RPM International Inc. (RPM) Earnings Call Transcript & Summary

Good morning, everybody, and welcome. Thanks for joining us today for RPM's Investor Day. I'm Matt Schlarb, Senior Director of Investor Relations at RPM. We really appreciate everyone making the trip to Cleveland and for those joining us online. So I'll start off with some legal language. So today's presentation is being recorded and a replay will be available on our website. Today's presentation may include forward-looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM's reports filed with SEC. During this presentation references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, RPM has posted reconciliations to the most directly comparable GAAP financial statements on our website at www.rpminc.com. And now I'll give you a brief overview of today's agenda. So, we'll kick things off with our Chairman and CEO, Frank Sullivan who will give an overview of RPM. Then Tim Kinser, our Vice President of Operations, will provide more details on MAP 2025. And then Rusty Gordon, our Vice President and Chief Financial officer will give us an update on our capital. Next, we'll have Tracy Crandall who's our Vice President of Compliance and Sustainability, Associate General Counsel, she will give more details on Building a Better World, RPM's sustainability program. Then, we'll have Paul Hoogenboom, who's our CPG Group President, who will give you a deep dive into his segment that he oversees. And then finally, Frank will wrap things up, and then we'll open the floor for Q&A. So again, we appreciate having everyone here today, and I'll turn the floor over to Frank.

Thank you, Matt. And just a brief introduction of Matt, Senior Director of Investor Relations with 15-year experience with other public companies. And so we are really pleased to have him here. And he's already making our investor outreach more effective. And so you'll be hearing more and seeing more of Matt. So Matt, thank you. I also want to introduce a number of our RPM people that are here today as well. Starting with Rusty Gordon, our Chief Financial Officer and Rusty and his team are doing a great job as we've evolved RPM from a holding company with a small-sized financing and accounting team to be more center-led in the number of areas. Tina Sherman is in the back. She is at least 50% of Rusty Gordon's effectiveness. So Tina, thank you very much. Tracy Crandall is here. She's our Associate General Counsel. Tracy is going to be talking to you today about our sustainability Activities, our Building A Better World initiative, which she leads across RPM. She's been doing a great job. And we made a lot of progress in our sustainability efforts, and with our Building a Better World initiative. So, I'm looking forward to that. Ed Moore is here as well. He's our General Counsel. Ed, thank you. Tammy Zollner, our Senior Director of Communications. And then I think, last but not least, we have Tim Kinser, Tim is VP of Operations for RPM. You will be hearing Tim shortly after me. He had a credible career in the power energy business. And thankfully for us, his wife didn't appreciate him traveling around the world, building up or setting up power plants. So we got him adapt as our VP of Operations. As part of the original MAP to Growth program, Tim took on the procurement activities and really did an extraordinary job in consolidating procurement, it led to about $150 million in savings, a critical element of our successful 2020 MAP to Growth program. And now as VP of Operations, he is leading the entire effort across our manufacturing operations and procurement. You'll be hearing from Tim shortly. And then lastly, Paul Hoogenboom. Paul is the new President of our Tremco Construction Products Group. Paul came to RPM in IT capacity many years ago, was our SVP of Manufacturing and Operations reporting directly to me and has been at Tremco for 7 or 8 years now, Paul?

10th year.

10th year at Tremco. And he has pulled together our construction products businesses, which were very distributed. And today, it is our largest and highest performing operating entity. And I'm very excited about the tour that Paul is going to be providing for those of you are staying near Tremco Sealant plant, where you can see our test wall system. It's pretty unique in the industry. And so again, I'm grateful. It's awesome to see in person a lot of folks that we've known for a long time and have followed RPM both as analysts or investors and also meet new people. So thanks for being here. For 75 years, RPM has been building upon my grandfather's founding operating philosophy, hire the best people you can find, create an atmosphere to keep them and let them do their jobs. Over that 75-year period, we've been able to transform RPM at the appropriate times from a single manufacturing facility producing a single product, Alumanation 301 to my father's efforts of beginning in the early 1970s through his retirement in 2002, effectively doing an industry roll up in the coatings and construction chemicals space before anybody has coined that phrase to a 6-group structure that we began to organize our 40 or 50 independent operating companies in 2002, really siloing those businesses but getting a tremendous bang from reorganizing from a true holding company into the group structure. You all have seen these slides before. But from 2002 until 2016, we had a tremendous performance outperforming the broader market and our peers. And our performance was better than that because underlying that was the ultimate resolution over about a 15-year period [ billion for asbestos ] liability challenges. And so I mentioned that in the organization it really powered organic growth. It really allowed us to start to get synergies within our 6 groups in ways that RPM hadn't before and that worked for about 15 years. The next transformation and probably the most profound one was driven by our 2020 MAP to Growth Operating improvement program. We sought to take that entrepreneurial culture, close to market decision-making allowing for RPM to drive organic growth that for most of our history