Good morning.
Good morning, everybody here. My name is Thierry Denis, Vice President of Investor Relations. And then I'd like to welcome you all of those who have actually taken the trip to Toledo. I'd like to welcome the people on the webcast as well. We're broadcasting this event in real time through the web as well. I'm excited to be here and it's great to see a lot of familiar faces in the audience. This is my fourth investor day at Owens Corning, and I was reflecting on the experience that I've developed over time. And there's two great things about doing four investor days. One is you get an opportunity to develop great relationships and friendships with some of you. The second one is it gives me a little bit of perspective on how things have evolved over time. And while our strategy has not changed, the story has evolved.
And I'm sure, as you know, the financial performance has evolved as well. And so this investor day today feels different for me for a few reasons. One is you'll hear from us some of the reasons why the financial performance you've been seeing is sustainable and some of the structural improvements we've brought to the businesses. You'll also hear from our business leaders about their journey on creating growth for the company that delivers shareholder value as well. And then you also see a different look, a different feel for our presentations, which symbolizes the positive outlook we have. On the future as well.
So it's a different investor day for, to some extent, a different Owens Corning. Now, some of the things that have worked well in the past, we will not change. And that involves giving you opportunities to hear from our business leaders. So we'll have presentations from all the businesses as well as our key executives. We'll have opportunities to, you have opportunities to meet them as well and interact with them. During the breaks over lunch, some of you had the pleasure of sharing dinner with us yesterday. And then we'll leave plenty of time for Q&As because we value the dialogue that this opportunity brings. So I hope you're as excited as I am to get into the content of today. Before we do that, though, I have a few instructions to communicate. Throughout the day, you will receive packets of information.
You will be handed out presentations right before each section and voice will be available through the webcast. At the same time, you have the opportunity if you want to connect to the network from this room. There's a dedicated Wi-Fi connection that has been set up and you can actually download the presentations from the website if you want, as they become available as well, and then a couple of important safety instructions. In the unlikely event of a safety emergency, you will hear a siren that sounds in the room and it will be accompanied with a description of the nature of the incident. The exits to this room are located over here, so that's the doors. Those are the doors that you use on your way in.
There's another exit up there behind the production booth and there's actually another exit behind the screen on this side. If that were to happen, you will then exit the room and then you will actually be greeted by safety monitors who will give you further instructions on what to do. Now, let's take a quick look, one more set of instructions. Let's take a quick look at slide number three in the presentations where we offer a number of cautionary statements. And basically there's two key messages in here. One is we will make forward-looking statements and as you know, actual results may differ from those predictions because of risks and uncertainties. We describe these risks and uncertainties on that page. So take a moment just to read that text.
And then the other key message here is we do use non-GAAP measures metrics because we think they're useful for you to understand the operating performance of the company. We do provide a reconciliation of these measures to the GAAP measures at the end of the presentation. So that will be available at the end of the financial deck that you will receive towards the end of the day. Okay, so that's it for now. It's an exciting day. I'm sure you're eager to get into the content of the day, the program for today. And with that I'd like to hand it over to Mike Thaman, Chairman and CEO, who will start with opening remarks and then Mike will take questions at the end of the program at the. End of the morning. Mike.
Thanks, Thierry. Good morning everyo0263 ne and welcome to the folks here in what we call Panther Hall. Also welcome to those who are joining us on the webcast. I hope everyone had a great night last night here in Toledo. It's a real joy of mine to host that dinner and let our investors see the depth of our management team. I think it's an exciting time at our company. We've got lots of great people and I think being able to host that dinner and bring 20 or 25 of our managers in and have them interact with our investors is great development for our people and also great opportunity for you to see what I think is the lifeblood of our company, which is our talent. I'm going to just make a few opening comments. I think you have a copy of my presentation.
Set some context for today and then we'll jump right into the presentations. I think one thing you'll see today is you'll see great continuity in terms of the main presenters, the three business presidents, myself and Michael. It's the exact same lineup that was here two years ago for Investor Day, and then I think you also see some fresh new faces. So we're going to profile inside each of our three businesses some activities going on inside the business that we think would be interesting to you in terms of how we're kind of bolstering those businesses and adding some ballast to some really great growth stories and some really good and high performing businesses, so I think you'll see a little bit of both today, which I think will be good for all of us, so let's go on to the next slide.
So I called Owens Corning at a glance. I think most investors are pretty well aware of most of the facts on here. We're 79 years old, so next year will be an 80 year old company. Three strong businesses. Roofing, Insulation and Composites. We're about 17,000 employees today worldwide. I think, you know, most of the growth in our employees from about 15,000 two years ago has come from acquisition generally in our main legacy businesses. We've had, you know, very little employment growth and have really been focused on productivity and trying to leverage growth in our markets. In terms of our footprint, we're now in 33 countries around the world. $5.7 billion in revenue last year, obviously this year, more than $6 billion. So two years in a row, I think a very good growth.
And then finally 63 consecutive years on the Fortune 500. I think that's a real source of pride for the company. There's only about 55 companies or so that have been on the Fortune 500 list every year since the Fortune 500 was started. We're one of those. I think if you looked at the rest of the list, you'd see IBM, Procter & Gamble, Ford, GM. I mean, you know, iconic type companies. And when I see our logo on that chart, I think of us as an iconic company. I think we've been on that list for a long time because we make useful and relevant products. We're exposed to the general economy and we've competed and kept up.
You know, if you make products that the economy wants to buy from you and you compete very well every single day and you're resilient about continuing to keep your businesses relevant. You know, you continue to grow, and we think we've done a good job of that over 63 years, despite all the different things that have gone inside our industries and gone inside our company. Let's go to the next chart. Let's talk about what you'll hear today. Kind of five key themes that we hope you will see through all the different presentations. One is obviously a track record of performance that's very important to us. The second is that we have compelling investment opportunities, demonstrated earnings power, not just looking backwards, but I think looking forward.
We believe we've really put together here three or four years of very compelling growth around both cash flow and earnings. Top- line, we don't think that that's done. We certainly, as we look ahead for the next two or three years, feel like we've got a compelling story around our ability to continue to grow earnings and cash flow. We'll talk a lot about sustainability, and not just sustainability in the environmental sense, but the sustainability of our performance. We think the performance that we're delivering is built on a sustainable platform of doing all the things you need to do in order to get a business to perform very well. We're going to try to highlight across the spectrum of our businesses the things we're doing to make our businesses as competitive as possible, and then finally, a shareholder friendly capital allocation.
This has been a recurrent theme. I think Michael and I, I think Thierry said this is his fourth. You know, Michael and I have done these for a bunch of years as well. I think for us it always comes back to that fundamental question, which is generate the cash and then how do you go put it to work for the investors and make sure that we're making good decisions on your behalf. I think the sum total of this is we hope most people walk out of here and say this is a different company than the company we reviewed two years ago at Investor Day. So two years ago when you were here, we were talking about the things we thought we could get going in our businesses. We were talking about why we thought insulation was going to get a lot better.
We were talking about the fact that the composites restructuring activities were in the rearview mirror, that the industry had consolidated and become more attractive, and that we were going to start to put up, you know, good sequential growth in composites. We were talking about a roofing industry that was really going to help us deliver great results. And I think two years later, we're now saying that's the reality. That's not what we're going to talk about in terms of what we think might happen. That's the reality of the market we're in today. And really today's discussion is going to be about how do we capitalize on that and turn that into additional growth and not just revenue and EBIT, but also free cash flow and as a result, stock price. Let's go to the next slide. Pretty simple theme.
When you hear all of our managers and we talk about how we make great businesses better, we like businesses with attractive macro drivers. So generally if you're in relatively stable industries and you're making products that the market wants to buy from you, we consider that to be a pretty good thing. If you look across the spectrum of our businesses, there is natural underlying growth for the products we make globally, which we think really supports not just revenue growth, but also supports healthy industry structures. So we're in an environment where capacity and productivity and other things can be absorbed by growth in the market, which is very important.
We like market-leading positions, and as we talk about certainly our acquisition strategy and some of the businesses we've bought, you know, we think starting from a very strong position in the market is a really good place to build from. So we generally would look to have market-leading business. We generally in our M&A strategy are looking for businesses that have a leadership position. We don't really consider ourselves a company that's great at taking the number four player and trying to figure out how to make it more interesting. We think we're very good at taking good businesses and making them better. And we really focus on three key things, improving competitive positions and earnings. One is, you know, we're always on the cost trail, so implementing sustainable cost improvements in each of our businesses.
Some of that through management processes, some of that through technology. A lot of competitive benchmarking. I think that'll come through as a theme as each of our business presidents talk about understanding where we are relative to our competitors. So a lot of competitive benchmarking to make sure that we always have the cost position that puts us in a position to win. We also want to have that same position with customers. So we look to drive organic growth through market leading positions with our customers. I think you'll hear that again from our business presidents talking about how we relate to our customers, how our growth strategies are very customer driven, and then finally as a way of adding on to the organic growth and the organic earnings growth that we can drive out of our businesses.
Acquiring businesses with stable and attractive margins and strong synergy opportunities. And I think both Brian talking about really the completion of our InterWrap acquisition integration. I mean, the completion of our InterWrap integration. And then Julian talking about where we are now with Pittsburgh Corning and also talking about our announced deal with Paroc, which we think will close sometime early next year. Talking about why we like those businesses and how they fit that model of strong and stable margins in attractive industries with great synergy opportunities. Next slide. So we do think we've put together a nice track record of financial improvement. We were late in the year here, so in order to make the chart look good, we put in the 2017 consensus numbers to kind of not be talking about last year too much.
You can see in the last couple of years, you know, a doubling of EBIT. And I think that's, you know, when we were standing here two years ago, we hadn't yet finished 2015. So the most recent full year performance for us at that time was a $400 million EBIT year. It will obviously be more than $825 million this year, which is what we said on our last earnings call. That has translated into a great improvement in return on capital. About a five point improvement if you go back to 2014. One of the things that we knew was something we needed to get done and I think we talked pretty openly about it, was during a period of time in the early part of this decade, we were not generating a lot of free cash flow.
We had a lot of requirements in our composites business to do some restructuring and to get the asset base right. We also were losing money in a big portion of our insulation business, which was the residential side. So we had two big cash users. We stayed the course in both those businesses because we know both those businesses have the ability to contribute greatly to shareholder value and greatly to the future of the company. I think you see now in 2015, 2016 and then the forecast for 2017, about $1.5 billion of cash generation over a three year period of time. Cash conversion of over 100% of net income to cash flow. We feel that that is sustainable. So Michael will talk more about where we are on that.
But our guidance had been over a three-year period of time, we thought we could average 100% cash conversion. Obviously we're well above that guidance today, not guaranteeing that in every single year we'll be above 100%. But we think for a period of time here, with very good tax attributes and good growth in our business, we should be able to continue to drive that. And then finally, one thing we've been very proud of is, and a real passion, I think, of Michael's. We really have focused on our working capital. I think we've been helped by very good management systems here. We've also been helped by predictable demand.
Knowing that demand is going to show up every quarter, every week, every month allows you to manage your supply chain better. A little bit better market conditions allow you to get better terms with suppliers, better terms with your customers. We've been working all those levers and you can see we've taken about four points out of working capital over the course of the last four years. Next slide. It's been gratifying to have that performance be recognized by our investors. I look at this chart and my eyes tend to move to the right of the chart where we talk about 10-year performance. Obviously our near-term performance has been very, very good, up 65% in the last year, putting us in the top 5% versus the S&P 500.
So obviously a great story that we could stand in front of this chart and tell this story for a very long time. But I think what you're going to hear today is that result is a byproduct of the cumulative impact of three, five and 10 years worth of work. So we've been working on the things that improve the fundamentals of our business throughout the last decade and those are now, I think coming to fruition in terms of our cost position, our market position, our talent, how we operate in our markets. And I think we produced a really good track record across really any period of time you want to look at in terms of driving shareholder performance, which is obviously why we're here today. Let me just talk broadly about the next slide, which is what we call our sustainable enterprise.
So when we talk internally with our employees and say kind of what are the pillars of how we want to build this company, we really say that there's five key things that are at the heart of building market leading businesses. So if you really want to be a great business builder, if you want to have outstanding market leading businesses, financial strength is a requirement. But financial strength is necessary but not sufficient to build great, great and sustainable performance. I think you're all aware of the fact that we do a wonderful job on sustainability in our company, not just our safety performance, but we've been, you know, I think, very, very good at reducing the footprint of our company, the emissions and the resources that we use. We also are very focused on expanding the handprint of our company.
So how do we make products that are more useful and better to the world? And I think particularly today, Julian will focus on some of the things we're doing in that area. We're recognized by the Dow Jones Sustainability Index. We've been number one in the world in the building materials category for a number of years. So we take a great deal of pride on what we do in that area. Operationally, you have to be excellent. You've already heard me talk about driving low cost. Driving low cost, Driving low cost. That's a passion of ours. We have many systems in place from a management point of view to continue to engage our employees and get them in the game on helping us take costs down.
We also have a lot of technology investment in our R and D group to try to build the best process and process capability that allow us to have the lowest cost products. I think you hear some of that today. Customer inspired innovation is a really big deal to us. This is a customer company. You know, if you come to the core of what makes Owens Corning's people tick, it's finding a customer, getting them to buy our product and then serving that customer and help them grow. I mean that's a very simple thought process in business. But generally if you ask most of the people in our company, what's the primary driver of how we think about strategy? That's our starting point and our end point. You know, we need to know what our customers want.
We need to know what our customers need in order to grow and that we need to be the people who provide that to them first. And I think that's a cumulative effect of many years of having the right people in the marketplace. Good continuity in our commercial teams allows you to continue to build that muscle. And I think today that muscle's strong and functioning in our company well. And then finally high performance people. We have been on a talent journey in our company trying to make sure that we have the ability to create and develop the leaders for the company. We've made a lot of progress in the last five or 10 years in terms of getting leaders internally ready for jobs.
Our promote-from-within numbers have been improving because of our ability to attract leaders at mid-career, develop them, get them ready for senior-level positions. We're making progress in terms of leaving senior leaders in positions longer, so we're trying to reduce churn at the top so that we have the opportunity to really build the relationships with our customers, build strategies and see those strategies through. Generally I don't feel that in a year, year and a half or two years that a manager can really define and execute a strategy. You've got to stay in that job long enough to see your actions come through and you'll see that today in terms of the people you have here. We're also doing a good job at entry-level recruiting.
So we got nice recognition for like our internship programs and other things in terms of being a top 25 company for summer interns for engineers, finance and marketing type talent. Interesting list. You know, mostly services companies. We're one of the few industrial companies on that list. So we're taking care of early career because we know that's also the lifeblood of where the future talent in our company is going to come from. So a real passion around people and talent and I think that's come through in terms of our ability to now think about growing the business through acquisitions. So if you go back three or four years ago, financial capacity might have been part of an issue in growing through M&A, but I don't think it was probably the primary issue.
I think management capacity and talent, being able to deploy big groups of dedicated teams of highly talented individuals to go make acquisitions happen and get them integrated and make them successful was an area where we started working four or five years ago to get ourselves prepared for some of the deals we've done over the last year and a half. And I think you'll see a lot of confidence and success from our team today in terms of how we've done that. So, you know, this model is something we look at and think through.
And as we evaluate our businesses, as we evaluate our performance, we say where are we in terms of the balance that we have in making sure that we're not just giving you near-term performance, but we're taking care of the things that are going to produce the three, five and 10-year performance that we saw on the prior chart. So I'm just going to summarize. Super happy to have everyone here really excited with the people who are on the webcast to be a part of our investor day. I think we have a great story to tell. I couldn't be prouder of the people of Owens Corning. I couldn't be prouder of my leadership team. We're very happy with the financial results we're producing, but we certainly don't feel the best is in our rearview mirror.
We think really the best is yet to come and that where we have the position, where we have the businesses positioned today, each one of our businesses, you'll hear a story of growth, opportunity, market opportunity, the ability to drive additional growth in earnings and the ability to drive additional cash flow. So let's have a great day together. I'll be back up at the end, as Thierry said, to handle some Q and A with you guys, and we'll enjoy the day together. So, Thierry.
Thank you, Mike, so this is our agenda for today. We'll be together and alternate through presentations and Q and A sessions for the next three hours or so until 12:00 P.M. We'll have a break around 10:00 A.M. this morning. We'll start with the composite business, and then we move on to roofing. There will be Q and A sessions after each presentation, so we'll try to keep that balance of sharing information with you, but also having that dialogue break around 10:00 A.M. That will take about 15 minutes. Then we'll come back, we'll hear about the insulation business I'm sure many of you are interested about, and then we have the financial presentation at the end, and then a Q and A session with Mike, and then Mike McMurray, our CFO as well, at the very end. Okay, that's our program.
