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Owens Corning (NYSE:OC)

Q3 2012 Earnings Call

October 24, 2012 11:00 am ET

Executives

Thierry Denis

Michael H. Thaman - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Michael C. McMurray - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

Stephen Kim - Barclays Capital, Research Division

Mike Wood - Macquarie Research

Garik S. Shmois - Longbow Research LLC

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

John F. Kasprzak - BB&T Capital Markets, Research Division

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Owens Corning Earnings Conference Call. My name is Chanel, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Thierry Denis, Director of Investor Relations. Please proceed.

Thierry Denis

Thank you, Chanel, and good morning, everyone. Thank you for taking the time to join us for today's conference call in review of our business results for the third quarter of 2012. Joining us today are Mike Thaman, Owens Corning's Chairman and CEO; and Michael McMurray, Chief Financial Officer. Following our presentation this morning, we will open this 1-hour call to your questions. [Operator Instructions]

Earlier this morning, we issued a news release and filed a 10-Q that detailed our results for the quarter. For the purposes of our discussion today, we've prepared presentation slides that summarize our performance and results for the third quarter and 9 months ended September 30, 2012. We will refer to these slides during the call. You could access the slides on our website, owenscorning.com. We have a link on our homepage and a link on the Investors section of our website. This call and the supporting slides will be recorded and available on our website for future reference.

Please reference Slide 2 before we begin, where we offer a couple of reminders. First, today's presentation will include forward-looking statements based on our current forecasts and estimates of future events. Second, these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent limitations of such forward-looking statements.

This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP are found within the financial tables of our earnings release. Consistent with our historical practice, we have excluded items that we believe are unrepresentative of our ongoing operations to arrive at adjusted EBIT, our primary measure to look at period-over-period comparison. We exclude significant nonrecurring items, such as the impact of the restructuring actions discussed in our most recent earnings call.

We believe that adjusted EBIT is helpful to investors for comparing core results from period-to-period. We adjust our effective tax rate to remove the effect of quarter-to-quarter fluctuations, which have the potential to be significant in arriving at adjusted earnings and adjusted earnings per share. In the third quarter, we have utilized an effective tax rate of 25%, in line with our anticipated annual effective tax rate on adjusted earnings for 2012.

For those of you following along with our slide presentation, we will begin on Slide 4. Now opening remarks from our Chairman and CEO, Mike Thaman, who will be followed by CFO, Michael McMurray. Mike will then provide comments on our outlook prior to the Q&A session.

Michael H. Thaman

Thanks, Thierry, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2012 results. Owens Corning revenue in the third quarter was $1.3 billion, down 12% compared with the same period last year. Adjusted EBIT was $81 million, down from $177 million 1 year ago. Before I discuss the key drivers contributing to our business results in the quarter, let me make a few observations about the year-to-date and the overall environment in which our businesses are operating.

This has been a challenging year in terms of visibility to demand, whether in the U.S. roofing market or the impact of slower-than-expected growth across many of the global markets for our Composites business. We're disappointed in our third quarter financial results and the need to lower our full year earnings forecast.

Despite the change in our near-term outlook, we remain positive with regard to the strength of our businesses. These are market-leading businesses, operating in well-structured industries. We have a strong brand, technological leadership and manufacturing and supply chain strength to serve our valued customers around the globe. As we disclosed earlier this month, we now anticipate full year adjusted EBIT in the range of $280 million to $310 million. This earnings outlook reflects a weaker environment for both our Roofing and Composites businesses this year. I will discuss the specific outlook for each of the businesses in a few minutes.

Each of our businesses is making progress against the strategic objectives we've set. Roofing is a great business with a strong market-leading position. This business has delivered great margins in recent years. We believe it is well positioned to sustain that performance. Our Insulation business is benefiting from an improving housing market. We are narrowing losses and progressing towards positive earnings. We are proud that this business achieved profitability in the quarter for the first time in 4 years in an improving U.S. construction market. The Composites business is transforming its global network to low delivered cost assets, while building stronger positions in markets where we are growing.

Now I'll review our third quarter results. We continue to make progress toward our goal of creating an injury-free workplace. Our safety performance in the third quarter improved by 18% compared with the same period 1 year ago. As you may recall, our year-to-date rate of injuries at the halfway point of the year had increased by 13% over our full year 2011 rate. Our strong third quarter performance enabled us to bring our year-to-date safety rates in line with full year 2011 results.

Now let's turn to our Building Materials business. Roofing net sales for the quarter were $471 million, a 27% decline compared with the same period 1 year ago. EBIT in the quarter was $83 million, down $73 million compared to the same period in 2011, driven largely by lower sales volume.

Let me take a moment to walk through the developments that have impacted the roofing market and our business this year. Coming into the year, we had expected that the roofing market would decline mid-single digits. It's on a negative comparison with 2011's strong storm-related demand. We saw very strong volumes in the first 5 months of the year. We experienced weaker volumes in June and July as the market stalled in the mid-summer heat.

Demand began to build again at the end of July and into August. Although volumes were still weak, the weekly shipment rate continued to improve up to the point of our price increase in mid-September. At that time, we saw another significant drop in demand, as well as significant reductions in the shipments of asphalt and glass that we provide to other roofing manufacturers.

We've now gone back and revisited our estimates of the overall roofing demand. The resulting forecast is actually quite similar to our market outlook when we entered the year. Unfortunately, strong demand and storm activity early in the year had caused us to believe that both reroof and storm demand would be at the high end of our internal ranges, demand estimates that we no longer believe will materialize. We misjudged the market despite warning signs that we should have seen. Strong purchase incentives early in the year had caused us to ship too many shingles in the first part of the year and to have done so at too low margins. A mild winter had front-end loaded the roofing market, but did not increase the market size. Hot summer weather was keeping contractors off of roofs, but was not actually deferring demand.

The weakness in demand in late September, combined with the downwardly revised outlook for demand for glass and asphalt from other roofing manufacturers, resulted in our decision to revise our guidance and issue the 8-K earlier this month. Despite the weakness of the second half, the overall market outlook and competitive environment support continued confidence in the Roofing business. This is a great business with strong fundamentals and very real opportunities for improved financial performance.

