Hello, and welcome to LPX 2020 Investor Day. It is now my pleasure to turn today's program over to Aaron Howald. Please go ahead.
Good morning, everyone, and welcome to LP Building Solutions 2020 Virtual Investor Day. My name is Aaron Howald, and I am LP's Director of Investor Relations. We had hoped to do this earlier in the year and in person, but of course, that became impossible with COVID-19. Speaking of which, we are assembled here in our boardroom in Nashville, in our Nashville headquarters. We are appropriately distanced and taking all prudent precautions. We hope that you and your families are safe and that we can go back to meeting in person soon. Before we dive into the content, I want to briefly discuss the format of today's meeting. Today's meeting will be a series of presentations, most followed by question-and-answer sessions. We can take questions either via audio or text, so please follow the instructions in your interface as appropriate for the mode of the questions.
We'll get to as many questions as possible and try to make this as interactive as we can. The entire presentation will be recorded and archived and available on our Investor Relations webpage soon after the event. Here's our agenda for the morning. We will start with a general strategy update from LP Chairman and CEO Brad Southern, followed by a general overview of our products, pricing, and other jargon for those less familiar with LP in our industry. Next, we will hear from Nicole Daniel, Senior Vice President and General Counsel, who will introduce our governance and responsibility framework.
We will then transition to discussions about our business segments, led first by Neil Sherman, EVP and General Manager of Siding, followed by Jason Ringblom, EVP and General Manager of OSB, and then Frederick Price, who's President and General Manager of LP South America, who will be joining us from Santiago, Chile, to discuss our South American business. Brad will discuss Entegra, and then we will conclude today's presentations with a financial review led by Alan Haughie, our Chief Financial Officer. Let me remind everyone on the call about forward-looking statements and the use of non-GAAP financial metrics in the course of today's presentation. Rather than reading these statements, I incorporate them here in my reference. I also refer you to our 8-K filing out this morning for reconciliations of non-GAAP metrics.
These presentations and appendices will be available in PDF form later today, and the entire recorded webinar will be archived within about 24 hours or so. And all of that will be available on our Investor Relations webpage, www.investor.lpcorp.com. And with that, I thank you again for joining us, and I will turn the call over to Brad Southern.
Thanks, Aaron, and good morning, everyone. Thank you for joining us today, and welcome again to LP Building Solutions 2020 Investor Day. My name is Brad Southern, and I am LP's Chairman and CEO. I've been CEO for a little over three years, and I've been at LP for over 20 years. I'm glad you could join us this morning for an update on our strategy for an introduction to the broader team that is implementing that strategy. As Aaron mentioned today, you'll hear from Neil, Jason, Frederick, and Nicole. They will dive deeper into our operations after a brief introduction to industry terms, our products, and pricing dynamics for those on the call who may be less familiar with LP and the markets we serve. We will wrap up with Alan Haughie, our CFO, and a discussion of LP's financial strength and capital allocation strategy.
Before I turn the call over to the broader executive team, I will talk a bit about LP and our strategy. LP was founded in 1973. We are a leading producer of strand-based engineered wood building products for residential and light commercial construction, as well as repair and remodeling. Our primary raw material is wood fiber, so we are committed to responsibly and sustainably harvesting that renewable resource, as well as using it as efficiently as possible in our manufacturing processes. Nicole will speak in detail about our ongoing sustainability programs, our framework for ESG governance, and our approach to social responsibility as it relates to the communities we serve and our 4,800 employees. LP is a leader in the markets we serve, and siding, we are the only manufacturer of strand-based engineered wood siding.
We have consistently grown siding sales above the market growth rates of housing starts and repair and remodel expenditures, and we have a long runway of growth ahead of us as we expand the addressable markets and our penetration within them. In OSB, we have approximately 16% market share in terms of total capacity, and we are a leading producer of a wide range of value-added OSB products. In South America, we are a large manufacturer in a growing market, producing OSB, siding, and I-joists. We are instrumental in changing the way homes are built in Chile and other South American countries, transitioning from masonry to more sustainable wood construction, just as we did in North America, driving the substitution of OSB for fiber.
While our South America operations are changing the products used in home building, our investment in Entegra, which is a disruptive innovation in off-site framing, shows that we are once again evolving the home building process in North America. This slide shows the breakdown of sales revenue by segment for the trailing 12 months, as well as the breakdown of strand capacity by segment. As you can see from these charts, the siding business punches well above its weight for revenue generation per unit of capacity. We are a leader in the markets we serve because we solve problems for our customers. We hear from our customers, and I am sure many of you hear from home builders that construction labor availability is constraining home building and remodeling. Many of LP's products combine multiple elements into a single system.
For example, ExpertFinish pre-finished SmartSide is delivered with a beautiful and durable factory paint finish already applied. This saves the cost and time of painting prime siding after installation. WeatherLogic Sheathing combines an OSB panel with a weather-resistant barrier, eliminating the need to install house wrap. FlameBlock combines fire resistance with structural integrity, simplifying the job of designing and constructing party walls and other applications requiring both features. Entegra applies the same philosophy to the framing process itself, dramatically improving job site efficiency for both labor and materials, shortening the build cycle, and improving build quality. When I speak specifically about Entegra later this morning, I will show you a video of an Entegra build process that highlights the potential of this technology.
A consistent theme across our siding OSB and Entegra portfolio is that we develop innovative products that create value for our customers by helping them address critical constraints in the building cycle, like labor. When I was named CEO in 2017, I worked with our board of directors to develop an aspiration for the company. This aspiration is to build a company that consistently and sustainably delivers top-tier shareholder return performance. That aspiration led to our business strategy to transform LP and the market's perception of LP from a commodity-based lumber products company to a specialty building products company. This strategy has four pillars, which I will briefly summarize. You will hear more detail from the leaders accountable for delivering on these goals later today. The first pillar of our strategy is growing sales volume, revenue, and margin for the siding business, for Structural Solutions, and for LP South America.
The siding segment has grown significantly faster than the underlying markets it serves, with a compound annual growth rate exceeding 10%. This growth rate has been achieved through investments in increasing our brand awareness and market presence. The second pillar is innovating new products and processes. Two years ago, SmartSide was available only with an embossed cedar grain pattern and only as prime, which required painting after installation. This limited our regional geographies that prefer the smooth siding aesthetic and added the time and expense of painting for repair and remodel projects. Now, SmartSide is available with a smooth finish in addition to the existing cedar grain pattern and is available pre-finished as well as prime, significantly increasing LP's addressable market. In OSB, innovative products like LP Legacy and LP WeatherLogic sheathing increase margin and decrease volatility.
Neil and Jason will share much more detail later as the slides say we have many years of runway ahead of us for growth and market penetration. The third pillar of our transformation is operational excellence, as measured in overall equipment effectiveness, or OEE. In the OSB segment, we are managing capacity with significantly improved discipline and a relentless focus on efficiency and cost control. Under Jason's leadership, the OSB segment is working to transcend the boom and bust cycles of the past. This work showed its value last year. With OSB prices at cycle lows, the OSB segment achieved a break-even EBITDA. The last time OSB prices hit cycle lows was 2015. In that year, with a very different approach to balancing supply and demand, the OSB segment had an EBITDA of negative $21 million.
Prices will continue to be volatile, but the work our OSB business is doing has significantly reduced the volatility of the segment's earnings. Jason will give you more detail about the OSB business later this morning. The fourth pillar of LP's strategic transformation is our shareholder-focused capital allocation strategy. We plan to return half of the cash we generate after necessary investments to shareholders through a combination of dividends and share buybacks. This is possible in part because the SmartSide business is now large enough to reliably fund both LP's dividend and its own capital expansions. Early in the COVID-19 pandemic, we announced that we had no plans to act on our existing $200 million share buyback authorization.
As we all know, the housing sector has been remarkably resilient in the face of this crisis, and LP has generated significantly more cash so far in 2020 than we expected in late March. As a result, we have resumed buying back our shares. Alan will include more details of the resumption of share repurchases in the concluding session of today's presentation. We will also continue to seek targeted opportunities to invest in acquisitions that drive our growth strategies, such as Entegra and the two pre-finished facilities we acquired in 2019. One reasonable question about this strategy is whether it depends on bullish housing outlook to be successful.
My answer to that question is no because the siding segment has demonstrated many years of consistent growth above the growth rates of housing and repair and remodel spending, and the OSB segment has demonstrated cost control far beyond what would be expected with higher utilization rates and better cost absorption. LP's strategy is absolutely not predicated on a bullish housing market, but I should add that I am very bullish on housing for the next several years, and I believe you should be too for two very important reasons. First, this chart shows 30 years of U.S. housing starts data as reported by the U.S. Census Bureau, shown on a trailing 12-month basis. The 30-year average annual number of total U.S. housing starts is 1.3 million.
Assuming the 1.3 million average actually represents housing demand, the question is whether the housing market is over or undersupplied and over what timeframe. If you start in 2010, U.S. housing market is underbuilt by a combined three million starts compared to the long-run average of 1.3 million per year. But even if you go back 20 years, well before the housing boom and financial crisis, we are still underbuilt by almost a million starts. And remember, over the time scale of this graph, the U.S. population has increased by eight million people. Different assumptions and approaches will yield different levels of undersupply, but it is difficult to argue that housing is overbuilt by historical standards. Second, more importantly, let's take a quick look at demographic data. This chart shows the age structure of the U.S. population by five-year age cohort.
These cohorts can change slightly for a variety of reasons, but the relative sizes of the age cohorts are likely to stay fairly stable. The median first-time home buyer, according to the National Association of Realtors, is 32 years old. According to this age structure data, the 30 to 34-year-old age cohort is going to grow its size significantly over the next five years. This will likely drive new construction of homes for the first-time buyer. However, while the median first-time home buyer is 32 years old, the median home buyer overall is 46 years old. This census data indicates that the population of people in this age range is going to shrink slightly, then grow steadily for 15 years. The number of housing starts in any given single year is hard to predict.
However, given the structural undersupply of housing and very favorable long-term demographic trends, it seems very likely that more homes will be built in the next few years than were built in the last year. While LP's strategy is not predicated on this being the case, it certainly positions us well should housing starts return to their historical average and resolve the current undersupply. With that, I will turn the presentation back over to Aaron for a brief introduction to important terminology and units of measure, as well as an overview of the very different pricing dynamics for our products. We will try to keep our presentation as jargon-free as possible, but we hope the following introduction is useful for new or potential investors who may not be as familiar with our products or the markets we serve.
Thanks, Brad. This is Aaron Howald again.
And as Brad said, this next section is designed to introduce and define terms and concepts that may be less familiar to newer investors. The upcoming sections will contain some jargon, so in the interest of clarity, we want to mention these concepts briefly first. First of all, all of LP's SmartSide and OSB products are made with similar strand technology. In the manufacturing process, logs are cut into strands immediately after the bark is removed. The geometry of these strands can be fine-tuned to create different product characteristics, but in general, they are about the thickness of a business card and range in size up to about a dollar bill. The name oriented strand board refers to the process that aligns the strands in alternating perpendicular layers to maximize the board's strength and durability.
Our products are made from Southern Yellow Pine in the south and aspen in the north, with small amounts of alternate wood species in the mix. OSB can be made from either wood species, but SmartSide is made exclusively of aspen. As Nicole will describe in more detail in a moment, all of our fiber is sustainably and responsibly harvested, with replanting and natural regeneration as appropriate for the species and location. Other than wood, which is by far the largest input by volume, other raw materials include various adhesives, resins, waxes, overlays, and chemical treatments. At previous investor days, we have offered mill tours to familiarize you with the manufacturing process. That is obviously impossible now, but we do have a brief video to show the manufacturing process, which we will show now.
When you're choosing new siding, you want to make sure it'll last, standing up to weather and time. Your new siding has to be beautiful and durable. LP SmartSide Trim and Siding isn't traditional wood, and it's not typical OSB. It's engineered wood designed with intention to its core, backed by robust technology, and built with the care and detail you expect. It delivers advanced durability for longer-lasting beauty. But you've probably heard that before, so let's go back to the beginning. LP SmartSide Trim and Siding may not be traditional wood, but it does start there, with aspen logs conditioned and softened so they're ready to work with. aspen trees can regenerate from their own roots, helping LP to make sure the resources they use are fully renewable.
When bark is removed, it's used to fuel the plant, so 99% of each log is used during the process. From there, logs are shaved down into strands about the thickness of a business card and dried out. The strands are tested often along the way to ensure each piece of siding leaves the plant exactly as it's intended. Next, in a drum that acts much like a huge tumble dryer, each strand gets covered with a mix of advanced binders, waxes, and zinc borate. These work together in order to help provide multi-layered protection against moisture, fungal decay, and termites. This is what LP calls the SmartGuard process. LP SmartSide Trim and Siding isn't just protected from the outside. It's durable down to each strand.
It's also backed by an industry-leading 50-year limited warranty based on scientific data that comes from testing in a wide variety of climates and conditions. Once the strands are treated, they're arranged into layers. Even this part of the process is engineered for long-lasting siding. LP SmartSide Trim and Siding's layers are purposefully oriented in different directions. This intentional design guarantees strength where it's needed most. Next, the moisture-resistant overlay is added as a final safeguard against moisture. It is firmly adhered in the next part of the process, the press. At this point, LP SmartSide Trim and Siding is much thicker than when it's used, but pressure and heat change that. Each sheet is compressed to ensure the resins are fully cured and the texture is firmly embossed. To finish, the edges of each sheet are trimmed, cut to size, and primed.