I think we're ready now to start actually sharing with you the content of the first presentation, which is the composite section. Within the room, we'll be distributing handouts that we'll use for the composite section, and then those should become available on the website as well momentarily. Now, while that's happening, I'll just share with you a piece of trivia about the composite business that you may or may not know. Back in the history of Owens Corning, Owens Corning and GM, General Motors collaborated to make the first production automobile made with fiberglass reinforced plastic. Does anybody know what that is? It's the Chevrolet Corvette. And you know the year? It's 1953. 1953. So 64 years later, our composite business is still going strong, selling to that industry, but also serving many other applications.
I would like to introduce now Arnaud Genis, who is the President of the Composites business.
Thank you, Thierry. Good morning, everybody. It's great to be here. A lot of things have happened since 2015, since the investor day in Atlanta. I'm very pleased to report to you the progress we've made, but more importantly, what I would like to share with you is why this progress is sustainable, why mid-teens margins should be the new norm for composites, and why double- digit return on capital is definitely sustainable, so when I was in Atlanta with you in 2015, we were about to cross a very important gate, which was the return of this business to a double- digit EBIT margin. When I was with you, I said, well look, there's more gas in the tank and actually mid-teens margins are possible, and at that time I had a conviction that was supported by two beliefs. The first one was about the environment.
It was about the growth of the market and capacity utilization. The second one was about my confidence in the relevance of our strategy and in our ability to succeed in the execution of the four pillars that I outlined at that time. And these four pillars, if you recall, were cost leadership, product leadership. Product leadership for us is very important because it's our ability to enable our customers to make more money delivering products that enable them to be more competitive and gain market share. The third pillar that I outlined at that time was our ability to capture price. And the fourth one, very important given the focus that we have on return on capital, was around capital efficiency. So let me update you on where we are and what we have seen over the past two years.
First thing, our theory around the market proved to be right. Composites continue to outperform the industrial production. They continue to grow 1.6 times industrial production. It's a highly desired material because it solves a lot of problems far better than steel, aluminum or other materials. Second theory we had was that we would see higher capacity utilization over the period. And this has proved to be true. Now coming to the four pillars of the strategy, cost leadership. Well, it continues to be a key part of our agenda. You heard us in the second quarter earnings, we took the decision not to rebuild some subscale melters that would not fit within our definition of cost leadership. We have sustained a very high percentage of our network as a low delivered cost.
When it comes to product leadership, we've had a lot of work from our marketing team, from our S& T team. This year, 27% of our sales are coming from products that are less than five years in an industrial business. This is pretty remarkable when it comes to price. Since 2015, we have delivered $40 million of price improvement. And this is well in excess of inflation. And lastly, when it comes to ROC, well, obviously we have doubled our EBIT number since 2014. So we have doubled the numerator. But we've worked very high, very, very hard on the denominator. We've been very disciplined in the way we have deployed capital throughout the network. And we have unfolded a new approach to capacity since 2014.
I think you have heard when we closed one of our plants in China, because we had been forced to exit the Hangzhou plant, we initiated a pact where we were utilizing existing capacities in their world by providing technology, providing a license instead of getting royalties being paid in return through products access to capacity that would enable us to continue our growth pattern. This has enabled us over the past three years to avoid $150 million of capital expenditure, so today you're going to hear four things. The first one is that, well, composites will continue to be a high growth market. Fundamentally, it's a fantastic material solution, and I will talk to you later about which markets are badly needing composites to solve some of the burning problems.
Second thing you're going to hear is that industry consolidation and barriers to entry are creating a very favorable environment. The third thing that I want to share with you is that the foundation that we have worked and that I presented to you in 2015 is positioning us very well to capture our fair share of the growth that is going to happen, and we'll do that in a capital efficient manner, and lastly, we will showcase Nonwovens, which is a high growth business, a key to CSB business which we talked of in Atlanta, but we're going to do a deeper dive into this with Nicolas Del Monaco who is sitting over there. I will introduce him later. He's the Vice President and Managing Director of that business.
So when I was in front of you in Atlanta, I told you that over a 35-year period composites had been growing at a pace of 1.6 times IP. Actually, well over the past three years this has proved to be right again. Now in the meantime, what I told you in Atlanta was that demand growth would outpace capacity addition. And again this has proved to be right. Now, turning to the future economist consensus forecast is calling for an IP growth of 3.1. Actually the reality of 2017 is better than that. And the forecast for 2018 gives us confidence that 3.1 is definitely possible. This takes us, I would say back to the kind of growth rate in industrial production that prevailed before the big economic crisis of 2008. If you apply the 1.6 multiplier to this IP, this gives a growth of 5.2%.
I said to you that there are some industries that badly need composites materials. I'm just going to talk of one and I think I already covered some of it in Atlanta, which is automotive. You've seen the stringent regulations that are being applied in many countries. If you take China, India, Europe, the US is still a question mark. But I would say there are new standards that are being implemented as part of the COP21 Paris A ccord that was done this year where as you go to electrical cars, you need to take weight out so that the range, the autonomy of the vehicle will be enhanced. In Europe, there's a shift from diesel engine to regular gas engines. Regular gas engines have higher CO2 emission than diesel engines. You need to take weight out.
There are more and more SUVs, heavy SUVs that emit a lot of CO2. You need to take weight out. There was an analysis published last week about what's going to happen in Europe in 2021. There are very stringent requirements, about 95 grams of CO2 emission, and beyond 95, you have to pay fines. There are some OEMs that starting 2021, they don't take weight out. They will have fines of more than EUR 5 billion to be paid to the European Union. So that's move. I mean, I'm giving the example of automotive, but there are many more industries that really need to solve some burning problems. Name it. Corrosion. Look at US infrastructure. Name it lightweighting. Look at these big changes that are happening in transportation that will require more composites. So really exciting times for us.
And I do believe that the 1.6 times multiplier will continue to prevail. Now we dedicate significant resources to competitive industry analysis. We can project, I would say two, three years out what's going to happen in the industry in terms of capacity addition based on the announcements of our competitors. But we also have, I would say, pretty sophisticated systems that enable us to know exactly where are the furnaces, what is their nameplate, when are they going to be rebuilt. And based on our intelligence, demand growth over the period to come will again outpace capacity addition. So pretty favorable environment. So this was my first point which was about the growth. My second one is about the industry trends. There are three big, I would say, developments in our industry. The first one is industry consolidation. I started in composites 31 years ago.
I would say at that time there were tens of glass fiber producers. It was mostly a regional market. Today this has become a global market with few big players. The last development that happened in the market was the acquisition of the PPG European and PPG American assets by Nippon Electric Glass. So the number five in the world was acquired by the number six. Okay, one player less. The next change that is going to happen very soon will be the acquisition by Jushi, who is the number two in the world. The acquisition, the merger of Jushi, number two with Taishan, who is another producer, number four. The two mother companies of this Chinese producers have merged. They are both cement producers. And as part of the restructuring that the Chinese government is doing of its assets, it's equity in state owned enterprise.
The two mother companies have merged today. They are still managed separately, they are still competing, they are still. I mean sometimes we see odd things happening in the market. We believe that very soon these two companies will go under a unified management and again it will mean one player less in this industry. Now with this merger, Jushi, who is very close to us in terms of manufacturing output will become larger than we are in terms of volumes. But this is a very China-centric player, I would say in terms of geographic spread, technology, product portfolio returns. I feel, I believe that we are still the market leader. Now with these consolidations that I just mentioned, the top five producers who were accounting for 66% of the market back in 2014 will now represent 83% of the industry capacities. So it's a pretty significant move.
The second thing I would like to talk of is the changes that are happening in China between 2005 and 2008. The Chinese producers have emerged, they have built a lot of capacities. They have built over a three-year, five-year period, 30% of their world capacity. This obviously has created a major disruption. Now since 2008 we have seen a very different approach to capacity buildup. When these started to happen, we were convinced that this could not last forever. I mean it didn't make sense to have state-owned enterprise compete with one another, lose money, sell looking only at marginal cost or price looking only at marginal cost. And things have evolved. And actually for those of you that travel to China, I'm sure that you've seen the changes, the very stringent regulations that are being applied by the new administration.
We really started to see three, five years ago a major shift. First of all, it started with the merger of some state-owned enterprises. You saw what happened to high-speed train producers, steel producers, flat glass producers, cement producers, where in the glass fiber industry. It's pretty much the same. And the Chinese government does not want to see overcapacities being built and its state-owned enterprises not returning cash. So now state-owned enterprises in China have to return cash, they have to get a permit, they have to prove that they will be good taxpayers because provinces have very limited energy quota and they have to choose which industry are they going to authorize because fundamentally they want cash back. Right? Environmental regulations have become really, really tough.
So today if you want to get a permit to build a new plant in China, first of all you have to comply with a certain energy intensity per value added, but also as far as air emission, water treatment, et cetera. I mean, this becomes not only difficult but also very expensive once you get a permit. So obviously, well, this is creating a barrier to entry. There's a bunch of Tier 2 players in China who are struggling and who are questioning whether they should proceed or not. And last but not least, when costs are escalating, we see it in many different industries. We are producer in China, so we see the inflation in labor, in energy, in raw materials. But things are evolving pretty quickly over there. So all this is leading to a high capacity utilization.
Our fundamental belief is that the positive environment we've seen over the past three years will continue to prevail and that nothing should change and that will. This will enable us to have every year in average pricing, offsetting inflation. So you've seen that some of our competitors are building an overseas network. I will show you in a minute. Our global network. It's pretty unparalleled, but companies like Nippon Electric Glass, Jushi who are building or acquiring assets or building capacities overseas, they have to learn their way. They have to learn how to operate a global network. In our case, I mean, we've been operating a global network for the past 40 years. So at a time they are learning their way through this global market. I'm very pleased with the two platforms we have. We are global leaders both in reinforcements and in nonwovens.
When I look at our network in glass reinforcements, we have a low delivered cost network which is really covering the key markets that are using or that are major users of glass fiber in reinforcements. There are two things that are really important to me. First is the customer experience. I talked to you about product leadership, but next to product leadership, we also do a lot of work on the ease of doing business. Fundamentally, our ambition is that the customer experience with us is second to none. How do we do that? I'm a metric guy and I always start with numbers, so once a year we do a customer survey. We question 500 customers and we check, okay, how are we doing, and what we measure here is the Net Promoter Score, so we classify our customers between advocates, passive or detractors.
The Net Promoter Score is the difference between advocates and detractors. I'm very pleased to report that over the past four years, our Net Promoter Score with our top 25 customers has jumped from 14 to 61. In a B2B environment. This is pretty remarkable. I mean there are very few companies that have a Net Promoter Score north of 30. We are at 61. So all the work that we've been doing over the past three years is really paying when it comes to technology. As I said, I've been 31 years in the glass fiber business. I've visited many plants. I've been part of the acquisition. Right. I mean I was acquired in 2007 and I could compare side by side the various technologies. When I was acquired, I was stunned by the technology edge of Owens Corning.
I'm not saying it because I'm Owens Corning now. I mean truly the glass technology of Owens Corning is the best. The intent, the energy intensity, how much energy we use per ton of molten glass, how much glass we produce in a given square meter of furnace. These are key parameters that are really, really important. We have dozens of engineers in our labs in the US that are focusing on developing the next wave of technology, the next generation of technology. This is a very critical component and I'm very pleased with the progress we are doing here. Mike mentioned cost competitiveness is a key point and obviously, well, we do allocate significant resources to maintaining that competitive edge. As far as nonwovens concerned.
You will hear from Nico in a minute that nonwovens is a highly specified, highly customized product where we really partner with our customers to develop unique solutions and enable them to develop new building material to solve problems. We have a track record of success. We really started 40 years ago when we acquired in the Netherlands a specialty paper, very fine lightweight paper producer that had converted a paper mill over to glass nonwovens. Instead of using pulp fiber, they were using glass fiber. And this enabled us to really acquire and master a paper technology. Nonwovens is very different from glass fiber. If you are a glass fiber producer, you cannot operate these assets the same way you operate a furnace. And I think that we have, we are very unique because of this mastery of the paper technology.
I've talked to you about capital efficiency and the focus that my team and I, we have on return on capital. You have here the network. So we have a network of 27 plants in 14 countries. In blue you have the glass reinforcements plant. In green you have the nonwovens plants. As I said, well, we've been very disciplined in the way we have deployed capital. So when three years ago we said okay, capital efficiency is a key indicator of success, key goal, we started to roll out that concept of strategic supply alliances. So again we started in 2014. This approach, this has enabled us to get access to 10% of our volumes today are coming from assets that we don't own but that we operate. So we have transferred our technology to these assets.
We have our people next to the owners of these assets making sure that the products that come out of these assets meet all our specs and that for our customers it will be the same as an Owens Corning asset. Very creative approach. We have avoided $150 million of capital expenditure over three years now. There are certain parts of the world where we want to own our assets. India is a very important region for us. India is bound to have a massive growth. New government business friendly. We see very nice growth and big needs in India for our products. We are doubling our capacity in India. The project is under execution right now. It's going well. It will be started in the second quarter, second quarter of next year. We are a first in India. We love our position there.
We wanted to have our own asset. This was the best solution for our shareholders. And then lastly, while Nico will talk in a minute of the Gastonia investment, you remember we commissioned the line Q1 Q2 of last year. I'm very pleased with the progress we've done. The line is now producing all the portfolio of products that we sell in North America. We are qualified at all the customers. The line is now fully loaded and will. Be. Contributing significantly to our results in 2018.
Okay, so with no further ado, I'm going to introduce you to Nicolas. Nicolas will talk to you of nonwovens. So Nicolas is Belgian. So he has the same accent I have. Sorry for that. He's been with Owens Corning for 17 years. He started in Owens Corning in finance positions. Then he moved over to the US. He's had several operations jobs and then he grew through the GM ladder. Okay, Nicolas.
Thanks Arnaud. Good morning everyone. It's really great to be here this morning to share more about the exciting story of the nonwovens business. First I'll start by apologizing to those I was having dinner with last night. You asked me a lot of great questions about the business but I was really trying to hold the interesting information for this morning. As Arnaud noted, the nonwovens business is an important element of the portfolio that has greatly contributed to the transformed performance of the composites division over the past few years. Who are we? Basically we play two important roles with Owens Corning today. First we are a world class supplier to our roofing divisions. As you know, we have vertical integrations from glass to nonwovens and then ultimately to shingles.
We believe that is a major competitive advantage that we have in the market. Secondly, as Arnaud mentioned to you, we act as a growth accelerator for the composites division. So where are we in the market? The largest market for glass nonwovens today is non-residential building and construction. A market that we estimate is growing at a pace of about 5% globally. Today we are the global leader in this market with very talented teams established around the world. We expect to grow this business at a pace that is about twice faster than the market. This year our revenue will be approaching about $500 million. Over the last few years we have consistently delivered sustainable margins that are, generally speaking, less exposed to broader business cycles. This year, as I just shared with you.
So we have grown faster than the market. But on top of this, we have as well generated additional benefits thanks to the capacity additions we have made in Europe first and then more recently in North America. So really, as Arnaud mentioned to you, with the glass nonwovens revenue growth, the type of EBIT margins that we can deliver, and our return on capital, all of these are very accretive to the composites performance. And obviously the more we continue to grow this business, the more we'll propel composites support. So let me now try to explain you why this is such a great business. And I think to do so it's important that I spend some time, help you understand the technological expertise that we have grown and built over time.
This technology really, I mean, obviously allow us to grow in the market, but also allow us to meet the market needs in a very differentiated manner. Basically what the glass non-woven does is it's adding functionalities to our products. And then ultimately those functionalities will really solve customers' problems. So on the chart here we have tried to represent in a pretty simple manner what exactly we mean by that and what exactly this concept means. So if you start on the left-hand side, we have the first set of functionalities that we call mechanical properties. So those are properties such as dimensional stability or tear strength. And those type of functionalities are very important in markets such as roofing or flooring applications that are the two largest markets in the world for glass nonwovens.
As you move further to the right, the next set of functionalities are those where the glass nonwovens act as a barrier. So for example, it will act as a barrier against water, mold and mildew, fire and so on. Those then become very important when it comes to markets such as insulation or the fast growing market of gypsum boards in North America. Finally, on the right hand side and the most advanced type of functionalities we can add is those functionalities about aesthetics and visuals. So those become are very important when it comes to finishing the inside of a building. So for example on the walls application or ceiling tiles. And I will come back on the example of ceiling tiles in a minute.
So as you can see on the chart here, I mean the more functionality we add, the more value we create for the customers. And obviously the more we help them win in their own markets. The second important aspect to note as well is the more functionality and the more differentiated we are versus our competitor. So really a very strong competitive advantage and control point we have into the market. So let me now share with you a couple of examples where Owens Corning has demonstrated really true market leadership by driving glass penetration into the market and really partnering with the key market leaders. Because that's the second aspect of this business where we have developed a level of intimacy with our customers that is very, very impressive. So the first example is what we refer to internally as construction boards.