has been in excess of our industry averages and marry it up with operating efficiency. And it was executed extremely well by Tim Kinser, Gordy Hyde, Steve Knoop [indiscernible] at the time and then our operating leadership and our people in the plants. And there were 2 elements to it. Number one, it was test time for us to address some of the operating efficiencies that were out there. As I remarked for Gordon with the incredible effectiveness of our MS-168 focused on creating lean manufacturing disciplines into our operations on a consistent basis and introducing continuous improvement into our businesses effectively. While lean manufacturing disciplines aren't new, they've been around for 40 years, they were new to RPM. And our people executed them exceedingly well. I think the big Aha between the operating efficiencies that we knew were out there and concerned about that entrepreneurial spirit was that we could do both. And I think through the MAP to Growth program, we were able to prove that. This is our structure today. What I think is most profound about it is RPM is solidly in the middle and not at the top of holding company structure. We went from 6 groups reporting in 3 segments to a much leaner 4-group structure led by industry veterans who are proven to be exceptional leaders and also reporting in 4 segments. So our investors, I think you have more visibility into our businesses and also really what we and our employees see in terms of how we're organized and how we think about attacking the market. Construction Products Group creating a drive in the market for high energy performance in the built environment as well as new construction. Our Performance Coatings Group, where we're leaders globally in high-performance coatings for concrete and steel serving industry and infrastructure. Our Consumer Group, principally North America but also in the UK and Europe, really the drivers of unique niche platforms, serving consumes that revolutionize small project in North America and really had an incredibly run. But what happened there and now their efforts are part of this new MAP 2025 and what you will see is that we went from in North America in small project paint, patch repair in most of the categories were in 25 years ago. Market share is in the mid-teens to 20%. And through being innovative, new product introduction, delivering more opportunities to consumers to market shares that exceed 50%. And today, we are changing our approach in many ways to really create and drive the market and be more consumer, user focused, and we're really excited about what's happening there. And then lastly, our Specialty Products group. Still that traditional RPM model being a great home for entrepreneurial companies for a very different collection of independent companies. But this will also serve as an incubator for potential future platforms. I'll just give you 1 example. Our Mantrose-Haeuser business was the innovator of [ Nature Seal ]. It was a patented coatings for apples to have a [ water washing for apples ] that inhibited browning of apples, really revolutionized sliced apples. We are why you can get sliced apples in a bag in the store. We are why McDonald's can serve apple fries. That product went off patent, and we saw the resultant impact over the last 4 or 5 years. We've acquired some businesses. We've brought in new leadership, and we are integrating that business and it is the fastest-growing part of RPM team today. Organic growth, 20% higher, getting price where appropriate, driving incredible margin profitability. So the opportunity for us to create our specialty products through potential new platforms in the future is very exciting for us. Lastly, it is the power of RPM. It's an entrepreneurial approach to customers with leading brands, the innovation driving growth. It's today being center-led manufacturing and operations and administration in ways that really address that, we can do both in terms of [ internal ] approach to the market and operating efficiency. And lastly and most importantly, it is what we call the Value of 168. Operating with transparency, trust and respect in all that we do and the connections across all of our businesses. We have a proud track record of delivering for shareholders. An important part of that is our dividend. We've grown our dividend with a dividend increase of 5% approved by our Board yesterday and announced in our annual meeting 5%. It's a quarterly increase from $0.40 per share to $0.42 per share and for anybody paying attention on an annualized basis for at least 1 year, we will deliver to our shareholders, $1.68 per share cash dividend, that's an auspicious number for RPM. I want to conclude before I turn it over to Tim Kinser, just as a thank you to our associates. I think all of you have experienced the same thing in your businesses. The last 2 or 3 years have been extraordinary. And to put your head down to work through the COVID disruptions in our factories, in our plants, within our supply chain. The effort of our R&D people and our tech service people over the last 2 years literally in the face of supply chain challenges, reformulate and recertify 1,000s of products so that we can deliver products to the marketplace. The extra efforts and extra hours of coming, in off normal times of production because during normal time in any particular week, we had critical raw materials which just didn't show up. It's been an extraordinary period of time and 16,800 associates of our RPM around the globe are the ones who create our success. So I had the privilege of leading. As I said, as I turn it over to Tim Kinser, Paul Hoogenboom in front of his 400-plus roofing sales people a few years ago, and one of them says, what does the CEO do in a public company that makes him worth all the money he's paid and my answer was, I get to do yabba dabba and you guys get to do the do. So with that, let me turn it over to Tim Kinser, our VP of Operations, who has literally led a lot of the do in our successful 2020 MAP to Growth program, will be the principal leader in our new MAP 2025 program. Thank you, Tim.