Turning to Insulation. Net sales were $384 million, up 5% from the same period a year ago. This increase reflects higher sales volumes and strong commercial execution across the business. Insulation delivered EBIT of $3 million in the third quarter compared to a loss of $12 million in the same period 1 year ago. Increased sales provided incremental margin across the business. In addition, increased production drove higher capacity utilization, and manufacturing costs were lower on improved productivity.

As I noted earlier, the third quarter represented a return to profitability in Insulation for the first time in 4 years. We expect to further improve the financial performance of Insulation in the remainder of the year and to significantly narrow losses for the full year as a result of improved U.S. housing starts and continued operating leverage in the business.

Net sales in our Composites business for the third quarter of 2012 were $459 million, a 7% decrease compared to the same period in 2011. Second half 2012 composites demand is being impacted by lower global industrial production, particularly in Europe, as well as by the weaker U.S. roofing market. As we communicated earlier this month, our estimate for global glass fiber market demand growth in 2012 has been reduced to approximately 3% compared to the long-term historical average growth of 5%. In order to bring our inventories in line with previously discussed [indiscernible], we've responded to this weaker environment by initiating further production curtailments.

I'd like to update you on the status of our asset strategy we're implementing in Composites. The European restructuring we launched earlier this year is on schedule. We have received all of the required approvals for impacted sites and are fully executing our plan. Our decision to take decisive actions earlier this year in Europe was well timed given the continued market weakness in the European market. We've also completed the startup of our Mexican melter. The startup of our Russian melter is going well, and our China facility, which we opened last year, is now fully loaded. At our current forecasted growth rate for industrial production, we don't expect to need an additional melter for at least 2 years.

We expect these actions to yield approximately $60 million in cost and productivity improvements in a modest growth environment for the coming year. As we previously announced, the global macroeconomic outlook likely delays our attainment of double-digit margins beyond 2013. We are taking the appropriate actions to get our businesses to improve in the near term.

One of the things that I imagine is on your mind is where 2012 puts us in terms of the midterm guidance we've given on $1 billion of EBITDA in a market environment of 1 million housing starts and continued global growth. When we provided this guidance, we said that there were multiple paths to attain this goal. We haven't seen anything that looks like a structural change in the roofing industry and our business. And we've begun to see the required operating leverage in the improvement of Insulation. If anything, our confidence in the housing recovery has increased.

The one change we have seen is that we are now looking at Composites growth that's probably at the lower end of our range. As we now see composites market growth and outlook trending toward the lower end of our range, which supported this goal, we will likely require strong performance in both Roofing and Insulation. We're developing a track record in Insulation and are pleased with the momentum in the housing recovery.

In Roofing, we will look for a reversal of some of the margin declines which we've seen this year, producing margin performance more consistent with what we delivered in 2010 and '11. We'll be able to comment on that more completely once we get to the first quarter of next year and see what happens with winter buys and how margins evolve through late this year and early next year. All of our management actions and focus is on getting to a position where all 3 of our businesses are achieving double-digit operating margins at the same time.

In closing, let me comment on the very successful debt offering that was initiated 1 week ago today. We issued $600 million in new bonds, maturing in 2022, at an interest rate of 4.2%. The 4.2% borrowing rate, incidentally, represents the lowest cost bond ever issued in the history of our company. The intended use of proceeds is to retire up to $350 million of existing bonds maturing in 2016 and '19 and to repay outstanding borrowings under the revolving credit facility. We were pleased to take advantage of the favorable market to extend the term of our current debt and believe that, over the long term, this action will contribute to a stronger investment-grade balance sheet for Owens Corning.

Now as I turn it over to Michael, let me note how pleased I am to have him back on the this call and serving as our Chief Financial Officer. Many of you know Michael, and the board and I have great confidence in his capabilities and leadership as CFO. Michael?

Michael C. McMurray

Thanks, Mike, and good morning, everyone. I'm excited to be back with all of you, now as the CFO of Owens Corning. Before I begin, I wanted to acknowledge the disappointment of our investor and analyst communities in our recent outlook revision and assure you that we share in your disappointment. The management team understands the importance of being a reliable resource to our investors, who does not take the need to revise our guidance lightly.

As Mike mentioned earlier, our third quarter results were impacted by weak near-term market conditions in roofing and composites. As previously announced, we have revised our full year 2012 adjusted EBIT expectation to a range of $280 million to $310 million, with the primary uncertainty attributed to roofing volumes.

Now let's start on Slide 5, which summarizes our key financial data for the quarter. You will find more detailed financial information in the tables of today's news release and the Form 10-Q. Today, we've reported third quarter 2012 consolidated net sales of $1.3 billion, down 12% compared to the same period 1 year ago. Our Insulation business grew by 5% on improved demand. Net sales in our Roofing business were down 27% on lower sales volumes, and net sales in our Composites business were down 7%, primarily due to foreign currency translation.

In a moment, I'll review our reconciliation of items to get to adjusted EBIT, our primary measure to look at period-to-period comparisons. Adjusted EBIT for the third quarter of 2012 was $81 million compared to $177 million in the third quarter of 2011. Adjusted earnings for the third quarter of 2012 were $39 million or $0.33 per diluted share compared to $110 million or $0.90 per diluted share in 2011. Depreciation and amortization expense for the quarter was $89 million, including $14 million of accelerated depreciation related to the asset restructuring in Europe. Our capital expenditures for the quarter were $72 million. We expect full year capital spending to be approximately $340 million. This is about 10% higher than our depreciation and amortization for the year, excluding the impact of the asset restructuring in Europe.

Next, let me reconcile our third quarter adjusted EBIT of $81 million to our reported EBIT of $59 million. The European restructuring actions, which resulted in $22 million of charges in the third quarter, was our only adjusting item.

Now please turn to Slide 6, and I will review our adjusted EBIT performance comparing third quarter 2012 with the same period 1 year ago. As I mentioned previously, adjusted EBIT for the third quarter of 2012 was $81 million compared to $177 million in the third quarter of 2011. The $15 million improvement in our Insulation business was more than offset by a decline in our -- in Roofing EBIT of $73 million and a decline in Composites EBIT of $38 million. Corporate and other was consistent with the prior year.

