All right, good morning, everyone, and welcome to Worthington Enterprises' 2023 Investor and Analyst Day. My name is Marcus Rogier, and I'm the Treasurer and Investor Relations Officer. We appreciate everyone joining us here today for our event, as well as those listening in online. Before we get started, we have a few housekeeping items we'd like to go through. First, today's presentation has been posted to our investor relations website, and it can be downloaded at ir.worthingtonindustries.com, if anyone wants an electronic copy. Second, we plan to have a question and answer session at the very end today. So for those in the room, we'd kindly ask that you please hold questions until the end, and we'll come around with the microphone. For anyone listening in online, you're welcome to submit questions throughout the presentation using the Ask a Question tab on the upper right-hand corner of your screen.
We'll collect those and read at the end after we've addressed the in-person questions. Third, I'd like to note that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risk and uncertainties that could cause actual results to differ from those suggested. Please refer to our recent SEC filings for a list of those risk factors that could cause actual results to differ materially. In addition, our discussion today will include non-GAAP financial measures. We've included a reconciliation of those non-GAAP measures to the most comparable GAAP measure within today's presentation. Lastly, today's event is being recorded, and a replay will be available later on our worthingtonindustries.com website. At this point, it's my pleasure to introduce our President and CEO, Andy Rose. Andy has been with Worthington 15 years.
He came to us as a CFO in 2008. Prior to that, he had experience with private equity. While CFO, he led the company through the Great Recession by focusing on preserving liquidity and ensuring a strong balance sheet. He was CFO for 10 years before becoming President in 2018, and more recently in 2020, he was named CEO. At this point, I'll hand it off to Andy.
Thanks, Marcus. Thank you, Marcus. Welcome, everyone. Thank you for reminding me about the great financial crisis. That was a fun, fun time period in my career. I am super excited to introduce today Worthington Enterprises, a market-leading designer and manufacturer of building products, consumer products, and sustainable energy solutions. Hopefully, you got a chance to walk through our trade show exhibit behind us. If not, maybe on a break or after today, you'll get a chance to do that. It's a terrific way to see our products showcased and really brings to life what we do. Thank you to the team for putting that together. I think it's fantastic. You're gonna hear today a lot about our business, and one of the things you'll see is our business is performing well right now. Going the wrong way.
There we go. So we have, unfortunately, Eric could not make it today, but we have eight very talented members of our management team. They're gonna help you dig deep into our business so that you can get a great understanding of why we have been winning in the marketplace and why we have the opportunity to continue to win over the coming years. We have, as you will see, market-leading businesses. Eighty percent of our revenue comes from products or businesses that are leaders in their space. We have very strong secular tailwinds, where our products are well positioned to participate in those trends. And you will see we have a proven strategy that we've developed over the years that starts with our Worthington Business System, the foundation of which is our transformation playbook. It's lean, it's the way we make the businesses we own better.
And then we also have an innovation capability that we've developed over the last 10 years, that I was explaining earlier to some folks, that it's taken a while to get there, but we've got the ball rolling downhill now, and we have a terrific team of folks that really are enabling us to take mature markets and innovate to create separation from our competitors. And then the final piece of our Worthington Business System is our M&A capability. We have been acquisitive over the years. Part of our history and the construction of this business has been based on a proven M&A capability.
Then finally, I think perhaps most important is all of this, when you add it up, is a business that generates very high returns and very strong free cash flow, which we think is an attractive investment characteristic for all of you to consider. Here's our agenda. I'm not gonna go through it, it's in your book, but you're gonna get an opportunity to see a deep dive on all of our three business segments and our financial strategy, and of course, our path forward. For those of you that are here today and may stay for the afternoon session, we are very excited about the planned separation, which is gonna actually create two market-leading businesses.
And while I am excited to talk about the business that I will be a part of, Worthington Enterprises, I'm also equally excited for the opportunity about the, the steel company. Worthington Steel is a best-in-class, value-added steel processor. I believe it's the best steel processor on the planet. They have a unique growth opportunity in electrical steel to really take advantage of the transition to electric vehicles, as well as the transformer market, both of which have very attractive growth characteristics going forward. So if you have the opportunity, stick around, we'll have lunch in between, and you can see the steel company. Geoff Gilmore, Tim Adams, and Jeff Klingler, the president of the steel company, will be presenting that. Okay, Worthington Enterprises, we believe, is an extremely compelling standalone investment story. That's why we're here today.
We believe now is the right time to separate. We have achieved the scale, financial strength, and capabilities to operate on a standalone basis. We have a compelling and very distinct growth strategy that is uniquely ours. We have a clear-cut value proposition and a differentiated investment thesis, and we think as you look at comparable companies out there, you'll see that there is a valuation opportunity. And then finally, we have a uniquely strong balance sheet and free cash flow to execute on our strategy going forward. So Worthington Enterprises, a market-leading designer and manufacturer of innovative building products, consumer products, and sustainable energy solutions. We have a short video to introduce our company and our brand.
At Worthington Enterprises, we empower people to live safer, healthier, and more expressive lives. Born from Worthington Industries, we honor our heritage through continued commitment to our people-first philosophy, rooted in the Golden Rule . A legacy of entrepreneurship has given rise to a powerful new company, Worthington Enterprises. We will lead. We lead by creating inviting spaces, remote monitoring technology for heating and cooking, beautiful ceiling vistas with sound-dampening performance, and vital solutions for climate-controlled environments. We lead to a cleaner tomorrow with compressed hydrogen and natural gas systems, fueling sustainable transit, logistics, and industry. We lead by unleashing everyday adventure, creativity, and celebration with consumer products such as tools, torches, fuel, and party essentials that equip people to express themselves and make every moment memorable. We lead in all these ways because our people have insight, focus, and a hunger to use their skills for positive impact.
We lead because we listen intently to our customers' needs, so we can partner in solving challenges, big and small. We will lead because Worthington Enterprises' impact is experienced by countless lives every day. That is a privilege and a responsibility we take to heart.
Awesome. Well, hopefully, that gave you a little bit of the excitement that we have about our company, and when I see the "We Will Lead" tagline, we do lead already. That's a great platform from which to build a business. I'm gonna give you a little bit of a history lesson because I think it informs where we are today and perhaps where we're headed. Worthington was founded in 1955 as a steel processing business. In the early 1970s, we acquired a very small, $5 ,000,000 pressure cylinder manufacturer in Columbus, Ohio, that I believe we were supplying steel to, and that was really the beginning of the Worthington Enterprises franchise of businesses.
In the 1980s, we developed a product called Balloon Time, which is a branded retail product on shelves in many retailers that is basic—I call it a birthday party in a box, which was sort of the first retail product that we introduced. Also important, in 1992, we formed the WAVE joint venture with Armstrong World Industries. We acquired a steel processing facility in Malvern, Pennsylvania. It had a small, little roll-forming grid business, and Armstrong had a similar business. Both didn't make much money. We put them together, took the best of both companies, and and I think in its first year, it made roughly $1 ,000,000 , and today, that business makes close to $200 ,000,000 , has close to 100% return on capital and about 95% free cash flow.
It's an amazing business that we built together with Armstrong and, and also has great prospects for the future that you'll hear from Doug Cadle later today. In 2008, we launched our transformation, which I mentioned earlier, is our lean playbook. It's how we make our businesses better. It's not just in-- on the shop floor. It's operations, of course, but it's also supply chain. There is a commercial component. We have very strategic pricing desks throughout our businesses that really help us improve profitability for the business. And then, also importantly, a few years later, we launched our second value driver, which is innovation. I was telling the story earlier, we hired a couple of folks from Procter & Gamble who ran an innovation think tank there, and they really helped-...
develop the innovation capability today, which really is a cornerstone of, of who we are, and it really enables us to take mature markets that are not very sophisticated and create separation from our competitors. And if you walk through the, the back room, you'd see some of that, some of that, innovation at work. So in 2011, we formed our ClarkDietrich joint venture. That was sort of on the backs of the financial crisis, when commercial construction was, was in a tough spot. We merged that business. ClarkDietrich was a market leader. Sorry, Dietrich was a market leader. That was a wholly owned business of Worthington. Clark Western was a market leader.
We merged those two companies, consolidated the footprint, and created the business that it is today, which is the market leader in metal framing today, and you'll see their financial performance has started to reflect that. A few other milestones along the way. You see, we continued to acquire several important brands, and importantly, in 2021, we resegmented the business. So this part of Worthington Enterprises used to be a segment referred to as Pressure Cylinders, because we make 8 5 ,000,000 P ressure Cylinders every year.
But we wanted to do two things: One, was realign with markets that we serve and also help investors understand those markets better, but also develop the opportunity for our business leaders to have broader strategies so that they could grow faster and into more places other than just a pressure vessel, and you've seen that with some of the products that we've moved into in more recent years. So it's a very cool business today, with, we think, amazing, it's very profitable, but also has amazing growth prospects. So the next few slides are really more just pictures that sort of showcase where our products are in and around the economy. The first here, consumer products. This, a market-leading portfolio of innovative consumer products. There's actually 10 brands that we own and sell in the consumer products space, in tools, outdoor living, and celebrations.
Some of these brands you probably recognize. Our building products portfolio is market-leading commercial and residential building products for heating and cooling, water systems, metal framing, and acoustical ceilings. And then Sustainable Energy Solutions is onboard fueling, distribution, and storage, storage systems, enabling the energy transition with compressed natural gas and hydrogen products and systems. So why do we win in the marketplace, and why do we think this is a very compelling investment opportunity for all of you to, to consider? It starts with a market-leading portfolio of brands with high barriers to entry. We have strong underlying secular trends in those markets, and I think most importantly, the business model drives high free cash flow and strong returns, and you'll see that when we get into the numbers a little bit later.
We have, as our foundation, the Worthington Business System, which starts with our philosophy at its core, which creates our winning culture, which is a unique competitive advantage. We'll talk a little bit more about that. But it also includes our transformation playbook, our innovation capability, and our M&A capability. Finally, our balance sheet, low leverage, and ample liquidity. This is the way we have always run this company, and it's served us very well, enabling us to fund our growth at all times throughout all economic cycles and to take advantage of opportunities when others cannot. I mentioned this earlier. These are our leading brands and businesses. 80%+ of our adjusted EBITDA comes from brands where we are the market leader in the marketplace. So that's a great base from which to start and really grow our business. And I mentioned high barriers to entry.