Thank you, Frank, and good morning. I am Tim Kinser, I have been with RPM for 15 years, as Frank said, the first 11 were with DAP. And in 2018, at the start of our MAP to Growth initiatives, I came to the corporate office. I led the procurement workstream throughout MAP 2020. And this morning I had the privilege of being able to talk a little bit about our MAP 2025 plan. So I'm going to begin with a recap of MAP to Growth journey because it's very important as it ties through our MAP 2025 plan. So this is a slide from our Investor Day in November of 2018. And the part that I'm focusing here is the vision, where we set out to transform RPM into a more connected and efficient company focused on operational excellence and continuous improvement, while maintaining the strengths of the entrepreneurial culture. The structural changes that we made included adoption of the center led model for manufacturing, procurement and administration. At the end of our fiscal '21, we exceeded our targets on efficiency improvements that were within our control while delivering savings of $320 million versus our communicated target of $290 million. As we move forward, it's important to understand, I'll spend a few minutes on this, the activities that happened starting in March of 2020 with the first being the COVID lockdowns. This was a very significant event beyond just the lockdowns in that the oil and gas refineries ran at reduced rates for 9 months during this time frame due to less demand for gasoline and jet fuel. What this did was pull down feedstocks and led to very low inventories during this time. In mid-February of 2021, Winter Storm Uri hit the Gulf Coast, and it caused many critical petrochemical facilities to go off-line for months. This had a tremendous impact on the supply of feedstock materials and inventories, which were already very low due to refineries being down from the lockdowns. We also began to experience logistics challenges as ports become congested and the trucking industry became strained. In April of 2021, a major U.S. producer of alkyd resins and a key supplier of RPM suffered a catastrophic event that left alkyd resin significantly constrained in the U.S. And these events set the stage for extreme supply chain disruptions and unprecedented material inflation. And in February of this year, the Russian-Ukraine conflict began that has caused further uncertainty. The point of going through these is that through our MAP to Growth initiatives, RPM was well positioned to take this challenge on. We work closely with our suppliers, utilize our value engineering work to find alternative materials, in-source more materials than ever and collaborating across the companies to ensure that materials that were shortening were utilized in the most effective manner to minimize the impact to our customers and our shareholders. The macroeconomic and industry challenges I just covered has a material impact on our ability to meet our MAP 2020 financial goals in FY '21. These headwinds continued through fiscal year '22 and our markets were further challenged by worsening supply chain disruptions and inflation. Our consumer group was especially challenged, as the full effect of the alkyd resin shortages began to have serious impacts throughout the industry. It is worth pointing out that these financial results would have been significantly worse if not for the contributions from the operating efficiency improvements that I've covered earlier from MAP to Growth. Beyond the operating efficiencies of MAP to Growth, we've laid a foundation for continued success. A critical activity continue to support our continued success has been the work to consolidate our ERPs to 4 common platforms from the 75 instances we had in fiscal year 2018. This has allowed development and implementation of RPM wide systems and better data analytics that will be key to our MAP 2025 initiatives. We've been working on optimizing our footprint and consolidating our accounting locations to drive further efficiencies. We have repurchased $633 million of stock and adopted an improved goal setting methodology that allows for better long-term planning. And as previously mentioned, we have greatly increased our in-sourcing to address supply issues and better utilization of our assets. Perhaps the most significant benefit of our MAP to Growth effort has been an enhanced collaboration and coordination across the RPM companies. The picture shown here is our 4 group Presidents, Paul Hoogenboom from our Construction Products group who you will hear from shortly; Dave Dennsteadt from our Performance Coatings Group; Bill Spaulding from our consumer group and Ronnie Holman from our Specialty Products Group. These 4 are the leaders that champion the intercompany interactions that we call Connections Creating Value. We have instilled a culture that allows for the successful implementation of global shared service centers, RPM-wide systems and incentives that encourage collaboration. An excellent example of RPM's collaborative mindset is the purchase last year of the Corsicana, Texas Chemical facility. This facility is managed by the Construction Products group, but all 4 RPM segments utilize materials produced at Corsicana. In fact, the primary beneficiary of the Construction Products Group plant is the Consumer Group as the facility has developed the ability to produce alkyd resins to help us offset the loss of the industry supplier, I spoke of earlier. This level of cooperation and collaboration positions RPM well as we move forward into MAP 2025. Just as we start, as I stated in our MAP to Growth vision statement, RPM has transformed into a more connected and efficient company. We exceeded our operating efficiency targets and the enhanced collaboration and coordination throughout RPM not only helped us navigate the macroeconomic headwinds of the last several years, it has positioned us well for future success. Our view of MAP 2020 is that its completion was a milestone and not the finish line. We have not stopped our continuous improvement activities, and we have the resources, systems and very importantly, the culture to position for sustained profitable growth. And now a shift to where we are going. In 2018, when we launched MAP to Growth, MAP was an acronym for margin accelerate plan. Throughout the growth, we have successfully built a structure to accelerate our margins. As we launch MAP 2025, MAP is now an acronym for margin achievement plan, and the margin we are most focused on achieving is a 16% EBIT margin. This slide summarizes our MAP 2025 goals. We plan to grow our revenue to $8.5 billion. And as I mentioned on the previous slide, our focus is on achieving a 16% EBIT margin. We believe that most of the improvements driving the achievement of our EBIT goal will be reflected in cost of goods sold, thus achieving a gross margin of 42% that will be critical to our success. Similar to our MAP 2020, these goals are on a run rate basis to be fully realized in fiscal year '26. Our revenue growth was developed using a bottoms-up forecast from our operating companies and totals up from a 5% CAGR for core gross revenue. We also expect revenue growth through strategic investments that the operating companies are pursuing as well as a new workstream from MAP 2025 called CS-168 where we will be implementing systems to drive commercial excellence. A few examples of the many strategic investments we are planning include Carboline diversifying their end markets, CPG driving the market through solutions to building