With that review of key financial highlights, I ask you to turn to Slide 7, where we provide a more detailed review of our businesses, starting with Building Materials. In the third quarter, Building Materials net sales were $855 million, a 15% decline compared to the prior year, with higher sales in Insulation being more than offset by a decline in Roofing sales. Building Materials delivered $86 million in EBIT in the third quarter of 2012, down from $144 million for the same period in 2011.

Slide 8 provides an overview of our Roofing business. Roofing net sales for the quarter were $471 million, a 27% decline compared with the same period 1 year ago. EBIT in the quarter was $38 million (sic) [$83 million], down $73 million compared to the same period in 2011, driven largely by lower sales volumes. For the quarter, EBIT margins of 18% were down compared to the same period in 2011. While we saw sequential improvement in price during the quarter, this was offset by asphalt prices that remained high and the impact of lower demand, which impacted our production leverage.

In the fourth quarter, we expect seasonally weak demand will contribute to EBIT margins lower than levels seen in the first 3 quarters of 2012. Over the past decade, fourth quarter EBIT margins have generally been below third quarter EBIT margins. This is primarily as a result of seasonality in both sales and production. We anticipate selling prices will remain stable in the fourth quarter and contribution margins will continue to be attractive and capable of sustaining strong annualized EBIT margins. Although we are disappointed in our current year results, this business will deliver a year of strong financial performance.

Now Slide 9 provides a summary of our Insulation business. Net sales in Insulation of $384 million were up 5% from the same period 1 year ago, reflecting higher sales volumes and strong commercial execution across the business. The business delivered EBIT of $3 million in the third quarter compared to a loss of $12 million in the same period 1 year ago. The last time the Insulation business was profitable was in the second quarter of 2008 when seasonally adjusted lagged U.S. housing starts were about 1 million units or approximately 28% higher than the third quarter of 2012.

Increased sales provided incremental margin across our Insulation business. In addition, increased production drove higher capacity utilization and manufacturing costs were lower on improved productivity. Third quarter year-to-date operating leverage, measured as the ratio of incremental EBIT to incremental sales year-over-year, is greater than 60%. We previously said that the business could produce about $100 million of EBIT at 1 million U.S. annual housing starts on about 50% average operating leverage compared to 2011 levels.

As a reminder, our operating leverage guidance is a medium-term, point-to-point estimate and will vary quarter-to-quarter, driven by factors such as production timing. We are pleased with the track record we are beginning to establish against this critical goal for this business. As the U.S. housing market continues to recover, we expect to see further sales growth. We've seen sequential price improvement in our markets facing new U.S. residential construction. We expect continued profitability improvement in the fourth quarter as we remain focused on taking full advantage of the market growth, with a strong execution in manufacturing, pricing and commercial initiatives. We are comfortable with our previous guidance that the Insulation business will significantly narrow losses in 2012.

Now I ask to take your attention to Slide 10 for a review of our Composites business. Net sales in our Composites business for the third quarter of 2012 were $459 million, a 7% decrease compared to the same period in 2011. Third quarter sales were negatively impacted by approximately $30 million in foreign currency translation. Year-to-date, net sales were $1.4 billion, a 6% decrease compared to the same period in 2011. Year-to-date sales were unfavorably impacted by approximately $70 million in foreign currency translation, which was driven largely by a 10% drop in the euro.

In addition, approximately $20 million of this decline related to the divestiture of our Capivari, Brazil facility in the prior year. Excluding the impact of these items, sales grew for the year-to-date period, as stronger sales volumes more than offset the impact of a low-single digit decline in selling prices. While prices are slightly down compared to the prior year, prices stabilized during the second quarter and have remained stable through the third quarter. Global composite volumes continued to grow during the third quarter at a rate consistent with the first half of the year, with the exception of demand supported by the U.S. roofing market.

EBIT for the quarter was $11 million compared to $49 million in the same period last year, due to nonrecurring plant startup costs, plant rebuild costs, year-over-year inflation and slightly lower selling prices. During the quarter, we started up a new melter in Mexico, completed the expansion of our Russian facility and completed a significant rebuild in one of our North American facilities. While these important projects are now largely behind us, we did incur costs of approximately $15 million during the quarter, about 1/2 of which were not anticipated going into the quarter.

We continue to be resolute in our commitment to reduce inventory to target levels by year-end. In response to the weaker market environment, we've initiated further production curtailments in the fourth quarter. The effects of slower demand and the impact of further curtailments to reach our inventory goals led to lower margin expectations for the business for the fourth quarter of the year.

Now let me turn your attention to Slide 11. Our $2.2 billion U.S. tax NOL will significantly offset cash taxes for some time to come. In 2012, our tax position is expected to deliver significant cash tax savings, and our cash taxes paid in 2012 will be about $30 million. As a result of successful tax planning initiatives, we continue to expect our effective tax rate to be about 25% for the full year. Our long-term effective tax rate is still expected to be in the range of 25% to 28%.

As Mike mentioned, with the $600 million bond offering that funded early this week -- we are pleased with the $600 million bond offering that funded earlier this week. The transaction extends our maturities, adds to liquidity and strengthens our investment-grade balance sheet. We intend to use a portion of the proceeds to purchase up to $350 million of our outstanding senior notes through a tender offer, which was announced on October 17. Residual funds will be used to repay borrowings under our senior revolving credit facility. As a result of the tender offer, we expect to incur a fourth quarter charge of approximately $75 million associated with the extinguishment of debt.

During the quarter, we repurchased 1.1 million shares of the company's common stock for $31 million. 10 million shares remain available for repurchase. These share buybacks represent a return of capital to our shareholders and reflect our strong outlook for growth in earnings and free cash flow generation. This is the strong outlook that supports our expectation of free cash flow conversion to adjusted net earnings of 100%, on average, over the next 5 years.

Thank you, and I'll now hand the call back to Mike.

Michael H. Thaman

Thank you, Michael. We remain positive on the strength of our businesses and our ability to respond to their markets. Our Roofing business has delivered great margins in recent years, and we believe it is well positioned to sustain that performance. Our Insulation business is benefiting from the improving housing market and achieved profitability in the quarter for the first time in 4 years. Our Composites business has taken decisive actions that will position it for a stronger 2013. I appreciate your continued interest in Owens Corning.