They're ready to be packaged, shipped, and installed. LP SmartSide Trim and Siding is wood that has been engineered for durability and beauty, and it's engineered wood you can trust, combining technology and style to offer you advanced durability for longer-lasting beauty. LP SmartSide Trim and Siding is a product you can rely on. Learn more about LP SmartSide Trim and Siding at lpsmartside.com.
Okay, you saw some of the product applications in that video, but briefly, LP SmartSide is an exterior cladding product available in panels, lap, trim, soffit, and various accessories. It is used in new residential and commercial construction, repair and remodel applications, and outdoor buildings like sheds. SmartSide competes against cladding alternatives such as vinyl, solid wood, fiber cement, stucco, and brick. Neil will talk in much more detail about addressable markets later this morning.
By contrast with SmartSide, oriented strand board is a structural product rarely visible inside or outside the home once construction is complete. Available exclusively as panels in various sizes, applications include wall sheathing, roof decks, and subfloors, and while most of LP's OSB is used in new residential construction and R&R, some product finds its way into industrial applications as raw material inputs for I-joists, furniture, and specialty packaging. For those not familiar with OSB and siding units of measure, discussions of volumes and prices can be confusing. When we talk about volume of production or sales, we speak in terms of thousands of square feet, abbreviated MSF, on a standard 3/8-inch thickness basis. This allows for a common basis of comparison for discussing production rates, cost of production margins, etc.
Prices are generally quoted on a surface basis, meaning the actual surface area of the pieces of the product, regardless of their thickness, so for example, if the price of 23/32-inch thick commodity subflooring is quoted as $800 a thousand, that means $800 per 1,000 sq ft of surface area, and 1,000 sq ft of surface area of 23/32 subfloor is about 1,900 sq ft on a nominal 3/8 basis. In South America, production and sales volumes are described in cubic meters. One cubic meter is about 1,100 sq ft on a 3/8 basis. In terms of capacity, again on a 3/8 basis, the siding business has roughly 1.7 billion sq ft of annual capacity. The OSB business has 4.5 billion sq ft, 800 of which is Peace Valley, which is currently idle. With siding products like lap, trim, and soffit, length matters too.
SmartSide is durable enough to be available in 16-foot lengths, whereas fiber cement is generally available only in 12-foot lengths. This allows for significantly fewer gaps and more efficient installation, as Neil will discuss in a bit. Siding and OSB are priced very differently. LP publishes price lists annually for siding. We have been able to increase net prices at a consistent 3%-4% compound annual rate. Small quarterly price fluctuations in the siding business are the result of regional and product mix variations, not price variations at the SKU level. Siding prices are very stable, and neither their prices nor costs are in any way linked to commodity OSB prices.
By contrast, with the stability of SmartSide prices, commodity OSB prices fluctuate constantly, with updates published weekly by Random Lengths, which is an independent entity that publishes prices for plywood, lumber, and many other commodity building products. LP's Structural Solutions portfolio of value-added OSB products is priced at the commodity price for the substrate, plus a fixed upcharge we call an adder. For example, TechShield, which is our well-known radiant barrier sheathing, is priced at the Random Lengths commodity sheathing price for its given thickness, plus a fixed adder. The substrate prices change weekly, but the adders for Structural Solutions products are comparatively stable. In fact, the highest value-add OSB products like FlameBlock, which is our fire-rated sheathing, are priced more like siding with quarterly price lists.
As Jason will discuss in more detail, Structural Solutions products add value for builders because they combine features that provide a complete system, which saves time and labor during the construction process. Within LP's OSB volume, roughly two-thirds is sold at contracted volume, with the remaining third sold on the open market. Contract volume is priced algorithmically, generally with the current week's contract volume priced at the previous Friday's Random Lengths print. Open market OSB is sold at negotiated prices on LP's trading floor. Jason will give you more detail on this, but LP tries to keep a relatively short order file of two to three weeks, meaning that open market volume sold this week will be delivered two to three weeks from now. On the table at the left of the slide is a picture of a Random Lengths report from two weeks ago.
The graph below is weekly price data since 2008. Each week, Random Lengths aggregates open market price data reported by large producers and consumers. Then, every Friday, Random Lengths publishes updated prices for four different thicknesses of sheathing and two different thicknesses of commodity subfloors, each priced in six regions and several delivered zones. If buyers and sellers report prices consistently above or below the previous Friday's levels, prices tend to change accordingly. If prices are stable, or sometimes if order files and availability result in very little open market volume, prices tend to stay flat. The duration of order files and the algorithmic nature of contract volume can create a time lag between published prices and our realization, particularly when prices rise or fall rapidly. I hope this was helpful to those less familiar with the specific jargon and dynamics of our industry.
In the next section, Nicole Daniel will discuss LP's governance and corporate responsibility framework, after which we will have a general Q&A session followed by a short break. After that, we will resume the presentations of the business segments, starting with Neil Sherman, who will discuss the siding business.
Good morning. My name is Nicole Daniel, and I'm the Senior Vice President, General Counsel, and Corporate Secretary at LP. I am also the executive team sponsor for our new ESG Executive Council. Although we have not broadly shared specified targeted metrics around ESG in the last few years, today we would like to share with you information about what we are doing to help drive sustainability and corporate responsibility at LP. One of our core values is do the right thing always. This deep-rooted cultural norm drives decisions we make and actions we take every day.
It also describes how we think about the processes we follow as we source wood for our products or work to minimize waste. It describes how we give back to our communities or seek to proactively identify safety hazards to keep our employees safe. Doing the right thing always will, in our opinion, drive shareholder value because it helps us be a sustainable company. The initiatives I'm going to talk about this morning are not new to LP. We have been doing all of this for years. What is new, however, is the focus that we are bringing to these efforts by consolidating them under a new framework. Earlier this year, we reconfigured one of our board committees to provide a specific governance framework for our ESG efforts.
This committee is chartered to help manage risks and opportunities around sustainability, the environment, safety, and human capital, as well as the overall governance of our company. To implement the strategies and communicate results to a broad range of stakeholders, we created an ESG executive counsel comprising our Chief Financial Officer, our Chief Human Resources Officer, our Senior Vice President of Manufacturing Services, and me as our Chief Legal Officer. We have also named an ESG task force accountable for these programs, comprising the heads of investor relations, corporate communications, sustainability and policy, and sales and marketing. This structure will provide a renewed governance framework that can take our efforts to the next level and ensure that they are materially linked to shareholder value. I'd like to begin by talking about LP's responsible stewardship of the natural resources we use in the manufacturing of our products.
Sustainability requires careful harvesting of our forest resources and efficient utilization of those resources in our manufacturing process. We utilize millions of tons of logs a year in such a way that ensures the long-term viability of forests. 100% of the logs used by LP in the manufacture of our products are sustainably harvested. In North America, our forestry operations are certified to the Sustainable Forestry Initiative standard. While the certification systems differ in South America, 100% of the logs used at our facilities there are also responsibly harvested from legal, non-controversial sources. These logs come from a mix of public and private lands. In the U.S., about 85% of the logs we harvest are from private lands, while in Canada, they are predominantly from public lands.
In all cases, those trees that are harvested are either replanted or steps are taken to optimize natural regeneration as appropriate for the species and area harvested. I had no idea before I came to LP that the aspen tree, which we use to manufacture our siding product, is actually a colony rather than a series of individual plants. The act of harvesting aspen stimulates the root systems to spontaneously regenerate new growth. We harvest trees to ensure a healthy and sustainable forest, and we make sure that we do so in a way that minimizes impact, promotes conservation of wildlife habitat, and protects water resources. It might not be easy to see, but this picture on the top left area of the slide is an area that has been harvested.
Far from the clear-cut stereotype, this shows that the harvesting practices preserved natural boundaries in the forest perimeter, protected wetlands, created travel corridors for wildlife, and left many mature trees standing. Wherever we source our wood fiber, we engage with our local stakeholders, First Nations and conservation organizations. We have partnered in the U.S. with the National Wild Turkey Federation and Ducks Unlimited Canada to promote habitat preservation and healthy ecosystems. As a recent example, this year, we announced the signing of a new 10-year agreement with Ducks Unlimited Canada that will positively impact more than six million acres of Manitoba's boreal forest, an area larger than the state of Vermont and half the size of Nova Scotia.
This partnership with Ducks Unlimited Canada began nearly 20 years ago as we worked to inventory millions of acres of waterfowl-supporting habitat in the Manitoba area, which is an essential step for wetland and waterfowl conservation. The next step in the sustainability of our resources is ensuring that we utilize those resources efficiently to minimize both cost and waste. Our processes allow us to use more than 99% of the logs that come into our facilities. The parts we don't use to create product are used to help power our facilities. We burn bark and wood fines as biomass to create heat for drying and to heat the thermal oil in our presses. The majority of the thermal energy we use comes from this biomass, significantly offsetting fossil fuel usage. Where possible, we utilize the ashes generated as clean and natural fertilizer on local farm fields.
We are extremely proud of these low-waste processes our siding and OSB facilities are implementing. Burning biomass and pressing wood and resins under high heat produces particulates and other gaseous emissions, but our state-of-the-art emissions controls capture 99.9% of the particulates before they leave the stacks. Most of what leaves our stacks is actually water vapor released in the process of drying the flakes. We also use relatively little water compared to other manufacturing processes, but almost all the water we do use is recycled through our systems. Next, I want to talk about our people, both in terms of our immediate safety and more generally in terms of our general well-being. At LP, we have made enormous progress in our safety journey.
We have won the APA's Safest Company Award nine times in the past 10 years, but good is not good enough, and so we have recently redirected our safety focus away from incident management towards forward-looking injury prevention. LP is now working to identify areas of risk using a framework known as serious injury and fatality prevention, which we refer to as SIF prevention. We believe that by recognizing risks in our operations, we can help to prevent future injuries. This year, in addition to our normal focus on injury prevention, COVID-19 presented us with a new safety challenge. I'm very happy to report that so far we've had very few COVID-19 infections and thankfully no COVID fatalities among our LP employees. The precautions we have instituted in our manufacturing and office facilities have minimized transmission, and we've had no production interruptions caused by outbreaks.
We will maintain our vigilance as long as the threat remains, and we will continue to do everything we can to keep our employees safe. Beyond immediate physical safety, we also have multiple initiatives designed to improve the well-being of our employees. Some of these programs include the Employee Assistance Program, which offers free and anonymous counseling, a scholarship and tuition assistance program for employees and their families, and our commitment to diversity and inclusion at LP. Diversity, inclusion, and acceptance of our differences are more than just words for us. They are central to our values. Our code of conduct requires us to treat each other, our suppliers and customers, our neighbors, and all members of the LP community with respect. It bounds us to be firmly committed to equitable treatment for all. We believe expanding the lens through which we see the world is critical.
As an executive team and a company, we recently participated in a racial equity and social justice challenge, which provided daily content on issues of race, power, privilege, and leadership. We are committed to ongoing education, awareness, and practices to ensure we always operate within the ideals of fairness, mutual respect, and equality. We will always strive to do better, to implement better practices for our employees and communities, and to hold ourselves to the highest standard. We also have a program called LP Cares, which is a fund designed to help employees impacted by natural disasters or other emergencies. I could tell you more about this, but I think you would rather hear it from Shannon Carr. Shannon is an operator at our Wilmington, North Carolina, plant. In 2018, Hurricane Florence hit Wilmington, North Carolina, doing significant damage to the plant and our surrounding community.
The clip you are about to see was filmed several months ago as part of a longer video about LP Cares for a leadership meeting in February, and Shannon allowed us to repurpose her message to share with you today. Please play the video.
When things happen, LP looks out for us. We had a storm last year, and it's a program called LP Cares. I'm quite sure you know about it. They looked out for us. They brought our kids Christmas gifts. They didn't have to do that. It was like people in the corporate office that did it for us. That was really nice, and LP paid us for weeks and weeks. They care about their employees. And when you have somebody care about you, you care about what you do for them. Moving on to the next one. Go ahead.
I already mentioned our scholarship programs.
Here are just three of the 65 children of our employees who received academic scholarships totaling $95,000 this year. COVID made 2020 an odd year to graduate from high school and head off to college, but we hope that this scholarship program helps make that transition a little less stressful. Finally, I want to mention LP's involvement in our broader communities. LP seeks to make a positive impact in our communities in many ways, including corporate philanthropy through our LP Foundation, mill community grants, disaster relief, and volunteerism. Whether it's building homes with Habitat for Humanity, planting trees, raising funds for local schools, preparing for and cleaning up after storms and other natural disasters, or community grants, LP employees take "Do the Right Thing Always" to heart. To conclude, I'd like to share a video clip that sums up much of who we are.
Thank you again for your time today. Play the video, please.
