on the gas side. When you look at that business, the American Gas Association, which is one of the signature associations in that space, has commented that we're roughly 10 years into a 30-year spend cycle. We have significant opportunity in front of us going forward. The average age of the gas infrastructure in the ground is over 30 years old, with 25% of it more than 50 years old. Again, significant opportunities. We have unique products like our excess flow valve that we acquired with GasBreaker, specifically focused on enhancing safety to the end customers.
In the renewable space, which is on the right-hand side of the slide, we see 20+% growth opportunities for Hubbell in that area. We acquired Wiley back in 2011, which is a pure solar play on the balance of the system, a very high-margin business, and we've been successful at integrating that into Hubbell. On the wind side, in addition to opportunities for Burndy connectors, grounding, et cetera, with our harsh and hazardous foray, changing some of our products, we're now specified with harsh and hazardous lighting on offshore wind farms. Diversifying the portfolio to get into a new market. Last but not least, on the telecom and data center side, the Burndy engineered system is really unique. We're the only manufacturer in North America that makes both the connectors, dies, and tools.
Gives us a unique position because we control all elements of what goes onto that critical piece of wire. It's a specification-rich industry and gives us a differentiated advantage. You've all heard about the 5G deployment. We're involved with all the major carriers on that, again, with some interesting products, which I'll touch on at the end. Last but not least, in the data center side, our products go into just about anything that goes into a medium scale, large scale, or a hyperscale data center. When you think of uninterruptible power supplies, switch gear generators, those all have connectors that attach to them. On the right-hand side of the page is the product that I was referencing that we sell to the telecom market.
While it doesn't look very sexy, one thing it does have or doesn't have is any lead, and that's the key part of that product which gives us a sustainability opportunity with our customer base. It does that without sacrificing anything from a reliability perspective, a margin perspective, and again, gives us a unique specification position with our customer base. On the left is a new product that our harsh and hazardous team just recently announced. It's a cable gland that gives the installer the opportunity to field inspect the cable gland using a clear elastomer. It's the only cable gland in the industry that has that capability. We also redesigned it with fewer parts, which makes it easier for the installer to install. With that said, we won, just this past week, Technology Innovation of the Year award at the Hazardex show.
Certainly, Warren and his team are very proud of that product and what they've been able to accomplish. Susan talked about our footprint consolidation, and in this case, there's a few centers of excellence that we've embarked upon within my group. On the left-hand side of the page, you can see a foundry, a sand casting foundry, that was in Bethel, Connecticut, had been with Burndy for roughly 50-plus years. We closed that facility and moved it to the Leeds, Alabama facility. That's unique in the sense that that's the first significant Hubbell shift of production from one business group in the company, to a sister business group. That certainly enabled us to leverage overall all of Hubbell's capabilities. On the right, as part of our acquisition strategy, as we talk sometimes when we acquire companies, we get more facilities than we ultimately would need.
In this case, we closed the facility related to our AEC acquisition back in 2017 and moved that to a campus that we now have in Broken Arrow, Oklahoma. It gives us much greater synergies and both of those three-year events had less than a three-year payback. To wrap things up on the connectors and grounding side, we showed you some examples of how we're focusing on key verticals to grow the business, renewables, datacom, telecom, the gas business, et cetera. We're adding smart capabilities to some of our products. I didn't touch on the BURNDY PATRIOT battery tool, that has GPS positioning, print quality monitors in it. Then last but not least, our bolt-on acquisition strategy. In the past, since I've been part of the organization, we've done eight acquisitions. Most recently, as Will mentioned, we acquired Connector Products, Incorporated in December.
Again, that's a nice small bolt-on acquisition that gives us more exposure to the utility market and the customers we serve. In the harsh and hazardous space, no question, the oil markets have been challenging, but it remains a high-quality, high-margin business for Hubbell. By the efforts that Warren and the team have put in, putting in place a direct sales force, diversifying the verticals that we serve, and coming out with some pretty hot products that are resonating with our customer base, we absolutely believe that we're positioned to grow profitably in that space. Finally, in the gas business, there's no question that we see further consolidation opportunities. We see the ability to do additional bolt-on acquisitions there.
Over and above that, given the changes that we've put in place from a footprint perspective, some of the automation that you see on the slideshow in the back has allowed us significantly to improve the profitability of that business, driving forward. In summary, I'd say, we've consistently delivered above-market growth and delivered expanded margins in that timeframe, and I have no doubt that the team's going to do that going forward. With that, I'm going to introduce Jim Farrell on my right. He is the most recent Group President to have the opportunity to be on this stage. When you ask the questions, please be kind to him.
Rodd, I didn't know you cared. Good morning, everybody, and thank you. Jim Farrell, the Group President for Lighting. It is nice to see a lot of friendly faces from the past. If we flip to a lighting overview, this chart on the left really hasn't changed a lot. We like to use fives and zeros on our rounding convention. I tell you that the residential business has probably grown a little bit faster since the last time we've been together. About three-quarters of C&I and controls, 25% resi. From a C&I perspective for both the fixtures and controls, we've got Tom Benton with me here. Raise your hand, Tom. One of the brightest people in the field. He knows the products, the markets, the competition, a real star. I encourage you to see him when we're at the break.
On the C&I fixtures side, again, broad array of product offerings. We serve the commercial, indoor, and outdoor applications. We serve architectural, indoor, and outdoor, as well as life safety. You can see the brands there. Again, we talked at the beginning of the presentation about the importance of those brands in specifying on a job. The end markets we serve split between new construction and renovation. Going back to the earlier slides, we can't exactly break it out to a decimal, but we are biased more towards the reno market than new. You can see some of the verticals that we're focused on there. The growth drivers are renovation and retrofit.