We have a high margin, asset-light business model mindset that generates very strong cash flow and returns, but we believe there is an economic moat around our businesses, and it... You see some of those characteristics here. The first is, you know, highly engineered solutions that meet rigorous specifications. Oftentimes, these products are spec'd by architects in construction situations, and we operate in highly regulated markets, which create barriers for folks. Second is, we deliver exceptional quality service and supply chain solutions. You can talk to our customers. This is a hallmark of who we are across all of our businesses. We have robust industry knowledge. We've been in these businesses for a long time, and we have specialized technical expertise that others don't. Oftentimes, we are out front, sort of leading regulation and developing regulation in these markets.
Finally, I mentioned—or fourth, I mentioned earlier, we're driving innovation into mature markets. I, I like—sometimes this sounds terrible, but I like saying it. For better or for worse, a lot of the markets we operate in are not that sophisticated. And so when we bring innovation into those spaces, it creates separation, it creates value for our customers, it enables us to charge more for our products because of that, and that's—you're starting to see more and more of that in our business. And I honestly, I—we're not a technology company yet, but I think down the road, we're gonna start to talk about ourselves as more and more of a technology company, which is super exciting.
Then finally, we have manufacturing at scale that many times a lot of our competitors are family-owned, smaller businesses, where we can develop efficiencies through automation in these niche markets because we are larger and have a better balance sheet. I mentioned some of the secular trends. Here are four that we think are major influences on our business that will continue to benefit us for years to come: government stimulus and support, obviously, focus on the environment, the population shift, which has accelerated in recent years because of COVID, as well as reshoring and nearshoring that is creating significant investment in the U.S. We are primarily a domestic designer and manufacturer of products.
We do have some operations in Europe, but the lion's share of our revenues are domestic, and so we will benefit from a lot of these trends that are happening here in the U.S., and some of the trends that are happening, particularly in Europe, around some of the sustainable aspects of investing. Okay, here you see the first snapshot of our earnings. We believe this business model drives strong returns and strong free cash flow, which you're gonna see in a second. Over the last several years, 16% compounded net sales, 20% compounded annual growth on our adjusted EBITDA. So very attractive performance. One thing just to note, so people are aware, is we have a May fiscal year end, so these numbers are as of May, which makes it sometimes a little more confusing than having a calendar year end.
$1,400,000,000 of sales, 21% Adjusted EBITDA margin, and perhaps most important, 85% free cash flow conversion. With that being said, we think this is a great business, but we are not satisfied. We have aspirations to do better than that. Our long-term targets, you can see on the right, 6%-8% sales CAGR, 24, 24% Adjusted EBITDA margin, and maintaining or potentially improving that 85%-90% free cash flow conversion. If we can deliver on these goals, we think this makes us a top decile business that is worthy of a double-digit multiple, a best-in-class performance or performer. All right, I wanna talk a little bit about the Worthington business system, because this is really the engine that helps drive our success. It starts at the core with our philosophy.
This was a set of principles that was penned by our founder in the early 1970s. It was the way he was already running the business. But I can tell you, when I showed up here 15 years ago, I was stunned how on day one, you get indoctrinated into the philosophy, and how frequently when you're sitting in meetings, we reference the philosophy. Are we following these set of principles? Are we doing the right thing? It starts with, we're in business to make money for shareholders. That's the good news. We believe you make profits. It starts there, and then you can do lots of good with those profits. It also says we're a Golden Rule company. We take care of our...
We believe employees are our most important asset, but it goes through a series of things that talks about our customers, our suppliers, being involved in the community, and it's a great way to run a business. It has withstood the test of time, and it's a great foundation. The next three rings are our transformation, our innovation, and our M&A capability. I've talked about those in the past, and I'll go through a little bit more detail. And then on the outer rings, our enablers, technology. We're using more and more technology in everything we do. You're seeing it in our products. We are putting technology in our plants, where we're putting sensors on machines and throwing data up to the cloud so that we can improve our value streams and make them more efficient. And then finally, sustainability.
Sustainability really has two prongs inside of Worthington. It's about, of course, doing the right thing for the environment, but it's also part of our business strategy. We have products that are playing a role in enabling the transition to a lower carbon economy, and we believe that will benefit us as we kinda go forward. Finally, I mentioned earlier, we are disciplined stewards of capital. We wanna earn exceptional returns for our shareholders, and that's always been the goal for Worthington. A slide on innovation. This gives you a little bit deeper dive, and the guys that are gonna come up and talk about the specific business unit strategies, you will see innovation wicked through all of our businesses. It's about building the core, expanding the core, and then also disrupting the core.
I mean, we're trying to come up with products that can disrupt our existing products so that we can, again, create that separation. Innovation does two things: I think most people think of innovation as an opportunity to generate new sales on new products. I also think, and we think as a team, that it's a way to enhance our margins. When you deliver value to customers, you can charge more for it, and so innovation is a way to, to absolutely do that. I talked about our philosophy. This gives you some insight into several aspects of our philosophy. And, you know, we've won several awards recently for ESG, and ESG is a comprehensive, as you would all know, program, not just around the environment. But we've won those awards not because we decided we wanted to be a good ESG company.
We've won those awards because our philosophy has guided us to doing the right thing over decades. So we were already doing most of these things, and I think now we're just getting recognized for it. But we have a culture of engagement for our employees, but we also believe in profit sharing and incentives. We believe that everybody at Worthington should participate in our success, and that was an innovation of Mr. Mac decades ago and something that we're committed to this day, which helps keep our workforce engaged. When we develop strategies and wanna go, they go because they know they participate in the success of that. We've always had a focus on health and safety. We have industry-leading safety metrics. It is core to what we do.
Just as an example, riding over here yesterday from the airport, the president of the steel company was on a call reviewing some minor safety incidents. That's how serious we take this. We focus on our communities. We believe in giving back, both with our time, we allow employees to go volunteer and encourage it, but we also give back financially to the communities that we participate in. And also importantly, we believe in a diverse and inclusive workforce. This is not something that's new to Worthington. We have some new initiatives around that more recently, but it is part of who we are. We believe in diversity of thought, diversity of experience and background, and, you know, the team that you're gonna see today is a reflection of that.
It's a combination of homegrown individuals, but also folks that have come from the outside with different perspectives. I mentioned our unique, and I think very attractive, balance sheet. We're gonna launch this company with debt to adjusted EBITDA of 1x. Net debt will likely be less than that. We are very committed to maintaining an investment-grade credit rating, and if you go through and look at the credit metrics of this company, they are almost all A-rated or better. And then finally, we're gonna have significant liquidity when we close the transaction to take advantage of the strategies that you're gonna see today. Okay, I am gonna introduce the Building Products segment, and then we're gonna have the team that runs those businesses come up and talk in great detail about them. This is our largest and most profitable segment.
There are three aspects to this business that we think are really unique. Well, three components to the business: WAVE, which is a 50/50 JV with Armstrong, ClarkDietrich, which is a 75/25 joint venture with Marubeni-Itochu, and the Worthington Enterprises business that we have built from the ground up, in heating, cooling, cooking, well water, and insulation. Each of those will be covered here today. Why do we win in these markets? The first, it starts with market leadership. I mentioned earlier, we are leaders in all of these businesses. We have highly engineered and innovative products. Many of these products are either specified by architects or they have rigorous code requirements that enable us, with our quality and service and delivery, to set ourselves apart. Quality, service, and scale is a differentiator for us. We have the ability to do things our competitors don't.
We can run complex programs. We can deliver in short lead times when many of our competitors cannot do that. We are a large player with unique capabilities, oftentimes in niche markets. And all of this serves to create meaningful barriers to entry, and perhaps most important, strong cash flow. So this is the financials of this segment, $570 ,000,000 in sales, a 38% adjusted EBITDA margin, and $216 ,000,000 of adjusted EBITDA. A very powerful, powerful earning stream for us. So we'll talk about each of these segments in more detail as we kinda walk through here. I'm gonna introduce two people. They're not gonna come up at the same time, but I'm gonna start with Jimmy Bowes, who's gonna speak second.
But Jimmy came to us almost 15 years ago, shortly after I joined the company, and he joined in a corporate finance role at our corporate office and has done many things to earn the right to be the successful leader that he is today. He worked in M&A. He has worked in our transformation group, helping learn how to improve businesses. He ran the integration for Amtrol, a business we bought back in, I think, 2017, and spent time in Portugal at the large facility there. And for the last 5 years, he's been an operator in our building products group, and you're gonna get a sense from him. He's got a lot of energy, a lot of passion, and he is doing great things for us and will continue in the future.
The next person you're gonna hear from is Doug Cadle, and Doug is WAVE. So Doug has been at WAVE 18 years. He came from Armstrong, and one of the things you're gonna learn about our joint ventures is we populate those joint ventures with folks from the parents who go in, learn, grow, and then go back to the parents in many cases. Doug came from Armstrong and never left. He was in a commercial role for years and has been the president of that business for the last 3 years, and he is a key architect of the success that WAVE has had over the last decade and a half. A lot of what you're gonna hear about why WAVE is successful, he was very much responsible for over the years. So happy to introduce Mr. Cadle.
Thank you, sir. Oh, great. Thank you, Andy. Good morning, everyone. You know, I have the great privilege of being able to represent WAVE, and it's an entire organization, and with the success that we've had over the years. I'm going to talk to you about WAVE today and share what went into those successes. WAVE is the Worthington Armstrong Venture, and it is the market leader in ceiling suspension systems and integrated solutions for interior ceilings, and we've done pretty well. I think Andy mentioned that our first year, we made just over $1 ,000,000 , and we're far from that. And I've got to enjoy the ride, the journey. Today, historically, we have earned every year increased sales and increased earnings, and we do it with pretty good margins, greater than 40% margins.
Our return on capital is over 100%, and our free cash flow is about 95%. When you do that, you have the opportunity to pay back dividends to your parent companies that are very handsome, but you also earn the opportunity to continue to invest in a business. And so at WAVE, you know, we've been able to— There's other uniquenesses to WAVE other than the, than the financial success. It's a 50/50 joint venture. You don't have too many of those around, and it's lasted for 30 years, and that's really a tribute on how the parent companies work together. We've been able to leverage, we've been able to lean on, we've been able to take advantage of Armstrong World Industries. They have a strong brand in the industry.
Their presence in the architectural community is outstanding for us when it comes to specifications. The distribution network that Armstrong's associated with is extremely strong. So we're able to take advantage of those things. On the Worthington side, we've leveraged, taken advantage of the metals sourcing of products. We've been able to take advantage of material supply chain and... Thank you. and also business processes, mostly on the operation side. I shouldn't say this, but sometimes I describe WAVE as a bipolar company, 'cause on the front end, it's Worthington, Worthington, Worthington, and when that product goes into a box, the box says Armstrong, and then it turns into an Armstrong product. The key to the whole thing is how incredibly productive, profitable the two companies work together to make the joint venture successful.