So basically whether they are being used on the outside of a building, on the roof or the inside, a large variety of construction boards are being used in the market. And they bring valuable functionalities such as mold and mildew resistance, walkability or act as a barrier for water and fire. As you can see here, this is a very large market and today we estimate that the level of glass penetration is in the range of 7%. Even though this might feel like a small number, it is worth noting that about a decade ago this number would have been close to zero. So as I shared, really driving glass penetration over time has made the adoption of glass non-wovens in this market.
So we believe that as we bring the right functionalities in the market, this will better equip us to address customer needs and continue to grow the size of the pie for glass nonwovens. One of those needs today we see is the labor productivity. So you know, labor productivity is a real bottleneck today on the North American construction market. And this is really where when you come with functionalities such as mold and mildew resistance or strength that will allow like lighter buildings or stronger buildings, those will then play a role in changing building practices and ultimately drive labor productivity on the job sites. So really that's a large market in which we see a very large opportunity for us. The next example I want to share with you is the one of ceiling tiles.
So I'm sure you know, ceiling tiles are being used today in hospitals, schools, offices, and all kinds of buildings and construction. And basically the role of a ceiling tile is to enhance the interior of a building, right? And they do so by providing better sound, better luminosity and so on. This actually, even though ceiling tile might look very simple from the outside, when you look at it, what you see is actually the glass nonwoven. So, you know, there is a board which we laminate a glass nonwoven on it. And even though this might look very simple, it's actually a very complex market where products are highly specified. We need to develop very, I would say, engineered solutions that need to fulfill a lot of requirements.
So as you can see on those pictures here, but basically think of a ceiling tile that needs to be used in all kind of shapes, rounds, you know, squares and others. All need to look exactly the same wherever you are in the room. All need to provide the same level, the right level of light, reflections and luminosity, as the architects were specified, at the same time very often will act as a barrier for fire. And all of this needs to be accomplished without obviously compromising the primary role, which is to guarantee a certain level of acoustical performance in the room. Finally, our products, as we accomplish all of this, needs as well to have the right level of mechanical strength to allow our customers to produce those tiles in a very efficient manner.
As you see here, the market we estimate to be in the range of $180 million with about a 40% level of glass penetration, so which still leaves us a very interesting $100 million of revenue opportunity. Finally, I guess I could not be here with you today without providing you a little bit more details about our Gastonia investment, so as a reminder, we have invested about $130 million to build a state-of-the-art facility in Gastonia, North Carolina. And the primary purpose of this investment was on one side, capture the growth of the North American market, and on the other side, really continue to enhance our global leadership position. Very pleased to see where we are today with the facility, which is performing at a level of performance that is very much in line with our expectations.
And as Arnaud shared, the facility today is producing the full portfolio of product and it's close to its design capacity. So we really believe that the success of this investment, combined with the fact that as you build a nonwoven line, the level of reinvestment over time is very, very low. Those two will really support the case for further investments in organic growth and deliver greater results for the business. So before I hand it back over to Arnaud for his closing comments. I guess I would summarize by reminding you of some of the key compelling fundamentals that I believe are into the nonwovens business. I mean, this is really a great business where we are the global leader, where we have established a very strong position, and where we are leveraging our unique capabilities in functionalizing our products and a very unique technology.
As I said, it is a growing business where revenue growth, EBIT margins and return on capital are accretive to composites. And it is an investable business and one in which we will continue to invest capital that will create value for our customers, deliver profitable growth for the company, and guarantee strong returns for our shareholders. Thank you for your attention and hand it back to Arnaud for his closing comments.
Thank you, Nico. I will wrap up quickly because we are running over and I won't be popular with our master of ceremony, but you really heard four things today. The first one is composites continue to be an attractive market, a high growth market. Our products are needed by many industries. The second thing is that industry consolidation and barriers to entry will continue to create a favorable environment. The third thing is that we've really changed a lot of the fundamentals of the business, the way we run that business, the way we go to market and delight our customers. And therefore, this will enable us to capture our fair share of the growth that is to come in a capital efficient manner. And lastly, well, nonwovens is a very valuable part of our business and we will continue to grow that franchise over the.
Over the next cycle. Okay, and now these four things are really creating the conditions for us to be very confident in our ability to sustain the current mid teen EBIT margin and the double- digit return on capital where we are today. All right, so with no further ado, I'm inviting Thierry for the Q and A session. Thank you.
Thank you, Arnaud. As if you needed one more French accent today, I'm back here to facilitate the first Q and A session, so this is our time to learn everything about composites. The way we'll proceed is dI would ask that you raise your hand. Indeed, please, and then wait for the microphone to be brought to your desk, and then please identify yourself and the name of the firm. Thank you. Kathryn.
Hi, Kathryn Thompson, Thompson Research Group.
Thank you for your time today on.
Acquisitions have been a little bit more.
Challenging in the composites segment, but there.
Still are some opportunities, granted, a bit smaller. Could you discuss those opportunities from an acquisition standpoint?
As you look forward.
For new products and end markets for growth. How do these acquisitions play through? Or do you really have a greater opportunity to develop these internally? Thank you.
Indeed Julian and Brian have done great acquisitions in our case. You heard the acquisition we attempted to do in nonwovens. That was last year in Finland, Ahlstrom, which could not proceed because of regulatory approvals. I would say today, what we enjoy is a high growth market. Kathryn, you see us growing. I mean, this year we're going to deliver $100 million plus of organic growth. For us, I think the priority is really organic growth. We are monitoring what is available in the market. But I would say there are not so many opportunities in our business. In short, our focus right now is on organic growth. There may be opportunities to acquire some technologies that would enable us to grow composites faster. But I would say at this stage, the priority for us is clearly organic growth.
Hi again.
Ken Zener, KeyBank. Good microphone. I appreciate the data you gave specifically to the top five having it sounded like 83% up from 66%. So just a few facts here. So you guys grew volume 4% in 2015, 2016, 6% in 2016. Your revenue was only a 2% CAGR because of a lot of FX headwinds. The reason I present this data is that your pricing of roughly one point a year, you know, FX, there's mix, et cetera, but it's only about 100 basis points of price. Is that something that you would expect within an industry where the consolidation, high fixed cost, top five, 83%. I mean, what is it that's set to change in that dynamic? Or are you going to have not so much price as you move to a more capital efficient model like you're doing in China, right?
No.
Look, we do have a lot of emphasis on margin enhancement. It's one of the four priorities over the past five years, if I'm not wrong, we have delivered $120 million of price. So this has contributed significantly to the improvement of the bottom line, I would say. This year we have faced some headwind and if you look at our numbers, this year has been a kind of abnormal year because we faced in Europe at the end of last year a softer market and new capacities that were coming from the Middle East. So I think a new analysis can. The numbers are kind of skewed by what happened at the end of last year. I would say things have normalized in the middle of this year. We have announced the price increase. But you know that a lot of our volumes are under contract.
We are just starting our contract season for 2018. I would say I'm feeling encouraged by what I start to see. I mean it's still early to say but I would definitely, I mean I feel that what we saw at the end of last year won't repeat this year. So will we see more price? I mean definitely. In a market that grows 5%-6% with capacity utilization in the 90s, definitely you will continue to see price. And I would say one last point before we go to the next question. Right now we are operating at very high capacity level. We're Owens Corning. Right. I mean we have these strategic supply agreements in place. We don't play only with price, but it's really also mix. Right. Our capacities are not totally fungible but I would say our plants are specialized.
In each plant we have two products platforms that are being produced, so we have also that ability to ensure that we can go from one market to another if we cannot get our fair price in the market.
Mike had a question, Mike. Rehaut.
Thank you. Good morning.
Morning.
You know in terms of the capacity additions, obviously very encouraging that in the last few years it's been slightly below the market growth and that's what you project for the next three years. I was curious though, even within that there can be some short term disruptions as you refer to with I believe the Egypt plant as it related to Europe. I was curious over the next 2018-2019 where the capacity additions will be if you have a sense of which competitors and by region kind of where that addition might be concentrated.
Sure.
Yeah. So I would say there are three regions where new capacities are being built. Where you are aware of the Jushi investment in South Carolina. This is the so following Egypt, Jushi announced in 2012 that they would come to the US when they announced in 2012 they said that this plant would start in 2014 and this plant is not going to start until 2019. So I think it tells you also how much caution you have to have when you see big announcements made by some competitors. So planned startup in 2014, reality happening in 2019. I think it shows also the difficulty to operate in new regions for some of our competitors. This plant is due to start in 2019. I mean today Jushi is selling much more than the design capacity of this plant supplying from China.
The Chinese market is growing high single digit to double- digit depending on the years on the stimulus and the trends in China. So we believe that the capacity that is being built in the US will actually enable Jushi to sell more in China. The second announcement. So recently Nippon Electric Glass, following the acquisitions of PPG, announced some capacity addition, but still unclear what is the size. I mean, they announced some expansion in the Netherlands. We believe that it's just a rebuild and the expansion of a melter and the conversion of one furnace in the US from textile over to thermoplastic structure. And so, I mean, all these are baked in the numbers that I showed to you. So no surprise for us. We were expecting that. And lastly, well, there are some new capacities coming on stream in China.
Despite, I would say the barriers to entry and the difficulty to obtain permit in China, you can still get some clearance, usually not in the coastal areas or deep inside the country. So all these numbers are baked in what I showed you for the three years to come.
I think John has the mic and then we'll come back on the other.
Side of the aisle.
Hi, it's John Lovallo from Bank of America. My question is on the 5.2% global growth that you guys are looking for through 2019 and you called out the automotive business as one of the drivers. So I guess the first question is your view on the US auto cycle, given that it's probably the richest mix of CUVs, SUVs, et cetera, where light.
Weighting would be meaningful.
And then, you know, historically it seemed that the headwinds to the automotive composites.
Have been, you know, the material cost, impact, performance and, you know, what happens in the repair situation and also kind of the cycle times of manufacturing. So what's the industry doing to address.
Those issues, those issues?
What is OC doing?
Well, obviously where we supply a raw material, right. So the way we are working in the automotive vertical is really to partner with tier one suppliers and the OEMs to develop new solutions. As I said earlier, there are real concerns for OEMs in Europe. By 2021, most of them are unable to meet the CO2 requirements. There are new standards that are being put in Europe by 2030. So they don't, not only they don't meet 2021, but evidently they don't meet 2030. One of the difficulty of OEMs is that they know how to design models with steel, aluminum and fundamentally the legacy producers know a lot about metals. Composites is still a fairly unknown material. Aircraft producers have gone deep into composites. When you look at the Dreamliner, Airbus, etc.
We do see more and more OEMs creating centers of excellence to develop composite solutions. Actually they are being kicked also by the newcomers. I mean, guys like Tesla, they jump from nothing immediately to the new materials. So I mean all this is creating a favorable environment. The difficulty, I would say in the automotive cluster is that each Tier 1 supplier has its own recipe to build a composite. And what we really need our industry to get to is to some standardization in how parts are designed and produced so that this repeatability happens. You mentioned how to repair a car part. I don't think this is a problem. I mean there are already many vehicles that are fully composite. This is a problem that is being addressed. Recyclability also of car parts is addressed.
So I think all the solutions are in place. It's more, I mean, the inertia and the know-how around composites.
Over here, Steve Kim, Evercore ISI.
Hi Steve.
Hello, Arnaud. I was wondering if you could talk a little bit about the nonwovens which was addressed. I think you had indicated your goal was to grow at close to 10%.
I think double the industry which was growing five, I think is what you said.
But you're capacity-constrained, I think you had also indicated.
So I was curious as to how.
Much capacity Gastonia added. Do you have the ability to sort of add there, just kind of give.
Give us a sense of percentage-wise what that added to your capacity and what?
Maybe if you expanded it could add. And then also you carved out, I think, barriers and aesthetic potential opportunities in nonwovens. It wasn't clear to me.
Are you doing any sales in those today?
I would assume you are.
You had given some numbers for addressable markets.
I think added to about $280 million. Just trying to understand how much of.
Is that the whole market or is?
That's what you think your share could be?
What are you doing today?
Right, okay, so where do I start in terms of capacity? Well, indeed, Gastonia will be fully loaded next year. I don't want to give specific numbers about capacity. I think this is the first time we are disclosing nonwovens. I'm sure that some of our colleagues are watching carefully what's happening here. Now, when I talked of capital efficiency, Stephen, where we are working on in our labs is also how do we debottleneck our assets? And clearly nonwovens. Gastonia was a sizable investment. When you look at the capital intensity of nonwovens, it's similar. I mean the upfront investment is a little higher than glass, but then over the life of the assets, you don't have any maintenance CapEx, you don't need to rebuild, unlike melters. So from a narrow seat perspective, this is accretive to composites.
Now, clearly, Nico and his team are working really, really hard on debottlenecking the lines that we have in the Netherlands. So we have also two assets in the US and making sure that we can sweat them more and continue to grow. You had a question about the addressable market. So what Nico was showing is what is the full potential of the market? There's a trend for more sophistication in commercial buildings. The growth of ceiling, wall boards, et cetera, is, I would say, accelerated by the need for nicer materials, more sophisticated, and in reality, when you look at nonwovens, one of the reasons why we love this business also is that the number of players is pretty limited. This is a market which is existing in Asia, but to a lesser extent, I think in the West.
There's a very big focus on the quality of our buildings. And the partnership we have with our customers is just fabulous. So great business.
Great. Thank you. We have plenty more exciting material to go through today. So what I would suggest is let's close the Composites Q and A session here.
Okay?
Thank you very much.
Thank you, everybody.
So now, moving on to the rest of the program, you're going to receive momentarily the presentations for the roofing business, and those should be available on the website as well. While that's happening, I guess I'll share another piece of trivia with you, this one about the roofing business. Back in the 1970s, the way Owens Corning got into the roofing business is actually because we had that great glass technology, and we thought that a glass mat, a glass substrate, could be a very interesting component to make the asphalt roofing shingle as opposed to felt that happened back in the 1970s. Forty years later to the day, we actually closed on the InterWrap acquisition, which, you know, you've probably heard about and you'll hear more about it today. So I promise you we won't wait four years again to continue to announce more good news about roofing.
Brian Chambers is the President of our roofing business.
All right, thanks, Thierry. Good morning, everybody. It's great to be here to update you on our roofing business. In a few minutes, I'll ask Liz Higgins to join me up on stage here. Liz leads our components business, which we're very excited to highlight as part of our presentation this morning. When I discussed the business at our last Investor Day, we were certainly facing a different set of market dynamics with questions about overall roofing demand, the impact of asphalt deflation would have on our margins, and how we would grow the business, and during my discussion with you then, I stated that through a combination of improving market dynamics and strong execution, I believe we would improve margins and grow the business.
Since that time, our roofing business has delivered outstanding results driven by great execution to fully leverage the growth and remodeling and new construction markets. We expected to see to expand our operating margins by capturing significant asphalt deflation and improving our operating efficiencies and to more than double the size of our components business through both organic share gains and acquisition and looking at our financial performance on the chart on the right, we are tracking to deliver over $700 million of revenue growth over the last two years and have achieved average operating margins of 21% over the past eight quarters.
While our revenue and earnings performance has certainly benefited from a growing shingle market, the investments we have made in our components business as well as other key commercial and operational areas gives me confidence that we can continue to generate above market growth and sustain our strong operating margins going forward. During the discussion today, I will outline our plans to continue delivering strong financial performance. We have a solid track record, but we're not resting on our laurels. We continue to invest in and focus on key areas of the business where we can create and maintain unique points of value which drives growth, gives us price premiums in the market and leverages our scale and operating efficiencies from a demand perspective.
I expect us to continue to operate in a very good market as asphalt shingles remain the product of choice for residential roofing applications and we continue to see positive trends in the overall housing market. Our components business has been a real bright spot in our performance over the past two years. Liz will review our plans to continue to drive growth above the market at stable and attractive margins. After Liz is finished, I will then come back and discuss the key commercial and operational differentiators which give us a sustainable price, cost and service advantage in the market. Overall, the expectation for a solid and stable market combined with strong execution of our key initiatives gives us confidence in improving our guidance for the roofing business to sustain operating margins of approximately 20%.
Our roofing business operates within a $12 billion market which includes other steep slope materials such as tile, metal, wood and slate. These roof covering materials make up about $10 billion of opportunity with roofing components which are the underlayment materials, ventilation products and other finishing accessories needed to complete a roof insulation, providing a little more than $2 billion of opportunity. When comparing all of the roof covering materials, asphalt shingles are the most popular capturing over half of the residential market because of affordability, appearance, performance and ease of installation. These product advantages materialize into a significant installed cost advantage versus the other roofing products used in residential applications. As shown on the chart on the right. At about $10,000, a typical asphalt shingle insulation costs about 40% less than tile and almost half as much as metal and wood roofing.