While that can have certainly short-term volatility from a demand perspective, if you guys, when we were together five years ago, talked about how far are we along in the retrofit cycle, I'd tell you that we have a long way to go. That can have near-term volatility, but that's still a very good growth driver. On the center section, on the controls, think about our controls solutions as standalone controls. Those could be pointed on the wall. They could be in the ceiling. They have infrared technology. They have ultrasound technology, really very good products. We can do daylight harvesting, dimming in the room. You can actually control the color to be very unique to the user experience. That's sort of tier 1.
As we move up to tier 2, when you look at the NX that we launched probably two, three years ago, now you're talking about a solution that's more connected lighting. That was organically built. It is easily commissioned. It can go from controlling a fixture, it can control the room, and it can be scaled to the building. The beauty of it is it's not reliant on third-party software or servers. It can be deployed in indoor, outdoor, wired, and wireless. Really a terrific offering there. It's under the Hubbell Control Solutions umbrella from a naming convention, same end markets as the C&I fixtures. From a growth perspective, we're seeing more and more of the energy regulations tying more towards control solutions, and so that's certainly a growth driver.
On the last 25% of our business, the residential, think about that as decorative lighting going into single-family, multi-family. It's under the Progress umbrella. We talked about fans a couple of years ago, and we're here. It's becoming a more important category to us. From a growth perspective, no question, e-commerce has been a very big growth driver for us. You've got to be on your game from a design and innovation trend, and we have some very talented folks on the residential side who manage that for us. If we jump to our residential business and unbundle that, on the left-hand side, we have the sales by channel. We break that out. Again, about 50% of the business is, call it, builder business in the single-family and multi-family.
We've got a showroom component, we've got a retail component, and then this internet e-com piece. For us, that business has doubled over the last two years. Certainly, there's an element of cannibalization to that, but it's certainly not one for one. We've seen nice growth in totality for this business. E-commerce is a very different channel. We look on the right-hand side and what matters, starting on the top left, content, you have to get your content right. You need to be very specific. You've got to have crisp imagery. You've got to do scaling properly. Think about that experience from a search engine optimization. How many clicks does it take you to get to the right product? This is a very nimble and impatient community that wants to get to the answer quickly. We spend a lot of time on the content.
Analytics, product baskets, trying to marry up different offerings that fit. Price elasticity, as we went through the tariff last year, this business was hit hardest first with the 10%, and then it raised to the 25%, and we were able to see real time some of that movement here from our e-com customers. Relationships matter on the bottom right. For our key accounts, we are actively engaged. From a service perspective, a different model. We probably have 200 or so high-velocity SKUs, and you need to be able to have that on hand. You need to be able to get it out and fulfill that, in many cases, 24 hours. If we try to unpack the C&I lighting industry dynamics, first, certainly, agents are the primary channel to market. We have an 860+ across the U.S.
The strategy is to continue to build and fortify that network. We've done a series of upgrades over the last four or five years. I think what's different now is I think we have the right products and the right control solutions to actually gain share within the agencies that we have, and that may be a little bit different than what you've heard. The second set of bullets here, it is important for the agent to have SKU breadth. We're not going to try to be everything to everyone. We would never be able to do that, but we're going to be much more focused on what the critical SKUs are, and we're going to try to be much more surgical about it. I think by doing so, we will gain share with our agents.
We've gone to a bit of an outsourced model for some of the SKUs where we're going to leverage some low-cost country to do some of the skeleton of our products, build out some shells and some kits, then we'll bring those back over so that we can add value on the opticals and the control solutions. Very cost-competitive industry, that continues. Obviously, the LED revolution started that. For us, we certainly maintained a lot of pricing discipline in 2019. It was positive for us relative to cost in 2019. Continuing to invest in restructuring. We probably were tip of the spear for the Hubbell business. We've been doing this. You've been hearing a lot about restructuring from lighting. We've got a little bit more to do. We're now principally consolidated into four facilities. Finally, again, controls is a differentiator.
Our tier 2 solution is as good as anything you'll see. We think that can drive some incremental growth. Trying to take the C&I down to more specifics. You can see the cost takeout and productivity. The footprint optimization is a combination of optimization plus working with Susan and her team on making sure we're leveraging centers of excellence, making sure the facilities are optimizing capacity utilization. I think working as a one Hubbell unit, we can do more there. The value engineering, you've heard about that from Lighting for probably the last decade. What's different now is that we're less distracted with facility closures of the magnitude that we did. This is truly a core competency, and I think we'll drive incremental productivity through that.
The electronic tools, we talk about ease of doing business with from a customer service perspective, maybe similar to a three-way match on the accounting side. We do three-way matches with our agents where we look at our product string, pricing, and commissions. We make sure that upfront, those all match so that we have a much easier user interface for our agencies. Second set of initiatives here, we talk about reinvigorating our value product offering. A question will come up from a couple of years ago. We weren't sure whether we wanted to play in here. It's clear that this has landed. It's got a foothold on the line card. It's important to our agents. We're continuing to address that through some less value-featured products that are still innovative.
Looking at the next column, there are niches where we can derive higher values in some of the complex environments, as well as our architectural outdoor continues to provide opportunities. On the bottom picture there, that architectural downlighting, this is a category that our agents have pushed hard for us to launch this specific product, and we've seen tremendous traction early on. On the right, the drive for integrated controls, again, we can now control the fixture, the room, the building, wired, wireless, indoor, outdoor. I know a lot of you will want to talk about the Internet of Things. We're very focused on being exceptional at tier 1 and tier 2. We do have some offerings that will provide some data analytics on our PoE offering as well as our wiSCAPE.
I think for the next Investor Day, we'll talk a little bit more about sort of tier 3 solutions. For us, where the lion's share of these dollars are and the opportunity is sitting squarely with NX. This is our C&I focus. Footprint optimization, again, very similar to what you heard from Rod, two subscale facilities that we had from legacy acquisitions. We've pulled those into our larger low-cost facilities. We didn't have to add additional capacity, relatively low expense with a compelling payback. We've been doing this chart here for the last four or five years. Again, I think we're going to shift and pivot much more towards optimizing utilization with Susan and her team. For the lighting strategy go forward, on the C&I fixture side, you've heard a lot about productivity. Footprint optimization will be a part of that margin expansion.