You know, that's really been the reason why WAVE has succeeded so greatly in the past, and that's sort of how it was created and where we've come from and what we've been able to accomplish up to this point. What I really want to talk about moving forward is, you know, why we win now, and why winning now is going to position us for future growth, a bright future. You know, our customer-centric culture at WAVE is visible in everything we do. We are relentless about staying close to customers. I mentioned Armstrong being very close with architects. At WAVE, you know, our role, our position responsibility, is to win over contractors.
Staying close to contractors, you understand where their pain points are, where their challenges are, and you're able to address those through innovation of material, time, labor-saving systems that puts them in a position of being able to be more profitable. And when you do that, we become more valuable suppliers to them and preferred suppliers. We can do that. The innovation that we bring, we go to market with an unchallenged speed to market with innovation, and I'm gonna show you some of those later. But the innovation, the speed of market, it sets us up for the best customer experience that our customers can deal with with their suppliers.
I could tell you stories about, you know, supply chain issues the last couple of years, hyperinflation last couple of years, and because we work closely with customers on making sure that the quality of the product, and it's a shout-out to our manufacturing folks, our claims on product quality is less than 0.2%. Our on-time delivery during supply chain issues, we were averaging less than 20 missed item promises. That's, that's items, that's line items, less than 20 a month.... during times when our distribution network would open up their trucks from other suppliers, and half their order was there. That reliability, that credibility, has earned us the right for some pretty good premium pricing.
What I really want to boil down to is that speed, innovation, and the best customer experience is what we focus on strategically, and that's really why we win. In all three of those phases, we have competitive advantages that allow us to continue to grow our business, grow earnings, earn a premium price, and get the returns that we do. When it comes to products, products and services, there's three or four key things that are differentiators for us. First is our construction expertise, and we have a force, and they're employed by WAVE as really subject matter experts when it comes to construction, to reinforce Armstrong's selling efforts to the contractor base, and these are well-experienced contractors, well-experienced carpenters, in many cases, members of the Carpenters Union.
So their credibility when they go on a job site to reinforce the installation capabilities and be able to reinforce the efficiencies that contractors get with our products, when you know, when labor, the quality of labor, the cost of labor, and the quality of the installations, and also the construction schedules being so tight today, having those kind of resources helps out tremendously to earn somebody's business. Technology, as far as entanglement with customers, we have software for takeoffs, we have software for shop drawings for construction sites, and where parts go, and how they coordinate, and it all takes out the risk of labor and construction.
As a supplier, if you can do that, you're putting yourself in a very good position to get more business and to continue to grow. Those partnerships that we have with contractors by using technology on the takeoff side, right through project management and installation, it gets us deeper and wider with the contractor community, and that entanglement is very difficult for competition to duplicate that kind of thing. We take advantage of it, and with those type of things, guess what? You earn a premium price in the marketplace, which gets eventually to earnings. The opportunities we have with very specific segments of construction in being able to advance designs of pre-engineered solutions is gonna continue to put us in a position to grow this business.
I'm gonna talk about data centers. 'Cause, you know, if anything, anybody who's involved with construction understands that data centers is growing at an unprecedented rate in this country, around the world, quite frankly. And we're positioned very, very well. We started down this path about a decade ago with some limited products, but we're continuing to innovate, and what we can do for the construction of data centers is exactly what we've done in offices and schools, in hospitals, and we've put systems together where are just better for contractors to work with. We're easier to do business with when it comes to systems for specific segments. And this data center and life science segments are the real growth businesses in ceilings that are suspended.
And the other thing that really we have addressed, and have a competitive advantage with, is with healthy spaces. That's an initiative that we're coordinating with Armstrong's emphasis with healthy spaces. We sort of have taken a niche of that, and that is bringing functionality to a ceiling with air purification, and we're starting to build out a portfolio, we're developing a new channel of distribution, and this is gonna put us in a position for a whole new reason for somebody to use our products across our entire portfolio. So we're excited about that. Next slide, please. And this is about why we've earned the trust and what it does for us, and that's the financial part of this thing. WAVE is...
We've talked about this, has generated consistent sales revenue, and also earnings, and I've talked a little bit about why that's, that has been done. Historically, our business is about 65% renovation, 35% new construction, and that positions us very, very well. During COVID, there was disruption of, and quite frankly, interest rates rising, there's been a disruption in some newer projects being started. And so, because we're involved and have been involved in the renovation process, it's put us in a very good position, while that segment of construction is going to be increasing for the next several years. There's a lot of commercial real estate out there that people are concerned about being competitive, and we're right there where we need to be to help them renovate space. So that's exciting.
They talked about life's, the, the, the earnings of 40%, and that wasn't always the case, okay? We got there because we've earned it. That's why- and it's the things that we won to earn that 40% is what the same types of the, the playbook for new segments that are gonna con- have us continue to grow. We're very, we're very proud, quite frankly, of where we've come from, and financially, I think it's gonna put us in a position to continue to thrive and be better, better contributors to both parent companies. Because it's for both parent companies, it's gonna be very productive for WAVE, and in this particular case, to date, it's gonna be very productive for the success of Worthington Enterprises. Pretty good overview of a successful business.
The translation is that we've had a playbook, we've been very successful, and that we're gonna lean on that playbook to continue this type of growth, and we have those segments that provide those kind of opportunities in a business system that will allow us to execute and execute at the same type of levels that we have in the past. With that, it doesn't stop there, and I'm gonna pass the baton over to Jimmy Bowes, and Jimmy is involved with other aspects of building products that I think that will add a lot to Worthington Enterprises, and I'll pass it over to Jimmy. Thank you.
Okay. Thank you, Doug. WAVE is an outstanding business, and you've done a phenomenal job leading it. The results are very inspiring. So as Doug mentioned, my name is Jimmy Bowes, and I'm excited to tell you the story of our legacy Pressure Cylinders business unit as it's what's now becoming Worthington Enterprises, and I believe this has a phenomenal, compelling growth story. This business, as Andy mentioned, was established in 1971, and it was further bolstered by our acquisition of Amtrol in 2017. And today, we are a global market leader in pressure containment solutions. Our products have a strong installed base of homes that are used by homeowners and technicians every day throughout North America and Europe for the essential needs of heating, cooking, cooling, and drinking water.
One of the competitive advantages that we have in this business, again, Andy mentioned this earlier, we have decades-long, industry-leading partnerships with our customers and suppliers, many of which are multigenerational, family-owned businesses. These trusted relationships are a competitive advantage for us, as they've allowed us significant new product development opportunities that you'll hear me discuss in a few slides. But the reason I'm most excited about this business, because we've been a market leader in these spaces for decades. However, only recently have we fully rolled out our Worthington Business System and truly transformed this business. When Andy shared earlier that the Worthington Business System accelerates our growth and profitability, what we've done with this business is an example of its impact. Leveraging the Worthington Business System to better serve our customers is why we win.
As you can see, we've more than doubled our profits organically while playing in the mature markets that I discussed on a previous slide. We've done this as a result of implementing our transformation and innovation playbooks. We completely changed the way that we do our business through the investments we've made and our people, our processes, and our capabilities. These investments are highlighted above with the key roles that we've added across analytics, research and development, and product management. I'd also like to point out that we've achieved these results in spite of the significant customer bullwhip demand that we experienced throughout the pandemic and significant customer destocking that we experienced over the trailing twelve months. Our team is ready to capitalize on our end markets as soon as they stabilize.
Speaking of our team, I'd like to thank our more than 2,000 employees across North America and Europe, all the folks in our corporate office and at our manufacturing facilities, all their hard work and dedication for achieving these phenomenal results. I'd now like to share with you three examples to further support why I believe this business has a compelling growth story around the investments we're making and building our core, expanding our core, and disrupting our core. Here's a powerful example, and I mentioned some of this to you earlier. This is a powerful example of our transformation in action. And although this example covers just one product line, the results of this led to the significant profit growth that I explained on a previous slide.
Again, this is just one product line example. In this product line, historically, we simply made the products that our customers asked us to make. We were very reactionary, and we didn't really know if we were winning or if we were losing. We knew we had a market leadership position, but we didn't understand our end market drivers that well. We wanted to solve this, and, as I mentioned on a previous slide, we made the significant investments in product management and analytics, and we made those investments. We dug deep into these end markets, and we saw opportunities for potential growth due to changes in consumer behavior. The reality is we just started getting proactive, and we started playing to win. Once we identified these opportunities, we challenged our operations team.
They used our lean transformation playbooks, and they delivered. You can see the phenomenal results that they delivered, 30% increase in production per shift and 45% increase in annual capacity of this one product. With this increased capacity, we served our customers better in this end market, and our commercial team executed, and we gained market share, and you can see it's more than... it's led to more than doubling of our sales. Another example as to why I believe we are poised for continued growth is around the problems we are solving for our customers using technology-enabled solutions. We use the decades-long trusted relationships that we have with our customers to gain insights into their wants and needs.
We use the decades-long trusted relationships that we have with our suppliers and industry partners to work with us on delivering these proprietary solutions. Here, I'm highlighting three major challenges that the propane industry experiences. One, for a propane customer, how much fuel is in my cylinder? Two, for a propane distributor, how can I optimize my propane delivery route? Three, also for the propane distributor, where are the cylinders in my fleet? I've noted two solutions to these problems that we've recently introduced. The first being the NEXi that we've launched in Europe, and the second being the Smart Lid that we launched in the U.S. Both of which are outstanding technology-enabled products that we believe set us up for future growth. Our team thrives off of solving customer challenges, and it's allowing us to become more than just a cylinder supplier.
We're very close to solving a number of our customer challenges that we'll be excited to share with you as they progress towards launch. Lastly, for me, I wanted to highlight a market we've yet to discuss. In my opening, I mentioned that our end markets were heating, cooking, cooling, and drinking water. However, we've recently increased our focus within the spray foam, insulation, and adhesive markets. This is another example of where we were playing to play versus playing to win. We've offered a product to this market for over a decade. However, only recently did we truly understand the end market use and its related market drivers. Since we began to invest resources in this space, we've seen our sales 4x and our customer base double. This product is becoming more popular for contractors versus the use of smaller aerosol spray cans or totes and drums.