And we'll turn the call over to Thierry to lead us in the question-and-answer session. Thierry?

Thierry Denis

Thank you, Mike. Chanel, we're now ready to begin the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Stephen Kim from Barclays.

Stephen Kim - Barclays Capital, Research Division

I wanted to ask you a question first regarding Composites. Thierry, Mike, I think you made -- Michael rather, I think you made a reference to additional rationalization. Previously, you had given a guidance, I think, for $70 million, and in your release today, you highlighted that you were substantially complete with that. So I just wanted to get a little granularity on this comment about additional rationalization, how much more. And what do you mean by substantially complete?

Michael H. Thaman

Okay, Stephen. This is Mike. Let me make a few comments, then I'll turn it over to Michael. I think we're talking about 2 different things on the call today, and I want to make sure that we clarify those. We have our overall asset strategy, which deals more with our fixed assets regarding the facilities in Europe that we're shutting down, the expanded melter in Russia, the new melter in China -- I mean the new melter in Mexico and also, the new plant in China, which is now loaded. I think we feel very good about the fact that we made a lot of progress in the third quarter on that agenda. We got our really very important significant plant in Amarillo, Texas went through a rebuild, which also hurt the quarter, and we're really looking now through the rearview mirror at a lot of the assets actions that we needed to take and feel like the next couple of years are focused on really matching the right products to the right plants with the right customers at the right margins and optimizing our asset mix, optimizing our cost position and really trying to drive performance of the business. We also talked about inventory curtailments and the need to further curtail inventories in the third quarter based on demand weakness. I think Michael's comments were more specific to that issue, and I'll have him address that. Michael?

Michael C. McMurray

Thanks, Mike. Yes, Stephen, as you know, as we talked about in our second quarter call, we entered the year with Composites inventory being a little bit ahead of where we want it to be, and we've had an active program, both in the second and third quarter to curtail inventory and take it down to go where we wanted to get by the end of the year. I actually think we did say in the second quarter call that goal was on the order of $70 million. Because of the weakness that we have experienced in the third quarter, a large part of it being in our Roofing business, it's forced us to curtail or take additional curtailments in the fourth quarter. I would tell you, as we're progressing through the fourth quarter, the target that we've set out is that we're largely on track to meet that goal.

Stephen Kim - Barclays Capital, Research Division

Okay. That is very helpful, although I didn't hear a number, but okay. Let me switch, if I could, to Roofing. Roofing is -- I think as you -- I think your comments are appreciated that perhaps you didn't catch the trends in volume as quickly as maybe you should have, and I appreciate your candor there. I do think that your main issue with Roofing though is margins, and particularly as it relates to whether or not discipline can hold in the industry in the winter months to avoid what we had earlier this year, which was a lot of volume-related discounting. I know that you have talked about the fact that you have a commitment to a discipline in that regard. But also I believe, in the past, you mentioned that you can't control what others in the industry will likely do and that historically, you have needed to match what some competitors do. I guess, I was looking to see if you had a stronger comment in that regard that can give investors a little bit more comfort that, even in a difficult winter environment, we're not going to see a repeat of what happened in the beginning of this year. Is there anything more that you could add there in terms of color?

Michael H. Thaman

Sure, Stephen, I'd be happy to address that, and in fact, let me start by agreeing with your opening comment, which is there's a bit of a turmoil in our guidance related to the business based on our lack of ability to effectively forecast demand. I addressed that in my comments. We're looking at that and taking that very seriously. In fact, when you step back from the year, the more important issue, on an ongoing basis, is less related to our ability to forecast quarterly demand numbers, much more related to what is the long-term reasonable margin expectation for the business. This year, in the first quarter, I think you characterized it the way we have, which is we sold an awful lot of shingles at deep discounts, and in doing that, we gave our distribution partners an incentive to want to buy a lot of shingles and try to carry low-cost inventory deep into the year. Now winter buys have always made some sense in the Roofing business. They've been around for a while, and I'd characterize it as the winter buys they've tried to accomplish 3 objectives. The first objective was to help the manufacturers level-load our production a bit. It's a seasonal business. There's more demand on the roof in the second and third quarter. It's nice to be able to give your employees year-round employment. It's nice to have -- to produce some shingles in the fourth quarter and the first quarter of the year. And so I think the manufacturers have some incentive to level-load their facilities, although we've been very clear, it's not an operating leverage or a fixed cost business, it's a materials conversions business, so you can go too far in that thinking about trying to level-load your facilities. And that certainly doesn't drive our thinking. The second opportunity is typically and historically, asphalt costs have been quite a bit weaker in the winter than they have in the summer because of paving. I think we've seen some things in the last couple of years where we've been clear that we're not seeing the kind of falloff in asphalt costs in the winter that we had seen historically, so the winter-fill opportunities, the winter-buy opportunities on the raw material side have become much weaker, and that has to do with refinery economics. When the refineries do turnarounds, cokers in the refineries, which are destroying the low end of the cracker and producing less asphalt. So that's a less pronounced impact. And then the third, which is a market-facing impact, is it's logical and sensible for manufacturers to want to encourage distributors to put some inventory on the ground in the first part of the year, because it's very difficult to forecast when will the fall come, when will the snow thaw and when will roofing season begin, and we certainly wouldn't want to miss orders early in the year because our distribution partners aren't positioned with inventory to be able to meet the onset of the market sometime in the late February to early April timeline in most of the country. So there have been 3 good reasons why we've done winter buys, and I would say from Owens Corning's perspective, this year we went 0 for 3, which is we really didn't see a significant reduction in asphalt cost. We actually had a significant discounting that, in fact, we produced and sold well more than 1/4 of our annual demand in the first quarter, so we were unsuccessful in level-loading our facilities. And I think most importantly, we pushed so much low-cost inventory out into the market, that many of our distribution partners and customers have struggled in the markets to maintain reasonable margins and reasonable price discipline because there's so much low-cost inventory sitting in the market that even pricing discipline on the other side of distribution has been a bit more of a challenge for this year. So we didn't really help our distributors make a bunch more money. We pushed too much production in the first quarter from our standpoint, and we passed along margin, as opposed to lower asphalt costs. What we're seeing in the industry today is it would be our goal to go back to the central tenets of what we're trying to achieve with winter buys. We think there could be some opportunity for a bit of discounted asphalt in the winter, but not at the levels of what we've seen historically. To the extent there is some opportunity for us to buy asphalt more cheaply, we'd be prepared to go back into the market and try to give our customers some incentive to buy some shingles in the first quarter to help us level-load facilities, to pass along some of those asphalt savings and to put them in a position where they're prepared for winter to end and for the roofing season to begin. We would certainly endeavor to do that at much level lower levels of discounts than what we did this year so that we don't improperly incentivize the market and also hurt our customers in terms of their ability to price. With that said, it is a competitive market. And if, in fact, we see aggressive winter buys in the market this year, we'll really have no choice but to match them because on a variable margin basis, you really can't afford to let volume and share slip out of your business in the first quarter. You can't make it up for the remainder of the year. It's just lost opportunities. So it is going to require that we're able to go and get back to a stance in the market where winter buys go back to something that resembles more of their historical objectives and will look much different than what we saw in the first quarter of this year.