The value engineering efforts by our teams that are less distracted with closing facilities and much more focused on taking cost out, I think will reap incremental productivity benefits. Some of those high-value niches will provide some margin lift. Utilizing technology to make it easier for our customers to interface with us, so I think there's an expansion of margin there. From a growth perspective on C&I'd tell you, specifically going after the down lighting category, going after the controls opportunity, as well as our Trade Select is much more targeted than maybe we've done in the past, and I think it should yield some incremental line card shift for us. Middle portion, C&I controls, really excited about this. We need to expand our share within our agency network. Think about this controls market opportunity is probably $1.5 billion.
We still have a small market share there, even a small market share within the agencies that we serve. What's different about trying to gain share gain from our agents is we now have the right mousetrap, we've invested in that business heavily, and we also have the service in the field to ensure seamless rollout in the field. Those are critical elements of the success. We've launched a new design hub tool, which facilitates an easier configuration for the agents. We'll continue to invest in this business. On the residential side, e-commerce is here to stay. It's 20+% of our residential business today. I think that could be 50% in three to four years. We'll continue to invest there. There are attractive categories for the residential.
Our design series is a terrific set of higher-margin SKUs, as well as the fans, which were sort of not as big a part of the portfolio maybe three or four years ago as it is today. I think that business can continue to outperform. We've got to maintain price discipline. Obviously, significant volatility here on the residential side between the tariff environment. We're going to grow selectively on the residential side. In summary, I'm incredibly energized by the team I inherited. They come at me every day with ideas on how to be better. This team has endured an LED revolution. They've endured a tariff. They're enduring coronavirus. The energy for this team is amazing. Tom's leadership on the C&I side, I think we're well-positioned to really move the needle here. With that, I'll turn it over to my colleague, Darrin Wegman.
Hi. Thanks, Jim. Good morning, everyone. I'm glad to be here again to update you on the Commercial & Industrial group. Before I start, I'd like to introduce Mike Mellon. He's the Vice President General Manager for Wiring Systems. Mike is joining us today, feel free to ask him any questions at break. All right. A brief overview. We provide reliable Electrical Solutions to the industrial non-residential market. For the last 130 years, our leading brands have provided customers with the ability to access power at the point of use safely. You will see that our business is really driven by three key behind the point of use: Wiring Systems, commercial construction, and industrial, squarely in the middle of the electrical triangle. We have leading products well-known for quality throughout the market.
A majority of our products go through electrical distribution, and most of our products are sold in North America based on new standards. A vast majority of our products require third-party certification, whether it's UL, CSA, or ETL. We have several employees that are actively engaged with these organizations and are in the forefront of shaping our electrical standards. If I take a closer look at each of our three divisions, the Wiring Systems division is the largest of the three. It's an industry bellwether known for quality, safety, and reliability. Many of the catalog numbers used by the wiring device industry are based on the original Hubbell wiring device catalog numbers. We have preferred products and product lines that are wide and deep, particularly in the industrial space. Noteworthy products are the pin and sleeve, GFCI, and plug-in connectors.
This is an attractive high-margin business, one that we look to grow, and is supported by the mega trends of energy efficiency and digital technology. Our second line of business is commercial construction. Commercial construction is primarily a non-residential play with steel boxes and fittings for the construction in the DIY market, and it complements our wiring systems business. Raco is a significant name in that market. Our customers need these products in order to install GFCI and switches, and this market is supported by the urbanization mega trend. Industrial, the smallest, but yet still a very critical part of our business. Highly profitable. This business services the heavy industrial market, which is primarily steel, mining, and oil and gas. Key products include DC controllers, reels, resistors, and power quality solutions. Now on to our areas of growth.
While we have differentiated products across several key markets, where we will be focusing our growth is on the connected industrial products. This is because of our wiring systems and our industrial divisions. They have great products with solid reputations, and we're adding capabilities to these products and taking advantage of the installed base that we currently have. We're providing much-needed data analytics for our customers to help them improve their productivity. Another area that we're focused on is power quality solutions. Our industrial automation customers are continuing to look to find ways to improve the performance of variable frequency drives. We provide products that monitor and improve the quality of the electricity used by those drives, which extends the life of the drive and reduces their electric cost.
Data centers, very fast-growing market, one that we work with Rodd and his team at BURNDY to make sure we have a coordinated effort when we attack that vertical. If I move on to some of our new products, which we're very excited about. Besides having the right products for our customers, we have to make sure we can get them to the market as quickly as possible. We continue to improve our new product development process, but we also use a third-party sales and marketing firm to help us target new products and new markets. Safety, functionality, comfort, and sustainability are the foundations of our new product development process. On this slide is a few examples of products that we are working to solve customers' problems. The first one on the far left, wireless monitoring. That's a smart pendant sleeve. A pendant sleeve is a heavy-duty, watertight, power connector.
What this product does is it brings new wireless mesh communication technologies that allows our flagship product to provide data to our customers. What this does is it'll actually send an email or a text message to a customer, telling them what the performance is on a motor or a service. This helps with productive maintenance needs. It also gives oversight into the entire facility, for example, downtime and usage. This allows our customers to be able to plan more efficiently. Where would this be installed? A perfect example would be at a food processing plant, maybe a refrigeration unit. You install this product to make sure that if the motor is starting to die, that it'll send a message so they can do preventative maintenance so you don't have any spoilage.