This cylinder gives contractors the power to spray chemicals with speed and efficiency. This is reiterated by the fact that you're now starting to see this product at major home improvement stores. Even better, following the same process that I described earlier, we developed strong trusting relationships with the folks in this space, and we were able to gain their key insights into their biggest challenges. Great thing for us was one of their biggest challenges was they could not use our product in certain end markets where a water-based chemical solution was needed. An example of this is in adhesives. Many states and cities across the United States have started to restrict the allowable amounts of VOCs used in a wide variety of building products, including adhesives, thus causing our customers to move from a solvent base to a water-based adhesive.
Our cylinder is made of steel, so water naturally causes it to corrode, thus damaging the product inside the cylinder, leaving the speed and efficiency that our cylinder provides useless in these end markets. Our team took this as a challenge. We leveraged the expertise we had in our water business and with the new research and development capabilities that we've invested in, and we were able to come up with a solution that we've recently launched called the PowerCore. Worthington's innovative PowerCore cylinder enables our customers' path to sustainability by providing a purpose-built, corrosion-resistant container to safely store and transport water-based chemicals. This is extremely exciting for us, as this product opens us up to a wider use of water-based chemicals, giving us access to several new exciting end markets, as you can see here. That's it for me.
Thank you for letting me tell the story of our legacy Pressure Cylinders Business Unit. I'll now hand it back over to Andy to highlight another one of our great venture partners, ClarkDietrich. Thank you.
Good job.
I was so excited about Jimmy's presentation, I forgot I was up next. Thanks, Jimmy. Nice job sort of showcasing the accomplishments of the business and, and where we're headed there. So I'm gonna do a little bit of a deeper dive on ClarkDietrich here for a couple of minutes. I mentioned earlier, this is a 25% owned joint venture formed in 2011 between two market leaders, Dietrich Metal Framing and Clark Western. You might think that, because we're a 25% partner, that we're passive and not active in the business, but that is absolutely not the case. We are very active.
In fact, the leadership team of this business, Jim Collins, Greg Ralph, Brian Panuccio, are actually former Dietrich employees, and we also play a very active role at the board level, influencing how this business operates and their effective strategies. So we are involved. We have a voice, a strong voice at the table. And I wanna give you a little bit of just color on the history. The more recent history is, five years ago, we had a leadership change in the business, and we were very active in helping lead the conversation with our joint venture partner, Marubeni-Itochu, on who that should be. And it ended up being Jim Collins, a former Dietrich executive. And really, this helped start the realignment of that business.
What really has changed over the last five years is their focus on no longer being the market leader in market share, but focusing on margin and getting paid for what they can deliver to the marketplace, which includes the broadest product offering in the market. It includes service levels that are unsurpassed. They can deliver massive amounts of their product to job sites in less than 24 hours. There has been distributor consolidation over the last several years, and that has enabled them to also go to distributors where the distributors no longer wanna deal with small mom and pops. They wanna deal with national players who can deliver on the promise of quality service and delivery. This business is equipped to deal and manage with complex programs that others are not.
I think when you look at the step change in performance, that is a reflection of this business starting to be valued based on what they can do in the marketplace. COVID obviously played a role there as well. They can get steel, they buy—they're one of a large buyer of steel. They can get steel when other players cannot get steel. So all of these factors have really played a role in creating what we think is a new normal here for this business. The next slide here really just gives you a sense of the breadth and depth of this company. They're a national player, the only national player. They have a lot of engineers on staff. They deliver to projects in a number of markets: hospitality, education, stadiums, commercial health.
They have a ton of steel in the Freedom Tower, just as an example here. They're a very large player in the New York City area, so it's a very large and successful business. Perhaps most importantly, this slide is really, I think, attempting to address the joint ventures, which includes WAVE as well as ClarkDietrich, but these businesses are extremely predictable cash flow machines. They not only deliver strong financial results, but those results convert to almost 100% cash in terms of the cash conversion of these businesses, and it's very predictable, too. It's not... You know, there are a few lumpy sections in here, but for the most part, it is very predictable, the cash that gets delivered to these businesses or to the parents from these businesses.
So, maybe just to wrap up here quickly on the building product segment, which I started with by saying it is the largest and most profitable segment. Hopefully, you have gotten a sense that these are market-leading businesses with opportunities to continue separating themselves from their competitors, consistent, strong cash flow generation, and lots of opportunities for growth. All right. With that, I am going to now introduce Steve Caravati. Steve has been with Worthington 18 years. He has been the President and GM of Consumer Products for the last 4. And when I went through my history lesson, you can see that over time, we've built up a portfolio of consumer products, but that has really changed dramatically under Steve's leadership.
He is the architect of building a portfolio of brands and leveraging those brands with our customers, and really taking a business that was an amalgamation of products and creating a very cohesive strategy that is enabled by our innovation capability, which is becoming exceptional very quickly and really gonna help us succeed in the future. So with that, I'll pass it over to Steve and let him tell you about consumer products.
Thank you, Andy, and good morning, everyone. I'm excited to talk to you today about our consumer products business, where our mission is to empower every day and everywhere. Empower our customers, our employees, and our consumers to create and conquer the job at hand. Every day, where not a day goes by where one of our products isn't being used or being purchased, and everywhere speaks to our multi-channel sales approach. So why do we win? Our business has a strong, recognizable portfolio of brands, with market-leading positions and channel strength that enable a deep understanding of the markets we play in. The specialized, highly engineered nature of our products allows us to drive strong pricing dynamics and market share penetration.
Our innovation team will continue to leverage our voice-to-customer research to launch new and exciting products to our consumers, while helping identify new trends that could help accelerate our M&A initiatives. The experienced team we built over the years will continue to position us well for long-term sustainable growth. We've entered a new era within our brand portfolio, building on our core competencies, expanding our capabilities, and driving consistently into our new future. We operate in high-growth categories today, in tools, outdoor living, and celebrations, and what excites us about these categories is that they are powered by tailwinds that will continue to deliver incremental growth over time. But it's not enough to just play in these strong categories with secular tailwinds. Knowing how to operate with leading brands and to become a best-in-class partner to our customer and our consumers is key.
In the last twelve months, our business recorded $647 ,000,000 in sales, generating $89,000,000 of adjusted EBITDA and 14% adjusted margins. While we've seen some demand moderation from the COVID peak, due to the experience economy, customer destocking, and unfavorable weather this summer, we've taken this opportunity to lean in with our channel partners, receiving some recent market share gains in adjacent categories that we expect to ship in calendar year 2024. We've also reoriented our new product development team to focus on speed to market, leveraging our direct-to-consumer platform that we inherited from the Level5 acquisition. While many of our brands are market-leading brands in their respective spaces, we're excited for the new opportunities to build our brand equity and continue to optimize at what we do best in applying the Worthington Business System.
Through our acquisitions, we've been able to build a portfolio of fantastic brands in tools and outdoor living, while continuing to grow our legacy Balloon Time brand. Across our portfolio of brands, we have over 100 products in a variety of configurations that cater to a wide range of end users. From the pro who depends on our product to make a living, to the proud parent who wants to ensure their child has the perfect celebration, our product portfolio sets the standard for tools, outdoor living, and celebrations. As it relates to our end markets, our tools platform is tethered to repair and remodel, offering products for a broad range of end users, ranging from professionals to DIYers. Despite near-term pressure on the repair and remodel markets, there are some key primary drivers ensuring structural tailwinds will remain in place long term.
First is the chronic home shortage as a result from the underbuild during the Great Recession. We have an aging housing stock, where the average age of an occupied home is roughly 40 years. Increasing home equity, combined with increased usage of the house, along with disaster impacts from weather, all of these tailwinds encourage reinvestment back into the homes. Our outdoor living platform continues to benefit from record participation and increasing awareness and support for outdoor activities. There continues to be investments made in year-round spaces, and a growing emphasis on health and wellness contributes, as the time outdoors is increasingly linked to improved physical and mental well-being. The end markets we participate in and serve are robust, where consumer interest and emotional investment are high, and we are positioned well to capitalize on these long-term tailwinds.
Our balanced omni-channel approach provides broad and deeply trusted channel relationships that we want to continue to build upon. Our big box retailers are strong, where millions of consumers engage with these companies every day. They give us the ability to facilitate our growth and expand into adjacent markets and categories. In specialty retail, we have a diverse set of channels that serve customers and consumers alike, with highly skilled and specialized knowledge of our products and service capabilities. We've got a broad customer base and plan to invest further in our channel development, such as further expanding our direct-to-consumer model, where we can better manage the end-to-end consumer experience. We continue to be very focused on how we leverage and deploy the Worthington Business System, as we implement initiatives to optimize our supply chain strength, channel distribution, and maximize profitability.
As I mentioned previously, we plan to invest further in our direct-to-consumer capabilities. Right now, we have e-commerce present through our retailers' respective online platforms, as well as direct to consumer with our Level5 and General brands. We want to expand our omni-channel presence for the other brands in our portfolio. Near term, we will be focused on the PacTool and Garden Weasel brands, with further expansion into our legacy brands, taking the playbook from the Level5 acquisition and deploying it across our portfolio. This initiative will help further expand our ecosystem, enhance connectivity and intimacy with our consumers, and will allow us to test and launch new products at a much more rapid pace. Now, as this initiative scales, we expect to significantly expand margins and enhance profitability....
Our most recent acquisitions allowed us to build our platforms that drive the scale, reach, and cash flows of the business. Most recently, our Mag- Torch acquisition allowed us to take an already well-established brand in the market and consolidate it under our umbrella, providing increased purchasing power and brand diversification for the channels that we serve, while expanding margins and further increasing our moat. The General Tools acquisition provided an asset-light business model with a strong sourcing team in Asia to help accelerate innovation and improve margins, while furthering our customer relationships and exposure within the repair and remodel sector. Additionally, it provided us access into the attractive lawn and garden market as well. Finally, our Level5 Tools acquisition gave us a marketship position, leadership position in direct-to-consumer drywall tools, providing another asset-light business and giving us a platform to expand our D2C capabilities.
These products also provide opportunity to naturally expand into new and attractive end markets, such as concrete masonry and paint. These acquisitions not only furthered our exposure into attractive end markets, but also brought about tremendous talent as well, further bolstering our expertise. We're gonna continue to reorient our portfolio towards high-growth segments, deploying the Worthington Business System to drive enhanced profitability. We put together a world-class new product development team who is constantly evaluating white space opportunities, and the framework used to evaluate new products is rigorous, and we leverage a stage gate process to thoroughly vet each new idea. Ideas come from a variety of sources. They come from our customers, they even come from our employees internally. We are consumer-obsessed, so the majority of our ideas come from white space opportunities that our consumers tell us to go out and get.