It's very important to us to be seen as a very positive force in the communities that we work in and serve. It's a core of who we are, especially when it comes to providing shelter, which is really core to our whole purpose as a company. We have responsibilities that include being able to take what we do and the profit from that and put it back into our communities. They are willing to give back to the community, and they want everybody within the company to do the same. This is definitely LP leading the way, not just in saying it, but actually allowing their employees to be a part of it. This is literally my favorite part about working with LP, is just getting out in the community and giving back.
I think it gives you a sense of who we are as a company. It mirrors our culture. I think it lets you know that we're proud of our products and solutions, but more importantly, we want to be here and we want to be part of what it's doing. We're here, and we're literally building a better world as we speak. Knowing what we're doing, what our product's doing, who it's going to shelter, and what that goes to, very fulfilling. We're building playgrounds with LP for kids, or we're building homes. This is somebody's dream that we're being a part of. We're not just building houses. We're building dreams through LP.
Okay, with that, we are at our first Q&A session. We are going to defer specific questions about Q3 until later on.
To keep this focus, we'll take any questions about any of the sessions that we've just had, and then we will take a short break before we resume the business-specific sections. At this point, you can communicate your questions about either our general strategy or ESG or any of the other items that we discussed so far, either via audio or text. I do see one text question, but it's OSB-specific, so I'm going to suggest that we hold that until Jason speaks in a bit. Kirk will get to that. It doesn't look like we have any questions at this point, so either that means we did a fantastic job of explaining everything or you're ready for a break. In any event, we'll take about five or six minutes, call it five, and then we will resume. I have 8:42 A.M.
We'll resume at 8:48 A.M., and we'll rejoin you soon.
Yeah. Okay, welcome back, everyone. We will resume the 2020 LP Virtual Investor Day, and up next is Neil Sherman, EVP and GM of the Siding Business.
Good morning, everyone, and thank you for attending our call. I'm pleased to be here today to talk to you about LP Siding Business. As referenced earlier, my name is Neil Sherman, and I'm the EVP and General Manager of LP Siding Segments. I joined LP in 1994, and I've been in this role for almost four years. I'm excited to tell you about how we're expanding our addressable markets and innovating new products to drive growth. I'll first walk you through a history of our growth story and showcase our innovative products, some of which have helped expand our addressable markets.
I'll also define what we see as our currently addressable markets and demonstrate the long runway we have for growth. Then we will review the primary market segments we participate in and our geographic sales profile. I'll close with an overview of our manufacturing footprints, discuss timing and options for our next capacity expansion, and the long runway of further expansion opportunities ahead of us to supply future growth. Then we'll take your questions. From 2015 to 2020, siding revenue has grown at a CAGR of 12%. On a trailing 12-month basis, volume and price have contributed to this growth at a ratio of 4:1, although in any given quarter, that ratio can fluctuate. EBITDA over that five-year period has a CAGR of 19%. You will see on the slide that capacity expansions can impact EBITDA as we convert and ramp up new mills in the face of growing demand.
However, over this time period, we have grown EBITDA one and a half times faster than revenue. U.S. housing starts grew at a CAGR of just under 4% over that same time period. Outside of housing, we have seen growth in less cyclical repair and remodel and shed segments. As some of you know, over the last five years, to meet growing demand, we have converted two OSB mills to siding mills, and we are currently in the process of active planning for our next siding mill, which I will discuss in more detail later in my presentation. We have a long runway ahead of us for growth, share capture, expansion of addressable markets, and capacity increases. Over the next few slides, I'll talk about our strategy to achieve this.
Alan will talk more about this later, but we have refined our strategy by exiting non-core fiber and CanExel product lines and reconfiguring how we will account for any future OSB production in our siding mills. Our strategy is to focus on the core SmartSide product line. These strong growth numbers are a direct result of our relentless focus on meeting the needs of our customers. Our broad, diversified portfolio of products, including lap and panel siding, trim, soffit, and shakes, and most recently, our smooth and pre-finished offerings, were developed for growth and our customers' needs in mind. What sets SmartSide apart is its long and lasting durability, appearance, and hassle-free installation, which gives our builders and remodelers confidence in our products and homeowners the peace of mind in their investments.
The continued growth we've seen reflects the impact of our siding strategy, which utilizes a segment-based approach. For each market segment, from repair and remodel contractors to home builders and outdoor building fabricators, and always with the homeowner in mind, we leverage highly tailored marketing, innovation, and go-to-market support to reach and resonate with our target audiences. For marketing, we are focused on increasing user product adoption. For innovation, we are focused on delivering high-value new products that give us access to new markets. And our go-to-market strategy is focused on expanding product availability. Innovation is central to our business, and we have had several major new product launches over the past several years. Our innovation team has been empowered to deliver meaningful future revenue growth. The market fundamentals and segment growth drivers remain strong, and we expect to see continued runway for growth for many years to come.
Okay, let me orient you to this slide. On the left, we show that currently, engineered wood siding, where we have over 90% share, is 6% of the total siding and trim markets. On the right, we show that total siding and trim market is about $11 billion, while our addressable market is a little over $6 billion and approximate 12% share. Our products are taking greater share of the addressable market, primarily against vinyl, whose share has dropped from 50% to 19% over the last couple of decades. Although we don't include brick in our addressable market calculations right now, we are taking share in that market due to its high cost and longer install times. We believe that the overall siding and trim market, as well as our addressable market, has and will continue to grow.
We have increased our market-facing investments over the past several years and will continue to do so because the SmartSide brand is still not as widely known as it should be. The next few slides will take a closer look at how we go to market in each of our segments. We take a consistent approach for all of them by identifying the customer's needs, their pain points, and then determining how LP can best help them succeed. Let's talk about repair and remodel first. We estimate that we have 7% share of the total repair and remodel market and 10% share of our current addressable market with a long runway for growth. The primary customer in the repair and remodel segment is the remodeling contractor, and that remodeling contractor has three primary needs. They want durable products that are quick and easy to install.
They want help in growing their business, and they want help with products that they can access whenever and wherever they are needed. We are working hard to make sure that we deliver what remodeling contractors need by providing durable products that are quick and easy to install. Our products are lightweight and work and cut like traditional wood, but are more durable than competing products. Combine that with our 16-foot lengths, and you'll find that the speed of installation noticeably increases. In fact, we recently commissioned a study from an objective third-party resource that shows that SmartSide installs 22% faster than fiber cement. With the launch of ExpertFinish siding and trim this year, we now offer our products in a variety of pre-painted color options, eliminating painting time at the job site while providing the beautiful aesthetic that homeowners demand.
I mentioned earlier that contractors are also looking to grow their business and ensure their customers, the homeowners, are satisfied. To do this, they must grow their brand and reputation while consistently delivering on projects. LP helps with both by offering comprehensive product and installation training, as well as marketing and lead generation support. We significantly increased our investments in online marketing to build homeowner awareness and generate leads for contractors throughout Build Smart loyalty program. We're also investing in online training to complement in-person trainings, which has been especially valuable during the pandemic. We are also expanding access to our products by deepening our partnerships with key dealers and retailers who service remodeling contractors. Retail stores like The Home Depot, Lowe's, and Menards are key shopping destinations for contractors and have seen a boom during COVID.
Our already strong presence with the retailers put us in the right place at the right time to benefit from increased foot traffic and expose our range of products to a wider customer base. In fact, we have expanded the products offered in these stores beyond just panels to include lap, trim, and other products that provide more of a whole-house solution. Our recent investment to improve our in-store and online presence at retail has succeeded to the point where we are the number one searched siding brand on the Home Depot's website. Another key destination for remodeling contractors is the one-stepper, also known as the wholesale distributor. One-steppers such as ABC Supply and Beacon specialize in selling job lot quantities of siding, roofing, and windows, and other exterior accessories.
We are actively expanding the SmartSide product stock at one-steppers, in particular our pre-finished product, ExpertFinish siding and trim, and partnering with these key dealers to convert more contractors to SmartSide products. Turning to builders next. Like repair and remodel, we have low penetration with builders and estimate our share of the addressable portion of this segment to be 13%. Builders want to grow their businesses and their reputations, and we help them do both, especially in a market where labor is constrained and efficiency becomes more important than ever. Just like R&R contractors, builders also value the ease of product installation and industry-leading warranties. But for builders, the primary focus is product quality and fewer callbacks. In order to provide builders with a portfolio that meets their needs, we've launched new products such as SmartSide smooth siding and trim, ExpertFinish pre-finished siding and trim, and strand shakes.
We will be launching additional products focused on this segment over the next couple of years. These products will provide builders with the aesthetics that customers want and the durability they need. Beyond the advantages of the product itself, we partner with builders to promote both their brand and LP's, which leads to increased awareness and adoption. Historically, our focus has been on the small to medium-sized builders. Big builders expect a relationship with manufacturers, and we take a one-LP approach and have structured our national accounts team to provide focused support for the big builder across our OSB and siding segments. We are also working to optimize our supply chain to ensure best-in-class service for builders and the pro dealers who supply them.
We don't have the same market share with the biggest builders that we have with smaller and mid-sized builders, but we view this as a significant growth area. Finally, let's look at outdoor building segments. LP did not fully participate in this market until we started to develop high-performing, aesthetically appealing products specially designed for sheds with industry-leading warranties. Now we are the category leader with a 17% share of the $1 billion markets, a great example of how innovation drives growth by expanding our addressable markets. Outdoor building fabricators want to remain competitive in a growing market and increase traffic at their dealer's lots. To do this, they want dealers to receive the training and marketing support they need to help drive sales. LP delivers across the board, offering point-of-sale merchandising, comprehensive training, and hyper-local digital marketing campaigns to drive sales.
We are also investing in the segment by augmenting our LP sales force with sales and merchandising support for shed dealers from a third party, which is a well-known and respected resource for the building supply chain. I mentioned how our retail strategy helped position us to benefit from increased retail traffic. Everybody on the call is undoubtedly aware of the huge growth in sales at retail stores during the COVID-19 pandemic. Our strategic partnership with retailers like The Home Depot and Lowe's has been critical to our results so far this year. In conjunction with exiting our fiber product line, we launched a new multi-use strand panel at Lowe's that's perfect for a multitude of projects: doghouses, chicken coops, planter boxes, garage interior liners, and more. We recently expanded our offering at The Home Depot to include our SmartSide panel with SilverTech.
This product features a finish-grade radiant barrier to help reduce the sun's radiant energy through the panels. It's an ideal choice for sheds and workshops that helps keep stored items cooler while brightening the interior. As people spend more time at home during the COVID-19 pandemic, we've seen strong growth in this segment and expect to see that continue as homeowners look to expand their living and working space by using outdoor buildings for offices, extended work, and play spaces and storage. LP has the products and the sales and marketing support to continue to grow in this segment. This slide shows where our products are being used. Green is good, and yellow and red are opportunities for future growth. Our high-volume regions include the central part of the U.S., Colorado, Texas, and the West Coast.
Partnering with our OSB business, who has a strong presence with wood product dealers in the southeastern Mid-Atlantic, we are growing our business in that region. In fact, our sales in the Mid-Atlantic region are up greater than 70% this year. With the introduction of our ExpertFinish smooth and smooth product lines and through new distribution partnership in the area, we are focused on taking share in the Northeast U.S. We have built a great brand over time by delivering high-performing and durable products. But the secret ingredient to our success is our people. We have over 2,000 LP SmartSide team members who come to work every day with one goal in mind, and that is to make and deliver a high-quality product and experience for our customers.
For this presentation, I'm going to highlight the associates who make that happen on the front lines, our sales, marketing, and product innovation teams. Our field sales team members are strategically located across the U.S. and Canada with a focus on gaining share with builders and contractors and then pulling that business through the channel. We also have an all-star national accounts team that drives product placement for the large national builders, pro dealers, and retailers. The entire sales team is supported by our customer service and technical sales teams who provide technical support and installation training to ensure customer satisfaction from the initial purchase order to the final finishing touches at the job site. Our marketing team is focused on building brand awareness and positive sentiments with professional builders, contractors, and the homeowners who are interested in working with them to build or remodel their homes.
Our product innovation team has arguably the most important job, especially when it comes to future growth. This team is exclusively focused on bringing new products to market that enhance LP's reputation for offering high-quality products that are easy to install and provide long-lasting durability. These teams work together to identify the needs of our customers and figure out where we can apply value for each stakeholder in the buying process, and it's through that collaboration and dedication that we can deliver quality products and experiences for our customers, which we believe is the real driver of our success. Next, let's talk about our siding segments, operations, and capacity. Our six primary production facilities are strategically placed near aspen forests, which we use to make SmartSide. These tend to be in the north-central and northeastern parts of the U.S. and throughout Canada.
By contrast, our ExpertFinish facilities are located in markets they serve. We are currently in Wisconsin, North Carolina, and Illinois with future growth plans for the Northeast. We operate our mills as a network, so we utilize third-party warehousers and distributors to deploy product in the markets. As I touched on earlier, we have been increasing capacity to meet the strong demand for our products. We have converted two OSB mills to siding since 2016, increasing our annual capacity to almost 1.7 billion sq ft. Our planning team is well underway on evaluating the next siding mill. Expansion options include adding a line to an existing siding mill, converting a currently operating mill in an Aspen wood basket, or converting and starting our currently idle sites in Quebec and Minnesota. We expect to announce the next mill location early next year.