Operator

Our next question comes from the line of Mike Wood from Macquarie Capital.

Mike Wood - Macquarie Research

Can you confirm whether or not -- the intercompany sales decline, was that primarily related to Composites sold into your Roofing? And was there any destocking that happened internally given the sudden decline in roofing demand?

Michael H. Thaman

I'll let Michael correct me if I get any of this wrong, but I'll take that one, Mike. Most of our intercompany sales are, in fact, sales from our Composites division to our Roofing division. So by and large, what you see in the intercompany line tends to be transfers from our Composites business, which carries production responsibility for the manufacturing of the glass. We transfer at a market price, but Composites also carries the asset, so Composites has clear alignment in terms of return on capital goal, which is a very important goal for us. So what you would see in that is intercompany decline related to that transfer. On a consolidated basis though, the inventories -- if we saw destocking or not, it wouldn't show up in the inventory number because, in fact, we pool the inventories on a consolidated basis. So clearly, the Roofing business is going to want to carry the amount of inventory that's appropriate to its production outlook to the extent they don't take mat or glass from our Composites business, that's going to end up on the Composites balance sheet. Composites has its balance sheet goals so they're going to take curtailment in order to try to reduce those inventory levels on their side of the balance sheet. So that's how that would work internally. Michael, did I get anything wrong there?

Michael C. McMurray

Nice job, Mike.

Mike Wood - Macquarie Research

And on the Insulation segment, is there anything unusual impacting the incremental margin in that business? Or another -- said another way, should we expect the incremental margins to slow from where they were in this past quarter?

Michael H. Thaman

Yes, I mean I would say we continue to feel comfortable with this 50% operating leverage guidance. So in the first quarter, I think we were subjected to a bit of criticism because we came in below that goal, and at that time, we explained timing of demand, timing of shipments and timing of production can change that result from quarter-to-quarter. I think if you look at what we've said in the second quarter, we were well above that goal and tried to take little or no credit for that, saying that timing of demand, timing of production and timing of shipments can affect that. I think that's kind of where we are in the third quarter. We're in the high-60s year-to-date. That's still going to be affected not just by our U.S. new construction business, but also the performance of some of the non-new construction businesses, like our business in Canada, our engineered business, our business in Asia. I think we would probably be reluctant to get more aggressive about that operating leverage goal until we got to a point in time where we felt like we were getting significant and repeatable margin-enhancing pricing. That certainly is something we believe will happen through this cycle. It's typically happened through the Insulation cycle, and today, obviously prices are way below average prices for the last couple of decades, certainly well below the kinds of prices we saw in the mid-2000s. So I think you could see some movement in the rate of operating leverage once it becomes a price and leverage story. Today, it is still predominantly a leverage story, although Michael did report that sequentially we felt positively about what we saw in pricing from the second to third quarter in virtually all of the businesses inside Insulation.

Operator

Our next question comes from the line of Garik Shmois of Longbow Research.

Garik S. Shmois - Longbow Research LLC

First question just on Insulation revenue growth, up mid-single digits. But when you lag 2Q housing demands into the third quarter, I think we were expecting a little bit more on the top line. I was just wondering, I know there's some mix involved, but maybe if you could provide a little bit more color on what was happening on remodeling and maybe in the international markets and how much those maybe have contributed to an offset with the new housing growth in Insulation.

Michael H. Thaman

Sure, Garik. Happy to do that. Thanks for the question. I think if you look at, what is it, Slide 9 in our investor presentation, we put up that little pie chart in the lower left-hand corner, and we do that on a quarterly basis so you can kind of see the evolution of the individual segments. I know we do have some analysts and investors who kind of back-calculate what that means in terms of revenue by quarter and look at the changes in revenue. So we disclose that. We don't disclose the actual revenue numbers, and I'd be clear about that. These are pretty broad estimates, so while we think directionally, we're giving you pretty good information here, if we were to try to actually quantify revenue for each one of these segments, it's pretty hard for us to do. We estimate it based on channels and product line. I think what you'd see is that actually the new residential construction portion of our business grew pretty well in line with what housing starts did. You have to remember that in that pie chart, we report U.S. and Canada. Canada today is pretty significant because Canada hasn't really gone through a housing cycle the way the U.S. has, so it's a much larger percentage of that pie chart. Canada has been relatively flat as we've seen the U.S. recovery, so it's slowing down the rate of improvement in the new residential construction slice because it's flat and the U.S. is growing 20-plus percent. I think what you'd see is the other segments are relatively flat. Repair and remodel has not been terribly robust. I think that's probably a byproduct that we had a mild winter last winter, so we didn't have a lot of people coming out of the winter saying, "I need to do something to insulate my home." We haven't yet seen cold weather this year. So I don't think you have people coming home and feeling like their house is not comfortable and wanting to try to take an action to improve the comfort of their home. So through time, we believe the repair and remodel market should be a single-digit growth market. I don't think it's necessarily quite, at this time, growing at those levels. But as we work through the numbers and look at the different segments, we certainly are confident that we're seeing the U.S. new residential construction translate into volume for that segment of our business in the way we're reporting revenue.