Another place this could be used is at an airport, for luggage carousels. If the luggage carousel goes down, the bags will be late and won't get to their customers. It also has power revenue-grade billing. This could be used by a property owner so they could bill tenants for their actual electricity usage. The second item next to it is actually the back of a Twist-Lock. The Twist-Lock is a product. It's a plug that's designed to prevent unintended disconnects. What that means is you put the plug in and you twist it and it locks, it can't come out. What makes this product pretty neat is you don't need any tools to install this thing. You use that simple red rocker that patented switch, it will clamp the wire to the connector. A secure labor savings installation.
The third item is convenience. This is our Jump Charge product. Our JumpC harge product is a portable power solution that anyone can use. You can access the charging tubes and have portable power at a hotel. You could use it on a cruise ship. You could use it at a library. Finally, improved efficiency. Our toroidal transformer. This is a patented general-purpose transformer that has lower operating costs, higher energy efficiency, and a smaller, quieter design. Just a few of the new products that we're very excited about. Now let's look at footprint optimization. Footprint optimization has been a big area and focus of the company. Last year, we transitioned production from some high-cost, low-utilization sites to some low-cost, high-utilization sites. That already had talented and skilled employees. The biggest projects in 2019 were on the wiring and industrial side.
While the goal is to get more efficient and cost-effective, it's more than just moving an operation. There are many different factors that need to be considered. For example, if you look at the project on the left, we were able to absorb 138,000 sq ft facility into an existing facility without adding any sq ft. How were we able to do this? Well, certainly lots of planning was the key. We also took a very close look at what the receiving plant was doing. We looked at SKU rationalization to make sure that, did we really need to manufacture these SKUs? We looked at outsourcing. Is there certain products that we should move to third-party outsourcers? We looked at factory automation. How can we do this better? Can we automate this to get a higher throughput?
These projects have attractive paybacks and certainly are the cornerstones for our self-help initiatives. Certainly, it's a lot of work. There's also another intangible benefit, and that is the learned skill set. We have a dedicated footprint team that leads our self-help projects. What is our strategy for the group? Well, for wiring systems, high-margin products, we're focused really on new product development, targeting customers and products for those attractive markets. We're also looking to layer in smart capabilities over our installed base of products. The nice thing about having a large installed base is you have a lot of voice of customer, and this gives us the opportunity to make sure that the products that we're designing are what the customers need. Bolt-on acquisitions. Bolt-on acquisitions to improve our innovation, our speed of innovation.
We could buy technology as well as get into adjacent markets that have attractive margins. On the commercial construction side, it's really inside the four walls, and we're really focused there on footprint optimization and value engineering to expand the margins. Industrial, again, another one version businesses. We're focused here is just enhancing our product capabilities and continue to add bolt-on acquisitions to fill out our product portfolio. In summary, we'll continue to grow in attractive markets with strong brands. We'll improve our existing business through our self-help initiatives and our innovation product solutions that are strategically aligned to take advantage of our market's mega trends. The Electrical Segment summary. You heard from Rod and Jim and myself, and what we talked about in our areas that are behind the meter. What does that all mean for the Electrical Segment?
Well, while our focus on products is different, our strategic goals are the same. We serve the customer by accelerating new product development. We also grow the enterprise in various ways. First, we continue to target attractive markets we can currently participate in and new adjacent markets. Through acquisitions, as you've heard Will mention earlier this morning, we have a proven track record with deals. We have strong cash generation that has given us a balance sheet that is supportive of an active capital deployment, and we'll be aggressive in that area. We'll continue to operate with discipline. We'll focus on footprint optimization and factory automation. You've heard each one of us today talk about the importance of footprint optimization, and we'll continue to drive that with Susan's leadership. None of this success would be possible without our people.
We'll continue to invest in our passionate leadership teams, so we'll always be ready to solve infrastructure needs and deliver our strategic vision. Thank you. Now the four of us will be available for questions.
Just a brief explanation. We're going to do a quick 15-minute Q&A here. We'll let Will and Dave do some wrap-up comments and then take any additional follow-up questions after that and still wrap at 12:00 to 12:15. Questions? Jeff, you're first again. Good job.
Not trying to be a show-off. Allan, I just had maybe a relatively precise one for you, if you don't mind. Obviously, kind of the meter and in the AMI position, for lack of a better term, gives you a kind of good, ears and eyes on what's going on in the grid. There is this question of how and where you do play relative to kind of a larger software package from other vendors. You addressed that a little bit in one of your comments, but I just wonder if you could kind of address, is there any particular competitive challenge there for you? Do you see any kind of channel barriers and how much space do you have to grow, so to speak, your entitlement, for lack of a better term, in those software-related markets?
First and foremost, we don't see it as a competitive barrier. We work really closely with all of that top-tier, we'll call it OMS, the Outage Management Systems, whether it's ABB, GE, OSI. We actually have consortium agreements with them, our systems are partnered. Our software, at least today, ends just below that, we have a pretty good lock on that. What we call the head end, where we do all the high-value add analytics, where we start to look at some of this Distribution Automation and more than just reading the meter, all of that's within our control, then it gets passed up into either the SCADA systems or the broader software systems of the utility.
Okay.
There's nice diversity at that level, so it's not like there's one player really dominating it. There's no major player where we don't have a good agreement already established. No competitive barrier. Could it potentially be a space we'd like to grow into? Possibly. Those potential acquisitions, and it would be an acquisition, would come at a not insignificant multiple given that they are highly profitable recurring revenue software companies. Remember that. In terms of barriers to entry, no. Good partners, they help sell. We offer a lot of value to them because we give them access now to more and more stuff in the field that they couldn't see.
The big thing with that three-phase recloser, for example, it was an okay device when you couldn't communicate it, but now we can use our comms to connect it to, say, an OSI or a Siemens OMS. Makes that device more valuable, and we're the conduit between them.
If you stay at the level you're at and just plug into those higher systems, is there some kind of recurring revenue model you can develop, or are you just, for lack of a better term, kind of a data feed into that offering?