We consistently assess how we can leverage technology, data-driven analytics, and sustainability into product design to address unmet consumer needs that we know they will pay for. We then bring these concepts to life in the form of prototypes and eventually a new product. Timelines to market vary by product. We talked about building the core, expanding the core, and disrupting the core, and for the consumer business, typically, building the core products will ship within 6-12 months from ideation. Expand the core is 12-24 months, and disrupting the core is typically 24-36 months. Now, as we align our new product development team with our direct-to-consumer initiative, we expect more products to be launched in the 6-12-month timeframe as we capitalize on our asset-light business model and speed to market.
Today, we have over 40 new concepts in various stage gate reviews, with new products currently representing roughly 5% of our total sales, and we expect that to grow. We talked about transformation, and this is a great example of how leveraging the Worthington Business System was able to help solve a pain point centered around uncontrolled and uneven supply and demand patterns from one of our suppliers. Now, this ultimately resulted in working capital being tied up in excess inventory. So we deployed cross-functional teams into the facilities, and utilizing the transformation playbook with lean principles, created flow and pull rather than traditional material handling methodology.
This event took place over the past three months, and the results showed just the power of transformation, as we were able to decrease steel inventory by 53%, improved our working capital by $500,000, and now have more predictable and controlled ordering and shipping patterns. We are very excited about the consumer products business. There's a clear runway to deliver top line, margin, and earnings growth by leveraging the Worthington Business System. Our end market exposure, coupled with our rigorous new product development process, blue-chip customer base, expansion of our direct-to-consumer capabilities, and our consumer obsession will drive long-term growth for Worthington Enterprises. This is the consumer products business where we empower every day, everywhere. Now, I'd like to introduce to you a 24-year veteran to Worthington Industries, Timo Snoeren.
Timo has held various leaderships throughout Worthington Industries over the last 24 years, most notably in consumer products, building products, as well as a vice president of the EMEA markets for our WAVE joint venture. Now, he serves as our vice president for our Sustainable Energy Solutions platform. Ladies and gentlemen, Timo Snoeren.
Good morning, everybody. Obviously very excited to be here today to talk about Sustainable Energy Solutions on my very first investor conference. Thank you very much, Steve, for the introduction. Before I start with my presentation, I would like to do just a quick market backdrop, because Sustainable Energy Solutions is very much about a transformation, a transition. We've been making steel high-Pressure Cylinders in Austria for almost 200 years. Sustainable Energy Solutions is an exciting new growth platform, as we transition from this legacy steel high-pressure cylinder business into what we believe is the future in composite and lightweight hydrogen and CNG fuel systems. We're currently aligning our cost structure with demand in this legacy steel high-pressure cylinder market, while we leverage the investments that we've made...
making us one of the key global players facilitating this global transition to a zero and low emission transportation. So, wanted to get that out there before I start my presentation. SES offers onboard fueling systems and services, as well as gas containment solutions for the transport, storage, and distribution of industrial gases. Our portfolio supports the growing hydrogen ecosystem and adjacent lower carbon energies like compressed natural gas. We've got three locations in Europe right now, Poland, Austria, and Germany. In Austria and Poland, we make our cylinders, our systems, and our gas containment container business.
In Germany, at our location, a company called PTEC, which we acquired a few years ago, we make our hydrogen and CNG valves and components, really giving us the opportunity to build the complete fuel system and offering to our customers a plug-and-play solution mainly to the truck and bus OEMs in Europe, but also other segments like off-road, trains or even refuse trucks. We are one of only five global players that have the capabilities to create and supply these solutions. As I mentioned, almost 200 years of experience manufacturing high-pressure cylinders. It is our goal to become the trusted global partner, providing our system solutions for sustainable power and mobility. Here's a simplified view of the hydrogen supply chain, the hydrogen economy.
It starts with supply and generation of the hydrogen molecule, which is where Worthington Enterprises does not play. Where we do participate in is in the transport and storage and distribution of hydrogen across attractive end markets using our gas storage, our container, and our fuel system products. Most of the funding by countries and continents are flowing into the supply and generation of hydrogen. A lot of projects also for increasing renewable power and electrolyzer capabilities, which are required to produce the green hydrogen. This, in turn, is increasing and driving demand for transport and distribution of the green hydrogen once it is produced. And again, that's where SES, Sustainable Energy Solutions, productions are being used.
Also, mismatches between supply and demand of renewable power is also driving the demand for finding intermediate storage solutions when turning the excess power into hydrogen, so power to gas. And in our end markets, we help our OEM customers basically power their vehicles with sustainable drivetrains using our hydrogen and CNG fuel systems. As the world is transitioning to sustainable energies, we see a growing role for hydrogen in this transition. More than 680 large-scale projects requiring $280,000,000,000 of investments have been announced globally by 2030, and that number is actually from 2022. If you look at what's recently been announced, those numbers of projects have gone up to over 1,000, requiring more than $320,000,000,000 in investment.
Key takeaway from this is the demand for hydrogen is growing. Again, two-thirds of those projects are focused on the supply and production of green hydrogen, with the effect that the cost of making green hydrogen is dramatically gonna decline in the coming decade. Governments across the globe are adopting hydrogen strategies supported by large funding initiatives such as the IPCEI, which is translated as Important Projects of Common European Interest. The IRA, I think well-known, the Inflation Reduction Act in the U.S., all focused on financing climate action and sustainability projects. Ultimately, the objective of these projects and funding initiatives is to accelerate the hydrogen economy by providing enough and cost-competitive green hydrogen, electrolyzing capacity, renewable energy, refueling infrastructure, but also storage and distribution capacity. Here are a few exciting recent launches that show a very promising future pipeline.
Hydrogen transport application. Austria has developed, built, and supplied the first 2 containers transporting up to 1 ton of hydrogen. The initial market demand for container and gas containment is materializing, and we are seeing a very strong pipeline of inquiries and quotations of almost EUR 200,000,000 in Europe. Hydrogen fuel systems, truck and bus, are the next two. Compared to electric vehicles, hydrogen fuel systems offer longer range and shorter refueling times, and if you combine that with tightening regulations, these factors are pushing demand for hydrogen trucks and buses in this application. We are prototyping with key European OEMs, both on bus and truck, positioning ourselves for a ramp-up in the coming years. We've also developed a solution for stationary hydrogen storage.
being supplied into the hydrogen refueling segment. This segment is definitely poised for growth, again, driven by solid market drivers embedded in laws and regulations in Europe, pushing not only Europe, but other countries to expand the hydrogen refueling infrastructure. We already received the first orders for this product, which will be supplied early next year. In the middle, you see Sigma, which is our Internet of Things, our IoT platform, basically connecting all of that. It's in the end phase of market testing, and will make our products smarter. You heard Steve talk about his, or, sorry, Jimmy talk about his solutions. It's helping our customers know, what is my cylinder? Where is my cylinder? And how full is my cylinder anywhere in the world?
So this value proposition is highly sought after by our customers. The hydrogen economy is an emerging market with emerging technologies, and Worthington really has an opportunity right now to get into this market early, positioning ourselves for decades of sustainable and profitable growth as demand is set to outstrip capacity. And here's how we're positioning ourselves. I'll just mention a few of these points. On the bottom left, reputation. So we are developing prototypes with key OEMs across Europe, strengthening our already strong reputation for trust, quality, service, engineering capabilities, getting ourselves really in a pole position to become the supplier of choice once these platforms become serial productions.
Really, our unique value proposition is our system engineering capabilities, allowing us to build the complete fuel system, developing a plug-and-play solution, a one-stop shop for our suppliers, and supply them to our customers across Europe. On the bottom right, technical know-how, also supply chain excellence. We've put the relevant manufacturing assets in place in Europe across the three locations I mentioned. We're gaining experience, we're gaining know-how on producing these products and this portfolio, and getting ready for the serial productions when they start. We are protecting our value proposition by continuously expanding our portfolio of patents. Summarizing, as a closing comment, Sustainable Energy Solutions is really excited about the emerging hydrogen economy.
We've positioned ourselves for the ramp-up, and we firmly believe that our current and future portfolio will put us in a position to take a leading role in this growing economy. And that's it from my side, and I have the very important task to announce a break, and we should all be back by 11:10. Thank you very much.
... Okay, so we're gonna jump back in here. I'm gonna take just a second here and introduce our next speaker, Joe Hayek, who is our Executive VP, CFO, and Chief Operations Officer. I've known Joe for a long time. I like to jokingly say that people used to say I was a really good CFO until Joe showed up, and so now I'm not referred to in that light anyway. But Joe has been at the company for around 10 years. He's done a number of different things prior to joining Worthington. He's a recovering investment banker, but also was Head of Investor Relations and M&A for an IT services business. He also ran a division of that company for a few years. At Worthington, he joined us to run M&A and really took that to the next level for the company.
He also ran one of our business units that was inside of Pressure Cylinders for a couple of years. So he's got the great combination of financial acumen, operating experience, and you'll see from his presentation that he really has elevated our finance function. So, Joe, take it over.
Thanks, everybody. And add my good morning. It's not an insignificant ask to spend a half a day or a full day away from your office and away from your computer. We very much appreciate you spending time with us, and certainly appreciate it if you're gonna stay for lunch and then hear more from the steel company. But I'll talk about the path forward, and then we'll go through some of the financials of Worthington Enterprises and some of the things that we think that we're gonna be able to do. So when we think about these two companies, and Andy mentioned this earlier, if you have interest in the steel company, we hope that you do, and you stay for that, you will see that it is a one-of-a-kind, phenomenal steel processor.
Worthington Enterprises, as I think you've heard today from the people who are helping to lead it and about the content of where we are and where we're going, we've got a ton to be proud of as a company, and we are very proud. We went all the way back to 1955, but the last five, six years have been fantastic for us. At the same time, we have massive, massive opportunities in front of us, and we're very, very excited about all the things that we have to look forward to. Now, Andy mentioned our long-term targets. They're, they're sitting in front of you, but, you know, how do we get there? And, and ultimately, how do we drive the growth and the sustained free cash flow conversion that we aspire to do?
Our growth strategy is really underpinned by the Worthington Business System, and that is transformation, innovation, and mergers and acquisition. That's a strategy that makes a lot of sense for us, given the markets that we play in. Again, we don't really want to be in markets that are $15,000,000,000 , $20,000,000,000 in size, where we're number 15 in market share, competing with the likes of GE, Siemens, global, you know, behemoths like that. We like markets that are several hundred million dollars, where we can achieve pretty good market share. Because, you know, within those markets, innovation, transformation, and M&A can really drive success, and really sustain our competitive advantage and help us to continue to win. I'll go through a few of the things that we talked about earlier in a bit more detail, specifically transformation, innovation, and mergers and acquisition.