efficiency and investment that our Specialty Product Group is making in Greensboro, North Carolina, to create an RPM coatings center of excellence that all of our operating groups will participate in. In addition, we expect to add $250 million of revenue from mergers and acquisitions. And lastly, our MAP 2025 assumes modest GDP growth. On this slide, we show the workstreams that will be the significant drivers of growth -- the gross margin improvement of MAP 2025 plan. We plan to continue expansion of improvements in both manufacturing and procurement. And with the newly added commercial workstream also on this page. For the manufacturing workstream, we'll be expanding our very successful management system or MS-168 into additional facilities. We will continue to look for opportunities to optimize our footprint and use new approaches to plan efficiencies such as AI and Internet of Things that we have started activities on. In procurement, we will continue to expand our strategic supplier relationships which has proven advantageous for both our suppliers and RPM. We have also made investments in the procurement team to support expansion to additional categories. With our baseline of fiscal year '22 being near a cycle high, we do expect costs to return to a more historic normal during MAP 2025. So our planning does include a benefit from commodity cycle recovery. As I previously mentioned, the plan for us newest workstream CS-168 is to implement systems to drive commercial excellence through use of data analytics to receive appropriate value for the differentiated value our products deliver and increase the overall effectiveness of sales force. Similar to MAP 2020, we have broken out the workstream savings into waves with Wave 1 being our fiscal year '23 and targeting savings of $120 million of improvements. Wave 2 is our fiscal year '24, and we will be adding an additional $160 million of improvements and Wave 3 our fiscal year '25 with targeted improvements of $185 million. As we reported on our earnings call earlier this week, we are off to a very good start with $30 million of savings realized in our first quarter of fiscal year '23. On the EBIT bridge, we break out contribution from organic sales, mergers and acquisitions and the MAP workstreams, which, as you can see, is the most significant contributor to our EBIT improvement. We have also included offsets for SG&A inflation we expect to incur through MAP 2025. This is something we did not include in our MAP to Growth plan for MAP 2020. This shows our goals versus our baseline of fiscal year '22. Our targets include growing our revenue to $8.5 billion, as I covered, an increase in our gross margin of 42% largely through the benefits of the MAP workstreams. The SG&A increase is to support our strategic growth revenue and SG&A inflation. The EBIT is being driven by the improvements in gross margin as well as contributions from our revenue growth. And lastly, I just wanted to comment a little bit. We have been and continue to experience an extremely volatile, uncertain, complex and ambiguous time. As a result of this, there are factors that are outside of our control that could lead us achieving our plan faster or slower. Some factors that could negatively impact the timing of achieving our plan, include a global energy crisis, a prolonged recession or strong U.S. dollar. On the upside, accelerated mergers and acquisitions, a larger commodity cycle recovery or strong GDP growth could all lead to achieving our plan sooner. Thank you for your time. And I will now turn it over to the Rusty Gordon to do the capital [ webinar ].

Thanks, Tim. I'm Rusty Gordon. I worked at RPM for 28 years, the last 10 years as CFO. I would be brief today. So the first slide I have talks about capital allocation at RPM. And our number priority, as I put it, is to protect the [ house ] to make sure we maintain investment grade rating, so RPM can access capital markets in all economic cycles to do acquisitions year in and year out. When we talk about capital allocation today, as you're aware, the prices for acquisitions has been very inflated, very high multiples. And for those of you who read the financial press, you probably know that for public companies the batting average is not so great on the acquisitions and a lot of the problem is overpaying for acquisitions. And at RPM, that low batting average is not our experience. We have a very high batting average because we have a lot of discipline. And we tend to avoid some of those crazy multiples you might read about. And we're going to be really emphasizing internal growth and favoring that versus acquisition. We have a lot of great opportunities that you'll see some today related to high-performance buildings. That's something Tremco specializes in. We talk about building a center of excellence for coatings. We see a big opportunity to diversify our Carboline business outside of their oil and gas niche specialty and the same with OEM coatings. In our Consumer division, we have consistently grown Rust-Oleum to cover more surfaces year in, year out, we're going to be -- as we resolve supply chain issues getting back to finding more growth opportunity for that business as well as the cleaner business, we've expanded there, and that's a nice platform. So plenty of ideas for internal growth. And when it comes to capital allocation, you'll see more funding for those initiatives. Also on the slide, we talk about our dividend increases. We have growing dividend that's been valued by our shareholders. And that dividend is a great way for RPM to return capital because it's a nice match for the steady cash flows that we generate being a maintenance-driven business. So that's worked well for us. And share repurchases is something we've picked up a bit since we entered the MAP program in 2018. We're going to continue to do it at a minimum to offset dilution and we will do more share repurchase when the opportunity exists. The last slide I have today is to talk about our debt structure. And this shows our debt maturities for the bonds and credit facilities that RPM uses to fund our growth. One comment I'll make is, as we got to the end of the last calendar year 2021, we saw some signs that credit markets were probably not going to get much better and more likely to get worse, so we did 2 things. First thing we did was early in January, we prefunded a bond maturity that matures next month, you could see that on this chart, the 2022 $300 million bond. We prefunded that with an issuance back in early January of 2.95% because we did see the interest rates were more likely to go up not down at that point. Second thing we did was that we had a term loan and revolving credit facility that was set to mature in 2023, and there was a lot of talk about recession in 2023, so we thought we should get ahead of that and we amended those facilities this past summer to push those maturities out, as you can see on this slide to 2025 and 2027. So the end result of this, as you can see, most of our maturities are long out, we have a duration of 13 years. Average interest rate are on our fixed debt of a little over 4%, which actually isn't too far from where 10-year treasury was at least a week or so ago. So we're in good shape there. We do have some floating rate debt, but as our cash flow improves, as we get through the supply chain mess, our hope is that we will be able to have some cash available to pay off some of those floating rate instruments. So with that, I will turn it over to Tracy Crandall. Tracy?