We have a long runway of capacity expansions ahead of us. We could almost double our SmartSide capacity in the next several years as demand continues to grow, even without acquiring new facilities. To summarize, we continue to be excited about the progress we've made in siding. This is now a business of scale with a long runway for growth, both in top-line revenue and in margin. Alan will discuss the significance of that later. LP SmartSide has a strong reputation as a superior, high-performance product with industry-leading warranties. That is the foundation upon which everything else is built. We see significant room to gain brand awareness and market share in all market segments, and we are investing to drive growth and ensure that we have the capacity to support that growth. As I wrap up today, let me say again that our most important asset is our people.
I am proud of the entrepreneurial spirit and can-do attitude of our employees. By innovating new products, expanding addressable markets, and developing deeper and more strategic relationships with our customers, they are truly the driving force behind our growth and success. Thank you for your time and attention today, and with that, we will be glad to answer any questions that you may have.
Okay, so we have several questions that have come via the text function of the interface, and we're starting to see some questions coming into the queue for the Q&A as well, so in no particular order, let's just sort of bounce back and forth between the two, so the first question is from the text feature, and I'll paraphrase. So, you gave current market shares by category. Do you think about targets for specific shares within those categories?
At this point, we don't have specific targets because the long runway for growth is large. We generally, the target that we're talking about is by 2025 exceeding 2 billion sq ft of product sold in the marketplace, and we don't differentiate between the different segments that we s ell in.
Okay, next question also from online is the Northeast has been a challenge for LP for some time, including siding, perhaps because of the smooth, also a higher proportion of custom and small builders. Can you tell us about our strategy for penetrating the Northeast going forward?
So, we recently just brought on a second distributor in the Northeast to complement the great primary distributor that we have in the Northeast, and we anticipate launching our ExpertFinish smooth siding and trim product line in the Northeast towards the latter portion of this year and early into next year, complemented with our smooth product line. We have also added and will be adding additional boots on the ground in the Northeast to ensure that our brand is more widely known and to pull that product through the channel.
Okay, great. Operator, let's take the questions waiting in queue over the phone, please.
Thank you. We have a question from Mark Weintraub with Seaport Global. Your line is open.
Thank you. One question: so you mentioned that you would share with us probably early next year a next potential conversion opportunity or expansion in siding.
Given that we saw a lot of strength in siding volumes in the third quarter based on the preliminary numbers you provided, do you need to have more capacity in place to meet what you would anticipate demand to be next year, or is your existing footprint enough to meet realistic demand for next year in siding?
Mark, thanks. We do believe that existing footprints should be able to meet the needs for next year. However, moving into 2022, we believe that we will need an additional mill at that time.
Okay, I'll slip back into queue because I'm sure lots of people have some questions.
Thanks, Mark. Operator, we'll take the next phone question, please.
Our next question comes from Ketan Mamtora with BMO Capital Markets. Your line is open.
Good morning. Thanks for taking my question.
First, Neil, maybe just talk a little bit about how big is the smooth product and the pre-finished siding, maybe as a percentage of your current siding, either volumes or sales, and how much do you expect it to be, let's say, over the next two or three years? And maybe also touch upon kind of what it does to your margin profile as you sell more sort of ExpertFinish and smooth products.
Yeah, thanks, Ketan. So, just in terms of percentages of smooth and ExpertFinish to the total base volume that we're selling, it's a small percentage right now. It's less than 5%. And those are the products that we're going to be spending the majority of our time focused on as we move through the next couple of years to expand their proliferation.
We have the capacity to support significant expansion of both our smooth and ExpertFinish product lines. And then I think your second question was about margin expansion. Yes, with ExpertFinish, you will get margin expansion. At the rates that we're selling ExpertFinish now, it's pretty hard to see that expansion, but over the next couple of years, you will certainly start to see that margin expansion.
Sorry, sorry, go ahead, Ketan.
No, that's fine. I'll jump back into queue.
Sorry, Ketan. So, we have an online question that's on the same theme, so I'll add that as a follow-up. And the question is, what % of siding volume is currently pre-finished, and where do you think that can grow to?
So, the percentage of siding volume that's pre-finished right now is probably 1% or less, and we are thinking that we can grow it to 30% or so of our portfolio.
Okay, thanks. The next online question is, you mentioned that historically the revenue growth has been roughly 4 to 1 volume to price on a trailing 12-month basis. Do you anticipate any change in that ratio going forward, and if so, what might drive that?
That's a good question. I would say that our focus is volume growth because with low single-digit pricing growth, with the volume growth that you get, you get great expansion of revenue. So, volume growth is our focus area, and I see that being the focus area as we move forward.
As we mentioned earlier in the presentation, we do do price adjustments in siding on an annual basis, and those adjustments are generally in the 2%-4% range.
Okay, one more online question, and then we'll go back to the phones. Can you give a little bit more detail on sort of the decision criteria or the factors that might influence the location or the parameters of a next siding mill as we think about expansion?
Yes, so the number one priority around that is a rich Aspen wood basket. That's the area that we focus on primarily. A second area that we focus on is obviously the employees, and converting an existing mill is a lot easier than bringing a mill up from scratch. So, I would say wood and an operating mill certainly are two of the highest criteria.
Because we use a network of third-party warehouses and distributors to deploy our products, we are somewhat agnostic as to the location of that facility, and we've got several that we're looking at right now.
Okay, Operator, let's go back to the phones, please.
We have a question from John Babcock with Bank of America. Your line is open.
Hey, good morning. Just want to quickly mention, I guess, so it looked like you did pretty well in siding this last quarter, and I was just wondering where you've kind of seen the most growth lately across these different channels, whether it's with the builders, the repair model, or the sheds. Just want to get a sense on that.
Yes, so I would say in the last quarter, there has been strong demand for our products across all of the segments.
We did see a shift in our mix to shed and retail just because at the beginning part of the quarter, those were the channels that were free to operate. So, there's been a little bit of a shift in our panel products to shed and retail, but th ere's been strong demand across all of the channels, John.
Okay. Thank you. Our next question is a follow-up from Mark Weintraub with Seaport Global. Your line is open.
Thank you. Also, I think historically you've talked about 20% or 20% plus type EBITDA margins. It seems that in the just ended quarter in particular, you've done substantially better than that. Is that 20% a number that merits reconsidering, or is it just that this quarter, and frankly, year to date, has been somewhat exceptional? Maybe some more color on that would be helpful.
Mark, I would say we're always looking at the guidance that we're giving. In Q3, we have operated our mills at full capacity, so we're running at full capacity. Our input costs have been lower than they have been normally, which is certainly helping with the EBITDA margin. And those are two pretty big major factors that are driving higher margins in Q3. But as we move forward, I would say that a plus 20% EBITDA margin goal is certainly something that we could achieve going forward.
Yeah, let's put it this way. It's certainly becoming a softer target to hit 20%. Bear in mind, this is a quarter without any sort of mill conversion inefficiencies. As Neil said, we're running very efficiently right now with high volumes.
So, yeah, but these factors and all the other things that Neil has discussed are kind of bringing up that, let's call it that, average projected margin for the future.
Thank you.
We have another follow-up from Ketan Mamtora with BMO Capital Markets. Your line is open.
Thank you. Neil, can you talk a little bit about some of the other products that you've got in the pipeline in addition to the pre-finished and smooth that we've talked about, whether it's sort of on the anything to do with the fire resistance or anything on the fencing side that could be coming over the next few yea rs?
Yeah, thanks, Ketan. So, we have a pretty robust, what I would call, pipeline of products that are sitting with our innovation team right now. We recently completed ideation sessions with numerous parties, both internal and external, and have a pretty robust pipeline.
What we tend to work on, or the way that we work with our innovation team, is generally we want them working on several near-in, what I would call, product extensions or products that would enhance what we already have. And then we've also got what we call significant product innovations that are pretty much out there two years from now, five years from now. I would say fire is a perfect example where there are technologies out there that we could utilize, but they're very, very expensive. And so what our product development teams are working to do is to figure out how we could bring more cost-effective solutions to the marketplace. We are targeting what I would call a fighter brand product that we could focus on the big builder segments that we hope to launch some point next year, and that'll be a pretty big innovation launch.
We've got an innovation strategy that includes a lot of different products. And then the other thing that I'll talk about is, since we have shut down our fiber production lines, we are actively working to convert some of those fiber SKUs that we did not have in our strand portfolio to strand products as well.
Operator, it looks like we've got another call online, another question from the phone.
Yes, we have one from Paul Quinn with RBC Capital Markets. Your line is open.
Yeah, thanks very much. Morning, guys. I think you mentioned that pre-finishing is only 1% now, which implies like 17 million sq ft. Just wondering how you're going to get to that goal of 30%. What's the timeline on that?
We have not set a timeline on getting to the 30%.
Our expert finish launch has been limited to the Midwest and North Central part of the United States right now. We will expand to the Northeast, as I mentioned earlier, later this year and early into next year, and then we'll follow up with quick expansions into the Southeast and Mid-Atlantic, and we're also talking about a soft launch into the Western part of the United States at some point next year, so we're just getting started, Paul, on this, but we're looking to rapidly ramp up the product line. I may have misquoted the percentage if you did the math to be what you did the math to be, which is more accurate. We are selling about double that volume right now, but it's still a very small percentage.
Okay, thanks very much.
We've got a couple of online questions that are similar enough that I'm going to basically combine them. And the thrust of the questions is about the importance of Aspen to siding production and whether we see any risks to Aspen availability, such as, for example, if there were an Aspen analog to the Western pine beetle or something like that that threatened that species availability, what our options might be were something like that to occur.
So, near term, we do not see any issues with the Aspen wood baskets that we operate in or the wood baskets that we're looking at. Like Nicole said, they're a self-generating tree. A lot of our wood baskets are heavily loaded with wood right now and have a long runway of usage.
Our foresters are constantly looking for different places to access wood, and we have active programs looking at whether we could use alternate species, but for right now, aspen is the wood species that we're most comfortable using.
Okay, we have one more question online, and that is, as we get positive mix shift with more pre-finish, what do we expect about EBITDA margins and growth thereof relative to fiber cement competitors? And all will fundamentally say on that that the first of the question is, will that push margins up? And all other things being equal, yes, they will. Okay. Okay, at this point, we have a few questions that are coming online that are more OSB specific. We will absolutely get to those. But what we're going to do next is transition to the OSB presentation.
We will, of course, resume Q&A when we're done with that, and we'll get back to those OSB specific questions in a few minutes. At this point, I will introduce Jason Ringblum, the EVP and general manager for the OSB business.
Good morning, everyone. Before I get started, I just wanted to take a moment to thank all of you for attending today's webinar. We've been looking forward to this opportunity to share our strategy with you in hopes that you find it as exciting as we do here at LP. I thought I'd share a little bit of background on myself. My name is Jason Ringblum, and I'm the general manager of LP's OSB business. I began my career with LP in the summer of 2004 after earning a degree from the University of Minnesota.
I started as an entry-level sales rep and from there earned opportunities to lead a variety of sales, marketing, and supply chain teams leading up to January of 2017 when I became GM of OSB. Having spent the majority of my career in the market, I must say that I'm more excited than ever before about our growth strategy, specifically the role of innovation and how the breadth of our specialty product offering is going to create value for our customers and shareholders in the coming year. So, with that as a quick introduction, I plan to jump right into my presentation, which will include a brief overview of the business and the market that we play in, along with a review of our strategy and why we're excited about OSB at LP.
Given that some of you are new to LP, I thought I would provide a brief summary of our operating footprint and talk a little bit about the addressable market for OSB. We have a national footprint that includes nine OSB plants that are capable of producing 4.5 billion feet on an annual basis. If you look at the map, you'll notice a blue circle. That indicates the location of our Peace Valley, British Columbia facility. As Aaron mentioned earlier, we indefinitely curtailed production in July of 2019 due to weak demand. Peace is the largest OSB plant in our network with an annual capacity of 800 million feet. Currently, we're keeping this mill warm and ready to come back online when the market demand is sufficient to support a mill of its size. I'll talk a little bit more about this later in the presentation.
Getting back to the market, today we play in a 23 billion sq ft market segment and estimate our market share to be roughly 16%. This chart here was produced by Forest Economic Advisors, and it provides a little bit more of a granular view of the end-use market segments for OSB in North America. We've positioned our portfolio in a way that allows us to play in all of these market segments. That being said, though, you'll notice that single-family new construction is more than two times the size of the next largest segment, and it's also forecasted to grow faster than all other market segments over the next two years. We see this as important for a couple of reasons. First, a single-family housing start consumes roughly three times the volume of a multi-family housing start.
A greater proportion of single-family starts relative to multi-family starts simply means more OSB demand. The second is a little bit more exciting, though. And I say that because the majority of our specialty products are what we call our Structural Solutions line, are catered to the single-family market segment. This includes products like LP TechShield, LP FlameBlock, LP Legacy Flooring, LP WeatherLogic, and a host of other products that contribute higher and more consistent margins to the business. And to promote these products, we have one of the largest field sales teams in the industry calling on end users and key influencers. As Neil mentioned, this team, along with our broad product portfolio, is a competitive advantage for LP and a primary reason we're confident in our ability to deliver on our growth strategy. From here on out, I plan to talk more about strategy.