That software, I don't want to trivialize it. It's very sophisticated because that's where you're doing a lot of the analytics, trying to do outage predictions, outage management. We are starting to add more and more devices to the network that are truly critical information to the utilities, and that's ours. We host software today. About half of the utilities, when we offer the system, are now using our cloud-based services versus hosting in-house. That's a nice annuity stream to us. A growing piece, though, is buried within that hosted system, is these, what we call VAMs, Value-Added Modules. Analytical pieces of software to try and glean intelligence out of just the raw data. There's plenty of room for us to get good recurring revenue at high-end software within our systems without having to go head-to-head with a ABB or a Siemens or an OSI.
I guess the first question would be for each one of the segment heads. Now, obviously, I think we already have some thoughts around Corona and the risk for the year. Could you talk a little bit about your supply chains and components value chain in terms of what we could see for disruption? Maybe you could just give us a risk assessment by each segment as to what you're watching in terms of materials or components, just so we know that things are going to run smoothly in the back half of the year.
Yeah, I can start. I would say of the four, we're the least exposed to areas that have had the most major outbreaks. Very little of our products come from China, South Korea, and that area. From a supply chain perspective, I would say for us, it'd be minimal at this point.
Well, I'm not going to argue about who's the least exposed. We've had time, given what we're talking about. For us, nothing comes out of China. We've got a fairly diverse supply chain by which we can also move. Most of our products are contract manufactured, and we have more than one potential CM. We've got them in multiple places around the globe. Sooner or later, you're far enough up in the future, and you're going to find components that may be at risk. I don't see a lot of sole-source components that could get caught out. From a hardware perspective, I don't see a lot of exposure.
From my perspective, Hubbell Asia falls up under my group, and we've been in touch with them on a daily basis on their supply chain. Right now, they are not seeing any issues being able to get any raw materials that they need to get back into production.
Yeah, from my perspective, obviously big exposure on the residential side, DFR model. 96% of our suppliers are back at 50+% capacity. We obviously had a pretty good inventory position coming into the year in advance of Chinese New Year. We're actively talking with our suppliers every day. There may be spot outages of some products at some point, but we feel like we have our arms around the exposure.
Just as a follow-up for the Utility Solutions head. Can you talk a little bit about what you're seeing in terms of rate cases as a whole, whether they're embracing AMI, whether it's easier to work into the rate case? Is there anything changing the margin there that's encouraging?
Yeah. I think a little bit of variation by sector. Definitely no resistance on the electric side. You look at some of the early systems we actually put in in 1983. They're on their third generation, and it just becomes part of a regular upgrade for the maintenances and the rate cases. Water, five, six years ago, we did a lot of work to help them develop the economics to justify. Water has got them through. Haven't seen a lot of that now. I think the utilities, particularly now it has to do with scarcity and loss. The cases are not just economic for water AMI, it's also about management of the resource. So it's swung away from helping them justify it to more just defining it.
The slowest sector to adopt has been gas, which surprises us because, especially given the safety issues, we thought they would be a relatively faster adopter. I think eventually that will become the case. That's upside for us longer term because we don't really rely on the gas side of the AMI as a big part of the business. Electric is a constant renewer now, significant penetration in water, and that's only accelerating. You've still got probably half of the water space is still what we call greenfield. They have nothing. Half have got first-generation systems, and now some of those are getting to the end of their life. It's a nice combination of true new builds and a start of a replacement cycle, and not a lot of regulatory issues.
Yeah. Just want to continue with the AMI kind of theme here. You talked about some near-term pressure in AMI, I think maybe some decline in 2020. What's causing that and then how much visibility do you then have on the refresh cycle that you referred to by 2023, and what's causing that refresh cycle?
Yeah. Really clear, it's one sector. We look at electric, water, and gas, and then within those three, we look at investor-owned munis and co-ops. Think it was nine sectors, one sector, electric IOUs, are going to soften, and I think some of the competitors have made the same comment, over the next two to three years because most of the IOUs have got their first-generation system, and they're tailing out with the final builds now. That said, the design life for these systems is typically 15 years. The first generation went in in about 2007, 2008. You start to look, they're getting to be long in the tooth. We expect that bidding cycle to happen around 2023. Offsetting some of that shrink, we do have still a significant open market in the public power side.
The co-ops actually went early, so they're already in second and third generation. It's that IOU electric we see some softness over the next few years. We're going to offset that going after international and then pushing very hard in that public power space.
Are you able to quantify the IOU revenue pool?
I can't break that down off the top of my head now. Not that I'd get it right.
Just to add to that question is, one of the technologies that Allan introduced with the AMI business is the RF technology specific for electric. That's the technology that will be well suited when that IOU cycle comes back. It's a technology that we've deployed very successfully in our gas and water business. This is where we talked earlier with, I think you've got 20 customers now in the municipal and the public power that have adopted this technology already, that will eventually position us well to serve that need when that IOU cycle picks up. Yeah.
That's actually a great point. That's 31 with our RF technology being adopted, primarily now in public power co-ops and munis. To Gerben's point, we're very happy and very proud of that technology because when it comes to doing distribution automation, not just AMI, we think we have some significant inherited competitive advantages, which we think positions us well for that recycle when it comes back, which is why we see DA as being a more and more critical part of the business.
Hey, this is more a question on the virus impacts and the margin potential impacts to first half. It looks like there will be some impacts just given 5%-10% of your cost is related to China supply chain. Do we think of that as probably impacting first half margins a little bit and then coming back up in the second half, or are there any productivity measures that you could accelerate to offset marginal headwinds from that supply chain?
Yeah. Maybe let me give a couple of comments. While I don't own any group anymore, I can talk a little bit on behalf.
You own them all.
I own them all. There you go. Own all of them. Just to put a little bit of perspective, we have three facilities in China. All three of those facilities are in operation with about 80% of the employees back and about 80% of our capacity is in. Our exposure to sales in China is actually very, very small. These plants mostly produce product that we take back here, and it's about in that 5% of stock, together with the parts we source. We've also been in contact, continuing to be in contact with our supplier, and they too are up at about 70%-80% of capacity. We're starting to see the flow of materials coming in.