Hi. I'm Tracy Crandall. I'm the RPM Vice President of Compliance and Sustainability, and I am also the Associate General Counsel. I've been with RPM for 13 years, and I have been leading our sustainability program for the last year. At RPM, we call our sustainability program Building a Better World. And based on our materiality assessment, we focus on people, products, processes and of course governance. For 75 years, RPM has valued and respected our place in the world as a steward of the environment. Our Building a Better World program represents our ongoing commitment to create a sustainable future founded on our values of transparency, trust and respect. In recent years, we have doubled down on our commitment by implementing new data-driven systems and processes across our decentralized operations to bring good practices together with this more center-led strategic approach to sustainability topics. Our initiatives prioritize areas where we can make the biggest impact. For example, this includes efforts to recruit diverse candidates, reduce water usage and to design communications programs to engage and excite our employees about our sustainability efforts by showcasing the great work that they have done and continue to do to make our business and products more sustainable. As you will have likely seen, we reduced -- we released our 2021 Sustainability Report in August. In the report, we tracked our -- I'm sorry. In it we report on our track record of sustainable product development achievements, operations advancement, contributing to increased energy efficiency and reduced greenhouse gas emissions as well as our diversity and inclusion programming. We also explained our Building a Better World program and strategic approach, highlighted sustainability strategies and detailed our 2025 calendar goals. We are proud of the work achieved by our companies and associates to date but recognize there is more work to do and are focused on using the Building a Better World program to take us to the next level in our sustainability journey. As I have said, Building a Better World is our commitment to building a sustainable future, and we have organized our program into 3 pillars. Our product focuses on the energy efficiency advantages of the products that we make as well as the impact the ingredients our products have on people and the environment. For example, we're looking at green chemistry and sustainable packaging alternatives. Our people addressing diversity inclusion, health and safety and training and development and our processes focusing on the impacts of our operations path, on the environment and climate change, we sit on our long-standing foundation of good governance and ethical practices through which we emphasize our core values of transparency, trust and respect. I'll walk for each pillar in more detail. But first, let me highlight our 2025 calendar sustainability goals that we released in our report. Using 2021 as a baseline year, our calendar 2025 sustainability goals are to reduce Scope 1 and Scope 2 greenhouse gas emissions from our facilities by 20% per ton of production and energy consumed in our facilities by 10% per ton of production. To reduce waste to landfill by 10% and increased recycling by 20% both per ton of production from our facilities and finally, to identify and implement additional opportunities for water reuse and conservation and collaborate with our suppliers to do the same. Products and people-focused goals will follow as we continue to develop initiatives as we gather and analyze data in the coming years to improve product profiles and associated experiences. And back to our pillars. As part of our product pillar, we work proactively to improve sustainability in our product formulations and in our packaging. With our product lines, customers can promote energy efficiency, reduce landfill waste, extend the useful life of renewed and reused products and support the use of bio-based and recycle materials. Our sustainability report showcases many of our sustainably advantaged products include that are on the slide. To highlight, Tremco CPG creates full roof coating products such as the AlphaGuard line, some products of which are biobased and carry USDA BioPreferred label. These products reduce the heat island effect and enhance the ability of buildings to regulate temperature, leading to greater energy efficiency and reduced greenhouse gas emissions from the building. These products also restore roofs, thus avoiding tons of landfill waste because the old roofs remain in place and it is simply over coated. Our [ daily ] success as the company depends on having a diverse and rich and engaged team of [ people ] pillars. People who find purpose in their work. This is a long-standing mindset and an essential component of the RPM entrepreneurial spirit. As part of our people pillar, we embrace the ways our associates are different and strive to create a work environment where our associates feel included, invested in, and supported in their work and their community contributions. Frankly, we could not take on the challenge of building a better world without the committed RPM associates around the globe, who we involve in our sustainability efforts in a variety of different ways. We are also focused on adapting to matters affecting and things valued by our rapidly changing workforce. And we develop benefits offerings designed to support associates' mental, emotional and physical well-being. For example, we've recently redesigned our infertility benefits to better serve women without partners, same sex couples and women who are later in childbearing years. And we look for ways to offer learning opportunities for our associates to meet continuing training needs, stimulate personal growth and development and advance in their roles. In fact, in response to our first employee engagement survey earlier this year, we are investing in an exciting new online training and development service offering. Our MS-168 manufacturing system is the foundation for many process improvement efforts associated with MAP to Growth and it is critical to the achievement of our 2025 Building A Better World sustainability goals. This program has been implemented at 40 plants and is being rolled out at more facilities each year. It empowers our associates to maximize efficiency, to minimalize waste in our facilities. Reducing waste ultimately improves the quality of our products and increases the overall operational efficiency in our facilities, thus reducing rehouse gas emissions and use of natural resources. We take climate risk seriously as we decide how to spend capital, where to expand our operations. In 2021, we conducted a review of our manufacturing and distribution centers to assess total water withdrawn, water consumed and facilities located in regions with high or extremely high water stress to guy capital expenditure and operational decision making. Through our center-led Environmental Health and Safety Program, we conduct audits, we deliver training, develop safety policies and create goals to address areas for improvement for the safety and health of our employee base. Since 2015, we have closed 31 outdated energy intensive plants as part of our to MAP to Growth program. As the consolidated locations have become more operationally efficient, we significantly reduced greenhouse gas emissions, energy and water use. We have limited data from 2015 but based on our estimates, we believe that compared to 2021 on per ton of production basis, we reduced greenhouse gas emissions by a fabulous 40% approximately and water by approximately an astounding 60%, a testament to the value of the MS-168 program to our sustainability success and to facilitating the achievement of our Building a Better World 2025 goals. Our foundation of good governance is built on Board of Directors that is engaged in environmental, social and governance issues and provide guidance to our cross-functional Building a Better World oversight committee, which I do. We have had women leaders on our board for over 30 years and recently added sustainability experience from 2 new directors, Julie Lagacy, Chief Sustainability and Strategy Officer of Caterpillar Inc; Elizabeth Whited, Executive Vice President, Sustainability and Strategy of Union Pacific corporation. General Ellen Pawlikowski, our most recently appointed Director, brings a wealth of executive leadership experience as a result of her role as a 4-star general in the U.S. Air Force. Governance and our culture of transparency, trust and respect is reinforced throughout our organization through our code of conduct and through our Ethics and Compliance rating program that focuses on all employees including management. As I stated earlier, we are proud of the accomplishments to date associated with our Building a Better World program and look forward to continuing to build a better world as we develop new initiatives and targets and meet our 2025 sustainability goals. As we look to the future, we are excited about our prospects to stimulate engagement and drive change throughout our organization, given this center-led sustainability approach, our energy around our Building a Better World program and our Board support. We are committed to being good corporate stewards with our products for our people and through our processes for the benefit of the environment. We are prioritizing a number of different areas for future progress, some of which are highlighted on this slide, like the development of a renewable energy strategy and additional goals, as I said earlier. I'm excited and honored to lead RPM in its Building a Better World program. And on behalf of RPM and our committed associates, I think for supporting our commitment to build a better world. I will now turn the presentation over to Paul Hoogenboom president of our Construction Products group.