Garik S. Shmois - Longbow Research LLC

Okay. And then I guess, just switching to Composites. The question is, in 2012, you had some price weakness, obviously, in the segment, particularly as you entered into the annual contracts with excess inventory at the end of last year. You're working on inventory right now, but if you could provide maybe your thoughts on how you're going to be managing these pricing negotiations for 2013 and the way your outlook would be for pricing next year in Composites.

Michael H. Thaman

Yes. I think it's a very good question, and that's a real-time question. So that's obviously something we're working right now because that is in a very important fourth quarter negotiation for us. I've talked in the past that one of the key considerations that impacts Composites pricing is kind of rate of change of the market. When we see markets that are growing turn negative, when we see markets that are growing quickly suddenly go to a no-growth state, because of the fixed cost nature of Composites manufacturing and because of the way melters operate, typically the manufacturers would overrun the market, create inventories and that tends to cause a downward pricing cycle. I think we saw that last year. This is about the time where Europe began to slow pretty dramatically kind of mid-third quarter. I think the Chinese exporters to Europe, European manufacturers, everyone was running at a run rate for Europe that was well above what we saw kind of in the last 5 or 6 months. Inventories were created, and we got into a more aggressive pricing environment at the end of last year because of the rate of change of demand in the composites market. Today, demand is fairly weak but the rate of change is fairly stable. So while we're seeing weak demand, we don't think it's unexpectedly weak demand or anything that's particularly surprising. And as a result, we would believe we're in a more stable price environment today than we are -- than we were last year. I think our hope going into next year is we would see some places maybe where we had a little bit of pricing opportunity. We've had some nice new product launches, which could give us an opportunity to get some additional margin by creating value for our customers with some new products. I think the places to watch would be the roofing market in the U.S. That's seen a big rate of change, but on an annual basis, it's relatively stable. So I think most of our competitors and ourselves facing that market look at roofing demand as an annual issue and while we're seeing a weak second half, I don't think the fundamental dynamics of roofing have changed. We have seen a little bit of change obviously in the U.S. wind market, with the anticipated expiration of the production tax credits at year-end. Again, for us, that was an anticipated issue. So we don't see that as a rate of change issue. So kind of a long answer, but our sense is that most of the movement in the composites market globally is consistent with evolving expectations through the year, and that is a result that shouldn't create a big downdraft or pressure on pricing the way it did last year. I think that's a little different from saying we think we're in a real positive price environment. I think the positive price side is going to be a little bit more opportunistic until we get to a little bit more robust growth.

Operator

Our next question comes from the line of Michael Rehaut, JP Morgan.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

First question on Composites, I think in your opening remarks or I believe it was yours as opposed to Mike's, but talking about longer-term margins maybe not getting to that double-digit rate, and I believe you used the term 2013 and beyond. Going back to the Investor Day and I think earlier this year with the turnover of the asset network, certainly that there was a goal of 13% to even 15%, I believe. Once you reach that, 75% of the network low cost. So has there been any change in the thinking there? Or is this more of just the double digits really won't be achieved due to the lower demand, which would negatively impact utilization and pricing in perhaps the near to medium term?

Michael H. Thaman

Thanks, Michael. And I looked back at my script and I think I read it correctly. But if not, I do want to make sure that I clarify it, if I put any confusion. Your comment was that I had said that it put double-digit margins at risk in 2013 and beyond. What I actually said is the way to the attainment of our double-digit margins beyond 2013. So obviously, that statement leaves open the possibility, we could certainly attain them in 2014. We haven't given that guidance yet but we tried to write the language in such a way that it was clear. We certainly think the attainment of double-digit margins is something we can see in our crystal ball. We don't think we have enough volume as we go into next year. We can put a stake in the ground and reconfirm previous guidance we had given, which said that we would get it next year. Now, I haven't gone back and run these numbers, but I would tell you if this year had been 5% growth in demand and we were anticipating 5% growth in demand next year, I'd be pretty confident telling you that we would still expect double-digit margins next year. So by and large, the change in outlook is just the difference in demand outlook. And if you compound those numbers, in effect 3% this year and 3% next year makes next year's market about the same size as we anticipated this year's market to be at 5% growth, and the next 5% growth is going to be a market that might not appear until 2014, if we stay at kind of at 3% growth rate. So I think it's really a volume story. The cost side, the asset side actually, the reduction in value of the euro, which makes exporting from China into Europe less competitive, we think is probably something that helps revalue the remaining assets that we do have in Europe, so that's a net positive. The U.S. dollar versus the Chinese currency has remained stable and actually begun to see the Chinese currency strengthen just a tad again, which is one of our long-term trends that caused us to believe our U.S. assets, which are very low cost, we'll continue to revalue. So it's really the compounding effect of a couple of years at 3% instead of a couple of years at 5%, causing the 2013 market to look more like the market we maybe expected this year and may be causing us to not see the 2013 demand levels until 2014, that caused us to say that we believe that the attainment of double-digit margins in 2013 is at risk and that, that attainment will likely happen beyond 2013.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Appreciate that. Also, just on the corporate expense, I think you slightly lowered guidance there for the full year, Mike. Any thoughts on 2013? Because that's certainly been kind of a rising trend over the last few years and the profit picture has been less -- a little bit choppy. So I mean we actually -- we're modeling continued growth, but is there a chance that '13 could be similar to '12?

Michael C. McMurray

Yes. Mike, thanks. I mean I think the first thing that I'd point out that really since 2009 and since things had begun to recover, we've been pretty disciplined from a cost perspective and from a headcount perspective. We've actually been keeping headcount flat year-on-year. The big thing that's impacted this year is the variability as we've gone through the year, is largely incentive compensation and so -- and pension. And as we look at this year versus next year, from an overall run rate perspective, I would expect corporate expense to be largely consistent and where we hopefully might see a little bit of variability is in incentive compensation.

Operator

Our next question comes from the line of Adam Rudiger, Wells Fargo Securities.

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

You've already talked a bit about Roofing, so I don't want to try to rehash it all. But I was just curious about what happened at the beginning of the year that was so different than other years and really why the visibility this year was less than in prior years.