As Dave stated, while this is a terrible thing to happen, the fact that it coincided with Chinese New Year really benefited us because we always stock up at this time of the year, when people go away and they tend to come back slow and sometimes they don't come back at all. Our supply chains unrelated to the coronavirus are pretty elevated. We don't really see an impact from the supply chain side in the first quarter. Certainly, because there's a little bit of delay in that startup, there is going to be a little bit of lag in that supply chain. We hope to be able to manage that through the inventories that we keep. We'll probably bring our inventories down to a lower level than we would normally see.
There may be some impact into the second quarter short term, but certainly for the year, we don't expect an impact from the supply chain. The question that is still open, how is this thing evolving? It seems to change daily and certainly, the press is very interested in reporting what's going on. Is there an eventual market implication, a demand implication? That's what we need to all monitor closely as we go forward. From a supply perspective, while there may be a little lag within the second quarter, we don't see that impacting the year.
Thank you. A big picture question on Aclara. You're now two years out from the deal closing, roughly. What aspect of the business case would you say is tracking above expectations coming out of that deal? What aspect of the business case maybe is tracking in line? What aspect is tracking below expectations? It seems like there are a lot of moving parts. Some that have worked in your favor, some that have worked against you.
Yeah, it's probably best for me to handle just because I was the buyer and I don't want to say.
Yeah, I got bought.
I would say, the meters case has been beating expectations. Allan put up 20% growth, he showed you over the last two years of our ownership. I think watching the utility base kind of embrace Hubbell as a natural owner of that business was very encouraging. That's been ahead of our case. I think the AMI side is lagging a little bit, and that's driven by what Allan was just talking about. I think some of the bigger refreshes coming up over the next couple of years. I think the path that AMI is on in terms of the number of new customers that Gerben was citing, also some of the beta tests and projects you're doing with some of the IOUs suggest that Allan's got a nice toehold in AMI.
When the bids come, we feel pretty good we can win our fair share. I'd say on the disappointing side, it's been the installation business, which has been fraught in particular with some negative Contractor 2, that has dragged down ultimately the financial performance. I think those three pieces are just a little bit mixed. I think taken in a whole, we're really, really pleased with the investment, and we think the upside is just tremendous. I know Nigel was looking to quantify what that could be.
Yes.
It'll be significant if we get our fair share of those IOUs over the next few years.
Okay. I think we're going to let will and Dave wrap up with some closing comments and financial targets, and then we can take any last questions, and we should end by noon for lunch.
All right, because Steve Tewes is an accelerated student, he, I know, jumped to the back section here. Obviously our strategic model really drives our financial model. I'm going to try to just quickly synthesize what our four operating presidents shared with you. Number one, we feel really well-positioned in attractive end markets that involve mission-critical, highly engineered solutions. We feel we're approaching the space with strong brand names. You heard Rod, I think, refer to the sales force and some of the advantages they bring at addressing a unconcentrated channel that we have. In particular, our products represent a small cost relative to cost of failure, quality becomes very important. Ultimately, the breadth of SKUs that we've got really helps us serve our customer.
We got a lot of questions in the first half about margin expansion, and I think you all rightly grabbed on to the sources of margin expansion for us. One is organic growth dropping through at incremental margin rates above our average. We'll try to manage price and material, and then productivity and inflation to neutral. Then Susan did a nice job of describing sort of beyond productivity, some of the restructuring and repositioning savings. So the net of that, we think allows us to expand margins consistently, but largely because of the self-help that Susan's helping us drive, and allow us to invest in then future productivity. I think you all noticed the strong cash flow generation we demonstrated 2019, jumped up from $420 million up to $498 million. The question came up about trade working capital and the role that plays. Obviously, net income is important.
Ultimately, getting a focus on inventory has been a really, really important part of our success, and we think a part of going forward. Resulting in the financial model that I described earlier, where we've got sales at GDP or better, margins in the mid-teens, CapEx at 2% of sales, resulting in free cash flow equal to or better than adjusted net income, which then allows us to invest in more acquisitions, which allows us to grow at, we hope, twice the market. With that set of assumptions, we've got targets for 2023, that result in just under $5.5 billion of sales. That's the result of organic markets giving us between 2% to 3%. That's comprised of utility at the stronger end of contributors. We believe natural gas will be at the stronger end of contributors to growth there, as well as industrial.
We think the acquisitions can add another two points. We took a question up here in between sessions about were we trying to say that the $2 billion available for acquisition is required to generate the two points of growth. The answer is no. We need probably less than half of that to get this 2% of growth. We have more than enough capital in order to facilitate this financial model. Should organic markets not provide the amount of lift that we're anticipating, that's a nice lever using our free cash flow to get inorganic revenue to meet that 2023 target of just under $5.5 billion. The operating margins expanding to 16%. You'll recall, we were at 14.6% in 2019. That 140 basis points is a little bit better than that 20 to 30 basis points just from the restructuring.
You can see, as you all are trying to do the math of if PCP all offsets and we get 25-30, the incrementals that are dropping through are helping to contribute the balance, and then some investment. The earnings that result from that, if you assumed a reasonably consistent tax environment, which I'll let you all tell me what tax assumptions you want to use going forward, would result in an $11 of earnings per share. That represents about an 8% compound increase over that period. The free cash flow from $500 in 2019 to about $600 by the end of the period. About a 20% increase in free cash flow tied into, as you all were appropriately asking, some inventory days targets that are part of Susan's performance metrics.