Thanks, Tracy. As Frank mentioned, I've spent 10 years with the Construction Products group, and we'll share a little bit today with you about that journey. 2016, Frank approached me in what had to date at that point, a highly fragmented, highly volatile all over the world approach to building construction materials and said, "do we want to form this global group and pursue that as a strategy? " and then I said "yes," and then Frank and I took about 3 years to put all that together. We unveiled that in July of 2019. So strategic realignment to drive both in efficiencies, was sort of the tagline back then. And the group is really structured around 2 fundamental areas, it has built and new building construction environment, air moisture and thermal management as well as all the flooring in the building that will be seamless, fire protection both active and passive for anything in the building and any of the concrete. And then on the other side, anything to do with infrastructure that is either about concrete or concrete protection. So since the group was put together as a reportable segment, you can see that the performance has been solid. And as Frank noted, we've been in a very, very challenged environment, but we've done a nice job at being able to leverage gross sales, get that to the bottom line on the EBIT side as well as improve our EBIT percent, so a very good start for us there. The key part of the change is historically, what had been independent, really company-based, generally based upon when they were acquired and then within the geographies they were acquired, we went through a global brand strategy. We have 9 of those. I'll walk you through all. We will see a number of those in my examples and later on when we approach the test wall. And then 2 brands which remain regional; one Viapol, which is a very strong brand in Brazil, a very exciting market for us, and the other's Key Resin, which is very good flooring brand just here in North America. And then again, the key markets we serve, as mentioned, is really any of the buildings both as built or already existing and new construction. And then any of the key infrastructure assets and you can see these sort of list, the usual stuff that's there on the right. So before I talk about our group's theory of competition, I want to talk about RPM's theory of competition. And 1947 is the founding of RPM. And you see the lone wolf there, very much a strategy of highly decentralized entrepreneurial structure. Frank always shares, a great, great story of this grandfather with his field sales team out there who had that decision-making authority local -- keep it close to the customer. And Frank I always remember that you educated us that for your father -- for your grandfather, the customer was the salespeople, but not the actual end customer. They were served by a field sales organization. So I get up every day maniacally focused on maintaining this decision-making as close to the customer as possible. It's a key tenet that's really helped us outgrow the market by a turn or 2 over our entire history. But when the MAP program got unveiled in Baltimore in November of 2018, it really was saying, okay, there's inherent amount of operating inefficiency when you're that decentralized, could we work together as one monolithic team and gain all that operating efficiency of a highly integrated company. And of course, Tim presented on that MAP 2025, our second iteration. And that's really for me the concept of the wolf pack, right, where if you're familiar with the social dynamics of the wolf pack. Wolf pack is where the strong look out for those who are less strong. And I think that's very much a key theme for what we do as RPM from a theory of competition. And that's certainly what we tried to do within our group as part of that strategy. So now I'm going to shift to the -- our group's theory of competition. So when we got together in 2016, to say, "Okay, what's going to make us unique and different in the marketplace?" We realized that we were very, very successful when we created and drove the market. And that's a pretty, I think, audacious or bold statement. It's not serving the market, we said we will create and drive it. And I will share some examples with you today both in this presentation and later on at our test wall that gives you of how we do that. But really 3 tenets to that is platforms, good platforms make it easy to do good hard things. IPP is an organization that was founded by Peter Diamandis of XPRIZE fame out there, a private flight to space. If you do a little bit of research on him, yet an incredibly dynamic individual. So whenever we're struggling, I always go back to saying, "Either we're not connected properly with the platform, there's a platform issue or outside of that." And I'll share with you on the next slide what that platform strategy looks like. Solving unique problems. CPG wins when we solve unique problems. PGH, that's me. That's what -- those are my initials. But I have stolen that from a number of other people, so that's my own paraphrasing of that. We get up every day and looking to solve unique problems that nobody else has been able to solve. And for me, the more difficult the problem, probably the bigger the prize, and off we go. And so that's sort of a key tenet in terms of what we focus on. And of course, if you can solve a unique problem, that is the core foundation of how you create a new market then based on that solution. And the last, the new scientific truth. I'll read this. The new scientific truth does not triumph by convincing its opponents, making them see the light, but rather because his opponents eventually died and a new generation grows up that is familiar with it. It's been commented to me, that's Max Planck, a famous physicist, that, that's a rather dark quote. But it's appropriate for building construction materials which are very, very slow to change. So if you're going to create and drive the market, it's a generational experience. It's a 20-year journey. Many of the things that we've done -- Frank referenced Alumanation 301, that's a roof restoration coating 1947, right? The roof restoration market, which we're a primary driver of, it really didn't gain momentum until we focused on it in 2013. If you do the math, that's not 1 generation, Frank, that's 3 or 4, right? So you have to have the persistence to see that through. If you think of the market as a hockey stick, you live on the blade, a torturously long time before you get the benefits of getting up on the stick. So again, that's a key theme. When we go and create and drive the market, it's a 20-year view. And we'll share some things, again, at the test wall with you that many of those go back 20, 30 or 40 years, and we're just now gaining momentum in the marketplace. So this is what the -- what that platform approach looks like. When we got together in 2016, this pyramid was inverted, and really all the power was