Given the wide range of styles and colors, as well as their durability and low installed cost, I believe asphalt shingles will continue to be the preferred product of choice in the future, and while the asphalt shingle market provides a solid base of business, we saw a big opportunity a few years back to drive more significant growth within the $2 billion plus component space based on three factors: the increased use of these products by contractors when installing the roof, a big material conversion potential in synthetic underlayments, and the possibility for OC to provide products that could be used with other asphalt shingle brands as well as all the other roof covering materials. Standing here today, we continue to see additional opportunities to expand our product portfolio and to increase our market share in this space.
Because of the popularity of asphalt shingles, we have seen steady demand growth tied to increased remodeling investments, new construction gains, and strong storm activity. Our outlook for a healthy shingle market remains positive as we see fundamental demand drivers continuing to support additional growth. Remodeling demand has seen a strong recovery over the past few years, driven by improved economic factors and the reduced impact of a lengthening shingle replacement cycle which I spoke about at our last Investor Day. Moving forward, we expect to see modest remodeling growth as increasing existing home sales, rising home prices in home equity, and improving income support home renovation projects. Expected increases in new construction starts will also continue to fuel demand growth, although this represents a smaller part of the overall roofing demand, making up less than 20% of the overall market.
Storm events, which create about 38 million squares of demand on average annually, could create a bit of a headwind on overall shingle demand in the near term, but its impact is generally more contained as it is tied to specific regional events. When you put all this together, we see an overall roofing market that has strengthened and is currently operating at healthy demand levels with some opportunities for continued growth. This chart shows the annual demand for asphalt shingles in the United States, which the industry measures in squares or 100 sq ft of roofing sold. Over 80% of the market is driven by reroofing activity, which is a necessary maintenance and remodeling investment for homeowners with the remaining tied to new construction activity.
New construction demand shown by the blue bar at the bottom of the chart is expected to continue to grow with increasing housing starts. The green bar in the middle of the chart shows asphalt roofing demand tied to age-related reroof and remodeling. After a decline in demand from 2010 to 2014 as the replacement cycle for asphalt shingles lengthened, we have seen a steady recovery in demand which can increase further as home remodeling activity grows and the US housing stock continues to age. Weather-related demand shown by the pink and orange bars is the most volatile and difficult to predict. Demand here has been above the long-term average the last two years after two years of below-average demand and creates the most uncertainty going into 2018.
As discussed on our third quarter earnings call, assuming fourth quarter market demand flat to last year, we would expect 2017 to finish around 140 million squares. If you use a standard approach to forecasting the market, the outlook for 2018 would be based on an expectation that there would be continued growth in new construction and remodeling volumes and that total storm demand would come in at the 10-year average. Rolling all this up, this would create a market forecast for next year to be somewhere in the mid-130s with the potential for good carryover momentum from this year creating a strong first half. It's important to note, even if we see slightly lower roofing volumes next year, we would still be operating at healthy demand levels supportive of a constructive market environment.
In addition to market growth expectations discussed at our last investor day, we also outlined a plan to leverage falling asphalt costs to improve our margins. This chart shows the relative comparison of roofing asphalt flux cost excluding transportation and processing costs as reported by Poten & Partners to the EBIT margins for our roofing business for three quarters after our last investor day. We successfully executed our pricing strategy to capture the benefit of lower asphalt costs and improved our EBIT margins back to 20%. From the middle of 2016 to now, we have maintained a disciplined pricing strategy while also continuing to invest in several areas of the business which has allowed us to maintain this operating performance. As we have experienced increased asphalt costs and turned to a more inflationary environment in 2017.
The most significant investments have been in our components business, which has become a much more material part of our revenue and earnings that Liz will discuss further. I will then come back and discuss the other key investments being made in our commercial and operational areas to maintain our competitive advantage in the market and sustain our operating margins around 20%. Liz is the Vice President and General Manager of our components business. She has been with OC, similar to Nico, for 17 years with operational and leadership roles in our supply chain, marketing and sales teams and has been leading our components business for the past three years. Liz.
Thank you Brian and good morning everyone. I'm excited to update you today on our components business. This business has a proven track record of sustainability, sustainable material substitution driven financial growth with stable and attractive margins. Two years ago at this event, Brian talked about how this business was positioned to grow. Today I'm here to talk about the results we've earned and why we're so optimistic about our future. We have nearly doubled our legacy roofing components business in just the past four years and with our acquisition of InterWrap, and we have now quadrupled our overall components business in that same time period and our position relative to the market opportunity leaves plenty of room for growth from there.
With revenues of more than $500 million and similar operating margins to shingles, components now has a significant impact on our earnings performance and it has created value for Owens Corning shareholders. The roofing components market represents 20% of the $12 billion US residential roofing market. It's a $2.3 billion market opportunity. There are four primary segments within this market. I'll provide an overview of each one of these segments and the potential growth in each. The first segment, Hip and Ridge and Starter Strip, are labeled as shingle accessories on the slide. These products are most closely tied to our shingle business. As our commercial teams continue their successful system sell approach, the sale of Hip and Ridge and Starter Strip will continue to grow.
The second and third segments, the Self- Adhered and the Ventilation both provide great opportunity to highlight our total protection roofing system. Our Self- Adhered products create a waterproof barrier for a homeowner's roof, while our ventilation products are designed to optimize airflow in attics. One of our key strategies with both of these product categories is to position them for use under all residential and commercial roofs, not just asphalt shingles. The final segment underlayment was the heart of our decision to acquire InterWrap last year. Both the Synthetic and the felt paper together make up a $700 million market opportunity with the technically superior synthetic category rapidly replacing felt paper.
By acquiring two well-known and trusted brands, Titanium and RhinoRoof, and adding them to our successful ProArmor and Deck Defense product lines, we now have significant share in the synthetic category, and we are rapidly bending the adoption curve from felt paper to synthetic underlayment to build on the conversion story even more. This slide highlights the market opportunity, and it demonstrates our impact our commercial teams have had on integrating the InterWrap products into our portfolio. The movement from felt paper to synthetic underlayment is a material conversion story similar to the fundamental conversion that Owens Corning created and led over 40 years ago, introducing fiberglass mat as the asphalt shingle substrate. Our company knows how to sustainably convert an industry, and we're doing it again successfully by bending the curve of market adoption of synthetic underlayment products.
When we bought InterWrap, the 10-year annual conversion rate was approximately 3 points. Since we've owned the business, we've seen a significant positive shift in that conversion. In fact, over the last 12 months, we've seen an annual conversion rate of about 10 points. The value proposition for synthetic underlayment is undeniable, a message that's clear when our sales team take their demonstration on the road to contractors. It's tougher and more durable. It's faster to install, it's safer for crews to walk, and it's lighter for our crews to carry. In short, it's a compelling sell to the contractor and it's simple for the contractor to turn those benefits over to the homeowner. Putting it all together, we've seen tremendous growth in this category and we've accelerated this growth since our acquisition in April of 2016.
We believed from the beginning that all the pieces were in place for InterWrap to be an ideal fit with Owens Corning. With its vertical integration, global supply chain and low cost scale advantages, we were confident that we could buy this business, operate it at a high level and materially improve its profitability. Those beliefs have proven out and InterWrap has provided Owens Corning really a sustainable competitive advantage in the market. As we discussed in our third quarter earnings call, the integration of InterWrap is complete and our business is delivering significant shareholder value. I'm very proud of the effort our team has made to integrate InterWrap into our business. As with any global acquisition, there's significant complexity that needs to be managed and our team did an overall excellent job.
We've more than doubled the size of the already growing components business and we've generated $60 million of adjusted EBIT in our first year. We committed to achieving a run rate of $20 million or more of commercial and operational synergies by the end of the year and we delivered. There are really three key efforts that I want to highlight that were critical to our success. First, customer accountability was quickly and fully transitioned to our commercial teams, utilizing our strong sales capability and our market position, doubling our feet on the street and providing even greater support to our contractors and our distribution partners. Second, we fully leveraged our material science capabilities across the InterWrap product portfolio and accelerated our material conversion journey from felt paper to synthetic underlayment. And third, the deployment of InterWrap into our IT infrastructure was a significant capture of back- office synergies.
I have a deep and talented team of professionals that are working on this business and I'm extremely proud of their accomplishments. Over the last 18 months, the components business has delivered double- digit revenue growth by the conversion of felt paper to synthetic underlayment. We've expanded our product offering and we serviced the market demand beyond just asphalt roofs. I look forward to this business continuing its double- digit growth in the future. Thank you, Brian.
Thanks Liz. As you can tell, we are very pleased with the growth we have achieved in Components and our performance in integrating the InterWrap business into our company. Moving forward, we will continue to invest in and grow this attractive business segment. In addition, we continue to invest in other key commercial and operational areas with which I believe drive critical sources of price and cost differentiation, supporting our ability to sustain margins. Our commercial strategy to sustain our price premiums and market share focuses on strengthening our brands, offering innovative products and partnering with the best contractors and building material distributors in the industry. Owens Corning has the most recognized brand in residential roofing, which gives contractors using our products a tremendous advantage selling in the home.
In addition to the Pink Panther, we've extended our brand strategy to leverage and build out our other market leading brands in our product portfolio such as the synthetic underlayment category where Rhino and Titanium are established and trusted names and in our shingle business where Duration is known for its design and installation features. In addition to our brands, we continue to focus on developing unique products that allow our distributors and contractors to upsell and capture additional margin. For example, our Duration shingle combines more vibrant colors with our patented SureNail tape technology, providing for faster installation as well as enhanced wind performance. This premium reroof product is our fastest growing shingle because of these design and performance benefits that contractors can sell in the home.
In addition to Duration, we offer a broad line of other shingles with options that meet a wide variety of styles, colors and pricing needs. This allows us to respond to specific competitive situations in a very focused manner without impacting the entire product line. Another critical component to sustaining price and market share is maintaining a strong contractor base. To accomplish this, we invest a significant amount of commercial resources to identify, train and support a nationwide network of high quality local contractors who sell and install our roofing products in a wide variety of residential applications. Through our focused efforts, we help our contractors build their businesses around our brands, products and services.
This ongoing effort to support the success of our contractors is accomplished through our national sales force who work directly with contractors to help them win more jobs, creating more demand for Owens Corning products to service all of this downstream. Our downstream customers, we maintain a strong and vibrant distribution network. Owens Corning is unique relative to most of the other manufacturers in our ability to maintain leading stocking positions with distributors who operate in all four of the primary channels to market. This broad network enables us to meet the different purchasing and service needs of contractors, builders and homeowners who want to use our products. In addition to maintaining our strong commercial position, we also continue to invest in critical materials science and manufacturing areas such as which sustain our low delivered cost position in the market.
Roofing manufacturing is a material conversion process where, as you can see in this picture, we coat fiberglass mat on both sides with asphalt and embed coated granules on the surface to provide color and durability. Our ability to design and manufacture shingles cost effectively is greatly enhanced by our deep material science knowledge of each of these key raw materials. Our R&D and manufacturing teams work closely together to evaluate and combine these materials in distinctive ways that optimizes our product cost positions and ensures the highest operating efficiencies at our manufacturing plants. As Arnaud and Nico highlighted, we have great support by our own composites team providing us with leading designs in both fibers and glass mats which greatly enhance our manufacturing speeds and shingle performance.
And.
With the largest asphalt network in the roofing industry. With production co-located at most of our roofing plants, we are able to oxidize and process a wide variety of asphalts, giving us maximum sourcing flexibility and significantly contributing to our capability to design high-quality products with improved profitability. In total, our capability to customize, process and convert our key raw materials has resulted in roofing products that have improved performance and are less expensive to make and ship than previous compositions, giving us a sustainable cost advantage in the market. Our material science and vertical integration advantages are further strengthened by our manufacturing network which is well positioned throughout the country to service regional demand. Owens Corning has the broadest asphalt shingle network in the industry.
We operate 14 roofing manufacturing sites with 16 production lines, capable of making multiple shingle styles and types and serving both national and regional customers. We leverage our scale even further, utilizing industry leading production technology to make and ship the same color shingles from multiple plants without requiring our distribution partners to separate their inventories based on specific plant locations. And because transportation costs for both inbound raw materials and the outbound delivery of finished goods is such a large component of total delivered cost, our scale and national footprint provides us with a significant advantage versus many of our competitors. In closing, we have a great business position to win. We have a track record of financial performance delivering strong margins for close to a decade. We operate in an attractive repair and replace roofing market that has the opportunity to continue to grow.
We are driving growth in our roofing components business through material substitution and new product innovation that I expect will continue to become a larger part of our revenue and earnings. We are strengthening our price and share positions in the market with leading brands, innovative products and a unique and strong contractor and distribution network. We are continuously pushing to improve our low delivered cost position through material science, vertical integration and leveraging the scale of our manufacturing network. And last but certainly not least, we have great talent with a passion for our customer success and winning in the market. We have delivered average EBIT margins of 21% over the past eight quarters and I'm confident we can continue to sustain operating margins of approximately 20% moving forward. Thanks for your time this morning. Appreciate it, Kieran.
Thank you, Brian. We're ready for the next round of questions about the roofing business. Same process, so please raise your hand. I'm seeing Matt, I believe raised his hand first, and please identify yourself and name the firm as well.
Thanks. Hi, Matthew Bouley, Barclays. Thanks for taking the question. I just wanted to ask about your kind of update to long-term margin guidance. You used to say mid-teens are better and now you're saying 20% margins are sustainable. And clearly the components business is pretty part of that. It sounds like you're doing over 20% margins in that business. So the question is just what else you know other than components? If anything has changed structurally in the roofing business that gives you confidence in stating 20% margins are sustainable over the long term. Thank you.
Thanks for the question. I mean, certainly when we created that guidance in terms of mid- teens or better, we were always focused on the or better part of that. And when you look at the performance of our business and our operating margins since the beginning of the decade, we've certainly been at or above a little over 20% more times than not. And that was really based on a fundamental belief that over the course of the you know, in the 2008-2009 period prior to that, we were making considerable improvements in our operating positions. We made sustainable changes in our composition and our raw material inputs, how we ran the plants and. And we felt that we were creating a very sustainable cost position relative to most of our competitors that would give us additional margin opportunity.
When you look across the network, I think we also believe we had a very good commercial strategy and story, but we've really strengthened that. So I think the combination of certainly the components growth, which we continue to believe we have opportunities to in the margin performance there, really strengthening our commercial position with new products and brands. Our contractor positions are much stronger now. That creates a stickiness to our brand and product as we've worked with them to help build their businesses around our brands and products. As you know, the contractor network in the United States is very fragmented, very entrepreneurial. They tend to want to build their business around a trusted brand, partner with people that are in the market with them, and around products and services that they can count on. And that creates a system stickiness that I think we've created much stronger.
And then really again, our continuous effort to improve our cost position, our material science capabilities in glass, mat and asphalt particularly have really been able to generate product formulations and compositions that we think give us a sustainable cost advantage in terms of how we run that. And we think that can contribute to continue to grow our performance there. So I think you add up all those three growing components really strong and building commercial strengths in the market, and then our operating efficiencies give us confidence today that in the market we're seeing in front of us, we can sustain those kind of margins.
I think Garik had a question. Do you still have the mic there?
Okay.
Hi, thank you.
Garik Shmois with Longbow.
You talked about confidence in growing components double- digits. Just wondering, in the context of a potentially down market next year, what's the relationship between components and traditional asphalt shingle market growth? You had several years of very strong.
Asphalt shingle market growth.
Just wondering how components compare to the overall market and your confidence in growing double- digits even next year in a potentially non-market weather dependent.
Yeah, thanks for the question. A couple of comments. At a high level, when we look at the components market opportunity, if you look at how that's grown over even the last couple of years relative to the asphalt shingle market, it's grown above that rate. So the component space is growing at a faster rate. Again, I think that's contributed to contractors and installation practices now are requiring or they're using more of these components in the installation practices. So I think there's a better growth curve against that piece. But I think part of our strategy and a really key part is that when we look at the component portfolio we have today, what we've invested and what we're trying to grow, we've really expanded the pie. Our connection, our attachment used to be just to our asphalt shingles and our brand on the product.
So if, and now we look and say we've created products that can go under other asphalt shingles, but we've gone a step further than that to say now we have products that can go under metal, tile, slate, any other roof covering. So even if asphalt shingles in that market contracts or moves around a bit, those other roof covering materials give us an opportunity to continue to expand and grow. And really that's at the heart of our strategy of why we think that's a great opportunity. When you look at the $2.3 billion market, about $1.8 billion is in ventilation process products, Self- Adhered underlayments, synthetic materials. Those are all materials that are used in all kinds of roof coverings, not just asphalt shingles. And I think that's the opportunity for us to continue to grow and expand with the business going forward.