From a market-facing perspective, we're focused on diversification, both from a product and a customer mix standpoint. Our channel strategy provides us strong access to all of the end-use segments that I touched on earlier, and again, our diverse product mix is what makes us unique and relevant to our customers. Not only do we make higher, more consistent margins on these products, but we believe the diversity of our offering provides us options to improve the overall utilization rate of our plants through a traditional housing cycle. Additionally, through our growth and innovation efforts, we've brought new products to market like LP FlameBlock, LP Legacy, and LP WeatherLogic in recent years that have allowed us to grow our structural solutions volume to 44% of our portfolio, which is up 20 points versus 10 years ago.
Building off the point I made on the last slide, I thought I would spend a little bit of time talking about asset utilization, specifically how we balance growing our Structural Solutions portfolio while matching capacity to demand on the commodity side of the business. At the end of the day, it's really not that complex. However, I'll admit it's a bit more art than science, and to put it simply, we at LP emphasize a market-backed approach, primarily listening and getting feedback from our customers, which in turn informs the operating strategy needed to service LP demand. Our main focus when matching capacity to demand is to isolate the downtime to our least efficient plants. To illustrate this, I ask you to draw your attention to the table that shows a side-by-side comparison of our 2015 and 2019 results.
Here, you'll notice a material difference in our performance at two separate low points within the cycle. From an operating perspective, the main difference is that we isolated our downtime to Peace Valley in 2019 rather than spreading the downtime across a handful of plants. This allowed us to get more cost out of our network while running the remainder of our plants closer to full capacity. The second point I'll mention on this slide is that the growth of our total price spread versus commodity. This change is evidenced in our sales mix changing more to specialty and less commodity, which was also a contributing factor to the improved performance between these two years. So, I've talked a little bit about how we manage capacity and what we do to optimize our network.
With that as the backdrop, now is a good time to review our OEE strategy, which simply put is an all-hands-on-deck initiative to improve efficiency at our plants. Our OEE formula factors in uptime, production rate, and quality. This is an initiative we began in 2015 and doubled down on in 2017. We're on track to improve our performance by more than 10 points since this initiative began. And this has allowed us to reduce our fixed cost of production by more than 10% since 2015. It has also opened up new capacity that is comparable to a mid-size OSB plant. I think also this initiative illustrates the emphasis that we put on continuous improvement at LP and what we're doing on purpose to drive focus on the controllable in this business.
This next chart really shows the impact of our strategy, particularly at the bottom of market cycles in this business. The continuous improvement is evident in the way we are managing cost, which is essentially flat over the past 10 years with a much richer mix of products in the portfolio that costs more to produce. The results show a steady rate of improvement at the low points in the cycle, and in 2019, our decision to curtail Peace Valley and isolate our downtime to a single plant was critical to staying in the black. Our decision to bring this facility back online will ultimately be dependent on demand and not price, so when might it make sense? At the end of the day, we need to be confident that demand over a two to three-year horizon will be sufficient to consume an incremental 800 million feet of capacity.
And for those of you new to the industry, a general rule of thumb is that 100,000 housing starts essentially equates to approximately 1 billion feet of demand, all else equal. The bottom line here is, given the number of variables in play coupled with the investments required to ramp up the plant, is that we need to be certain that demand can support a facility of this size before we make the call. So, in closing, why should you be excited? Brad said it at the beginning, and I'll reinforce his point on the housing demographics, which are likely to strengthen demand for OSB over the next several years. Secondly, while it may be tempting to look at OSB as a moment-to-moment commodity price play, I challenge you to look at this business over a rolling three- to five-year cycle.
Additionally, because of our focus on those things within our control, this business is no longer a so-called boom and bust business. Over the past five years, we've demonstrated the earnings potential of this business by generating more than $1.4 billion of EBITDA. Our OSB business is different today because of our disciplined capacity management and the actions we've taken to grow our specialty mix and relentlessly manage cost. So, with that, that's all I have on our OSB business for today. Again, I thank you for your time and attention this morning, and I'll open it up to the call for questions.
Okay. Thank you, Jason. We're going to, again, go online as questions begin to file into the queue, and then we'll go to the callers. First, there's a question related to ESG that I didn't get to earlier, so I want to get to that. And the question is, what % of how much of our energy consumption is generated through biomass? And so the answer on that one is, it depends how you draw the distinction between thermal energy or electrical energy. And so first, I'll say we're sort of in the process of quantifying that right now. The significant majority of the thermal energy that we use for heating the press, thermal oil to cure the resins in the press, is generated with biomass. I believe only one of our mills actually has an electrical cogen capability.
The bulk of our electrical energy is not generated by the biomass processes that we described earlier. As I said before, we're in the process of quantifying that. As we gain clarity on that, we'll share more details on that going forward. The next question I have online is, in reference to order file duration, if we say that we have a, say, three-week order file, what does that mean about the prices at which we book open market orders taken this week for delivery three weeks from now? If you could talk about that a bit, Jason.
Yeah. So, as Aaron mentioned earlier, we tend to manage to a two- to three-week order file. We don't like to get out beyond that just due to our desire to ship on time and keep our order files fairly tight, make sure our customers know we're keeping product available for them. But typically, when going out two to three weeks, we're pricing above Random Lengths. Whatever price we sell at ultimately will be realized at the time of shipment, which may be different than what Random Lengths is priced at at that time, depending if the market appreciates or falls during that period of time.
Okay. Next question online is, how has LP's OSB volume mix between contract and open market changed over time? And what does it typically look like in a strong market versus a weak market?
Good question. I would say, generally speaking, over the last 10 years or so, we try to target roughly that 60%-70% of capacity committed. That hasn't changed dramatically. But what has changed with the mixed profile of the business changing is we're committing a greater amount of Structural Solutions to contract versus commodity. So that's the main shift in our committed volume program that's taken place over the last 10 years or so.
Okay. Next online question. With current prices in the $700 range and improved industry capital discipline and positive housing backdrop, do you think this is going to create a structural increase in the long-term normalized price? Or what do you think the next cycle, if you will, is going to look like?
It's a great question. I think six months ago, my answer to that might be different than it was today. I mean, the reality is most housing forecasts were calling for levels 1.2, 1.25 back in April and May, and that's changed significantly. So I'm not going to predict what the future holds, but I would say we feel very optimistic about the long-term housing demographics and what that means for OSB demand going forward, so.
Yeah. This is Brad. Add to Jason's answer. The thing that we could control going forward is the way we operate. And as Jason has outlined and the job Jason has done the last three years, we do plan to operate with discipline, matching our production to our order file. And really, when you look at long-term, what price is going to do, it's really dependent on how the industry operates. And we really don't have any insight to what other operators might choose to do in the future. But for LP, we will continue to be focused on matching our capacity to the realizable demand in the moment.
One last question online, then we'll go to the phones. Given the rule of thumb about 100,000 starts being about a billion feet and the three to one for single-family and multifamily, what do you think total industry consumption looks like at 1.5 million housing starts? And what does that say about capacity utilization?
Yeah. 1.5 million, I would say, will be in the mid to upper 90s. And there's a high probability that the capacity that came offline in 2019 would be needed at that point to service demand at that level.
Okay. Operator, we'll go to the phones now, please.
We have a question from George Staphos with Bank of America. Your line is open.
Hi. Thank you for taking my question. Thanks for the presentation, Jason. My question actually is a good segue from that last online question. When we consider, on the one hand, the potential for a greater number of starter homes for the first-time buyer coming into the market relative to, in a post-COVID world, we're adding new features, offices, greater amount of space for people working and sheltering in place, what do you think the long-term OSB consumption per single-family start might look at relative to that thought you gave on the 1.5 million start number? And my other question, I'll turn it over.
When we think about Peace Valley, recognizing that fiber and location are key drivers of the cost position and, in turn, when you might bring that back on or the considerations in terms of when you bring that on, are there any things that you could do to improve the cost position in the interim that would then, in turn, trigger when Peace Valley might be able to come back on? Thank you for taking the question.
Thanks, George. I appreciate the questions. In terms of the first one, in regards to long-term consumption of OSB, especially with a shift in mix to more single-family starter homes, I would say, generally speaking, that shift is going to increase demand for OSB just given that the proportion of single-family starts relative to multifamily is going to grow. So we see that as a positive just given that 3X the volumes used on single-family versus multifamily. So I hope that answers your question. I guess the second one on Peace Valley, since we made the decision to indefinitely curtail that plant back in July of 2019, we've kept the facility warm and in good shape. We've had a crew of about 15 key employees there really putting together a plan to make that facility competitive longer term.
So we feel like we're in good shape there from a planning and cost perspective. But ultimately, at the end of the day, it's really the demand picture that's going to determine the timing of a restart and ramp-up rather than our cost position. We believe our cost position can be very comparable to the rest of our network.
Hey, Jason, my question was really more on the consumption per single-family start, how that might change over time. Thanks. Sorry for double-dipping. I just want to clarify.
So, George, this is Aaron. If your question is related to an increase or decrease in size of a single-family home or changes of preference about rural versus urban or work-from-home, outdoor buildings, things like that, any trend that increases the size of a home is going to increase the size of OSB. Any trend towards single-family away from multifamily, of course, is going to increase that. We've heard some anecdotal evidence about an increase in shed building and similar R&R-type projects to enable things like working from home or multi-generational living, things like that in response to the pandemic. Basically, anything like that that drives either the building of additional space on an existing home or the addition of an outdoor building to convert to an office, anything like that could increase consumption in OSB.
But I would say, in terms of size, the average size of a single-family home has varied within about a 5% or 6% range for years. So given all the other variables in the market, a per-square-foot home size increase is unlikely to really show up. What will show up dramatically is an increase in the mix of single-family homes and an increase in R&R activity designed to change the size and/or function of a home in response to what's going on right now in the world. Does that answer your question, George?
Very clear. Thank you very much.
Great. Thanks.
Our next question comes from Mark Connelly with Stephens. Your line is open.
Thanks. I want to go back to your comment about this no longer being a boom and bust business, and I certainly agree. But the volatility of OSB prices remains the key reason for the high volatility in the stock. We've certainly seen better supply management in the last couple of years, dramatically better, including your own. But we still see these periods of extraordinary price volatility. So how do you think about that price volatility given the change in behavior? And do you think that that can be overcome? I'm also curious, do you think that this current spike is different enough from the previous spikes that we should be thinking setting this one aside?
I think we'll cover some of that when we discuss financial strategy later, and to the extent that we don't, could I ask that we save that question to the final Q&A session, and we'll certainly attempt to answer it then?
Okay.
Thank you.
And we have a question from Mark Weintraub with Seaport Global. Your line is open.
Thank you. Just coming back to Peace Valley for a second. I apologize. The slide zipped by pretty fast, but I thought I saw towards the bottom that it would take six-to-nine months to build the wood decks effectively. Did I read that right? And does that mean that, basically, if you were to make a decision to move forward Peace Valley, let's say January 1st, that realistically it would be six or nine months? And I realize, actually, that might be a problem given time of year. But let me ask the question differently. How long will it take you to actually get Peace Valley up and running after you've made a decision to hit the button to go forward?
Thanks, Mark. Appreciate the question. Yes. I would say, generally speaking, from the time we make the decision, it's going to be a six- to nine-month period of time before we start producing first board. That incorporates building up the log deck, executing the capital and maintenance required, and also staffing the facility to the scale we mentioned on that slide, 175 folks for full capacity.
And so, in the interim, if demand, let's say, it doesn't get strong enough to justify this type of an expansion, but it's a bit stronger than perhaps where you had been at one point anticipating, do you have the ability to make additional OSB in, obviously, much smaller increments at some of your other existing facilities, and in particular at Houlton where, I guess, there's the interplay with the LSL business? Any color you can share on those types of options?
Yeah. So the primary option today would be Houlton, as you mentioned. So that facility, first and foremost, is there to supply LSL, but any available capacity, we're producing OSB today. I would also say, to your question, our focus is really on driving efficiency and building upon our momentum in OEE. And for each point we improve, it ultimately equals about 40 million feet annually. So that's really our opportunity to increase capacity in the short term.
Thank you.
We have a question from Paul Quinn with RBC. Your line is open.
Just relative to Peace Valley here, given that the vast majority of logging happens in the October to March timeframe up in Fort St. John, just wondering if you intend to log over the winter this year?
No. At this point, we have not made a decision or intend to log during the winter.
Doesn't that suggest that you can't bring that mill up in 2021 then?
Yeah. So this is Paul, right? Yeah.
Yes.
So, Paul, we do have some options that we're looking at. So, when we indefinitely curtailed that plant back in July of 2019, we did have a fair amount of logs still in the bush, and those remained there. So, there's some options in play that would allow us to ramp up the facility quicker than the point you just alluded to. And those are all things that we're in the process of analyzing in the current moment.
All right. Tough questions. Thanks, guys.
Thank you. And we have a question from Ketan Mamtora with BMO Capital Markets. Your line is open.
Thank you. I'm just curious, how much room do you have at your existing mills with the OEE initiative to kind of increase production without any big capital investments? Is there sort of an increment? Can you add sort of 2, 3, 4% every year at some of the mills to increase production?