at a regional vision platform level in order to serve the customer. Now all the power and how we're structured sits within our 12 platforms. I'll share a few of these platforms with you today. And then everything else is subordinate to that operationally, our field sales organization, our channels to market and then again, our regions. So I think we're very uniquely structured in the marketplace that these technology platforms are really the dominant driver, the key organizing strategic principle of the group. So this is the first example that I'll touch on. On the right you macro trends. So these trends will appear on each subsequent slides. So I'll just cover these real quick, and then I'll get to the specifics of the slide. So labor shortage, that's not new to anybody. We had a chronic labor shortage long before COVID, and COVID really just absolutely amplified that for us. And that's really in all aspects of building construction materials, less feet in the street. Our competition is continuing to cut their SG&A, we're going in the opposite direction. We are getting more and more SG&A efficient. So I would say for every $1 of efficiency, $0.50 goes to the house and $0.50 goes into putting more feet in the street. So that's a dominant trend out there. We very often hear they only ever see us in the market, they don't see anybody else. Unmaintainable buildings. The building you're in probably doesn't have a manual that says -- what do you do, on your car, when the windshield wiper wears out? You don't replace the car. You replace the wiper. Your buildings aren't typically built that way. So we're in this massive as-built environment. None of them was built to be maintained, so that's a huge opportunity for us. Zero landfill. Of course, that's very prevalent today, and everybody is aware of the reasons we don't want to put things in landfill, certainly a primary area of methane. And I think just burying our waste is not a very great solution. Energy efficiency is becoming -- a heightened awareness of that, of course, all the time. Indoor air quality, we're very aware of that because of COVID. But indoor air quality is a lot more than that. It's occupant comfort, and occupant comfort really enhances whether it's at school, your learning ability or your ability to work or just your ability to be comfortable with your family. So there's a lot there about occupant comfort and lead with safety. There's 2 sides to that. We inherently want a safer workforce, our own workforce or our customers' workforce, but there also is a whole trend in the industry to where people don't want to work in dangerous activities. So you're seeing a great difficulty in -- especially in today's labor shortage, getting people to go into more difficult trades. So a big competitive advantage for us is if our processes and systems and so on are inherently more safe, that's going to make it more competitively compelling. Internet of Things, monitoring diagnostics, that's, of course, well known to all of you there. Diagnostics, we're probably the leader in all of the different aspects of the building and infrastructure and our own ability to do diagnostics. If the core strategy you have is restoration, you better be able to diagnose what you're restoring because you're essentially taking ownership of that structure once you restore it. The chief procurement officer, I -- there's a rule of thumb I use right now that probably 1/3 of all buying decisions are made by people like Tim. And they're cheap. They're procurement professionals. The old days of selling to the engineer your features and benefits, I think, are getting more and more difficult. So how do we bring value to a chief procurement officer and that's a very different conversation than, oh, my product or systems are better to solve this problem. Method to buy, you see there. So again, the chief procurement officers went off and dictated to us, "I want to buy it this way," and so we need to be able to sell to them that way. Climate change volatility, there's a few key things here. First, it's a lot of construction practices require what I call good weather or a series of days of good weather, that's getting harder and harder to do. So if you have construction methods that don't require good weather, that you can do in any sort of inclement or cold weather, you gain an advantage. Or if you can operate in very short windows. If the restoration process takes an hour or 2 versus 3 to 5 days, then you can work in situations traditionally where you couldn't. And of course, we're also getting more severe weather events, and particularly because this entire as-built environment, both infrastructure and buildings, is more and more dense, right? So the level of destruction gets higher and higher. So our ability to have very, very durable structures is becoming more and more compelling. Of course, Hurricane Ian brought that to mind again this past week. And thermal stability and harmony. There are 2 things that fundamentally attack structure, both infrastructure and buildings, is UV from the sun and its thermal movement and expansion. So the ability to control that, the best building or structure is completely thermally stable. And certainly, if you're going to restore something, whatever you restore has to be in harmony with the movement of that structure, right? So I'll get to the specific example. I think this is the most famous roof in all of Cleveland. This is our Quicken Loans Arena downtown. And you see on the left, this says cost of neglect. So that roof, if it's run to failure, that's a $6.8 million cost for the Cavaliers organization. So our primary competitive approach in this market is asset management, eliminate running to failure. You can kind of see if you get earlier in the process, then you're much more cost-effective. We use an expression roofing, the existing roof you have is the last roof you'll ever need. So there's a prevailing thinking in the roofing industry, it's tear off and we'll replace. And we're about educating the owner about asset management. And then in that asset management approach, then bringing our product and systems to bear. [ The fluid applied ] roofing market in North America is approximately $800 million. That's 14% of roughly $5.5 billion to $6 billion of the low/no slope market. Notice it says 14%. Every year, that percent goes up 1% or 2%. We're the primary driver of that percentage going up and up, and we're certainly the primary player in that $796 million. So we're the ones creating and driving the market. If the market exists, how do we create? We're constantly bringing restoration solutions to the market for what was inherently not restorable. So this year, something we've been developing for 8 years is called AlphaGrade. The single-largest installed base of roofs out there is gravel-surfaced, built up roofs. They've inherently been unrestorable until our AlphaGrade system out there. And that's the big reason