Let's go to Scott over here.
Hi, Scott Rednor, Zelman & Associates. Hi Brian.
Just on that last point, I wanted.
To maybe understand on the future ma.
I think you guys had highlighted more.
On the component side, but why not, or why did you not mention some?
Of the other roofing coverings, just given.
That you're already selling into that area on the underlayments business, and then just on top of that, maybe longer term your view on solar and where OC could fit into that longer term.
Thanks for the question. I think when we look at the other roof covering materials and we continually evaluate any changes in preference in price point, in installed cost, but when we, every year we kind of look at those opportunities in metal, in wood, in slate, in tile, and it's really, we have not yet found an entry point where we could create more value as an owner of those businesses than the current ones through either leveraging distribution, our brand, our scale technologies, our material science. So I mean we always continue to look for that. If we find those entry points and those opportunities, we would get into those, but we haven't found those yet. Solar is an interesting one. We've been involved in solar for about 10 years now.
We, if you go back, we used to try to get into this product or category with a product of our own. We got out of that. Dow's been in and out. There's been a lot of folks in and out. I think that when we look at the market opportunity, it's still very subsidized. It's very confined to a few states. And I think that hasn't grown tremendously. But it creates a couple of opportunities for us as we look at that in two ways. One is, if you look at the primary solar mechanism today on residential roofs is through a panelized system that sit above the roof deck.
That actually has created an opportunity for us in our shingle business because before a manufacturer or solar supplier will go in and put that on the roof and guarantee that for 20, 20 or 25 years, they want to make sure that the roofing material is going to last that long. And that's actually created some reroof opportunity for us as we've partnered with contractors in those markets to deliver that. So we see that as an upside in that space. When you go to the photovoltaic cells that are tiled materials, the Tesla type materials, they're very expensive, but they also do give us an opportunity in our component space. And so those same underlayments materials that we're developing, we see as an opportunity to expand.
So I think for us, we may not manufacture the roof covering material, but we can get a piece of every roof that's being installed. And that's a big opportunity for us. And that's really where our focus is in that space.
Okay, next question. Mike.
Thanks. Mike Rehaut, J.P. Morgan. You know, really interesting on the components part of the presentation and I believe you're still targeting double-digit top-line growth there. You broke down the overall components market into the four segments and I was curious how your own sales matched up against that breakdown. In other words, I assume a good portion is in the shingle related segment, but also you have the growth in the other segments as well with InterWrap. So just kind of curious, broadly speaking, how the $500 million or so of revenue breaks down and where you see the best opportunities going forward in terms of supporting that double-digit growth.
Okay, sure, thanks. Yeah, when you kind of take those four categories, you know, the hip and ridge starter, that bucket really kind of mirrors our shingle share in the market because it's really tied to our system piece with the acquisition of InterWrap in that space, that 700 million space. I mean, part of the attraction was we saw this great material conversion taking place. They are a leader in the space and we're leading, have leading brands and so we've now taken that to another level. So in that space we have a very strong share position and we continue to grow and invest. And the great thing about that platform for us is the reinvestment economics are fantastic. So we bought the facilities and the assets in place today. As we continue to expand out and we're expanding current facilities to meet that market demand.
Those are very attractive returns. So we get super top-l ine growth, we get great margins and we get return on capital that are really, really, really strong. So we like that investment strategy in that category to keep growing that space and that's where we see a lot of opportunity, probably the most opportunity in the near term to grow in that category. Self-adhered. We have a good share position there. Solid. We've made some investments organically to grow that product line and we do think that's another opportunity because that's a product that can be used under other kind of roof covering materials. So we continue to invest there and do development and then ventilation is probably our weakest category in terms of share position. But it's one that's growing and has some good opportunities for us.
So that's how that kind of, if I spin around the wheel, that's kind of how I break those out.
Let's take one last question from Keith on roofing.
Thank you, Keith.
SunTrust on your $135 million.
Square estimate for the industry for next year, I guess within the storm aspect.
You talked about a 10-year average.
Are you speaking of the major storms with what you call the other weather events there? If you get any more detail on.
Mention the last hurricane, what you expect from that?
Okay, sure. And one thing I've learned now, this is my third Investor Day. Usually the first question of the other two and I didn't put that chart up was what's going to be the market next year? So I thought I'd preempt that this time and put something up. But I want to be clear what I tried to lay out there was just a framework how you look at forecasting. We don't provide guidance into the roofing business till kind of the second quarter of next year. We do that because storms make such a large part about 30% of the demand. And the only thing I know for sure January 1st is I don't know how many storms are going to be taking place this year. So we wait till later in the season where we can get a really good feel for that.
But in that scenario of next year's demand, we would expect to see new construction growth with starts. We expect to see remodeling growth with starts. And an average storm demand gets you in that mid-130s. And that's really where there's most volatility. Could be more, could be less in that space. I think part of that storm breakout is as we track kind of just everyday weather events. Small hail storms, wind events. This makes up the majority of that storm category. These, you know, have some volatility to them, but a lot less. They're pretty consistent, you know. It's the major storm opportunity, the massive hail storms, the big hurricanes. That's where we've seen the most swings. And going into next year, that creates probably the most volatility in that category. Now, there were two hurricanes here, Irma and Harvey.
I'd characterize that the one in Texas, more of a flooding event. There's some coastal areas impacted that we're starting to see some demand coming through. And then Florida, more of a wind event. At our last earnings call, I believe we kind of put that in the range of four to five million squares of total opportunity. I'd say standing here today, we still feel that's in the right range of demand that should be created. We are starting to see that come through here in the fourth quarter as now insurance adjusters are in and starting to cut checks and homes are starting to get repaired. The hurricane damage is generally more severe and has a little bit longer tail than hail.
And so I think that's where we believe the most carryover into next year is going to come from in those two markets with that hurricane carryover going into next year in that major storm category. Okay, thanks.
Excellent. Thank you, Brian.
Thank you.
Well, now
We're going to be taking a short break now, about 15 minutes. The program will resume at 10:30 A.M., and for people on the webcast, you'll see, obviously, a break in the action will be back momentarily and the distribution of the insulation slide deck will be made during the break. We'll resume at 10:30 A.M. with insulation. Thank you.
Okay, welcome. Welcome back, everybody. Welcome back. It's about 10:30 A.M. We're ready to resume the program. We're going to move to the second half of our agenda, and by now you should have a copy of our insulation presentation. Insulation is the next business on the schedule. I would like to invite to the stage Julian Francis, who is the President of our Insulation business, Julian.
Good morning everyone. As Thierry said, my name is Julian Francis. I'm President of Insulation. I'm excited to be here today and to talk about the ongoing transformation of this business. Helping me do that today will be Todd Fister, Todd's Vice President and Managing Director. Todd joined our team in 2014 to head strategic marketing, but we've asked Todd to now lead our recently acquired Pittsburgh Corning Foamglas business and our planned transaction with Paroc. Todd will join me on stage in a few minutes to discuss our plans for those businesses. But first, let me start with our strategy and the progress we've made over the last several years. Two years ago I stood in front of you and talked about the three pillars of our strategy.
First, the growing demand in residential construction driven by housing starts and code changes would lead to a positive pricing cycle and significant operating leverage. Second, we would strengthen our technology platforms to enhance our world class manufacturing and bring to market new products that would expand our margin profile. And third, that our ambition to broaden our product platforms would allow us to serve growing applications in commercial and industrial markets both in North America and around the world, diversifying our portfolio into higher and more stable margin segments. And we've made significant progress in all three areas. In an environment in which our markets are operating well below their potential and in the case of housing in the United States, even well below its mid- cycle margins. Sorry, mid- cycle average pricing has improved.
In the residential market, we've built new capabilities manufacturing, marketing and R&D and we've already expanded our access to markets through acquisitions that offer strong growth potential. And as a result, our financial position has improved. Now, despite the setback last year, which I think you're all familiar with, the financial performance has improved greatly. When I joined the business in 2012, we had suffered a number of years of declining volumes and margin erosion leading to significant losses. We set about developing a plan for the business that would return it to profitability and create new opportunities for growth. We first focused on improving our operations and lowered our breakeven by $100 million and our commercial execution delivered top- line growth of almost $500 million.
The combination of both delivered EBIT improvement of more than $250 million and operating leverage in excess of 50% over the four-year period 2011 to 2015, and we had 20 consecutive quarters of improved financial performance. We now see a more constructive pricing environment as capacity tightens. While the LTM data does not show it, our current guidance for 2017 would indicate that our EBIT margin improvement is back to its earlier growth rate. In fact, if you were to look at our guidance for the second half of 2017 versus the second half of 2016, excluding acquisitions, you'd see about 50% operating leverage and significant improvement to double-digit margins. We have a track record of achievement and the best is yet to come. The agenda for the rest of our presentation is focused on those same three pillars. Our strategy is working and remains unchanged.
Capitalize on the recovery in US residential construction through disciplined execution of price and capacity management. Continue to advance our technology, expanding our capabilities in the manufacturing space and bringing to market margin enhancing product innovation and continuing to grow our industry leading product portfolio in engineered insulation solutions for commercial and industrial markets globally. Let me start by reviewing our first pillar, the residential insulation business. We've shared charts similar to this in the past. This one's updated to reflect our latest estimates for pricing in 2017. We saw more than a 30% decline in price from 2006 to the beginning of 2012 and then a recovery starting in 2013 as home building increased and the demand for insulation improved. We saw steady gains in utilization rates for the next two years and price moved up around 15 points from the low.
Last year was a bit of an anomaly, large amounts of share moving back and forth during the year and pricing went backwards as we adjusted to respond to competitive activity. Though our analysis indicates overall utilization rates continue to climb, our number fell well below the average for about two quarters since the fourth quarter of last year. Our share has stabilized and this year we continue to see rising utilization rates and a more constructive pricing dynamic. Today, our estimate of industry utilization rates is above 90%, with our number in the low 90s and competitors more like the mid 90s. The recovery in US housing stocks, albeit slower than most economists have forecast, has still averaged about 11% since 2011, and demand has outpaced capacity adds, tightening up utilization rates. To provide a little more detail, a typical production line represents approximately 3% of industry demand.
With the growth rate of fiberglass installation having averaged high single digits and the forecast for next year above 6%, at least two lines must restart and operate for a full year just to keep the current supply demand dynamic. Our competitive intelligence indicates there are five idle lines available, three of which are competitors. We see indications that two of these will restart in the next six months. Despite these restarts, we calculate that utilization rates will rise by a further three points next year. On the basis of consensus, housing starts at 1.28 million and the fact that one of those lines will not come up till the middle of the year, this should create further opportunity to recover lost ground in pricing, and we've already seen signs this year of a more positive environment.
We announced three separate increases this year, all of which had some measure of success. In fact, I'd go as far to say that we've seen the most positive environment for pricing that we've seen since 2013, but with utilization rates more like levels heading towards the 2005 level, and here we've come back to a point that we've made before, and that's the impact of building codes. Today's code requires homes to be far more energy efficient than they were in 2006. In fact, it requires homes to use at least 20% more insulation per house. While building codes are not adapted uniformly across the country, nor applied equally across states, we see far higher demand at this level of construction activity than in the past, and as more states and municipalities adopt the recent code, we will continue to see insulation demand increase.
This, coupled with the fact that significant capacity has been permanently retired, means that the industry will be operating at full capacity at around 1.4-1.5 million housing starts. We are now hopeful that with our announced increase for early 2018, we will see price accelerate again and are confident about a return to prior performance levels with this portion of our business returning to double digit margins and driving 50% operating leverage for all of insulation, excluding the impact of acquisitions in their first year.
Excuse me.
The second pillar of our strategy is to capitalize on our technology leadership, creating differential value and competitive advantage in the manufacturing and marketing of our products. I'm particularly proud of the effort our manufacturing and research teams have put in over the last few years. It's really difficult to optimize manufacturing networks that are running well below capacity, and we continue to look for new ways to advance our competitive position. Recent manufacturing performance has been a tailwind for us despite the complete conversion of the plants over to a new organic binder after decades of using formaldehyde. Now, let me start by saying that insulation is a performance rated product, so what I mean by that is that by definition an R19 has the same performance no matter what manufacturer makes it. There's no competitive advantage in product performance.
An R19 or an R13 is an R13 or an R19. The differentiating factors for customers are things like product quality and ease of installation. But a significant competitive advantage can be gained through excellence in manufacturing. One of our primary manufacturing metrics is product density productivity, which is a measure of the mass of glass it takes to manufacture our products. The higher the productivity index, the less raw material and energy it takes to make the products, and hence the lower the cost. As you can see from the chart, we've been able to make progress year after year. The improvement on this chart is worth about $10 million over this time frame. As I said, over the past few years, new organic binder systems have been introduced by all manufacturers as a response to consumer demands.
These new chemistries are much more difficult to process, but by focusing on research and manufacturing teams on this metric, we've seen meaningful gains. Now, while we have continued to make progress in this area, on average, our competitors have not. In fact, in order to meet the product performance requirements, they have been adding material and therefore cost per unit at our scale. This is an important element in our cost structure. Each point of density improvement we can make is a critical opportunity to reduce our costs by around $5 million. This is a critical area of focus for our manufacturing and research teams as density control applies equally to the manufacture of mineral fiber products. A great opportunity for us to leverage our capabilities across platforms.
And now, advanced process controls allow us to respond in real time to small variations in our manufacturing without human intervention, further increasing our efficiency. We see benefits to this at all points along our manufacturing lines, from the formation of the fibers to our packaging process. And we are trialing new equipment we believe will further enhance our cost position. The cumulative effect of our work on binders, density and automation will ensure sustainable competitive advantage for us into the future. The other dimension to our technology leadership is the ability to bring to market innovative new products that allow us to capture greater margins by serving high value niche markets. This year we launched Pure Safety, the first and only insulation to be certified.
Asthma and allergy friendly products with this certification have been tested by the Asthma and Allergy Foundation of America and pass strict product testing guidelines. Our product was shown to generate significantly less dust during installation, a function of our manufacturing excellence, and it's also resistant to fungal growth, both causes of allergic reaction or asthma. Other products to achieve this certification include 3M air filters and Benjamin Moore paints. Our research suggests an increasing focus on air quality will create demand for products like this, and we intend to grow the category to include products for schools and hospital applications. We're also excited about our announcement at Greenbuild, an industry trade show last week that our insulation products are now manufactured with electricity exclusively generated from wind power.
We find that an increasing number of architects and contractors are looking for more sustainable ways to design and construct their buildings. We are giving them ways to do this by significantly reducing the carbon footprint of our products and as such the impact their buildings have on the environment. Our installation products now have the unique distinction of not only saving energy once they are installed, but doing so while they are being manufactured. And finally, we've greatly expanded our technology capabilities in mineral fiber, an important growth platform for us. This morning we announced that our Thermafiber perimeter fire barrier system and Thermafiber in solutions design and installation services have been awarded Safety Act designation by the US Department of Homeland Security. Owens Corning is the first insulation manufacturer to be publicly listed with the US DHS as having products that are Safety Act designated.
Commercial building professionals and building owners who use Safety Act designated solutions in their structures will gain the most powerful liability protection in the event of a foreign or domestic terrorist attack on that building. Now, the cross-cutting theme here is that our ability to develop and capitalize on entirely new categories of products with difficult-to-replicate claims. With Pure Safety, our manufacturing capabilities give us great process control and hence new benefits. With EcoTouch and ProPink, an installed base of wind turbines generates sufficient power to run our plants. And with Thermafiber, a history of aiding architects in the design of passive fire containment systems. Each creates unique value for customers. Each demonstrates our ability to create market leadership. For Owens Corning, the third pillar of our strategy has been to grow our presence in commercial and industrial markets.
In fact, the picture you see up there of the tower is very recognizable. I think most people recognize it as One World Trade Center. The Freedom Tower and our Thermafiber products that were just designated under the Safety Act are installed in that building. Commercial markets, primarily non-residential buildings, office and retail buildings, schools and hospitals. Owens Corning, as the number one brand of fiberglass with architects, and Thermafiber is the most specified brand of mineral wool. The industrial market is mostly focused on insulating critical material handling components such as pipes or storage tanks for large facilities. Here, Foamglas is the most specified brand of cellular glass. For some applications, Foamglas forms the basis of design, which means there are no equivalent products.
Applications in these areas are usually critical to the functioning of the facility, such as the perimeter fire containment I just mentioned. As such, customers are willing to pay for performance and competitive intensity is not as high as we see in the residential markets, leading to a much more stable margin structure. Prior to the acquisitions, these two areas represented about 40% of our revenue. Last year we shared a chart that showed this part of our portfolio was performing at record levels with about mid-teen margins. We emphasized our desire to grow both organically and through value-creating M&A to expand our footprint globally. Two significant drivers led us to this conclusion. First, energy efficiency trends are increasingly developing first in Europe and China, leading to new growth opportunities for those participating in markets.