Thanks, Ketan. Good question. So I think when it comes to our OEE initiative, back in 2017, we basically committed to delivering 90% OEE over the next four years. So by 2021, our goal is 90% for the business, and we're well on our way to delivering on that commitment. Now, I think with any continuous improvement initiative, you find new opportunities along the journey. And that is something that we are uncovering every day. So I think in the fairly near term, we'll be looking at what the next bar is for OEE in the business. And I don't think there's going to be tremendous capital required to get to 91% or 93% because some mills have demonstrated the ability to already get there. So I think there's reasonable upside given what we've achieved over the past three years since doubling down on our OEE strategy.
Got it. Thank you.
Okay. We've got a couple more text questions that basically are still related to Peace Valley, so I'll sort of combine them into a single thought. And that is because they're both related to sort of volume and time under various assumptions. So I think the way we can kind of capture the spirit of both of these questions would be to say, imagine that we decided today, and this is, of course, a hypothetical, but imagine if we decided today to restart Peace Valley. Roughly, how much volume would we expect? Oh, excuse me, I'll phrase. I think one of the phone lines is open.
Thanks.
That's got it. Thanks. So assuming we make the decision today and it takes about the same timeframe that you talked about, talk about the ramp-up and sort of roughly volume expectations over intermediate term as that mill comes back up?
So assume we made the decision today. Okay.
So we're essentially late September. I think the soonest we would be able to ramp up that facility would be early Q1, assuming that we could execute the capital and maintenance required to get the plant up and hire an hourly workforce that could get us some sort of production. And I would say probably start up on one or two shifts, and that would allow us to utilize some of those logs in the bush that I alluded to earlier. That would be the quickest time period we could execute a ramp-up plan for Peace Valley. But again, we would run into issues with logs on a full capacity, so that would not be achievable.
Okay. Thank you. I believe that's all the questions that we have either online or over the phone. So we're going to go to the next section, and I will reintroduce Brad Southern, who will talk about our fully integrated off-site framing solution at Entegra.
Thanks, Aaron. Just to remind everyone, Entegra is a LP joint venture investment in fully integrated off-site construction. And before I get into the specifics, I want to tell you about my most recent visit to Modesto, California, the site of our new plant. There, I visited the team tour of the facility. It was a few weeks ago, and I came back very encouraged and confident about Entegra and its future. But COVID hit Entegra harder than any other area of LP's business because the Bay Area basically shut down home building early in the pandemic. During this time, our customers were forced to stop building, and we were forced to stop manufacturing. We've been up—that was just a few weeks into the Modesto startup. So basically, right in the middle of startup, we had this COVID shutdown situation occur, which obviously stalled the ramp-up curve.
We've been back up and running now for several months, and the value proposition of decreased builder cycle time and increased construction labor efficiency really resonates. And much like our Siding and Structural Solutions products, once customers try the Entegra process, they like it, and they come back for more. We are seeing customers return to the order file for the second and third time. During my visit, we went to a...
Excuse me. It sounds like we have a few lines that may not be muted. I would ask everybody to please mute their lines.
Okay. During the visit, I did go to a build site. We'll show a video at the end of this section that gives you some sense of what an Entegra build looks like. There's no substitute for seeing something like this in person. When you stand and watch a crew of four to five framers and a crane as they erect a 2,500 sq ft house in a day or two, you get a feel for the transformational power of the technology. I came away from that experience more convinced than ever that this is the way homes should be built in the 21st century. The Entegra fully integrated off-site framing solution solves several problems for builders. At the forefront is labor availability and productivity.
There are many factors that contribute to constrained labor, including an aging framing workforce, immigration policies, residual effects of the housing crash, and now COVID is further complicating things by limiting the number of workers that can be on a site simultaneously in some locations. According to this McKinsey study, framing is the lowest productivity, lowest value-add component of the building process. This low productivity is exacerbating the labor constraint, and it cries out for a 21st-century solution. Standardized building components have been manufactured in factories for years. Familiar examples include floor trusses, roof trusses, and modular wall panels. Entegra is different. The Entegra process is fully customizable. Entegra is not delivering simple prefabricated modules. The Entegra process converts traditional stick frame building plans into a collection of detailed 3D models of customized wall, floor, and roof panels.
Traditional stick framing is a constant problem-solving exercise with framers adjusting plans on the fly to correct for design and construction errors in the field. At Entegra, all this happens virtually by the Entegra engineering group, resulting in a set of plans that can be reliably manufactured in our factory and efficiently assembled on-site. These plans are so precise that the location of every block, every strap, every fastener and nail is known with a high level of precision. Once the computer models are complete, they are used to drive computer-aided manufacturing processes that build the panel systems. Wall, roof, and floor panels are pre-cut to accommodate doors, windows, and HVAC. Panels are loaded onto flatbed trucks in reverse order of installation, delivered to the build site, and erected by a small crew. The trucks are timed to arrive just as needed.
As soon as the crane lifts the last panel off the truck, that truck returns to the factory, and the next load of panels takes its place. Entegra has many benefits when compared to traditional framing, but most of the value comes from increased productivity and decreased cycle time. Entegra enables a much faster build cycle. Builders can translate this time into reduced carrying costs and increased speed to revenue. The simplest example is a multifamily building, where revenue means heads and beds. The average estimated carrying cost many multifamily builders quote us is $10,000 a day. Every day, Entegra shaves from the build cycle of that building, saves the builder $10,000. Of course, faster completion means more heads and beds sooner.
For a builder of single-family homes, rather than thinking in terms of generating rental revenue sooner, this productivity can translate into more homes built in the same amount of time and more efficient scheduling of trades once framing is complete. Time and productivity are the major value drivers, but the Entegra process also enables more efficient utilization of materials, dramatically less on-site waste, meaning it is more sustainable. It's also quieter and safer, less subject to weather delays, and results in a higher quality build. Entegra's facility in Modesto, California, will be able to produce 3,000 kits annually at full capacity. Right now, the mix is about 40% multifamily, with a modularity of building and value of time optimizes the value proposition for the customer. Given the broad applicability of the Entegra process, the factory could be full with single-digit market share.
As I said, COVID-19 hit home building in the Bay Area hard, but now Entegra is helping builders regain lost time. We are working with four of the top five builders in California, and we are beginning to explore expansion opportunities in Southern California. Entegra is still very much in startup mode, but it is showing real promise. We expect to deliver about 200 kits in the third quarter of 2020, which is roughly the same amount we delivered in all of 2019. I am as confident in Entegra's future as I've ever been, and seeing is believing. If you're in the Bay Area or plan to be anytime soon, we are more than happy to arrange visits. In the meantime, I will close with this video about the process featuring Gerry McCaughey and some of the Entegra team.
Gerry is the CEO of Entegra, and there is nobody more passionate about off-site construction.
Off-site construction goes back over 50 years in my family. My dad was a carpenter and started off basically roofing houses in Ireland, emigrated to New York, discovered woodframe homes which weren't being built in Ireland at that time, went back to Ireland in the early '60s, and decided to go into home construction, building wooden frame homes. But when he went back and he decided to do it, he decided to do it out of a factory. And that became effectively the first off-site factory ever in Ireland. I'm Gerry McCaughey. I'm CEO of Entegra, and we are at Entegra's headquarters plant in Modesto, California. There's a direct correlation between the cost of something and the lack of productivity. And so you've seen house prices become more unaffordable, and at the same time, which is somewhat greatly obvious, productivity has also declined.
So to us, it is quite clear that if you want to improve the affordability of housing in the United States, you have to increase the productivity. I mean, it's just economics 101. There's so little technology being utilized inside the construction industry, despite the fact that we're now in 2020. Yet today, they say it's the industry with the least digitization in it, and yet the technology exists to build the house before it's ever built, which is what we do.
So part of my task is to meet with the architects, engineers, the trades. They take that project, and they look at all that information, and I dial it back into the guys over in Ireland, and then they produce a full 3D model of that home.
So pretty much the model is designed for this stage.
We know where every nail is in it. We know where every stud is in it. We can tell you where every screw is. We can tell you the number of nails that are in it.
He's going to be able to watch the frame come together on the model itself. So if you want to take him through that, if you have any questions, obviously, we can take him through that at the same time.
That information that we produce the digital twin from produces a set of CAM files, computer-aided manufacturing files, that go to some of the most sophisticated manufacturing equipment in the world. That's literally cutting to tolerances that are down to the millimeter. We're making walls in the factory that work to a tolerance of 2 millimeters over 10 meters, which is basically a 16th of an inch over 33 and a half feet. When we bring a house out to site and we take the average 2,500 sq ft house, we're bringing that house to plate level every single time, every single day, in six to seven hours with four guys.
The industry for us, construction as we knew it, has changed with Entegra in the sense that it's much more reliable when it comes to when we order a home, which is called a kit. That kit is going to show up on the day we ordered it, and it's going to be built in a day. What that's transpired into is that all of the other trade contractors that work behind Entegra can now also count on that house being built on that given day and can schedule their manpower accordingly, so it's worked in our favor to be more efficient across the board. It's not just we got the house built in a day. It's much more than that. It's all the other trade contractors that are part of the team behind Entegra being more efficient as well.
Most rewarding part of the process to me is watching the look on a builder's face who has used our product for the first time and just seeing the total amazement that his house is actually up in one day, and it really, I mean, I love to be on site when we're delivering the first house to a new customer just to see that look on their face.
Okay. Up next is going to be Frederick Price, who is going to discuss LP South America, so Frederick, over to you, sir.
Thank you. Hello. Welcome to LP Investor Day. My name is Frederick Price, born in Chile. I am a civil electric engineer from Universidad de Chile, and I have a degree in business and administration from Universidad de los Andes. I joined LP in 1998, and I have been the President and General Manager for LP South America since the foundation of the company. I have responsibility for all aspects of LP business and operations in South America. Today, we have three strand mills and one I-joist mill in Chile, plus one strand mill in Brazil. Our total strand capacity is around 670,000 cubic meters per year, which is around 750 million sq ft on a 3/8 basis. Our main markets are in Chile, Brazil, Argentina, Peru, and Colombia, and we export OSB to the rest of Latin America, Europe, and Asia.
My main job is to profitably grow demand for OSB and siding by accelerating the conversion from masonry to wood framing and panels for home construction in South America. Thank you. Now, let's see the presentation. We will cover LP South America business, production, and frame construction market share, and talk about growth in the last 20 years. We will use the Chilean case as a base for the future of LP in South America. Next one. LP has three mills in Chile and one mill in Brazil. We produce over 500 million cubic meters per year of strand board. Our 12-month revenue in South America is $152 million. In 2019 exchange rate, we reached $167 million. We sell all our production, and in the last 12 months, we have generated an EBITDA of $34 million. The same as 2019 exchange rate, the EBITDA will be $38.5 million.
LP South America has 780 employees. We produce APA quality OSB, textured, marked-sided family, and low-grade OSB for temporary use. Our growth strategy considers starting with commercial office first, hit the market, and when the right time related to demand, we expand with mills. Today, we have commercial office in Argentina, Peru, and Colombia. Back in the year 2000, the market share of frame construction was very small in all South America. The dominant system was masonry and concrete, with over 92% of the market. The housing deficit in South America was around 24 million units in a population of half a billion. Chile was not the exception. With a deficit of 1 million units, we started to produce strand board in Chile in June 2001.
To introduce the frame construction in Chile, we developed a marketing strategy called conversion, and we promote benefits that this new technology was bringing to the table. Among them, frame is 35% cheaper than masonry. It's 50% faster to build, higher seismic resistance at lower costs, more architectonic options at lower costs, better energy management, and many other benefits that found good reception in the market. After 20 years, the scenario in Chile changed. Now, frame construction has a market share of 45%, being framed the number one option for house building in Chile. Today, Chile consumes more than 350,000 cubic meters per year of LP strand products, and we have developed the know-how to do the conversion from masonry to frame construction, and this knowledge is starting to be exported to other South American countries.
This change was achieved in less than one generation and is an excellent example that change in conservative industry can be done with the correct technology and know-how transfer. Today, the housing deficit in Chile has dropped by half, despite the 2010 earthquake that destroyed 300,000 homes, while in the rest of South America remains the same deficit. Growth. Next one, please. Today, we are in a good position to lead the conversion process in South America. We are a strong company that generates enough resources to sustain our growth, using local finance resources to invest, and over time, we have grown a strong human team to expand the know-how to convert other markets. For South America, we are at the starting point, and Chile proved that can be done.
During the 20-year history, LP South America has a track record of almost constant growth, generating profit almost all the years. This allows us to be self-funding to finance our future growth that will be focused in other South American countries that have similar characteristics to Chile, like Peru, Colombia, and Argentina. Together with South American expansion, we are exporting products mainly from Brazil to Europe, Asia, and Central America, taking advantage of our high-quality, low-cost wood supply and good logistics to market. Export will continue while Brazilian demand grows. Looking into the future, LP can accelerate conversion by introducing home factories in the main countries. Together with Entegra, this expansion could help us to transfer new efficiency to South America, making frame construction even more competitive. Our export market will help to fulfill future mills with high-value products like SmartSide and providing flexibility to our growth.
We are in the right place at the right moment. South America has the potential to become a relevant business for LP. This story is just starting. Thank you very much.