Michael H. Thaman

Yes. I think it's a fairly simple story, and we've talked about it but let me reiterate it, which is we just saw discounting levels coming out of the fourth quarter last year in terms of these winter buy incentives that are offered by manufacturers to distributors to encourage distributors to stock up inventories in the first quarter. The level of the incentives became so large, offered by Owens Corning and offered by our competition, that our distributors really had an incentive to not just buy in a bit more inventory but they actually kind of trade in shingles and to try to take a very long position in shingles early in the year and then carry that position through the second and third quarter and try to get as deep into the year as possible with a big inventory of low-cost shingles. It created a lot of distortions in the market, from our estimation, none of which were particularly good. So the discipline issue will be, in fact, that the new normal or in fact, our position, which is we think winter buys are a nice incentive for our distributors, destocking some inventories where we can pass on some reduced asphalt costs through and give our distributors some incentives to help us keep our plants running and be ready for the spring selling season. That certainly is a sensible position, we believe, for us to take with our customers. And if that we can sustain that position competitively, we think that's going to be the best position for our business and for our customers.

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

Okay. And then going back to Composites for a second, in the 10-Q I think you actually mentioned there was a favorable mix of Composites demand this quarter and then there were obviously some negative offsets. But what was the favorable mix that you cited?

Michael H. Thaman

One of the things -- and I mean this at a very detailed level within our product line, but the Roofing product line that we manufacture in Composites is a product called wet chop, which is a short fiber that goes into something that almost resembles a papermaking process to make fiberglass paper or fiberglass mat, which becomes the guts of a shingle. So almost think of it as we manufacture fiberglass pulp, to continue the paper analogy. Now we have very, very low-cost focused assets that are very efficient at making this product. As a result, we sell that product at an average price that's well below the price of a number of our other glass reinforcement products, which you'd be more familiar with than some of the products that we feature kind of on our investor website, like rovings, like Type 30, like dry-used chop, but we make very nice margins on them. When we're reconciling top line and reconciling revenue, if we lose a lot of tons of wet chop and mat, which we did in the quarter, you're actually going to see that your average selling price improves a bit because that would be negative to the mix because it's a low-selling-price product. It's not a low-margin product, though. So you get a little different answer if you reconcile earnings versus reconciling revenue, and that's the mix issue that we've put into the 10-Q.

Operator

Our next question comes from the line of John Kasprzak, BB&T.

John F. Kasprzak - BB&T Capital Markets, Research Division

How much of your Composite business is now tied to just the roofing market in total in North America?

Michael H. Thaman

Well, if you look at the pie chart that we put out in our investor deck, which is Slide 10, you can see that we detail about 11% of the market is either U.S. and Canadian new residential construction or U.S. and Canadian residential repair and remodeling. Those numbers track pretty well with the mix of what roofing would see in terms of what's repair and remodel, what's new construction. So that would be sales by Composites to our Roofing business, sales by Composite on a merchant base into other roofing manufacturers. But it would also -- could include sales by Composites to other building materials manufacturers. So for instance, we sell glass into the toilets and bath and shower market, so a lot of fiberglass goes into the manufacturing of bathroom fixtures. We would put that glass into that segment where we show that 11%. We sell some glass into ceiling tiles, in the facings of ceiling tiles, which goes into the construction market. We would also allocate some portion of those sales into that market. So that's a little bit broader market driver than just roofing. So in this disclosure, we're saying in total with 11% of Composites revenue in the end market, I think you should assume that materially, that's being driven by Roofing, but Roofing is not 100% of that.

John F. Kasprzak - BB&T Capital Markets, Research Division

Okay, great. The second question is do you think the fact that repair and remodel spending, in general, has been sort of soft again this year and we're -- but we're seeing new residential construction improve, is that having an effect on your product mix at all?

Michael H. Thaman

Well, I mean for sure, if I take that directly to the Roofing question, I'm not sure whether you're asking that as it relates to product mix in Composites or whether you....

John F. Kasprzak - BB&T Capital Markets, Research Division

Well, Roofing and Insulation I guess, specifically, yes.

Michael H. Thaman

I think specifically to Roofing where, obviously, we think 75% of that business is repair and remodel, and in fact, 15% of that overall end use market is sales of commercial and industrial products, which are primarily asphalt and other products. So what you would tend to think of as our Roofing business, which is shingles, 75% out of 85% of our shingle sales are really to repair and remodel. We certainly believe that the repair and remodel dynamic today is being affected by the tension and the challenges that we see in housing in the U.S., probably more impacted by home prices, level of equity in homes, people's feeling about their house as a decent place to invest, whether they're underwater on their mortgage, whether they actually have equity in their home, which would qualify them for a home equity loan, which might allow them to pay for a reroof job. If all those -- if the answer to all those questions are no, no, I'm not confident on my house; no, I don't think prices are going up; no, I don't have equity in my home, I'm going to try to find a way to patch my roof or do something that causes me to not put more capital into my home. When you get into an environment where people are feeling better about increasing home values, better about the stability of the equity in their home, you see a mortgage market begin to improve as appraisals begin to improve, which might underpin or support refinancings or home equity loans, those are the things that we would say are critical precursors towards seeing an improvement in the reroof market. We've shown -- at our Investor Day, we've put out a slide where we break the shingle market into segments, and over a 15-year period of time the reroof market's averaged 104 million squares. Last year, we estimated the market at about 92 million squares. So that market is 15% below what we would consider to be normal. We would probably ascribe the bulk of that headwind to declining home prices, declining home equity and the lack of availability of a decent financing market for homes in terms of mortgages or home equity. We're very heartened to see that, depending which home price index you look at, Case-Shiller or others, there was a month -- I think, it was 2 months ago where Case-Shiller was up in all 20 markets. I think if Case-Shiller is flat between now and year-end, you'd still see a 5% year-end-to-year-end growth in home prices. All of this is now starting to repair the homeowners' balance sheet, starting to repair their ledger on what the value of their home is, maybe take some of the houses that were underwater at 105% loan-to-value and get them back to having a loan-to-value ratio of less than 100%, getting other homeowners who had some equity in their houses to feel confident that putting money into their house is not a bad idea. There's very cheap money out there for people who qualify. We think those are likely to be the things that will help us get a more sustained recovery in that repair and remodel segment of our Roofing business.