Second, the commercial and industrial markets are generally more global in scope with end use customers or specifiers looking for solutions they can deploy around the world. Participation in North America alone limits our growth potential. We think about this part of our business along two dimensions, temperature and geography. Our history had been to focus on the large mid-temp section where glass fiber excels in terms of cost and performance. We had excellent position in North America and profitable positions with good market share in China. With the acquisition of Thermafiber, we were able to participate in high temperature and more critical fire protection applications.
Though still focused on North American markets with record performance in our core mid temp markets, an expansion of our high temp capabilities in North America through the addition of a new facility in Joplin, Missouri and a contract manufacturing agreement in China, we wanted to further expand our technology to low temp applications as well as to establish a foothold in Europe. Pittsburgh Corning represented the ideal opportunity to do both. Pittsburgh Corning's Foam glas product is the world's leading cellular glass brand with a manufacturing base in all geographies with strong operating margins and exceptional commercial talent. Synergies with the existing commercial teams in North America and China are already yielding new growth opportunities which Todd will soon cover. But the remaining gap in our portfolio was mid and high temp applications in Europe. Paroc now fills that gap.
With this planned acquisition, we can serve the full temperature spectrum in the three big insulation markets. We have capabilities in four technology platforms, glass fiber, mineral fiber, cellular glass and foam, and a technically capable commercial organization with broad geographic scope and deep local market knowledge. Now as Mike said at the outset, our strategy is to build market-leading businesses global in scope, human in scale. Quite honestly, we have a lot of confidence that we can execute on this part of our strategy because of the capabilities we've built as a company running global businesses. And as Arnaud said, we've built a market-leading business globally in composites. And we see the opportunity to extend our market-leading insulation business in North America globally too because we did it over the last decade in composites.
We have infrastructure, local market knowledge and capabilities in Europe and China that we can leverage. We will have more scale in both geographies, creating the opportunity to improve the cost structure and our talent pool is now much deeper. With these moves, we have reshaped our portfolio. So now more than 50% of revenue will come from commercial and industrial markets. We will have about $1 billion of revenue outside of the United States, and we've more than doubled the earnings power of this business. Let me now bring up Todd Fister to discuss how he'll take advantage of our new global platform. Todd?
Thank you, Julian, and good morning. I'm very happy to be here today to share the progress and the strategy for the Pittsburgh Corning and Foam glas acquisitions. So in June, we completed the acquisition of Pittsburgh Corning, which is the leading manufacturer of cellular glass insulation under the brand Foamglas. Foam glas is a really special type of insulation. It's incombustible, it's moisture impermeable, it's corrosion resistant, has very high compressive strength, and its properties remain effective for decades. So this makes Foam glas a really ideal insulation for the most demanding applications, both in cryogenic and water and fire sensitive industrial processes, which represent about 60% of sales, but also in buildings where high performance and durability are important, which is the other 40% of sales.
With that mix of demanding applications and really highly engineered solutions, this business produces very strong and stable margins on a global basis. We're in 81 countries today with sales in the industrial market. Our technical sales team has deep relationships with a global network of engineers who choose both the type and the brand of insulation that goes into industrial plants. Foamglas is often named by brand in engineering specifications, which means we benefit both from the initial sell in, but also from ongoing repair and replacement work. Foamglas is used in many stable and attractive end markets. Markets like ethylene and chemical processing in hot water, chilled water processes, among others. The biggest market though, is liquefied natural gas, which represents about 25% of industrial sales and therefore about 15% of overall Foamglas sales.
We have a leading share of tank bases and pipe insulation in the large and capital intensive LNG facilities shown on the screen. Over decades, global LNG infrastructure has grown significantly. However, we purchased Pittsburgh Corning in 2017 during a cyclical low in LNG investments, which are down about 50% from earlier in the decade. Our analysis of third party data suggests that LNG investment levels could double by 2020 as the market returns the levels that we did see earlier this decade. In years when LNG construction rebounds, we will experience significant operating leverage from the resulting volume growth. We're the only manufacturer with decades of proven field performance and a global footprint and we tend to pick up the volume when the market recovers. This is a profitable business today and we're optimistic about the long term growth potential.
Foamglas for the building market also is an attractive, profitable growing business. In this case, our technical sales team helps architects and designers create the iconic designs that deliver exceptional thermal and moisture performance. Those architects value the flexibility that Foamglas brings to their designs, enabling them to produce the architecture you see on this page today. This business is concentrated in Europe and we see opportunities to make this a more global business in the future in North America and Asia, leveraging our broader Owens Corning footprint to serve new markets. We purchased Pittsburgh Corning believing that we could drive core underlying business performance and create new value through synergies. The business continues to produce high margins consistent with our communications and announcement. The Foamglas commercial teams are performing well, underlying demand has been good and we're delivering more synergies faster than we projected.
We originally committed up to $15 million in second half adjusted EBIT. We are now confident we will beat that number. The business is absorbing $1 million per month of step-up accounting impact, which is included in adjusted EBIT. We also are making non-repeating investments in improving the business safety, professionals in the plants, business process mapping, other areas that will support future synergy realization. We're on pace for a $10 million synergy run rate by January, six months after close, and we have a high degree of confidence in achieving $20 million in synergies by the middle of 2019. Financial synergies have been strong, but we've also executed well in non-financial synergies. This business was experiencing about three to four injuries per month before we acquired it.
With the work that we've done in the plants, we've gotten to a point where we had no injuries in August, no injuries in September, no injuries in October, no injuries so far in November. Overall, we're meeting or exceeding all of the financial goals that we set for the acquisition, and now with the additional acquisition of Paroc, we see opportunities to further accelerate growth in combination with the Foam glas business. Paroc is a leading European insulation business that will be the foundation for our mineral wool business globally and also the foundation for our insulation business in Europe. The business has historically produced very strong and stable earnings due to its cost position, the portfolio of products and markets and excellent customer loyalty.
Combined with Foamglas, we have products that insulate the full temperature range from hot industrial processes to homes and commercial buildings to cryogenic facilities serving multiple end markets and geographies. This positions our insulation business to produce stable earnings through the cycle while we deliver new value to customers in multiple markets around the world. The combined Foamglas and Paroc businesses in Europe will produce in excess of $550 million per year in revenue. We'll have manufacturing or sales offices in 18 European countries combining the primarily Western European Foamglas footprint with Nordic, Baltic and Eastern European strength of Paroc. For example, we see opportunities to extend our sales of Foamglas in markets like Norway, Sweden and Finland where Foamglas has historically been under share and Paroc has deep relationships and a very strong brand.
Both mineral wool and Foamglas have advantaged fire properties compared to foam plastics. We see opportunities in Europe to leverage our fire, thermal, acoustic and moisture positionings to grow at above market rates, especially after the tragic Grenfell fire and the resulting increased awareness of fire risk in buildings using foam plastic insulation. To support this growth, in October Paroc announced a EUR 60 million capital expansion to their existing plant in Poland. A high return business plan that we will fund in 2018. We are excited and confident about our ability to create a new European insulation business that will drive short term and long term return on capital for shareholders. Julian
thanks Todd.
So in summary, our strategy is working. We are well positioned to take advantage of the recovery in the residential market in the US and Canada today. Capacity utilization is climbing and the pricing environment appears to be accelerating. Our technology platforms are strong and getting stronger. We see further opportunities to enhance our cost structure by deploying greater levels of automation and improving our manufacturing capabilities. And we will continue to bring innovative new products to market that enhance our customer's ability to do their jobs and provide higher margin opportunities for us. And finally, the expansion of our geographic footprint and product platforms will allow us to serve the largest markets in ways we could not even six months ago. We have acquired outstanding businesses and diversified our portfolio into more stable high margin segments with strong growth potential.
We are enhancing the earnings power of the insulation business, creating new paths for growth. We are confident in a return to historic levels performance in our residential business and in our ability to reduce our cost structure, and with the addition of new technology platforms and a more global footprint, we have created a powerful insulation business for Owens Corning. Thank you Thierry.
Excellent. Thank you very much Julian. We're ready to start the insulation Q and A session now. I see a lot of hands going up already. Phil, I think back there had an opportunity to ask a question yet?
Thank you Phil Ng from Jefferies. I think you mentioned in your presentation that incremental margins in your Insulation business.
Is roughly 50% in the back half.
That's even before meaningful pricing thus far. So as we think about the medium.
Turn going forward 2018 and 2019, could we see some upside on that incremental margin standpoint? And at what point do you need.
To bring on some of that capacity.
As you run fuller and what kind of impact could it have on margins going forward? Thanks.
So as I said, we did see the residential business being able to generate 50% incremental margins for all of insulation, excluding acquisitions in their first year. I think those are the, that was the statement. So the upside is really, we think about that as we have a much bigger business overall post acquisitions. But we still think that residential incremental margin piece will drive a lot of incremental margin on the leverage side for the whole business. Now, with regard to capacity, again, I'll go back to what I said. We've seen growth rates for insulation demand in the high single digits across the entire sort of residential market in the US and Canada. We still see continued growth in new housing starts, which is the primary driver of that.
We would expect to see two lines start up every year just to cover the capacity and keep utilization rates about the same, but we just haven't seen that, and again, I said that we see five lines that are likely to be available. Two of them we think will come up in the next six months. I think it's inevitable that as the market continues to grow that we would see the other lines come up. Our stand has always been that it's got to be economic for us to do so.
Got Kathryn over there.
Kathryn Thompson, Thompson Research Group.
Given the shift in your end market.
To a greater industrial focus, we've come a long way with having some significantly improved margins. As you look forward, not just over.
The next year, but over the next.
Six, say three to five years, what's.
The optimal balance of that residential versus the more industrial?
Given the step change and margins, where do you see margins progressing realistically on a go forward basis? Thank you.
Sure. Thanks for the question. So I think what we've seen in our industrial side, the commercial industrial side, as I said today, even before the acquisitions, and we shared last year that was performing at record levels and it's about mid-teen margins. We think that that's about a good performance for the commercial and industrial side. Mid-teen margins, obviously we now have a much bigger portfolio of that. What we've seen historically, and I think we've shared this before in some of the charts, is on the residential side, obviously more cyclical, but actually it averaged about mid-teen margins over a cycle. Now the lower was much lower, the higher was much higher. So I think we would still expect to see sort of mid-teen margins over the cycle. But I think we're more bolstered.
We don't see the low as low and we still see the potential for it to grow. Now as the residential market is growing faster than the commercial industrial, we'll probably see a little bit of shift back towards the residential over the next few years. But if that happens, they would actually be at higher margin rates.
Let's go back to the other side. John.
Hi, it's John Lovallo from Bank of America. I was wondering if you could just give a few examples going back to.
Slide 46 there of what differentiates your.
Manufacturing process to drive that huge delta.
In density control versus competitors.
Sure, sure. She's probably something I could talk about for quite a bit of time. There's a lot of manufacturing technology involved, in particular a couple of areas. One is around the binder technologies and the other is around fiber forming. I mentioned in my prepared remarks that the binder technologies, those chemistries are much more difficult to process than the formaldehyde that was used. And I liken it to trying to squeeze through a window. You've got a very narrow operating window for the binder technologies. And to normally drive through something that's small, you got to slow down. We've actually found ways to get really tight control of our manufacturing process so that we can keep it going. And I think others have struggled with that. We've seen it. One of the big things that has driven the chemistries is obviously we compress our product.
When you open the package, it springs back. The binder chemistries that are being used today, that creates a lot of difficulty. The way to get it to spring back is to add mass, mass of glass. That's how you do it. That's how you get the performance. We've actually been able to reduce our density. So really, really tight control of process. And then the other piece is around fiber forming. When it comes to the formation of fibers, obviously it's a core competence for Owens Corning. We do it in our composites business as well as our insulation business. But length and diameter of fibers is a critical control point that determines some of the thermal properties that allows you to reduce density. Again. Now, I'm obviously not going to talk a lot about that because as someone said earlier, our competitors are listening.
But those are the two key elements of what we do. It's around binder technology and understanding great process control. And then, on fiber forming, having very, very tight control around that. Very difficult.
Okay, let's go back to the middle with Ken.
Thank you.
Keith Hughes, SunTrust, the graph you had on the insulation contractor price index, if.
You looked at similar information on commercial.
And industrial, what would it have looked?
Like the last four to five and what do you expect it to look like the next several years?
So the price decline in the commercial would have been substantially less. Now, I will also say that in the commercial market you start off at higher prices. That's again, we talked about that a little bit in the prepared remarks. So you start off with a higher price, they certainly don't go as low and we didn't see that drop off and we also see the recovery. So it's a little bit of a flatter curve. Although quite honestly the curve's not dissimilar in that market in the fiberglass side. Now what we've seen on the rest of the portfolio in commercial is we're not in the fiberglass business strongly. It's more mineral fiber, there's some foam and so expanding that and now into the Foamglas. Those do not decline in the same way. The value that they create is actually quite stable.
So you don't see the decline as you have in the sort of light density fiberglass market.
So, in the non-fiberglass, would pricing.
Now, be higher than it was in 2010?
6. Just generally.
Just generally, yes, it would be.
Mike.
Thank you, Mike. Rehaut, J.P. Morgan. You know, congrats on obviously Pittsburgh Corning and Paroc. And now with that business, you say it's about 50% of the overall commercial industrial 50% of segment revenue. I was hoping if you could just remind us on the breakdown geographically of the entire commercial industrial business by major region and how to think about growth in that business over the next two or three years. Should we think about it more tied to just global GDP or are there certain drivers that might, you know, you kind of mentioned some sales synergies opportunities have above market growth.
Yes, I think that I'll have to go to Thierry to remind me of what we've said about our disclosure on the international side because obviously we don't break down the individual regions and because of Paroc, our sales there in Europe has actually been zero until this year. So I don't think we've made any disclosure.
No, but so Mike, if you look at our disclosures, you'll find that the international commercial industrial piece is probably in the 20s today. If you look at 2016 numbers now, we're adding to that significant amounts of commercial industrial business in Europe with, to some extent, Pittsburgh, but also Paroc too.
a great extent what I can do. I mean, Todd mentioned about $550 million of sales with the combined Foamglas business and Paroc. Then we had the businesses in China as well. And as I said, I think it was outside of the United States. We will have about $1 billion of revenue. The second part of your question, with regard to how you expect to think about growth, I think general GDP is sort of a good base. I think about it in terms of industrial production for the heavy industrial facilities. So those are the two big things. I think Todd mentioned the idea around fire containment and fire protection systems.
We do see the potential for that to create above market growth rates, both because of conversion away from some of the foam plastics that have been so much in the news recently, but also the excellent fire performance that we have with the products that we're now in, both in the US and around the world.
Ken.
Thank you very much for the presentation. I'm just going to be referencing something Rockwool did in 2014 where they looked at the global insulation market and plastic foam is the largest segment. I mean, it's in different categories. So, you know, you guys entered stone in Europe. That was a big deal just now. But, you know, over half the market in the plastic foam, it's, you know, your market share would be significantly less there. Is there something structural about that within, you know, region or globally that would keep that from being a growth category for you in terms of where you.
Would want to go?
Thank you.
So let me make sure I understand your question. Are you talking about us being in the plastic foam business and growing the plastic foam business? Yeah, I mean, I think that the way we think about it, we are in the plastic foam business. We have an XPS business in the US It's a very well structured piece of the business in the United States. We enjoy good margins in that business in the rest of the world and in other forms. XPS is not the only form of foam plastics insulation or plastic insulation in general. We don't see that as much. In Europe, it's a much more fragmented business. In Asia, it's a far more fragmented business. Although we do have a small XPS business in China as well.
I think that we are very comfortable with what we can bring to the products that we have today with our technology. We certainly think we've got advanced technology in the United States with XPS, which obviously we've deployed in China as well. We've seen less opportunity to expand our product portfolio into other formed plastics. Quite honestly, we don't like the margin structures we see there or the competitive intensity.
Let's take one last question for insulation, Kevin.
Thanks.
Kevin.
Hocevar, North Coast Research.
Just doing some back of the envelope math here. You talked about market growing 6%.
There's five idle lines. Each line has about 3% capacity, meaning.
That, you know, in about two and.
In half a year, it seems, you know, 2020, we're going to be out of capacity. So what happens after that to meet the demand?
Because I don't think imports are really.
A big factor here.
So do you expect some new capacity additions to be announced? And how long does it take for?
A new plant to come online?