Thank you, Frederick. Okay. At this point, we will have another question and answer session to cover both Entegra and LP South America, after which we will take a short break. Again, we'll do questions that are coming in online before we proceed to the phone. So the first question is about Entegra, and the question is whether there's a practical home size limit, either a min or a max for using the Entegra process, and can a consumer customize the build, or is there a limit? So the answer to the question is, if you can build it with stick frames, it can be built better with the Entegra process, and it can be as small or as large as any structure that can be stick framed. In terms of practicalities, there is a fixed cost involved in converting a traditional building plan into a highly precise 3D model.
And so it's not the kind of process that you would use to manufacture a single shed because the engineering cost to convert those frames for one small building would probably not be worth it. If you were going to make 1,000 such buildings, then you would only have to invest that engineering cost once, and then you could manufacture many more of them. So that could be efficient. But really, the process is just about infinitely customizable and can build anything from a small single-family custom home all the way to a large apartment building or a hotel or any other structure that can be stick framed.
Yeah. Just to, or just to grab here, adding a comment to Aaron's answer, I would say there is certainly economies of scale for builders that have repeat builds of the same floor plan. As Aaron mentioned, once we make that conversion in the engineering department, it's very easy to replicate that, even if there's minor changes in design. As far as a large custom home, Aaron correctly answered the fact that there is this one-time cost of converting a traditional plan to this 3D model. But I will say for custom builds that are time-sensitive, that the cost and time spent converting those plans over versus the amount of time saved in a complex custom home framing job can be significant. So that would be the value prop for expansion into the more customized side of the building.
But right now, our sweet spot is with multifamily and with repeatable home designs by regional and national builders.
Okay. The next online question also relates to Entegra, and that is, given transport logistics costs and things like that, is Entegra suitable for densely populated areas, or where else could it be applicable geographically?
Yeah. Certainly, it is. There are limits to how you can effectively ship this product. As you saw in the video, we are shipping a lot of air. And so we look at a two- to 300-mile radius around the facility as a kind of optimal shipping radius. That doesn't include seeding a market like we may do in Southern California. But as an ongoing business strategy, two- to 300-mile radius. So we will be—so the optimal place to plant these factories or to build these factories are near high-density areas where single-family construction and multifamily construction has a significant enough volume to justify one of these plants. And there's a lot of those regions in the U.S. for potential growth.
Next on Entegra, can you prognosticate a bit in terms of timing to scale and when we expect this to be a meaningful component of LP from an EBITDA standpoint?
Yes. So as we mentioned in the prepared remarks, we are very much in startup mode. I am encouraged by the strength of the order file that we're seeing. This was not only a plant startup, but really a business startup. And there was a lot that we had figured out over the last couple of years as it relates to key relationship framing, crews in the area, how to sell the product, how to sell the value proposition, and now we're learning how to operate the facility. So there's still a lot of learning to go. But we are, as I mentioned in the comments, beginning the planning around seeding a market in Southern California with the expectation of building a plant there, perhaps as early as beginning that process, perhaps as early as next year.
I will say what we have left to figure out. I don't believe it's the efficacy of this process and how valuable it can be to a builder. It is a highly automated and therefore, in relative terms to factory framing, fairly high capital. So we're trying to make sure that we learn the proper balance between automation and capital cost as we start replicating these facilities. I think that'll be an ongoing learning curve, but it will be important for us to understand how quickly we can get this plant ramped up to full production and what that looks like as we anticipate building a second and third facility down the road.
Okay. Thanks. The next question online is with regards to South America. Questions about code changes or other requirements necessary, particularly in Brazil, to accelerate the adoption of wood construction as opposed to masonry for residential construction. So Frederick, can you speak to that, please?
Yeah. Thank you. Brazil is a hard one. We have been working since 2008, including new codes in the system to be able to build with frame. After 10 years, we have achieved enough new codes that is already starting the change in Brazil. But indeed, we had a tough time changing codes in Brazil.
Okay. Thank you, Frederick. With that, we will go to the phone. So operator, can you please give us the first question from the phone?
We have a question from Ketan Mamtora with BMO Capital Markets. Your line's open.
Hi. I actually had a follow-up question on our previous session on OSB, if I may, Aaron.
Sure. Try it.
Go ahead. We were discussing about sort of timing of restart of Peace Valley. I'm just curious how you think about, let's say, as an example, the idle Val-d'Or mill, because as I understand, even if you want to bring that mill back up as a siding mill, you will have to produce OSB on it for a period of time. It's a smaller-sized mill versus, let's say, a Peace Valley. So how do you think about the interplay between sort of a mill like a Val-d'Or versus Peace Valley?
Good question. And look, we would, okay, hypothetically, if we make the decision and announce it early next year of Val-d'Or startup, we will start that plant up running OSB, but it would essentially be irrelevant to our larger network as far as OSB production. And so I think it would have no bearing on the timing of whether or not to start up Peace Valley. I will say maybe more interesting is keep in mind that if we start at Val-d'Or and in several of our other SmartSide facilities and all of the larger facilities, we do have the capability to produce OSB. And over time, we have used that capability to fill in market needs, I would say, on a geographic basis.
But given where we're seeing our SmartSide production right now, what we anticipate for next year, I think there may be some OSB produced in our siding segment, but it will be very little. So other than OEE that Jason talked about and some OSB coming out of Houlton, which isn't insignificant for the Northeast market, really the next play for us is Peace Valley.
Understood. That's very helpful, Brad. Thanks.
Thank you. Our next question comes from John Babcock with Bank of America. Your line is open.
Yeah. I actually just want to go back to Entegra here. I just want a little clarification. First of all, if you could kind of tell us what, if I remember the number correctly, I think you said you had 200 kits in the last quarter or so versus 200 last year. Just wanted to get a sense for what that translates to, whether it's a home or whether that's kind of more specific units. And then separately, what are some of the challenges that are left to be solved when it comes to the actual building site?
So yeah, John, the nomenclature for this industry is evolving, and we did have a debate yesterday about what to call it. But a kit, as we used in the presentation, it's synonymous with a unit that might have been on the video. And a unit or a kit would be either a single-family home or a multifamily apartment unit. So one apartment unit or a single-family home is a unit or a kit. Interchangeable word there. So that would translate basically to the same definition as a housing start. Okay. What is left to be figured out at the job site is the second part of your question. And one of the reasons I'm as optimistic as I am about Entegra in Northern California today is really there was a significant constraint next year for us figuring that out.
Things like finding available framing crews to train and to incorporate this technology. We also had issues with the extent of crane rental, which we've been able to address through a partnership. There have been issues with we engineer a highly precise square building, which requires a highly precise and square slab to build it on, and so we don't build the slab. We've had to incorporate technology where we use lasers to scan the slab in order to understand the geometry of the slab so that we can either accept or reject that slab or adapt with our technology the building to make sure it fits squarely on the available foundation, so there was a lot, I would say the big learning for us is it wasn't really an issue of learning how to operate the mill. I mean, in fact, we're doing that today.
It wasn't a learning of how to present the opportunity to the builder, but between that builder order and exit the factory, all that goes into changing a market to this technology has been a significant part of the learning curve for us, and I think it will be very valuable as we go into the next geography to be able to take that and know ahead of time that those are going to be the kind of issues you want to have resolved or at least largely worked out before you make a capital investment.
Thank you.
Okay. We have one more online question also related to Entegra, and that is, as Entegra grows, do we have any concerns that the volume of wood products that Entegra would consume would have a negative impact on our pro-dealer customers as they become disintermediated from that process?
Look, when we're talking about even in Modesto, in that area, if we're at 3,000 homes, which is the capacity that I mentioned, we're at single-digit market share in Northern California. There's plenty of room for all current distribution networks and other penetration options, frankly, to be successful in these large markets. And so that is certainly an issue that we should keep top of mind. But currently, I think it's an insignificant part of the overall lumber and panel flow into the market, what's going through Entegra today. And let me just say that not all the product we use is bought directly. We are buying or having material furnished through those pro retailers now as well.
Okay. Thank you. With that, we have no more questions in the queue and no more questions online. So we will take this time as advertised a 10-minute break. And we will return at 10:40 A.M. Central, 11:40 A.M. Eastern to resume. We'll pick up with the financial review from Alan Haughie and then close with a more global Q&A. So we'll be back in 10 minutes.
You are muted. You can mute or unmute yourself by pressing star six.
You know, the other thing I could go down to. What's that? It's like someone watched a movie on my computer at work, and they left it running. It's like the computer is sitting like that. It seems like it's too open for it to work via a remote access. So if we're pulling it on our phone to watch it, it doesn't seem like it's going to go through the screen. But so then I'm like, "Well, we just don't know.
Okay. Welcome back, everyone. We will resume today's presentations. And next, I'll introduce Alan Haughie, our Chief Financial Officer. Over to you, Alan.
Thanks, Aaron.
Hello, everyone. I've been the CFO here for a little over 18 months now. It's a pleasure to talk to you today. I'm going to open with a question. It's one that we're hearing with increasing frequency these days. You might think that question is, "What are OSB prices going to do next week?" Or, "What will housing stocks be in 2021?" To be fair, we are actually getting those questions quite a lot. Perhaps the more pertinent question is, "What are the investors missing about LP?" That really is the question that we're here to answer today. Now, I like to believe that we're getting that ques tion because our transformation is so compelling to the investors who appreciate it that they're mystified that not everyone else can see it.
Hold on a minute, Alan. We're experiencing some technical difficulties.
I'm going to see if I can resolve this.
Good. All right. Sorry for the delay. Normal service has been resumed.
So I was basically saying that we get this question, "What are investors missing about LP?" And then we're here, obviously, to try and address it. And I have my preferred answer. I like to believe that it is the transformation story that is not being adequately appreciated. Now, it could also be that it's a polite way of telling the CFO that he needs to do a better job articulating the investment thesis in LP. And overall, perhaps a bit of both. But in any event, I'm glad to have the opportunity to articulate why I think LP's story is so compelling and why I think you should too. Now, when Brad outlined his strategy for LP, the key word he used was "to transform." Now, transformation is obviously something of a business cliché nowadays. I admit that. But we've attached hard dollar targets to this so-called cliché.
In February of 2019, we declared our goal of adding $165 million in incremental EBITDA by 2021. Now, the growth was to come principally from the three areas you've heard about this morning: siding, which means SmartSide, Structural Solutions within OSB, and South America. The efficiency target includes the benefits of OEE improvement, which plays a critical role in our OSB network optimization, as Jason mentioned. But these targets exclude any impact, up or down, of OSB prices. In other words, we mean to hit this target come what may. Now, I'll be the first to admit that very often when public companies declare targets such as these, the achievement can be kind of hard to pin down on the results. It kind of moves about when you press on them. Squishy, you might say. But I claim that as of June 2020, we were ahead of target.
So let's explore the squishiness of that claim. Here are the numbers we posted for the first half of 2020, totaling $29 million in transformation benefits. And we can draw a straight line - there you go. There's a straight line - from our claim of $15 million in transformation benefits for OSB directly to the first half waterfall for OSB, which in turn, of course, ties to the segment reporting in our SEC filings. In other words, it's more than a pretty picture. And the numbers are not plucked out of the air. We present the same updates and the same analysis on every quarterly earnings call. And I would argue that if our transformation benefits were in any way squishy, then we need a shovel to dig a big red bar on this waterfall, in which to bury all the green bars and claw our way back to the right EBITDA number.
And if anything, we have significant cost reductions, $18 million in OSB alone for the first half, to which we're not claiming as progress against our goal. So we hold ourselves accountable internally to our board to execute on this target. And with our quarterly updates, we're offering you an open invitation to do the same. We reported the same way through 2019. And at the halfway mark, we generated clearly $96 million, more than 50% of that $165 million goal. Clearly, if I had my way, transformation is all I would have talked about. And in 2019, we mostly got away with it, ironically, because OSB prices were low enough not to provide a distraction. But right now, record high OSB prices are dwarfing everything else. So the transformation story has to shout to be heard, at least externally, that is. Internally, we're 100% focused on it.
So this is what's known as a high-class problem, is it not? We have no debt to speak of. Yet one of our businesses regularly throws off huge amounts of cash. My biggest problem as CFO is figuring out what to do with it, which is why there are really two strategies at play. The first is long-term value creation, as measured by our transformation. And the second is what we choose to do with the cash generated by high OSB prices. Capital allocation is, of course, the linchpin that connects these two. So let's talk about that next. As a reminder, in February of 2019, we unveiled a new two-phased capital allocation strategy. Phase one was immediate and visible. Phase two, you can see it on the slide here, is really a long-winded way of promising not to hoard cash. It's equivalent to us saying, "Trust us.
We'll behave differently next time," to which, "Yeah, we'll believe it when we see it," is an entirely understandable reaction, particularly when, in March of this year, we suspended share repurchases for 2020. That said, our dividend payments over the first half satisfied our phase two commitment in dollar terms. But now, with OSB prices at record highs and, of course, the resulting cash generation, we've reentered the market, as Brad said. So as of the close of business yesterday, we purchased a little under $30 million worth of shares under an ongoing 10b5-1 plan. Now, we've reentered the market because we believe LP shares trade at a significant discount to its intrinsic value. And I do not mean that we traded a discount compared to current OSB prices.