What is transformation for us? It is lean value stream analysis everywhere. It is, you know, value stream analysis, I'm sure you guys are familiar with, is how do we really do things? Break it down, how can we make it better? We started this journey in 2008. It is pervasive. It is in our DNA. We have shared resources that understand best practices industry-wide and apply those within building products, consumer products, and in SES. You saw some examples of that, right? We are trying to reduce waste, we are trying to increase margins, we're trying to reduce working capital. The example that Steve gave you, just in getting the right people in a room and having the right conversations, we took $500,000 out of working capital in one facility.
You heard Jimmy talk more about the commercial side of transformation for us, which is: How do we evaluate our customers, A, B, C, D? How do we think about the way that we're buying things? How do we think about the way that we're going to market? How best can we really understand what we're doing? And it's going to continually save us money... Now, we're not naive enough to think that prices don't go up over time. Our labor costs will absolutely go up, right? Healthcare costs will absolutely go up. We also know that we're gonna have some negative synergies as a result of the spin, right? We have one board of directors right now, there will be two. We have one audit right now, there will be two. There are inherent dis-synergies to what we're doing.
We're gonna start life as a $1,400,000,000 company. You know, we intend and, and will grow. We wanna keep our corporate structure very, very flat. Transformation helps us to do that, helps us reduce working capital, which we care a lot about, as, as you've seen. Ultimately, helps make us better, right? And it helps us understand our supply chain, help us understand our customers, and it really dovetails very well with innovation. And so innovation for us, ultimately, is about accelerating the speed and the quantity of the NPD that we're doing. You've heard this mentioned by Andy and others. A lot of the markets that we play in are pretty mature. They haven't seen innovation for years. As a market leader, it's very important. Those products you see on the left, you know, that's all driven by voice of customer research.
In the last 5, 6, 7 years, we've gotten really, really good at understanding that we don't know everything, right? That we can benefit a great deal from talking to the folks that use our products or that sell our products. And so in thinking about what we're doing from a voice of customer, some of the innovation that you see... Like, look at, look at WAVE. The way that WAVE is able to get this premium price that they do, in a lot of cases, you know, is not because their steel or their grid is that much better than everybody else's. We probably think that it is, but the reality of it is, they understand their customers, and they understand that a customer's biggest cost, if you're doing 10 floors, or you're doing a hospital, or you're doing anything else, your biggest cost isn't materials, right?
Your biggest cost is labor. And so you think about something as simple, no pun intended, as a simple soffit and some of the innovations they've made. They take 50% out of the labor cost of the job that's being done. If I'm a contractor, I'm very willing to pay a little bit more for my material when my overall cost is down by 50% on labor, which is a far bigger cost. We talk about this asset-light mindset. We manufacture most of what we sell today. Over the course of time, does that always need to be true? Not necessarily. Is it often a great idea? Yes. We've embraced thinking about the assets that we deploy to generate the cash flows that we do, and we care a lot about that mindset. We absolutely wanna grow the sales that we get from new products every single year.
It's low, mid-single digits right now. As a $1,400,000,000 company, you should expect that to grow, and it will grow. The final kind of pillar, growth strategy-wise, we talk about strategic M&A. You know, what are we looking for when we think about acquisitions? We want companies that either have a number one or two or a leading market share, or they have the ability, capability of getting to that spot. We want these businesses to have higher margins than we do. We want these businesses to be no more asset-intensive than we are. We want them to have exposure to the channels that we play in. We want to feel pretty good that we're going to be able to make them better.
You look at some of the acquisitions that we've had, that might be our customer relationships on the retail side, it might be our distributor relationships on the building product side, it could be our transformation playbook, it could be our ability to scale, our ability to provide capital when and where it's needed. These are all things that we can do to make the companies that we partner with or acquire better. But I'll flip that around. One of the things that we love is when the companies that we partner with or that we acquire make us better. We're a $ 1,400,000,000 company, and I'll make this number up, if we acquire a $100,000,000 company, we, yeah, we ought to be able to make it better. You, as investors, ought to expect that we're gonna make that company better.
But if that $100,000,0 company can make a $ 1,400,000,000 company better, well, that's a force multiplier, and that's really what we look for and prize when we're thinking about companies that we're gonna acquire. You know, great example, the last couple of acquisitions that we've made in the consumer product space, Level 5, and to a lesser extent, GTI, those acquisitions gave us real global supply chain expertise, right? Real outsourced contract manufacturing expertise. Level 5 also gave us real chops in the direct-to-consumer space. Those capabilities and that institutional knowledge, we can now deploy and leverage in our other businesses, making us better, and we love that, and that gets us excited every single day.
At the end of the day, we really want to understand why the companies that we are trying to think about acquiring, we want to understand why they win, and we wanna feel really good that we can continue to help them win, maybe win more, in different end markets and with different customers.... We do have a very active M&A effort on an outgoing basis. As I'll say the same thing Andy did, Colin, who heads Corporate Development, is probably the best head of M&A we've ever had. So he's doing a much better job than, you know, his predecessor did. Let's call it that way, that predecessor being me. Corporate citizenship and sustainability, we've talked a little bit about this. Andy mentioned a lot of these things. These are Worthington Industries figures and stats.
ESG has become very popular over the last four or five years. We always thought about it as corporate citizenship. We've been at this for decades. Andy mentioned safety. It's the most important thing to our company. It'll be the most important thing at Worthington Steel. I know you'll hear that this afternoon. It'll be the most important thing for us. We want everybody, 95% of our folks come to work every day in a manufacturing capacity. If you're not careful, and you're not diligent in places like that, you can get hurt. Very important to us that everybody that comes to work in the morning or at night goes home the exact same way that they arrived. Our safety record's twice as good as most in the industry. We're doing a much better job with diversity, equity, and inclusion.
Over half of our hires in the last year and a half or so have been diverse hires. We support our communities, whether it's outreach or giving some of our money back to those communities. And as a consequence, we last year got a couple of awards that we're pretty proud of. Specifically, Investor's Business Daily and Newsweek both listed us as, you know, their number one company or one of America's most responsible companies. This, for us, we do... But especially on the sustainability side, it's the right thing to do. It's also a competitive advantage for us. And so when we think about tech-enabled products, and we think about all the things that we're doing, sustainability is part of our strategy. It's one of the outer rings, along with technology. Those two go hand in hand.
I think you'll see us do more of that because we ultimately believe that we can do good and benefit at the same time. So looking at our financial profile, it's, I hope you agree, pretty compelling. About $1,400,000,000 in revenue out of the gate, adjusted EBITDA of a little under $300,000,000 as of August. You know, those boxes on the left, you know, that, to us, represents the assets that we need to have in place to generate the sales and the earnings that we do. About $550,000,000 , if you add up our, you know, gross fixed assets and our net working capital numbers. Our free cash flow conversion, for that today, we're using, EBITDA less CapEx.
It's pretty correlated to the more traditional definition of free cash flow that we'll be able to show obviously as a public company independently when we can get those free cash flow statements and those cash flow statements squared away. But when we think about net sales and EBITDA, you know, you can see 16% and 20% looking at pretty good growth. So what happened? Right, what happened? Is that a COVID bump? Is that... You know, what, what happens? To us, you certainly see some variation as to how consumers are spending their money, whether it's on things or on the experience economy that Steve mentioned.
But when things are less than ideal and things are less than certain, people really gravitate towards suppliers that are there, suppliers that can manage complex programs, suppliers that can be on time with delivery, suppliers that are legitimately partnering with them, understanding their pain points, and making things better for them. You know, our targets, 6%-8% sales CAGR. Some of that will be organic, some of that will be through M&A, and 24% adjusted EBITDA margins, that's, you know, that's a, that's a stretch for anybody. But we're absolutely committed to thinking about ways to get there and to get as high as we can possibly go. We've got a number of our businesses that we know can be better and will be better in the near term, and we're really excited about what's possible.
And so you look at the free cash flow, our JVs are very important to us. They're phenomenal businesses, and we're very confident that they're gonna continue to perform at a very, very high level. But ultimately, when we look at this 85%-90% free cash flow conversion rate as our target, it's, you know, it's 85%, 86% right now. What we are ultimately doing is constantly finding ways to improve, right? You've seen ClarkDietrich learn from being part of our portfolio, learning from Wave, learning how some of their markets can work. You see within the building product space, Jimmy talked about it, understanding customer pain points, right? Wave does the same thing. And so a lot of the really learned behaviors that companies go through and institutionalize, we've seen that happen in the last four, five, six years.
When we are a separate company, and our focus is even more lasered in on these things and on making ourselves better, we're really excited. You know, automation. We absolutely get that labor costs aren't going down. Where does it make the most sense to automate, right? How do we simplify the corporate structure of the businesses that we're acquiring? Importantly, on the bottom there, you look at the data analytics and the decision-making that we're able to really leverage now. We invested a long time ago in significant capabilities in analytics and in data. Those capabilities and those bodies are now, in large part, embedded in our different businesses, with constant kind of emphasis on what's out there. We're sharing data with our customers, we're sharing data internally, making each of our teams significantly better. And so, when we think about the comps, right?
We get asked: "Who are the best comps for Worthington Enterprises?" There are a number of companies that we feel like we're very comparable to, whether that's based on the markets that they serve, the customers that they serve, what their financial metrics are, what their growth trajectories are, and ultimately, what their futures look like. And so you, you probably can't see this exceptionally well, but on the top left there, you know, Worthington Enterprises is our logo there. You know, the comps there are Armstrong, AAON, A.O. Smith, Chart, Fortune Brands, Lincoln Electric, WD-40, Masco, PGT Innovations, Gibraltar, and Stanley Black & Decker. And so, looking at adjusted EBITDA margin, free cash flow conversion, again, lower left there, right? Our net working capital plus fixed assets over sales, thinking about what those metrics look like, and then debt.
You know, we have a very low leverage situation, you know, 1x. I'll talk a minute about the balance sheet, but it'll be a 0.5 turn, in all likelihood, of net debt to EBITDA. This is where we start, and we absolutely feel like, over time, when you talk about our long-term goals of 6%-8% and 24% EBITDA margins, we absolutely believe that we have the skill set, the team, and the balance sheet to be able to leverage our opportunities and outperform. When we talk about allocation priorities for us from a capital perspective, we're fortunate that we do generate a fair amount of free cash flow. We, over the course of time at Worthington, have followed a pretty balanced capital allocation strategy.