Sure. So, I mean, first of all, I think that from a growth standpoint, you have to make an assumption about the growth of the housing market. And growth has been less than we've said, than the economists have predicted. So that's been a bit of a challenge. So I think that we've been trying to find ways to wait as long as possible before making any of those decisions. I think it also starts to get perhaps late in the cycle. We would tend to think about investment in new capacity late in the cycle. More likely, we would. And producing capacity. You've got to get that return in a very short period of time. That's not easy with a significant investment.
Typically it would take anywhere from a year to 18 months to build a facility, even inside an existing facility to build a new facility to go get the land. The lead time is a lot longer. Permitting has been challenging as well, and it's quite a process, one to two years, and like I said, I think that as you start to get through this cycle, you get to a point where the economics of building a new facility, you've got to think really, really hard about how you want to bring that up and make sure that you can earn a return pretty quickly.
Okay, excellent. Thank you, Julian.
Thank you.
So now we're ready to proceed with the next batch of presentations. You've heard about the strength of the composite business. You've heard about the strength of the roofing business, you've heard about the strength of the insulation business. Now we're going to put it all together for you in the financial presentation. So I'd like to invite to the stage Michael McMurray, our Chief Financial Officer.
Good morning. My name is Mike McMurray. I am the Chief Financial Officer December 1st. I've been with the company for nine years and I've been the CFO for just over five years. Someone once said that New York, New York was a city so nice they named it twice. This slide is so nice, we're going to look at it twice. Mike and I actually fought a little bit as to who was going to get to display this slide, and so ultimately the concession was that we both would, but listen, I'm really proud of what we've accomplished as a company and I think this demonstrates that our strategy is working. Two years ago at the Investor Day in Atlanta, we made big promises. We made big promises to deliver strong business performance.
We made big promises to deliver significant earnings growth, and as a result, leading to significant free cash flow generation. We are pleased with the results that we've delivered. Based on 2017 consensus estimates, we will have done the following. We'll have almost grown earnings by three times over the levels delivered in 2012, more than doubled our return on capital, and significantly grown free cash flow, and I'm personally very proud of the working capital performance that we've delivered over the last five years because that's been a finance-led initiative in partnership with teams from commercial operations, supply chain, and sourcing, and we've improved working capital as a % of sales by about 430 basis points. OC today is fundamentally, fundamentally a different company.
Looking forward over the next couple of years, all three businesses, despite macros, they should grow both top and bottom lines and free cash flow, and free cash flow conversion should continue to be very. We are focused as a company in driving total shareholder return. Now I'm sure, at least I hope most of you in this room know the components of a total shareholder return. Profit growth plus free cash flow generation plus improvement in stock multiple equals TSR, and Owens Corning has been focused on the main value drivers for each component. So the first component is profit growth. So the main value drivers for profit growth are operating margins, growth through acquisitions and organic growth. From an operating margin perspective.
As you saw in the previous chart, we have driven significant improvement in our operating margins over the past five years from creating shareholder value through acquisitions. We have deployed significant capital in the last year on value creating acquisitions and we're about to deploy another $1 billion in the first quarter of next year. And then from an organic growth perspective, we're starting to build greater momentum. And you heard about that today when you heard from Nico and when you heard from Liz. The second component is around free cash flow generation and the key value drivers there are free cash flow conversion efficiency, return of capital to shareholders and then capital efficiency. From a free cash flow conversion perspective, we've delivered 126% free cash flow conversion over the period 2005-2015 to 2016 and expect strong free cash flow conversion in 2017.
From a return of capital to shareholders over 2016 and through the first three quarters of this year, we have returned almost or about $550 million to shareholders at the same time closing two significant acquisitions, and then our capital intensity is beginning to improve with the portfolio actions that we have taken. The third component is improvement in multiple and the two key value drivers there are cash gross margin and overhead efficiency. Again, from a cash gross margin perspective over the last five years we have significantly widened our margins, and then from an overhead efficiency perspective, we have sustained top quartile SGA productivity versus our peers. So we are at the top quartile. We have maintained flat headcount excluding acquisitions since 2009 in our legacy businesses. So we are focused on the key value drivers of TSA TSR and it's being recognized in our share price.
Excuse me.
All right.
So over the better part of a decade, we have driven significant and purposeful actions across all three businesses which has fueled our profitability improvement. In our composites business, we have delivered and sustained our low delivered cost position. We have been driving product leadership which is fueling growth and fueling margin expansion. And we've been investing in great businesses like Nonwovens that have strong growth, that have a great growth profile, strong and stable margins and lower capital intensity. Within our roofing business, we've delivered 500 to 600 basis points of sustainable cost improvements over the better part of the last decade. We've driven significant organic growth in our components business and we acquired a great business in InterWrap that has above average growth, strong and stable margins and lower capital intensity in our insulation business.
You heard Julian. We lowered the breakeven point over the last decade by about $100 million. We acquired the Thermafiber mineral wool business and we invested to meet market needs. And we've driven significant price residential with more to come. More to come. Right, Julian? And we implemented an acquisition strategy that will drive profitable growth and create future growth platforms. And most of these actions are permanent to the Owens Corning earnings profile. So these are permanent additions to our earnings profile. So we have significantly improved the earnings power of Owens Corning and again, we've driven substantial actions and improvements across all three businesses. And the best is yet to come. Operating margins have almost doubled to 13%. And again, many of these improvements are permanent. And as we look forward, we see significant leverage to improvement in US housing and residential insulation.
Our other businesses have opportunities to improve as well. And then again, our insulation acquisitions provide growth opportunities plus ballast for future residential cycles. So again, the best is yet to come. All right, I love this chart. This is a chart that's from our roadshow deck, but it's been updated. It's been updated with Q3LTM free cash flow in recent stock prices. And you guys know that our stock prices had a pretty good run this year, right? So our free cash flow yield after significant stock price appreciation 2017 is just under 7% now. The gap has narrowed versus our peer group, but it's still over 300 basis points on average. And rest assured, free cash flow and free cash flow generation is going to be a focus of the company going forward as it has been in the past.
Now, the format of this slide is a little bit different, but fundamentally our long-term capital allocation strategy remains unchanged. It's actually a lift from what I showed in 2015, which was actually a lift from what I showed in 2013. It's simple, but we think it's working. The first pillar is around maintaining an investment-grade balance sheet. This is a pillar of our financial strategy and it provides an investment-grade balance sheet, provides flexibility to support growth, and also drive shareholder value both in good times and in bad times. The second pillar is around maintaining the safety of our operations and productivity of our existing portfolio. You've heard us for a long time, that is table stakes for us. The third pillar is around driving growth and returning cash to shareholders.
The first priority is investing in organic growth, and that's because organic growth tends to have the highest returns and the lowest risks. And the second priority is around driving value, creating M & A and returning cash to our shareholders. Two years ago we said we had the ability to do both. We had the ability to drive value creating M & A, but also return significant free cash flow to shareholders. And we have accomplished that mission. So we've gotten both of those done the last two years. And I think this management team has a demonstrated track record in being disciplined around capital allocation and balancing the related priorities. All right, talk a little bit about our growth investment focus and our M & A strategy, which again is largely unchanged from when we spoke two years ago.
We remain focused on product and geographic expansion in our insulation business. So not dissimilar to what we've gotten done here in the last eight, nine months, growing roofing's core and its components business and then a little bit more opportunistically, but also focusing on downstream application opportunities in our composites business. Pursuant to this strategy, we've gotten a lot done in the last two years. So again, we acquired the InterWrap business in April of 2016. We acquired the Pittsburgh Corning business in June of this year, and we expect to close on Paroc in the first quarter of next year, and again, you heard Arnaud talk about the Ahlstrom glass nonwovens business in Europe that we tried to get done in the first half of last year, but ran into a few regulatory hurdles.
From an M & A perspective, generally, we focus on opportunities where Owens Corning is a better owner, where we see proprietary value to Owens Corning, and then generally in and around our existing portfolio. The strategic priorities for M & A are focused on platforms that provide for future growth, businesses that provide strong and stable margins with lower capital intensity, and targets that provide product end market and geographic diversification. Generally opportunities where we can scale or leverage OC's global footprint. Again, from an organic perspective, we look for opportunities that have similar characteristics, like nonwovens. Like this chart a lot as well. We have made significant progress in moving the needle in regards to our strategic growth priorities. InterWrap, Pittsburgh Corning, Paroc will significantly improve our portfolio. They both have, they all, all of them have platforms for growth with strong and stable margins.
InterWrap obviously has incredible, incredible capital intensity. You heard Liz and Nico highlight two very attractive businesses that have great organic growth opportunities going forward as well. All right, talk a little bit about creating value in executing a disciplined M&A strategy. What I've done on this slide is I've taken the three deals, the two deals that we've done and the one deal that we expect to get closed in 1Q 2019 and kind of put them all together. By early next year, we'll have deployed about $2 billion on value creating M&A. Each acquisition will be accretive to earnings in the year closed. Okay, you heard Liz say that the InterWrap acquisition integration is done.
Done.
The Pittsburgh Corning integration is ahead of plan. So it's off to a great start. Again, the Paroc transaction is expected to close in the first quarter of next year. And advanced planning activities are underway today as we look forward to 2019. And you put all these acquisitions together and take into account market growth. Our commercial execution, synergy capture. So revenue of about $1.2 billion in 2019 coming from these three deals, run rate synergies of approximately $60 million and incremental EBITDA of about $300 million. These are attractive additions to the Owens Corning portfolio and create significant shareholder value. All right, so we have a disciplined and proven model for capital allocation and financing.
The InterWrap transaction, which cost us about $450 million, and the Pittsburgh Corning transaction, which cost us about $560 million, were both financed 50% prepayable bank debt, 50% permanent debt. So 50% prepayable, 50% long-term. In 2016, we retired all the bank debt associated with the InterWrap transaction, and we returned $328 million to our shareholders through dividends and buybacks. Through the third quarter of 2017, we retired all the bank debt associated with the Pittsburgh Corning acquisition, and we returned about $226 million to our shareholders through buybacks and dividends. This is a testament to the company's ability to generate strong free cash flow and allocate capital that drives long-term shareholder value. For the Paroc transaction, which is roughly about $1 billion, it is going to be financed about two-thirds prepayable bank debt and one-third permanent debt.
We had $900 million of incremental financings put in place at closing. So it was a $600 million three-year term loan and a $300 million short-term loan. We'll tap the bond market post-close. So for about a third of the transaction and then obviously retiring the Paroc term loan will be a priority as we move into 2018 and through 2019 and would be my expectation that'll take probably about 18-24 months to take out that $600 million term loan. That said, we'll still have the capacity for some repurchase activity in 2018, which will increase as we move into 2019. I'll remind you that even post-transaction we have a fabulous balance sheet. Oh, one other item. So one more about closing because this is a, we're essentially all of our debt is USD denominated. This is a large euro-based transaction.
So on or about closing, we'll swap about $500 million of our USD-denominated debt to EUR-denominated debt synthetically. And so that'll pick up about 200 basis points of interest cost savings which equates to about $10 million per annum. So in closing, OC is a different company. Today we have demonstrated our earnings power and disciplined growth initiatives will drive future shareholder value creation. Strong free cash flow and strong free cash flow conversion will continue. And we expect conversion about 100% over the periods 2017 to 2020. All three businesses face into favorable macros and established momentum should continue. We now expect roofing margins of approximately 20% going forward. We expect 50% operating leverage in our insulation business going forward, excluding the first year impact of acquisitions. And now we expect composites to deliver sustainable mid-teen margins.
And don't forget that we expect significant contributions coming from our acquisitions as well. So $1.2 billion of revenue in 2019 and $300 million of EBITDA. ROC continues to be a key measure. Expect further improvements. You can expect disciplined and purposeful capital allocation will continue and the portfolio improvements that we've delivered in continued strong execution will ultimately drive multiple expansion. So thank you all very much. And with that, I'm going to ask Mike to come up for the Q&A session that will be led by Thierry.
Very good.
So, I told Mike comes up on the stage. I told you we would have plenty of opportunities for Q and A. So, this is your additional and last chance to ask all the questions that you have in your mind. And, you'll have Mike, our CEO, and Michael, our CFO, asking the questions. Rory.
Where are we?
Michael, just going back to your presentation. You led with one of the charts for the three parts of TSR.
Yeah.
Now you guys have significantly improved the profit growth. The free cash flow conversion is. It's tremendous. It's been tremendous. It comes down to really this multiple correction. Now you put up a free cash flow chart where you're significantly undervalued versus your peers. Interest rates are at historic lows. You've also mentioned saving 200 basis points, transferring some debt. Why is now not the right time to step up and pre buy future earnings in OC stock? And can you talk about how you prioritize this free cash flow conversion over the next few years? Sure.
So, I mean, listen, and a couple of things. You heard me talk about that, you know, our investment grade credit rating is a pillar of our financial strategy and we're unwavering on that. You know, we've gotten two significant deals done and we've kept our balance sheet largely intact. We're going to, we're stretching the balance sheet a little bit with the Paroc transaction, but not materially. But we think it's important to deal with that term loan in a relatively short period of time. That said, it doesn't preclude us from buying back some stock in 2018 and then getting actually more aggressive potentially in 2019. And I guess the other thing I'd say is that, you know, listen, from a business execution point of view, you know, we've delivered pretty solid results over the last five years.
More recently, we've gotten some pretty interesting things done from a deal perspective, which I think are great for the overall portfolio. I think with time, the multiple will rewrite.
Bob in the back.
Hey, good morning, it's Bob Wettenhall from RBC.
You guys have made the case in.
The numbers for massive margin expansion.
You got strong free cash flow and you really have done a terrific job with accretive MA.
I'm thinking back to the fourth quarter of 2014. The stock's stuck in the high 20s and now we're at $83. Congrats, you've come a long way, which is terrific accomplishment. But when you're really thinking about the multiple issue, what we're hearing from investors is, hey, where's the consistency? And I think if you look in the last 12 quarters, you've been incredibly consistent. And so that would make a strong case for multiple expansion. Instead of being an eight times business, you're a 10 or 11 times business. And some of the things you're saying about the individual business segments like mid teen and composites and 50% incrementals or 50. Fantastic.
So a long, long-winded question, but I'm trying to understand, is there a structurally less cyclical component to the Owens Corning's earnings profile based on changes in the business that you can articulate to the investor base? Is the quality of earnings better in the next three to five years? And is basically your presentation today and all three business leaders about making the argument the quality of earnings we're going to generate and what we're going to.
Do with the cash flow that the.
Businesses' throw-off makes a strong case that we should be a 10 times multiple or a higher business.
Yeah, great question, Bob, and thanks for the nice comments about our stock price. We absolutely tried to make the case today that within the mix of our businesses, the businesses have gotten fundamentally better. Inside the businesses are some really nice pieces of the nonwovens business, the components business businesses have a predictable growth rate, predictable margin rates. We talked about the acquisitions, having $1 billion of insulation sales outside the US We talked about getting more exposure to commercial and industrial business which typically has had more consistent margins through the cycle. So as we look at how we want to deploy capital, we're absolutely trying to make the operating performance of our existing businesses better. And then we're trying to put capital against those ideas where we see better growth and better and leverageable consistency of margins.
I think one of the big things we said today, and someone asked Brian about it, was we came out and said we think, look, we think operating margins of 20% or approximately 20% in roofing are sustainable. And he made the case that that's cost reduction, price premium and product brand and components growth drop driven, less so market and market dynamic driven. So we've tried to separate ourselves a bit from that. That doesn't mean we're completely independent of market dynamics. There are market dynamics there that could come and bite us, but for the most part, the way we built the business on the ground, we're gaining confidence in our ability to continue to operate in that range. What he didn't say, and I think is also a big component of that is, you know, the reroof market is back.
So two years ago or three years ago, when we were talking about how to get that business operating very, very well. So we're in a really weak reroof market. You know, reroof is the bread and butter for roofing manufacturers. So having that market at reasonable levels and being able to go do great contractor work and sell that through, I think really clarifies our position on roofing. I think position on composites has been clarified. Whatever we were saying three or four years ago about the prospects or the potential of that business, I think we've just delivered like clockwork against the potential of that business. And you saw, no doubt, today the case that says the next three years look as good or better than the last three years in terms of our ability to grow and leverage the performance of that business.
And then in insulation, two big stories. One is Res is getting ready to come roaring back. And the fact that that's cyclical right now is a very good thing because we're in the part of the cycle where we're going to really enjoy having a gigantic Res business. And then we build out a commercial industrial business that I think will carry great insulation performance through any market environment. So as I talk through the things we said here on Investor Day and I come back to what does that mean in multiple. It certainly says to me that if we have the best free cash flow conversion and we're growing free cash flow faster than the other people in our sector, we have an earnings growth outlook that looks stable, sustainable and stronger than a lot of people in our sector.
That our goal would be to see our multiple get to industry multiples first and then we think we would deserve a premium multiple.