I mean that we traded a discount to the value of OSB's ability to generate cash over the long term and siding's ability to create value over the long term. And I don't think either of these are fully appreciated. So let's talk about value creation in siding. Siding has recently hit two major milestones. The first relates to the way the segment is reported. Historically, we have to admit that this segment has been hard to understand, in part because of the inclusion of OSB produced in siding mills. To illustrate my point, this is a breakdown of revenue and EBITDA by product within siding for 2016 and 2018. I think this may be the first time we've actually disclosed this analysis. So a few highlights or lowlights, if you will.
The revenue growth of the segment from 2016 to 2018 was lower than the growth of SmartSide, largely due to the station of fiber mechanic cell. In 2016, the margin on $43 million of OSB revenue was 5% or $2 million. In 2018, the margin on $62 million of OSB revenue was 25%. And the difference was entirely due to OSB prices. And the margins of the fiber business of less than 7% depressed the overall segment margin. I could go on, and to be honest, I very often do. But in the second half of 2019, we removed OSB production from our siding mills. If there's any future production in siding mills, it will be transferred at cost to the OSB segment. Let them have the volatility. After all, they should be used to it by now. And through divestiture or mill conversions, we've ceased all fiber production.
Here is what the trailing 12 months ended this September look like. Since the numbers shown are trailing 12 months, they include the fiber business from the past and a tiny bit from Q3, selling off all the inventory. Of the $204 million of EBITDA generated by siding in the 12 months ended tomorrow, $200 million of that will have been produced by SmartSide. Until now, despite its growth, the performance of SmartSide, the bit inside the segment that was doing all the heavy lifting, could not be found without a lot of effort. I think we were simply making it too hard for investors. Not anymore. As of now, the segment is basically just SmartSide strand, visible in all its glory. The second milestone is not unrelated. It relates to the absolute size of the business.
To illustrate this point, let's compare the performance of 2020 to 2016 using just SmartSide, since that's all that's left in the segment now anyway. Incidentally, the chart at the bottom shows the extent to which this segment has grown since 2011. Neil mentioned that SmartSide was growing faster than the market. Well, this chart compares SmartSide's volume growth, the yellow line, to a hybrid market metric, the green line, which combines single-family new construction and LIRA, Leading Indicator of Remodeling Activity in some hybrid fashion. So you can see the growth above the market in terms of volume. And of course, the divergence between the revenue growth and the volume growth demonstrates the pricing power of SmartSide. But of course, this growth comes at a capital cost.
Now, we're growing at a pace that requires a new mill to be added at least every three years. The last conversion cost about $130 million, and if we spread this evenly over three years, add it to normal capital, throw in some conservatism, then a reasonable proxy for the average annual capital required for siding is about $100 million. Now, for the avoidance of doubt, siding's capital spending in 2020 will be closer to $35 million, not $100 million, so this is not a picture that favors the story I'm trying to tell. 2020 is not a mill conversion year, you see. Therefore, SmartSide's cash flow in 2020 will significantly exceed $75 million shown here.
But the point here is that siding's free cash flow has grown sustainably large enough in the last couple of years, not only to fund its own ongoing growth, measured at about $100 million a year, but to fund LP's dividends, currently running at about $65 million a year. So not only do we have a better story to tell, I think we're getting better at telling it. I like to believe that anyway. And although it may once have been the case, no longer are the surplus cash flows from the OSB business required to fund siding conversions, which means the free cash flow produced by the OSB business is now available for other corporate purposes, which is great news because I'm going to argue that over a suitable time horizon, the OSB business is a reliable cash generator. Let's examine that claim.
So over the past five years, up to and including tomorrow, the cumulative EBITDA of OSB, as Jason mentioned, is about $1.4 billion. And the free cash flow, here using actual capital spend because it's kind of smooth, the free cash flow is over $860 million. Sorry. But why am I using five years? Now, instead of telling you why, let me try and demonstrate why. But before I do that, our trailing average five-year EBITDA on this slide is $277 million. Please focus on that number while we step back in time. This table shows the trailing five-year averages for six key metrics. Therefore, it includes 10 years of data. For example, just to explain it, the values in the 2020 column are the aggregate of the annual values, not shown on the slide, from 2016 through 2020, added up, divided by five.
The numbers in the 29 column are the years 2015 through 2019, added together, added by five. You get the general idea. The bottom number on the right of this new table is the $277 million of EBITDA I mentioned a moment ago. If we work backwards along the EBITDA row, it's clear that every year from 2015 to 2020, the trailing five-year EBITDA of this business has increased. This is even true for 2019 when prices were in the doldrums, which means that the principal points I'm about to make could have been made at the same time last year before the recent run-up in OSB prices. If you scan the rest of the table, you'll see that almost every metric increases every year. Take revenue. It's increased.
But not because our volume has increased, because a quick scan of the volume line reveals that it clearly has not, but because prices, despite their near-term volatility, have drifted higher. Now, you might say, "Well, okay. So that means all your EBITDA increase is just price," which would be perfectly fine if it were true. But it isn't true, not entirely, because there's no just about it. Let's look at the CAGR, the compound annual growth rate of those trailing five-year averages. Well, Random Lengths prices have drifted up 5% a year. If costs had drifted up by 3% a year, which would not have been unreasonable, then our EBITDA growth would have been halved. So our EBITDA growth is not just price. It's price on top of outstanding cost control. But even our revenue growth is not just price. Jason mentioned this earlier.
High-value-added structural solutions products command a price significantly above their commodity substitutes. They're also inherently more expensive to manufacture, which makes our cost control all the more remarkable, so our all-in cost of production is static over this time period, and you saw this earlier in Jason's section. Cost of production here is defined rather simply as revenue, less EBITDA, divided by sales volume. Now, of course, I can't see your faces, so I'm just going to say it again for effect. Cost of production has remained flat, even though we've increased our mix of high-value-added products, so when viewed over a five-year cycle, what appears at first glance to be a highly unpredictable, volatile business presents as a smooth, reliable, steadily improving cash generator. This is how we see our OSB business, and we're trying to make investors see it that way too.
To what extent does this cash generation cycle depend on the level of housing starts? Well, as you can see from the top row of this table, in the 2020 column, this free cash flow of $863 million, or this EBITDA of $277 million on average, was generated over a period in which average annual housing starts were 1.25 million. Not 1.4 million, not even 1.3 million, which cropped up earlier in Brad's presentation. So as Brad said in his opening, even though we're bullish on housing, we don't actually need to be. I'm going to digress briefly to discuss the guidance we issued for the third quarter in an 8-K this morning. Now, despite my highly reliable prediction on our last earnings call of high single-digit growth for SmartSide, it looks as though we'll hit 20% year-over-year growth in Q3.
Now, please bear in mind that the books are not totally closed yet. So by definition, there is an inherent risk to these numbers. But with one day to go, these numbers should be pretty safe. Now, recall that in the third quarter of 2019, the siding segment revenue included sales of fiber products. So the growth of the segment overall for the third quarter will be lower than the 20% growth for SmartSide. It'll be about 8% for the segment. And I think this illustrates my earlier point about the cleanliness of the segment rather well. As does the fact that the EBITDA earned by the segment in Q3 and the strong EBITDA margin of 27%, which have both been commented on in some of the Q&A, is all down to SmartSide. That is what we're earning from SmartSide in this third quarter.
The OSB result, of course, emphasizes the critical point that when prices are high and costs are under control, the high prices flow directly through to EBITDA. I'm going to wrap up by returning to our capital allocation strategy. Through rational capacity management, which means not manufacturing or selling OSB that the market doesn't need, we prove that we can absorb adverse pricing shocks and break even at the low point of the cycle. By holding costs flat, we can benefit from the long-term upward drift in OSB prices. It's boom or break even with a lot of opportunity for boom. Meanwhile, the growth businesses, principally, but not exclusively SmartSide, can fund their own expansion and a growing dividend. Henceforth, the growth of SmartSide will be more visible and therefore more obvious to even the most casual observer.
The buyback activity will in turn magnify the impact of our growth by distributing the benefit of a fewer shares, thereby increasing TSR. Now, a word about acquisitions. We're certainly not ruling anything out. Adjacencies such as buying a pre-finishing business or a facility for pre-finishing should be assumed as part of our growth strategy. But at this point, we don't see any major acquisitions on the horizon. If and when we find something with a compelling value proposition, we certainly won't forgo that opportunity, though. So in conclusion, yes, I'm going to say it again. We believe the true value of our business is underappreciated. While that remains the case and our shares traded at discount, we'll use the cash generated by the business to repurchase them until it's no longer the case. With that, I'm going to hand it over to Aaron to handle the Q&A. Thank you.
Okay. Thanks, Alan. So we will now transition to our last Q&A session. And we will go through the same process of taking questions via both online and over the phone. So we'll give the audience a couple of minutes to populate the question-and-answer queue online and also to send in any text questions, and we'll go from there.
However, I do owe an answer, don't I, if I recall? And I think it's the toughest question that we get, generally. It's one of the hardest to answer. And I did, to excuse myself and apologize for being a little abrupt earlier, I at least wanted to make an attempt to demonstrate what we're trying to do with the OSB business, which is to change the narrative around the OSB business. We can't claim to be able to manage OSB price volatility.
What we can do is to manage how we behave, which basically means managing particularly the break-even, EBITDA, the low point, and that clips off the bottom end of that price cycle. And what I'm hoping is that as we pursue our capital allocation plans and continue with our ambitions, we will create a rising appreciation of the value of LP in total. There will still be some near-term volatility. And I think it's inevitable. I've described that the business operates kind of in waves. It seems to do that, three- to five-year cycles. As those move forward or closer, I think price volatility is inevitable. But as I said, what I think will have some influence on that is the way we manage the aspects we can control to flatten the bottom end, turn this, as we've said before, not from boom and bust, but from break-even to boom.
Okay. So we're starting to get a few questions coming in online. There are a couple that are similar enough that I will sort of combine them into a question sort of generally about what kind of complementary or adjacent businesses we might be thinking about in terms of potential acquisition, whether it might be a commodity or a specialty company or what types of things might be attractive to us as we think about that strategically.
I'll start that answer at a very high level, and I guess a criteria that would always be we would vet against an opportunity is Neil's business, which, by the way, sells our specialty OSB products as well. We have 150 or so salespeople in North America.
So any opportunity we have to take a business that may be specialty in nature but underpenetrated from a market standpoint, I think there'd be tremendous synergy by running those type of products through our sales network if those products were, in fact, complementary to the established distribution that we already have, or in other words, go through the same channel. To get a little more micro on it, any acquisitions that would complement the siding business's penetration in repair and remodel, for example, pre-finish operations or other operations that are complementary to what a contractor sells as they're going through a process of residing a home would be very interesting to us, interesting to us from a complementary standpoint. Then I also am really curious about the opportunity to find complementary growth opportunities as it relates to Entegra.
I'm not sure in all markets that it will be required for us to do greenfield startups in order to get this technology in market. Part of the process we did in Northern California is Entegra did acquire a truss manufacturer as a complementary product to deliver to the job site. And so Entegra does provide possible avenue for adjacent acquisitions. And we will be looking to those if we feel like they could help us grow and help us grow from a capital standpoint more efficiently into the markets that we seek to expand in.
Okay. Thanks. The next question is related to EBITDA sorry, enterprise value to EBITDA multiple. The questioner says, "James Hardie trades at a 20 times multiple. Is growth for fiber cement structurally higher than LP siding business?"
No. But hold on. Good question. Yes, for the siding segment, the way we reported it.
But now, when we pull out SmartSide, certainly potential is not greater than the growth of SmartSide, and that's clearly visible. And it will be in the future.
Okay. One last we're getting a question about holiday planning. So the question is, we typically take some downtime around Christmas and New Year's, Thanksgiving, things like that in both of our segments. Any thinking about that at this point in the year?
So for siding, we do have a little bit of maintenance that we do need to do towards the end of the year. But for the most part, we're going to be running our mills full to meet the demand of our customers.
And that's the same for OSB. We've got some annual maintenance shutdowns in Q4, but nothing out of the ordinary.
Okay. The next question is, you didn't spend any time on EWP.
What are your plans for that business strategically? Yeah. We wondered if that would be noticed. It's expected it to be. The reason we didn't spend time on EWP is two reasons. First of all, we don't see it as a significant growth platform for us. And secondly, we're still at a position today where we're not earning the cost of capital in that business despite some improvement in OEE and some, what I would deem, better management under Jason's leadership. But it is a very complementary product to our go-to-market strategy. Most of our distributors or, well, most of the distributors that carry our SmartSide are two-step distributors. They carry our SmartSide and our Structural Solutions, OSB product line, also have an EWP line. And so having that breadth of portfolio for our distribution partners, EWP is a very significant product line and a profitable product line.
So it does give us flexibility, pulls us closer to the customer, makes us more relevant, especially in two-step, to a certain extent with builders as well. And so we have continued to manage that business to try to get the most we can out of it financially, understanding that there are some certain synergies that we do that are available to us as it relates to our go-to-market stra tegy.
Okay. There are no further questions in queue. So at this point, we will bring the 2020 Investor Day for LP Building Solutions to a close. Thank you all for joining us. And we will look forward to speaking with you again when we release our Q3 result.