Operator

Our next question comes from Bob Wetenhall of RBC.

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

From Slide 13, you're talking about EBIT margins of 15% at 1.5 million starts. I was curious, would you guys be willing to say what EBIT margins would be at 1 million starts in this segment? And also, what's going on with your market share position in Insulation?

Michael H. Thaman

Okay. I can get you close to what we would've said about EBIT margins, and then we can follow up on this, because I don't want to get too pinned on that number. But we've been pretty comfortable saying we think the business would produce $100 million of EBIT on 1 million housing starts. Whereas the last time through, at a 1 million housing starts, the business was about breakeven. So that's -- in terms of mix of business, improvement of the other businesses inside our Insulation segment, as well as cost reductions and operating leverage in our residential business, we think we've moved that kind of break-even point by about $100 million. Today, the Insulation business is doing about $350 million or $400 million a quarter as you see from the third quarter. So we would see some top line growth as we move from 750,000 starts or where we're in this year to 1 million. But if you say it's on relatively flat revenue just because I don't want to give kind of a revenue estimate. We were on 1.6 billion. $100 million on 1.6 billion would be about 6% margin. So we're -- we would say that, that guidance is short of double digits at 1 million starts. And then our guidance, which is we should be back to historical norms of 15% at 1.5 million, that would suggest that we do have pretty good operating leverage as we go from kind of mid- to maybe a little bit better than mid-single digits margins at 1 million. And the next 500,000 starts should be pretty high calorie, and that would be because we'd start to see capacity utilization in the insulation market get tighter, scarcity of insulation become a theme in the market, and we'd expect to see that the pricing curve would start to bend a little bit more in our favor than what we would expect in the early part of this curve. So we're seeing positive price now. But we're multiple price increases away from even getting back to historical averages, and we're going to continue to move pricing as quickly as we can, consistent with the growing market.

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

And market share trends right now in Insulation?

Michael H. Thaman

Market share is pretty stable. There is obviously -- that is also a competitive market, and there is competitive intensity as people try to position themselves for the recovery and make sure that they're aligned with the right kinds of customers and with the right partners. We feel very good about our mix of customers. We feel very good about our relationships, and I would say our primary goal as it relates to market share would be to try to find ways to help our customers grow faster as opposed to trying to figure out how we move a lot of market share around in the market we like. We like the relationships we have. We like the mix of customers, and our goal with the EcoTouch launch, our goal with what we're doing on EnergyComplete, our goal with specification selling and other things is to try to create business opportunities for our customers so that they potentially grow faster than the market. But we're satisfied with the customer mix we have.

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

So you're not really seeing any movement there is what you're saying?

Michael H. Thaman

No, I mean we, obviously, see competitive bidding where there is efforts to move share. But for the most part, I would say, share positions in that business actually have probably been stable over the last decade. There's been 4 of us that have been really 90% of that market now going back a full decade, and while you could see some movements in share over that period of time, it's generally been a market structure that's pretty similar to what we see today.

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

That's helpful. One final question in Composites. What percentage of your revenues are based on spot markets sales for delivery within the next 3 months versus longer-term contracts?

Michael H. Thaman

Yes, I would characterize it a little differently than the way you characterize it. But let me try to give you some thought on that. We have some customers, I would characterize them as distribution customers, and also some customers who have applications that are not quite as sensitive to input glass in terms of how that impacts their yields and the economics of the composites that they manufacture. And I would say those customers tend to buy at prevailing market prices, maybe different than spot prices. So it's not bid necessarily the way you would think of a spot price in a classic financial market. There are some switching costs. There are some marketing costs and other costs associated with switching to a new glass supplier. But if you can't sell them at a competitive, prevailing market price, they have liberty through the year to be able to move share position. I'd say in broad terms, that's probably less than 1/2 of our overall business mix and probably customers who really rely on us to give them some stable pricing so that they can price their end-use composite applications to their customer at stable pricing, where our product is integral to their design, it's integral to their yield, it's integral to their manufacturing process, and it's very important that we take a long-term view together with them to make sure that we keep them competitive and that we're working on technology developments and process development to keep them competitive. That's probably a bit more than 1/2 the business. I think that's a very broad generalization and have we been when -- geography by geography, market by market, you'd find pretty wide variations different from that broad characterization. But I think for the overall market -- the overall business kind of a $1.8 billion to $2 billion, that's probably a pretty good characterization.

Operator

That concludes the Q&A session. Now I'd now like to turn the call back over to management for closing remarks.

Michael H. Thaman

Well, thank you, Chanel, and thank you, everyone, for your ongoing interest in our company. Obviously, I think, you've heard from the tone of my comments and also Michael's comments that it's been a challenging year for us. We're not terribly happy with our financial results. But I think more broadly than that, we're not terribly happy with our dilutive forecast and guide expectations around financial results. As we look at actual management actions and strategy, we feel like we're still getting the right thing done this year. We feel we have the right strategies in our businesses. We're focused on getting operating leverage in our Insulation business and being a constructive part of the recovery in housing as an industry leader.

We're focused on managing margins and volumes in our Roofing business in a way that we continue to sustain the kinds of margin performance that we saw in 2010 and 2011 and maybe reverse this near-term trend we're seeing in 2012 related to some margin compression that we think started earlier in the year. We're very focused on getting the right asset base in composites. I think we've been talking about that now for 2 years.

Two years ago, we talked about it in the future tense. 3 or 4 quarters ago, we were talking about in the present tense, and it's my fond hope that by the end of this year we'll be talking about that in the past tense and that as we look ahead to 2013, what we're talking about is having the right inventory levels with the right asset base and the right customers around the world and that we start to get nice positive operating leverage in Composites.

We're heading into next year certainly thinking that there's no reason why we shouldn't see improvement in all of our businesses, and that's certainly the challenge that we've given our leadership team. It's certainly the challenge we've given people of Owens Corning. We're very proud of the people of Owens Corning's hard work this year. People are working very, very hard to try to get the right things done in the business and to make sure that we are focused on doing the right things for our shareholders in the near term and the long term. We'll get over this little speed bump in terms of getting through 2012 and making sure that we can deliver on those promises in 2013 and beyond.

Thank you very much for your time. Bye-bye.

Operator

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.

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