Over a period of 10 years, you could look back and you could say that CapEx plus M&A was relatively close to dividends and shareholder buybacks. You know, how will we think about capital allocation moving forward? Organic growth, absolutely, and we will continue to try and grow organically through innovation, through our investments, and what we call high-returning CapEx investments. CapEx for this business in fiscal 2023 was right around $40,000,000 . In Q1, it was $8,500,000 , so run rate a little lower than that. The run rate CapEx business for Worthington Enterprises will, we believe, be less than $40,000,000 . That being said, we have a couple of one-time facility modernization initiatives that we're undertaking right now. We have significant, sustainable competitive advantages. We want those sustainable competitive advantages to get even more concrete.
We want them to be set up to be in existence for the next 20+ years, and so we are gonna spend some money on CapEx over the next year and a half to two years. I would say that $40,000,000 or a little less run rate will probably be double that in 2025 and 2024, split unevenly. But those investments, which take a little longer to be put to work now than they used to, given supply chain challenges, ought to be gonna run through and back to run rate by the end of our fiscal 2025. We talked about M&A. We have a great balance sheet, and we talked about how we intend to think about opportunities like that. We're not gonna spend $1,000,000,000 on an M&A project.
We're going to continue to acquire businesses that make us better, that help our margins and decrease our asset intensity. We will always think about capital returns. You know, opportunistic share repurchases that we've had in the past will still be an arrow in our quiver. From a dividend side, we expect to pay $0.16 a quarter or $0.64 a year out of the gate. I don't want to speak for the Steel team, but, you know, we expect them to pay a dividend that's identical to that out of the gate, which would mirror Worthington Industries' dividend today. Talk a minute about the balance sheet. I heard some conversations, you know, specifically to shareholder buybacks. We bought back a lot of shares over the last 10 years. We haven't purchased any shares in about the last 15 or 16 months.
But I think it's pretty important, and something we're pretty proud of, to think about what we've done with our balance sheet heading into the spin. You know, if you look at just the comparison from 2022 to 2023, our net debt's down by $400,000,000 , and our adjusted EBITDA is pretty close, right? A few percentage points less. So our net debt to adjusted EBITDA has gone from 1.2 times to 0.5 times. We did pay off our 2026 bonds in July. Part of the reason that we're doing this is because of the way that the indentures read. All of this debt will stay at Worthington Enterprises, right? We will stand in the shoes of Worthington Industries, and you can see what the maturity profile is.
That $500,000,000 revolver, which is currently undrawn, a couple weeks ago, we amended and extended that facility, so that will now mature in 2028. You see that $150,000,000 note, that is, maturing in 2024. The expectation is that SpinCo or the steel company will pay a dividend to Worthington Enterprises. We expect that today to be right around $150,000,000 . We'll use the proceeds of that to pay down those 2024 notes, leaving us with our first term debt maturity in 2029. $700,000,000 in liquidity out of the gate, and again, that's assuming cash balances, hover around where we think they'll be, right around half of turn of leverage.
You know, Andy mentioned this. It goes without saying that our credit metrics are A or better. We understand that we're not a $50,000,000,000 company, but we are, and we'll remain absolutely committed to having an investment-grade credit rating. I think as you see what we're thinking about, we can, we can fund our growth through the cash flow that we generate. If we see opportunities that are compelling, we have excellent access to capital. My boss, as he told you, was our former CFO. That was always his mantra. It will remain our mantra, and that is that we will have and be characterized as a company with low leverage and ample liquidity. Again, really kind of bookending the way that we think about our strategy, and bookending the way that we intend to grow the company.
With that, I will turn it back over to Andy, for a couple closing remarks, and then we'll kick off some Q&A. Thank you, guys.
Good job. All right, just a couple of quick comments, and we'll head to Q&A. I wanna start just echoing what Jimmy said, and, you know, we have close to 5,000 employees across our footprint, and without them, obviously coming to work every day, working hard, none of this is possible. We get the privilege of being up here and telling you the story, but we'd like to thank them for everything they do for us. Hopefully, you've gotten the sense that this is a world-class company. You know, Joe said he was covering some of the metrics, and he said, "We start here." And I think that's really part of my closing message here, is that we have a great business. And hopefully, you got a sense we have a great team.
We're pretty young, and we got a lot of energy left in the tank to really take this thing to the next level. You know, you've heard the strategies, but the foundation is a great jumping-off point. We have market-leading businesses. We have strong barriers to entry. We have great secular tailwinds that are gonna help us along. And I think importantly, in the era when, you know, rates have changed and the era of free money is over, our business model drives high returns and high free cash flows, and we think we can make that better. So we think that this is a great opportunity for investors to really see, you know, what this business can do.
We'd love to welcome some new partners into our shareholder base and, you know, come along for the ride because we think it's gonna be a great one. So thanks for your time today. We're gonna kind of bring folks back up here. Give us a second to get organized, and then we'll open it up for Q&A. Thanks. Got it?
For the Q&A, we're gonna take audience questions in the room first, and people can raise their hands. But if anyone on the web has a question, just click the Ask a Question button on the top right-hand corner of your screen; we'll get those at the end. Please announce yourself and your firm when you take the question, but...
Thank you.
Phil Gibbs at KeyBanc.
Hi.
Hello.
Welcome, Phil.
Thank you. Exciting presentations this morning. Thank you very much. The question I had just to start was, Joe, you had mentioned you've got, I think, $80,000,000 of growth CapEx coming over the next 24 months for Worthington Enterprises. I think that's probably the biggest slug. I've seen you all spend internally for quite some time on your own organic initiatives. So, what's behind that? What are some of the things we should be thinking about in terms of where that spend is gonna be targeted, and what your expectations are in terms of the returns?
Sure. So, Phil, that's mostly in the consumer business, and it's really an acknowledgment of the fact that we have great market share leadership in a lot of the markets that we're in, and we want that to continue. And sometimes you just have facilities that need upgrading, right? And need to be refreshed, to be modernized, to be automated, and to be positioned to increase capacity, reduce costs, and ultimately be in a spot where 20 years from now, you're really happy that you made those investments. So it's largely in the consumer business. It will absolutely increase capacity, but more importantly for us, it really drives that barrier to entry, right? When we complete these upgrades, the amount of capital that somebody would need to spend to come in and compete with us, we believe, would be prohibitive.
Then secondly, question on WAVE: Does anything change when the steel business gets separated in terms of procurement? 'Cause I know that's been a competitive advantage for that joint venture for quite some time. Does anything, does anything change there in terms of their buying abilities?
It doesn't. Oh, sorry, go ahead.
Go ahead.
I was gonna say, one of the things that we've done a great job with, and Doug has done a great job with, is really kind of institutionalizing and internalizing the capabilities that his team has. The Worthington Enterprises team has those capabilities kind of times four or five, given that we'll buy over $1,000,000,000 in steel, and that we're exceptionally good at it. We will continue to be able to leverage what we have all grown up with, with respect to the abilities on the hedging side. They're doing a lot of those things on their own now. Enterprises does the same thing, but we'll still have the ability to leverage our sister company as a, you know, as an independent entity.
Some of those capabilities, that they have transferred, or if you will, have shared with us over the last 5-10 years.
Maybe just to add on a little bit there, you know, we will be one of the largest customers. We, Worthington Enterprises, will be one of the largest customers of Worthington Steel, and we will continue to benefit from the capabilities that we have along, through a long-term agreement. We've, as Joe mentioned, built a lot of those capabilities inside our company with price desks and hedging and other things, and we will continue to transfer and share that knowledge with WAVE. I think it's $150,000,000 or $200,000,000 of steel, in terms of what we will be buying, depending on what the price will be, you know, every year. We've become a very sophisticated buyer ourselves, as has WAVE, and we'll all continue to benefit.
The last question I have is for Timo on the hydrogen piece. It's been super volatile in terms of the ability to hit an adoption curve that's, you know, aggressive. You obviously have to put capacity in place before you do that, and the business has been struggling to kinda get off the ground. But how do you... I guess, how do you maintain the patience, knowing that you have the vision that this thing's gonna be solid at some point in time, while kinda keeping everybody engaged, while it still hasn't kinda hit the ground running? Thanks.
Yeah. So, I think the hydrogen economy has tried to pick up over the last four decades a couple of times, and didn't succeed. I think this time, most people believe that it's, it's, it's there to stay. If you- the, the mo- number of projects that I mentioned, 680 projects globally, more than $300,000,000,000 of investment announced, in this, in this hydrogen economy. There's never been that much, investment. So we do see a lot of interest, from key OEMs across, across Europe. It is slowly ramping up, and as I mentioned in the beginning, we've put all the manufacturing assets in place.
We're prototyping, and so we're gaining those strong relationships and trusted reputation in the market when those serial production platforms will start, and they will start in the next two years, listening to their forecast. There's other businesses on hydrogen that are already ramping up. As I mentioned, the gas containment business, we see market demand already initializing. Strong inquiry pipeline, $200,000,000 in inquiries, and that's a business that we will serve. We're perfectly positioned for it. We got the portfolio, and we'll be serving that as we prepare ourselves for, you know, the real ramp-up.
Thank you.
Thank you. Question on ClarkDietrich. Your 25% equity contribution has gone up a lot in the last year or two versus what was on the chart. Can you talk a little more of what happened, what's causing that number to go up so much? And to your point, with steel moving around so much, how sustainable is that number?
... Yeah, I mean, it goes back to some of the things that I was talking about, which is they are the clear market leader in this space. They're a national player. They can do things that other people cannot do. They have the broadest product portfolio, they have the fastest or the shortest lead time in terms of being able to deliver large quantities to job sites. And I think the, you know, the easy way to think about it is that they've started to act like the market leader.
Customers ask them to do things, and in the past, they were like: "Well, we don't, you know, we wanna maintain our market share, we don't necessarily wanna charge for some of those things." And I think they've started to say: "Hey, we're providing real value to our customers, and let's charge for that." And that, you know, what really sort of precipitated the beginning here was the leadership change a number of years ago, a focus on margin as opposed to market share, and then COVID really accelerated that. Because during COVID, supply chains got all messed up, steel was not available, products weren't available, and ClarkDietrich was there to deliver, just like you heard Doug talk about WAVE.
The ability to deliver when others cannot creates, you know, an indelible bond with your customers, and so I think that's really kind of what's really driven the change in the performance of the business.