What we're trying to provide here is guidance that we think with a reasonably modest set of end market assumptions, that we can deliver 8% earnings growth. We would anticipate there'd also be a couple points of dividends that would come with that. I think our shareholders would expect double-digit returns through this timeframe. I mentioned before that this is all hand in glove with our strategic planning process. We have strategic plans that each of the four group heads you saw actually roll up better than this. We have plans in place to try to do better. This is not the best case. This is what we feel we've got line of sight to, given some of the market uncertainties.
At the same time, really trying to drive earnings with some of the self-help items that we know we can control, namely adding acquisitions and taking costs out. I know you will not have any questions on this, and I'll skip to Dave's comments, and we'll take questions at the end.
All right, great. Let me just try and wrap this up to get to the questions. Hopefully, we've given you a good insight as to why we think certainly Hubbell's a great investment. I think it's a great company. Those of you who have followed us for a long time might say, "Yeah, it sounds a lot of similar things." Let me talk a little bit about what's different. Clearly it's a 130-year-old company, and as we like to say, what got us here isn't necessarily going to get us there. We got to make sure that we're not relying solely on what's gotten us here. Certainly, there's some things that are important and have gotten us here. You've heard some of them today. You've heard about we're very well-positioned in very attractive markets.
We are very strategically well-positioned to take advantage of some megatrends, energy efficiency, and critical infrastructure needs. Those are very important, and I think those will manifest themselves in the near term with good growth opportunities on the utility side, as we've talked about, combined with some of our cost takeout initiatives, and our capital deployment adding upside to the near term. Certainly in the long term, the sky's the limit. Really is. I think one of the key elements, I'm delighted that Will actually made the commitments of our financials, and I don't have to do it. I think that's one thing that's different. He made reference to it.
I think in the past, when you say, "Well, what's different from two years ago or four years ago?" As I reflect on these meetings, I think we probably had a bias to be aspirational without necessarily having the plans behind it. I think the operating and the management team has gotten much more focused, much more committed, and much more aligned around what we're going to accomplish. One of the drivers to that, and it came up earlier today in a couple of things, was benchmarking. We've operated for a long time under the continuous improvement model. Except when you benchmark yourself, you are continuously improving to only be below average against your peers.
Once we started benchmarking against peers, and the organization and the management team got recognition that we weren't performing at the level that we had been and we should be with the history and capabilities of Hubbell. It changed the dynamic to driving to a higher level of performance and making sure that we're committed to that level of performance. We hope that what we're talking about, and Will alluded to it, that the strategic plans of the businesses actually roll up a little better than what we're talking about here. The idea being, we need to meet or exceed our commitments and our expectations. I think that's a big difference from if we stood here two, four, six years ago, for sure. I'm really optimistic about what that's going to do.
I think the key element, and we talked about it and one of the slides, is the passionate and capable, and ever-evolving team of people all the way through the organization, but certainly at the leadership level. Gerben made reference to working with the group presidents, and it's a competitive group. It is a competitive group, not against each other, but against the competition and against the market. It's that group and that culture and mindset that is really making a difference. That gives me, and I think the board, confidence in the opportunities that we face in the future. With that, before I close and open it to questions, I do want to take a minute to thank some people, Dan in particular, and Jill and Shirley, who put this together, did a nice job. Thank you very much.
Some of the other leaders from the Hubbell team, Steve Bays, our Senior Vice President of Human Resources. Katrina Redmond, who joined us recently as our CIO, and Katie Lane, who's our General Counsel, promoted just over almost a year ago now. When I do that, I'm sure I've forgotten somebody. Thank you for all your help in getting this done. I think everyone else was introduced by the group presidents. With that, let me open it up to questions for Will.
Gerben, you're welcome to join us here if you want.
Rob, you got in first.
Sure. Thanks. Just two quick questions. I guess one on the $11 number, and then the $600 million. Are we thinking about 100% free cash flow conversion and what's kind of the stretch goal there?
Yeah, 100 on adjusted. Yep.
Okay. Just stepping back in terms of the 2%-3% organic. Obviously, I think you're setting expectations appropriately, but that's not exactly Herculean either. How do you think about which businesses do you think have more of an entitlement from price cost, secular trends that can grow above that, and which are more going to be more challenged? Did you build in a bit of a down cycle into it? What animates that 2%-3% organic range?
Yeah, I think if you start your question at kind of the group level, certainly feels like the utility business has the chance to outgrow base expectations. Inside of the electrical pieces, I like the way Darrin and Rodd and Jim each had different pieces, so Rob, won't necessarily be seen. I think from Jim's perspective, if controls and resi might be strong, I think Rodd and Darrin each put up data centers as a pretty interesting place. There'll be those pockets, and yet I feel like our electrical business is enough across non-res and industrial that it'll tend towards that average as we see it.
Steve.
You guys talked a little bit about obviously adding to the portfolio. Any pruning around the edges? Seems like most of these things are kind of where you want them and they're clearly core. Anything that you'd think about kind of pruning over the next few years?
Yeah. We sold our high volt business, which was getting up into the apparatus side of that pyramid. I think that was constructive to take that use of proceeds and reinvest in the utility space. I would say, while I wouldn't identify anything specifically, and it feels to me like the portfolio is ready to grow, not prune. I will say that part of what Dave was describing as aligning around plans is we do have more interesting discussions as a leadership team as to, do we need to make this? Do we have to have this? Could we redeploy the assets elsewhere? I think, Steve, you're very right to point out that as a mindset, we're looking to make sure that there's not things that are extraneous to what we're trying to get done.
There are certainly parts of, and it's part and parcel with discussion on even our breadth of product offerings and looking at that portfolio, at least the individual products and which are profitable. I think you take it up a level to elements of businesses, and there may be groups within any businesses that may conclude that they're not worth the effort of managing at that level, or they have dynamics that are not consistent with our long-term goals. I think that's the high voltage business was an example of that. There may be parts and elements within our businesses that we'll continue to take a hard look at.
Did you embed any price in kind of the longer-term outlook? Or maybe just talk about how that price maybe with and without Lighting kind of trends over the next few years. Can you get price even with the headwinds?