Fair enough. Good luck. Thank you.
Got Scott over here.
Hi Scott.
Excuse me.
Scott Rednor.
Zelman, I guess.
Must be dry in here.
So two questions on the cash flow side. First for you, Michael, the 100% guidance. Can you maybe talk about, are you willing to stick to that through each.
Year as opposed to an average?
Because under your guys' assumption your NOL.
Will probably burn out at some point through there. So maybe what's a more sustainable rate?
And then there is no CapEx discussion today. Yes. So maybe you guys could clarify what you think maintenance is and then I.
Imagine there's some discretionary cost benefit with M&A, but hoping you guys could clarify that.
Sure, sure. So the guidance we gave for free cash flow conversion was 100% on average which means that it could dip in maybe any given year. But that's good guidance that goes through, goes through 2020 and our NOL is going to be around I think long enough to make that all happen. You know, from a capital perspective maybe I'd kind of set things out from a macro perspective first. So you know, you heard today that in a few of our businesses we're running pretty high utilization rates, labor markets are tight and so you know there's probably some opportunity potentially to do some automation. I think you heard from Liz, you heard from Nico that both of their businesses are probably going to expose us to some interesting organic growth opportunities as we move forward.
So as we look forward to next year in particular, CapEx actually could trend a little bit higher. So capital for this year will probably be just under $400 million. We're working on our business plans for next year as we speak but CapEx next year could be as high as maybe $50 million to $100 million. Higher in 2018 versus 2017. But it's all good stuff.
Just one other comment. You talked about the NOL. You know we don't really know what's going to happen here with tax reform obviously but the kind of tax reform that's being talked about now that would drop the corporate tax rate to 20% would be very advantageous to our company. So as we're working through a period of very, very good earnings where we are burning through this wonderful tax asset we have which is a high class problem, we have a lot of domestic earnings in fairly well structured industries. We would not expect lower tax rates would get traded through to the market in terms of lower margins. We'd expect lower tax rates would just create better free cash flow for our company.
So I think very fragmented markets, you kind of imagine any of that advantage might get traded through in terms of after-tax, you know, cash earnings. I think in our markets there's more of a margin set of pre-tax margin rates and driving to pre-tax margin rates. So I think lower tax rates on our US earnings probably create a lot of shareholder value for our shareholders. So I think the timing on this is perfect. If we actually went through a transition around now from being NOL dependent as we run out of that to actually getting a territorial regime with 20% tax rates, that really helps the way we thought about putting the company together.
Okay, we had another question from Stephen here and then we'll go to Sue.
Stephen Kim from Evercore ISI. Just one quick one on the Paroc and Pittsburgh Corning effects on the modeling. What kind of incremental margins should we be thinking about coming from those businesses? And is there going to be some sort of a temporary maybe one year.
Period where things will look a little.
Not consistent with what you would expect.
On an ongoing basis? Some sort of any kind of dysfunctionality.
Or just adjustments being made in the.
First year that we should consider?
Yeah, maybe. Maybe. I'll start on that and then Michael can fill in anything I missed. I think what we disclosed on both those acquisitions, we said Pittsburgh Corning had a four-year track record of EBITDA margins in the mid-20s%. Paroc. Yeah, EBITDA margins are around 20%. So both those businesses, very profitable, very good EBITDA margins. I think the incrementals on growth at this point we would probably say will mirror the underlying economics we're seeing in the business today. So we don't. We are looking at these as having big operating leverage plays. They're both fairly well utilized today. They're both in fairly stable pricing environments. So there's not the big giant lever that's going to cause you have a bunch of operating leverage as you look a little further out.
I think Todd talked about if the LNG market comes back the way we think it can in the next three or four years. I think then you might get to a step up in terms of capacity and demand in Pittsburgh Corning in the Foamglas business, which could give us some additional operating leverage. You know, the earnings growth above and beyond what are already great businesses will come from the synergies.
Right.
So you know, we'll see some margin expansion that will come from that. But I wouldn't characterize that as operating leverage. I characterize that as execution. We do have some near-term costs. I think Todd touched on that a bit with perhaps Paroc in terms of both the step up. But also we have, you know, IT teams working inside that business. We put a lot of safety resources into the Foamglas business early on. We're running those costs today in the business results. So those are going to be temporary or those are going to be temporary. So I think as we get them fully integrated, as we get operating standards that meet our requirements, I think we'll be able to then pull some SG&A resources out of some of these businesses and we'll get back to maybe historical margins, which, right.
Today might be a little bit muted because it's the investment we're putting in to just try to get operating systems and management systems put in place.
Plus synergies.
Plus synergies.
Remember correctly, it's like mid-elevens, I think. EBIT margins is that it? Does that translate over similarly?
Yeah, I mean we've guided on EBITDA margins at this stage.
Right.
Once we get the deal closed early next year, we'll give you more data.
Okay. But they have filing.
Yeah.
So I think it was like, okay.
Anyway, okay, that's the operating company, not the parent company. Just, just for clarity, the filings.
Sue. And then we'll go back to.
Mike.
Give me the microphone for me down here.
Susan Maklari from Credit Suisse.
Can you talk about how doing these?
Deals has added to the knowledge and the talent base that you've gotten and maybe how you can leverage that to drive more of the organic growth just across the whole company and the different regions and things that you're in.
It's a great question, Sue. Actually, if you look at the thread through the presentations today, I think one of the things that's kind of an unspoken strategic element or strength of our company is scale. So when Julian talked about manufacturing technology, when Brian talked about low cost shingles and the composition of a low cost shingle, you know, we have the scale to invest in material science and basic science to be able to improve our processes, to improve the design of our products. We leverage that across composites, against roofing, against insulation. So that's a place where being bigger and having some scale creates value. These new acquired companies are going to bring us new knowledge and I think that's going to be a two way transfer. Right. I think we're going to learn a lot about mineral fiber manufacturing from the Paroc team.
But I think we have some fundamental science on binder chemistry, fiber forming and densities that will probably benefit them. As we look at the Pittsburgh Corning team in the Foamglas business, the glass chemistries are very similar to the glass chemistries we work with. So while their expertise in foaming glass is something that we're learning, our knowledge of melters and how the precursors of that foaming glass process work, our glass chemists and our engineers walked into that on day one and immediately saw ideas and things that they thought we could be doing.
If you then look at scale in terms of our global footprint, which really is primarily been afforded to us in the past because of our composites business, having people on the ground in all of these markets gave us confidence to extend insulation into markets because we really believe most of our markets, it's a person to person business. I mean, it's, you know, we got to be out there, we got to have relationships in the marketplace, we've got to be able to sell, and we have to have pipelines of talent that we can manage our own destiny on that. Having now bigger talent pools in Europe, bigger talent pools in Asia, a bigger talent pool in the US gives us a lot more strategic flexibility. So utilizing our scale to make these businesses a great success is job one.
But I think ultimately they also create some strategic optionality for us in terms of having footprints in other parts of the world where we're now going to start to see other growth opportunities that today we can't see. So that definitely impacts us organically. And then as we get through the integration of these deals, it will impact our inorganic strategy as well.
Mike, here it comes.
Thanks very much. Mike Rehaut, J.P. Morgan, so just point of clarification on earlier question and then my real question, you know. Just want to make sure I heard right that you said that the incremental margins on Paroc and Pittsburgh Corning would be similar to the margins they're currently generating. If I heard that right. And then my.
Plus synergies.
Plus plus synergies.
Correct.
Okay, so that was correct. That's what you said. And then, you know, the real question here, you know, Mike, you and I were talking last night about, you know, the significance of the Paroc acquisition, and you've been pretty acquisitive the last two, three years in general. And you know, in the slide on M&A that was just laid out, you know, still a lot of opportunity or potential opportunity over the next few years in the different businesses. How should we think about the cadence of M&A over the last couple of years, given the significance of what you've done.
Already.
If this might be a little bit more of a gestation period in 2018 and 2019, and, you know, if that would be the case, you kind of reference perhaps after debt paydown in 2018, that share repurchase might rev up, and, you know, perhaps that is that, you know, in the place of M&A, you know, how we should think about things, or
let me talk.
About the cadence of what we've gotten done, and then maybe you can talk again about our forward outlook on cash, cash allocation. But you know, when we began talking with investors and really probably was most pronounced in our Investor Day in 2015 down in Atlanta, we started talking about we do think we've earned the right to grow. We're going to look a little bit more aggressively on trying to find some M & A that we can go do. We also explained at that time that we thought we had good M& A themes, but that the potential targets that are the result of M & A themes may not be visible to the public shareholder investing base. And I think generally, if you now look and say InterWrap, we've heard from a lot of investors, I probably didn't see that one coming.
I didn't know about that company. A lot of people have said, Pittsburgh Corning, I didn't see that one coming. I didn't know about that company. I think most people knew about Paroc, but didn't know necessarily that it was actionable or for sale or that it's something we could go do. So, you know, we've looked at a lot of things. We participated in a lot of activities trying to find deals that would work, and we don't really have the ability to control cadence. We have the ability to find great properties, and we have the ability to execute because of our great balance sheet, and our view would be, be very selective, be very disciplined, and when you find something that you want to buy, you take action and you buy it.
It just turned out that this year we saw two things come to market in relatively the same time frame, which were both interesting to us. Again, a perfect world. We probably like to chunk out kind of one major acquisition per year and make the world look a lot like 2016 looked. Buy InterWrap, integrate it, pay it off. Buy Pittsburgh Corning, integrate it, pay it off, buy the next thing, integrate it, pay it off. I think in this case, we are, you know, we're not ahead of ourselves, I think, but we have taken on a fairly large agenda and I think you will see us digest here for probably 12 or 18 months before we even think about doing something else bigger.
Now, we continue to look for some small bolt-ons and small tuck-in stuff, and we don't feel anything we've done here would limit our ability to go do those kinds of things and do those kinds of things quickly in terms of share repurchase. Maybe just talk that through again.
Yes.
I mean, maybe one thing just to kind of emphasize. You heard me say in my prepared remarks that the strategy is largely focused on in and around our existing portfolio, and thinking through that the Paroc transaction would probably be a pretty large deal.
Right.
You know, thinking kind of opportunities that are going to come available that are in and around our portfolio. Again, just to kind of take you back through it, you know, expect strong free cash flow generation next year. We want to make significant progress in chipping away against the $600 million term loan. But we're not going to. Doesn't necessarily mean we're going to pay it off off next year in the right environments. You know, we'll buy back some shares in 2018 as well, but obviously as we move into 2019, we'll be able to get more aggressive.
Okay, let's go to Ken for the next question.
Thank you, gentlemen. To ask a question with a half glass, half full, your multiple, given your earnings momentum, given these acquisitions that you've done and the size of them, I think fundamentally the issue is that you have one and a half businesses that are very high fixed-cost leverage. We're obviously at the right point of the cycle right now on insulation. I think these acquisitions you've done dramatically shift the composition of your earnings. But like you've reiterated willingly, it's 50% incremental because it's high fixed cost. Business Composites seems to be well structured. Is there something you could offer that might address the cyclicality components? That's why your multiple is what it is.
Right.
It's the high fixed cost leverage where you are in the cycle. Is there something that you learned last cycle? Is there something fundamentally that's changed about how you manage these fixed cost assets that could justify a less cyclical multiple? Perhaps?
Yep.
Thank you.
I think if you look at what happened in the last cycle, there were two completely independent events. Right. One was an expansion of capacity in China that had no basis in reality. So in the decade of the 2000s, we just saw an expansion of the glass melting capacity and composites in 2000. That was in that decade that was not related to any market knowledge or market concept. And we think that's completely come to a stop. So, you know, we do believe now that the rate of capacity addition, the composites industry is going to just move right along with the rate of growth, and that as a result, we're going to be in a fairly stable market environment for a long period of time.
So the cyclicality or the volatility of composites earnings, I think is really attributed to a very specific competitive story that I think Arnaud articulated today very clearly. We believe has been changed and changed fundamentally from a regulatory point of view based on important fundamentals, environmental considerations, energy considerations, labor costs, and a bunch of other things that are now headwinds and are being recognized in the China market that weren't recognized in that period of 2000. So I take composites off the table in this discussion and say that was a fix the business, fix the industry problem that lasted really for the better part of a decade. And I think that's behind us and has been behind us now for three or four years. The second part, obviously would be to look at our residential insulation business. I say two things there.
One is, I don't think anyone would ever think that the next cycle involves housing starts dropping again to 500,000 units. I don't know what each of you are forecasting, but our view of that was that was a credit crisis, not a demographics issue. It was not a home building issue. It was a financial crisis. We aren't even back to mid- cycle levels of housing. And we have the largest, we have the largest demographic in the history of the United States coming into a period of time of, you know, being in household formation. So we think we're either not keeping up or if we are, we're barely keeping up with household formation at today's 1.2 million. And we don't really think that the housing market is overheated in terms of production.
Now the fact that would support that point of view is housing prices continue to go up pretty aggressively, which would say actually production is trailing the demand for people wanting to get into houses. We'd love to see that catch up. So if we were to see a cooling in the housing market, I think it would look more like what we've seen historically, which is maybe housing starts drop a couple hundred thousand units to a million, and then they start to recover again out of a more normal recession. In that environment, insulation, residential insulation doesn't drop 30 points of price again. You know, I think that was a once in a lifetime, once in the history of our company type of cyclicality. Historically, in a really bad environment, insulation dropped, you know, five to ten points of price.
So the recent history of our residential insulation business, I think is completely divorced from the reality of how that business would perform going forward. I think its peaks will be very high, but its troughs will be nowhere near what we've seen historically, either in terms of volume or what we've seen in recent history in terms of volume or price. So as a result, we've diversified ourselves a bit away from that to mute out the impact of that on the overall company by getting bigger in the commercial industrial insulation business. And I think we have a fundamentally better business that's going to go through a completely different cycle. If we actually saw a softening of housing, which I think is many years off, I think that's really a question of, you know, the overall US economy.
But as long as the US economy continues to go, we can't see a way housing doesn't continue to expand as a part of the economy.
Let's take one. One last question from.
From John.
Thanks, guys.
John Lovallo from Bank of America. Just curious if there's any update on?
TopBuild and that relationship post settlement if you see business potentially picking up there.
Yes, I mean, I think Julian in his comments said we were in a very volatile situation in 2016. That had a negative impact, I think, on the overall performance of our business and certainly the performance of the industry. You saw the price index and other things as a lot of share moved around and typically when that happens, it's tough on the manufacturers and a lot of times tough on our customers as well. You know, we obviously entered into a settlement with them this year. So we're on good relationships with TopBuild. You know, we do business together. We have certainly rebalanced our market share in the market back to an acceptable level for us and certainly much wider spread across a broader customer base. We would not characterize ourselves as being their top supplier in any way, shape or form.
They're an important customer to us, but they're nowhere near the importance of the type of customer they were in the past.
Great.
Well, thank you very much. Well, Mike will actually close the meeting and offer some final remarks. Before he does that, I'd like to thank everybody here and, as usual, offer my help to follow up on any outstanding questions. So please feel free to reach out to me. For those of you who want to speak, stay with us for the lunch. The lunch would be next door, and we're happy to spend more time with you.
Okay, thank you. I think I had one last slide, which is a slide I presented, you know, earlier today. It said what you will hear today and now it says what you heard today and hopefully this is what you heard today. Track record of performance, compelling investment opportunity, demonstrated earnings power, a nice growth trajectory and a disciplined and shareholder friendly capital allocation strategy. When I presented this slide, I said, I hope that when we come to the end of the day, what you'll realize is this is a fundamentally different company today than the company we talked to you about two years ago.
It's fundamentally different, not just in terms of some of the M&A and our geographic footprint and what we've done to the portfolio, but it's fundamentally different also in terms of our execution, the strength of the position in our markets, the strength of our cost positions, the strength of our commercial positions, and again, continued continuity management, you know, leading in this market and leading against this strategy. The results we talked about today are really the result of a decade's worth of work. You know, the cumulative efforts of our teams coming out of some of the challenges that we saw out of the last recession and continuing to build every day with an eye on the future to create a company that has the kinds of financial results we presented to you today. We think our best days are still ahead of us.
So I don't think there's any posture in this meeting that would give anybody the impression, I hope that we see anything but the ability to continue to drive performance and continue to move the ball forward with Owens Corning. There's obviously a lot of energy in the company today and excitement around some of the M & A work, getting back to Europe in a big way, being a bigger, more scale company and then using our operating model to use that scale to leverage our company and create a lot of shareholder value. So I think it's a very good story. We are proud to tell it today. I was very proud of my team. We have wonderful people in our company.
We're going to do very, very good things and we obviously get up every morning and figure out how we can work very hard for our shareholders to create a lot of value. So thanks for joining us and I appreciate your.