One other question, the 6%-8% revenue growth, how much of that is, acquisitions? How much pricing, units? What's kind of the outlook there?
Yeah, the short answer is that's the goal. How that comes to fruition will depend a lot on what's the M&A market, how many targets can we find, can we get the right price, are they a good fit, as well as, you know, a number of our new product development and organic initiatives. We haven't specifically said, you know, half is organic, half is M&A. It's really... You know, my predecessor, John McConnell, used to say not to like to have specific targets, because he says business is unpredictable. Some years, you're not gonna grow, 'cause the market's gonna shrink. In other years, you might grow 15% or 20%.
So, the way we run this company is to create long-term value for our shareholders, and the expectation is that we can grow a minimum of 6%-8% every year.
Okay, thank you.
Hi, everyone, this is Charles Perron from Goldman Sachs. Maybe my first question is on ClarkDietrich and WAVE together. As you look about the environment in the coming years, how do you see the growth rate being impacted by the non-residential construction versus the opportunities that you might see in the R&R market over time? How does it play into your growth outlook, and basically, how do you approach and service those two dynamics together?
Yeah, I mean, the headline for commercial construction is obviously office, right? That's the one that's getting sort of the bad rep now. Work from home, a lot of changes from, you know, the COVID pandemic. But the reality is, there's a couple of factors in play here that give us confidence that these businesses can continue, can continue to grow their earnings. You know, steel prices affect sort of the top-line number. But the first is WAVE, in particular, is 70%-75% repair and remodel, twenty to twenty-five percent new construction, and ClarkDietrich is actually the opposite of that. So it's an interesting dynamic to, to sort of start there. But I also think that, you know, each of these businesses are not just office buildings, right? You saw on the list when I was talking about ClarkDietrich, there's healthcare.
Healthcare is... you know, continues to explode. There's tons—like in Columbus, Ohio, there's two massive hospital projects spending both north of $1,000,000,000 on construction. There's an airport expansion that's gonna have $50,000,000 worth of ceilings work in it. I mean, so a lot of the infrastructure spending and other markets are gonna bolster what you might think would be a market that's gonna shrink, and so I think that's where we get confidence. And we, we can't control the economy, but the—when I talk about the secular tailwinds, we just think, you know, the next three to five to seven years, a lot of this... You know, these big stimulus programs, they don't get spent overnight. You know, it takes years for that to filter through the system.
You know, the walls, ClarkDietrich, tends to be earlier in the construction process. The ceilings, WAVE, tends to be later in the construction process, so that's another factor that's in play.
So Charles, the only thing I would add, 'cause everything that Andy said is absolutely true, but just a couple of specifics. The diversified portfolio of end markets that ClarkDietrich and WAVE are both in are relatively important. WAVE's end markets dovetail relatively correlated with Armstrong's. So it's 50% is either education or healthcare. Right? 30% commercial, then you have 10% retail and 10% transportation, which is an airport, a train station, something like that. And so understanding that the cycle, right, it didn't go away, those end markets are going to grow, we believe, in an outsized way, relative to what a lot of the commercial markets might. But for the repair renovation, as people get lured back into offices, they wanna be in places that they find pleasing.
So we're certainly aware that there are cycles, but we're long-term bullish, in part because of the markets that those guys serve.
Sorry, there was a term that was coined in a meeting a while ago that, particularly for Doug's business, the renovation renaissance.
Yeah, and I would add one thing to that, and that is, there are significant emerging segments. I mentioned data centers and also life sciences with significant investment in both of those categories. Those two areas, in particular, will provide a benefit to us as far as our mix of products, our average unit value products that sold. Because what goes into a data center is, it can be anywhere between 5-10 times what the normal acoustical ceiling grid that goes into an office. And if you complement that with the efforts that Armstrong, the other parent, makes in the marketplace, we're well-positioned for a mixed improvement because of those segments coming out.
Maybe as a follow-up, for those of us that are less familiar with, obviously, your business, how do you think about the impact of steel prices? Obviously, we've seen deflation happening throughout this year. How does it impact your business in terms of the delay and the lag that it could have on certain contracts or certain prices that you have, but also in general, about your ability to hold steel pri- basically, your pricing unchanged, and how does it impact your financial statements in general?
So I'll, I'll take the first stab at this one. You know, one of the reasons for the separation is that this business has much less impact in- from the steel price volatility, and part of that is we're selling consumer products. You know, we're selling building products that have pricing power in the market, so we have the ability to raise price. And, you know, our objective, obviously, is to get paid for the value that we're creating in the marketplace. The other thing that, that I mentioned earlier is we've gotten much more sophisticated with our price risk management.
We learned that from the steel company, but we are experts as well at now hedging and managing, you know, the volatility of steel prices that happens during, you know, a calendar year or a fiscal year, such that you know, we tend to lock in our steel prices. I always say the best thing for Worthington Industries, and really, certainly for this business, is low, stable steel prices, right? And so people get concerned when there's more capacity coming on and steel prices might go down. That's actually a good thing for us because it is a significant input cost to a number of our products. But the difference here is, we really do have pricing power and the ability to take price when we need it to offset, you know, cost inflation.
Hi, Kathryn Thompson, Thompson Research Group. Question for you today is, you're gonna come out of this spend with very low leverage, 1 time or less. You're generating a lot of free cash, free cash conversion at 85%+. How do you assess growth initiatives going forward, and how to think about capital spend? And what are the return criteria for the various opportunities, whether it's M&A or organic? Thank you.
Yeah, I'll start by saying, you know, one of our objectives is really simple, which is we wanna make the most money we can, using the least amount of capital. Now, that being said, we're gonna need to deploy capital to do that, and that's gonna come in a number of different forms. You heard Joe talking a little bit about CapEx. Some of it's maintenance CapEx, but some of it is also growth CapEx, and then, of course, M&A. So, you know, we've got a return on capital profile today that's around 20%, and our objective is to continue to raise that over time. That's hard. I mean, not every project we're gonna look at is gonna meet that hurdle.
But I think it starts with that as a lens, in terms of if we're gonna invest growth capital, whether it's growth CapEx or M&A, we wanna continue to raise the returns of this business. Because we fundamentally believe that investors care about three things: growth, return on invested capital, and free cash flow. And if we can deliver improvements in all of those, then we think investors are gonna be certainly very happy, and we'll be a top performer. Marcus, you want another?
Can you talk about how it works with Worthington Steel and the... I'm sorry, with WAVE, and how taxes get paid? Who pays what where?
Yeah, it's pretty simple. It's a pass-through. So WAVE passes through earnings that flow to the parent, the parent companies, and then the parent companies then pay those taxes.
So you pay taxes on the earnings, and then not on the dividends?
Correct.
Okay, thanks.
Any other questions and-
Aaron Wasserman from Third Period Capital. Just a question on the CapEx with respect to the consumer segment. Is the ambition to devote any of that new capacity to manufacturing more of the product in-house, or will the strategy continue to be relying on outside suppliers of product?
So maybe I'll just give a little bit of a history lesson here. You know, we used to make everything, and more recently, part of Steve's strategy, particularly with the acquisition of GTI, was we bought basically a company that made branded products and didn't make anything. And so now we have a very different lens, which is: Should we make it, or should we buy it? And a lot of that depends on, you know, the expectations for the product, the volume, et cetera. But oftentimes, with our focus on, obviously, as I said, making more money with less capital, in the early days of a product, it makes sense to probably outsource that manufacturing until we figure out if this product is gonna be super successful and, you know, then it might make sense to bring it back in-house.
That's a sort of a decision for the future. But now, there may be things that we're already doing where it does make sense for us to go ahead and make it. So, for example, with torches, we have outsourced manufacturing and we have in-house manufacturing. And so that make versus buy decision is easier because we have choices, and it'll just depend on where we think the best, you know, the best financial return from that decision comes from. I don't know, Steve, if you wanna add on to that, but-
No, I agree with everything Andy said. Just to add some more commentary, our fuel cylinders are really the foundation of our business, and these are very highly engineered and regulated products. In fact, one of our fuel cylinders filled is equivalent to holding 14 sticks of dynamite. Anytime you have something that volatile, we want to ensure that safety is our top priority. Modernizing our facility will certainly help with that, but it also provides us much more manufacturing flexibility. As we constantly launch new products, we'll be able to use that technology to potentially manufacture in-house and launch much quicker.
We do have a question coming in from the web. Could you please quantify the expected dyssynergies, and what are the total one-time cost of the spin?
Sure. So dis-synergies, we've talked about this, split between Worthington Steel and Worthington Enterprises, it's around $20,000,000 . The other switch that you'll see when you try and parse through the financials, which I know is a lot of fun or difficult, depending on how you think about it, when you look at a Form 10 and you think about the pro forma adjustments, roughly $20,000,000 . It's a little more costly for Worthington Enterprises because we historically allocated corporate costs based on revenue, and Steel was the lion's share of the revenue. And so there's actually a benefit that comes to Worthington Steel because that is then reversed. So roughly $20,000,000 split among the companies, 'cause again, you have redundant costs. Importantly, the numbers that we showed you already have those costs in them.
So these are not incremental costs. These are not costs that will show up on day one. We've done our level best to incorporate those in the numbers that we've shown you guys and that are in the book. And then, with respect to one-time cost, to date, it's around $30,000,000 . It could end up a little north of $50,000,000 after it's all said and done. The biggest contributors to those are honestly, you know, fees associated with the transaction. Our advisors, debt financing is a couple million dollars, and on top of that, we have, over the last several months, been building a bench, if you will. We need two GCs on the date of the spin. We need two heads of tax. We need two heads of IT.
So our team is bigger today than it would be were we not spinning, and so those costs are embedded in that number as well.
So if I can just make another add-on comment there. One change that is also gonna happen with Worthington Enterprises is, historically, Worthington Industries allocated 100% of corporate costs to the businesses. We will now, going forward, starting with, you know, post-spin, the first quarter, have a corporate cost center that will not be allocated to the business. So think about, you know, the executive team, board costs. Things that are not directly attributable to these business units will be a centralized cost structure, and that'll be, I think, an order of magnitude, $25,000,000-$30,000,000 . All right, well, seems like people might be getting hungry. Appreciate everybody's time today. As Joe said, I know there's a lot going on in the world, and, you know, taking a half a day out of your day really means a lot to us.
We're excited to launch this company here, hopefully before the end of the year. We encourage each and every one of you, if you can, stick around for lunch, and if you wanna stick around and hear about, you know, the best steel processor on the planet, we would encourage you to do that as well. But thanks for being here. Really appreciate it.