Yes
in lighting?
As Jim highlighted, for the year with C&I, Jim got enough price to cover our cost increases. You're right to point out that was a new trend this year versus the last few years. I think Hubbell as an enterprise, and I'd welcome any of the presidents' comments, but as an enterprise, I think a lot about pricing as a discipline over the last 18 months. Thinking through dynamics like competitive intensity, where is the competitor located? What's the nature of our product? How differentiated is it? I think we had a sales force who'd been used to thinking that half a point was a big ask on price. We had some examples, where you all were asking for 8 or 10% last year, which was just different orders of magnitude in some of those SKUs.
I think that net-net, I'm describing price as being part of this make whole paradigm of just offsetting commodities. Yet, I think you're right to raise, do we develop a skill here and a better understanding of the elasticities in our products and our customers that we could use price as a way to gain? We didn't promise that in here, but I think the way you're thinking is something I embrace as to how we approach things going forward.
Well, I think that also goes to some of my earlier comments about where we have value, whether it's in a specified position or a long-term relationship. When you get into tough times, and you got to raise price, you quickly identify which things you have the ability to do that. I think that leads to some of the portfolio analysis within all of our businesses, whether it's in Darrin's Commercial & Industrial business or Rodd's Construction business. Across the board, it's Lighting or even within the Power business. Believe it or not, there's some places there that you say, "Maybe we shouldn't be there." It built up over time, but it's not worth it.
Steve, maybe a couple of other comments on that, the portfolio rationalization. There's tools that we're using in all of the businesses of analyzing our SKUs. Not only do we analyze them in quadrants to say, "Are they high growth, high profitability, low growth, low profitability, of where to focus?" Now also, how do they correlate to other sales that we may have? Are they driving sales of higher margin? It's a very data analytics-driven process, and through that process, we're pruning SKUs within families or entire families.
The other process that we do, which has actually helped us, with Susan's effort, and she brought this as a discipline, is that before we move any facility, we'll go through a process of SKU rationalization, either discontinuing them, outsourcing them, so that you don't end up moving processes that end up being underperforming where you move them. It's a discipline that we're driving our business, that's much more targeted in looking at our portfolio.
I've got two and a half questions on acquisitions. You laid out, over the last five, 10, 20 years, low teens ROIC on acquisitions. The surprise there is I expect the older vintage deals to be higher ROIC. Does that mean that you're getting better at acquisitions, you're getting higher returns on capital earlier, or am I just stupid?
No, I think maybe, as you get better, you can figure out how to get cost out faster. Certainly getting the fixed cost from the buildings out faster is an important part of that. I think we have developed some better competencies along the way. Which, by the way, has allowed us to pay another turn of multiple too. I don't know what the future holds, and I'm not sure if your next questions are getting at valuations. We did, in the last five years, face a little bit of a upward pressure as there's, I think, just more investment dollars chasing the same opportunities now.
Next question is actually about size.
Okay.
If we look at, say, Burndy and Aclara. I know Aclara is still early doors, but how does the ROIC on Burndy, larger deal, compare to some of these small $20, $30 million deals?
Burndy's in the hall of fame on that page of 50 years' worth of investing. Really strong performance. Acquired in 2009, which is interesting time to value a business. It's grown well. Its margins have gotten bigger as it's grown. We've done good things with it. It's been better on our platform than on its previous platform. Picking that as a large one, which I'm not sure its size dictates that, but from that whole page of 70 years, Burndy is in the hall of fame.
The half question's about, kind of, iDevices, three years ago, I think it was, 2017. As well as the different acquisitions, more the technology sort of bolt-ons to try and fuse that across the portfolio. How's that going? Has that been successful?
I think that we continue to believe that Hubbell needs to add technology to its product solutions. I think you heard each of the four presidents talk about the need to differentiate and add that technology. The business that you're talking about is iDevices, and it really has two separate pieces to it. One is smart resi SKUs, and the other is this communication capability that we were going to port into our C&I business. I would say at the time that we invested, the second of those things was more important, and I would say continues to be more important.
The capability that they have of 50 or so technical people, I think getting their smarts and technologies implemented into, and some of what Darrin was talking about there with pin and sleeve, and being able to communicate and that kind of technology is where I think iDevices is going to help us going forward.
Two quick questions here. One is, coming out of your Q4 results, you'd guided, I think, to 3%-4% growth in Utility Solutions, potentially higher on the Aclara side and a little bit lower out of conservatism on the legacy transmission distribution side. Based on your comments today, it seems like those two may have flipped positioning. Is that?
Yes, I think that we thought, and there may be some miscommunication, but we have felt like Aclara had some difficult comps to lap that continued into the first quarter of this year. I think, and Utility's having some, I'm looking at Mark as he's staring at the screen here. He had some difficult comps to lap too. The fundamental growth rates inside of that distribution and transmission spend is really proving at least, even right up through the first couple of months of this quarter, proven to be a strong contributor to Utility Solutions.
The second question on your M&A strategy. It doesn't seem like there's a concerted effort to grow ex-U.S. across your business. I assume if the products and technologies have applicability there, you would go there. Just help me understand, is geographic expansion ex-U.S. part of the M&A strategy, or is it just a secondary offshoot of the M&A strategy?
I'd say it's probably more secondary. The fragmentation of the market just in North America provides plenty of opportunity. We do have offshore operations. We do serve international customers. To the extent that there's an opportunity to expand that, we will. We're very cautious about that. We've always had a long-held belief that we can't afford to operate a mile wide and an inch deep. If we go somewhere, we have to be committed to it and it has to be worthwhile, or it has to be a very niche bolt-on, which we will continue to look at, and we continue to evaluate. You will see some, it's not that we're opposed to it, but it's not a core element of our strategy.
Okay. Lunch is ready. Thanks for coming.
All set. Thank you very much.