we had primary standing with many of the large enterprise customers out there. So that, in essence, creates a whole new restoration market for that roof type that didn't exist. On the other side, you see services is roughly 2x the size of the material market. We're the third-largest roofing contractor in North America. So back to the CPO, often somebody like Tim says, "I want one throat to choke. I don't want to buy from a manufacturer, have a contract, no pointing fingers at each other, who do I go to? So there's an increasing momentum in the marketplace of wanting to hold one party accountable. We're fairly unique in our ability to be held accountable on a national basis and even on a global basis. So we're big players on the right side of that equation. Okay. So we talked about one side of the building, let's talk about the next 4 sides. You see a before and after picture here. You see on the right side, the building that this before and after picture came from. So this is a good example of a building that probably got built in the 1970s, not built to be restored. And so on the left is something you see where they're trying to solve -- in that one interface, you see there's probably 7 or 8 different areas where you can get air or water intrusion, and they're trying to solve them with a sealant. You'll later on hear from Marcy Tyler, Director of Building Science. We love our sealants. But sealants can't solve a lot of problems. So in this case, the only way to solve something like that is with a gasket system. And you see that we have our range of solutions down below, right? There's a cliche that if all you have is a hammer, everything's a nail. So one of the things that's unique about us is we have all the different methods of restoration so we don't have any one particular system. There's a range of choices. And you see here, there's some scaffolding on that building. And I'll quickly kind of go through the macro trends here. Labor shortage. If you're typically -- we walk into a building like this, they've already been presented, what I call reskinning, right? So you basically have to scaffold and basically take off that facade one floor at a time. And so the labor -- the amount of labor to do that compared to a couple of people on a swing stage for a summer to redo this building, a dramatic difference, less feet in the street. Again, we have a very strong presence of being able to support this type of restoration out in the field. Unmaintainable buildings, this is -- we seek out the unsolved problem that says this building cannot be restored and cannot be maintained. How do we bring a system to the market to allow you to maintain that, right? So we seek that out. Zero landfill, nothing's going to go on the landfill once we restore this. Energy efficiency will dramatically improve because all that air moisture and thermal leakage going on in that interface will be eliminated. Indoor air quality will be dramatically improved. You cannot control indoor air quality unless you can stop all the leakage going on and keep all of the moisture out of the building. Lead with safety, this is a much safer -- people want to do this work because you're just on a nice swing stage, typically using to clean the windows as opposed to the scaffolding, much more dangerous work if you're to reskin that building. The chief procurement officer, again, method to buy, they'll dictate to us how you want to buy it, all of the different methods to buy, and we're very, very prevalent in and that's a big differentiator for us. Climate change volatility, you can do this work in -- on the rainiest day, on the windiest day, on the coldest day. You could do this work at minus 20 F. I wouldn't want to, right? I think that's a little cruel. But you can work in very cold or very hot temperatures and very wet, doesn't matter. And then again, the thermal stability, right, that this solution needs to move with this building. If you've ever been up pretty high in the building, you can feel sometimes movement is a feet, 2, 3 feet. So our systems and solutions need to be able to move with that. That's one of the key reasons a sealant won't work. All right. So we did 2 things on restoration. What about if we built new and didn't need to restore at all? So we're going to talk about insulating concrete forms here. That's our Nudura. You'll, again, see that at the test wall. It's a method of construction that we think is the strongest that's out there and incredibly energy-efficient. I'll share with you in this example what those numbers look like. Tremendous amount of comfort. That comfort is the combination of your comfort with the air that's around you but also the noise, the quietest way to build. And then more environmentally friendly from the life's -- from a cradle-to-create life cycle. As you heard Tracy talk about how we're trying to improve our own operations, we think this is the most environmentally friendly way to build. What you see here is a school, Richard Hill Elementary School in Kentucky. It was the first school in North America to be net zero. Not only was it net zero, after the first year, they got a check from the utility for $37,000. It was net positive, right? And that really created a real stir out there that said, "Hey, not only is this possible, we should expect that." And this is really the prevailing method of school construction throughout all of Kentucky. The cost is comparable to a conventional school. Again, I mentioned all that recognition. The photovoltaics that went up on that roof a school that is usually is about 3 football fields of photovoltaics, but because of using ICF, this was only 40,000 square feet. So you reduced that asset, capital asset cost by 75%. It is the facility in the town you go to for a -- when there's a tornado warning. It can withstand winds of over 250 miles an hour, so incredibly durable. In a learning environment, we all know the importance of natural daylight. So you'll see in this structure dozens of really large windows. It doesn't really inhibit that -- we could be a completely impervious is concrete structure, but that wouldn't be very people friendly. The design flexibility of this is unparalleled compared to conventional construction. So they have a highly suspended radius wall. It's a pretty unique design element. And this school is actually very close to the road. So the original school that was there, very noisy for the students. When you're in that building, it's absolutely whisper quiet. So back to the macro trends on the right across. We've covered the labor shortage. A very small crew can build this entire wall system compared to the large crew. There's also a speedy construction here, often 1 to 4 or 1 to 5, meaning what would take 4 or 5, 6 months to do, a small crew can do in 1 month, so great, speedy construction. Of course, I mentioned zero landfill because this building will last as long as you want it to. It's not going to degrade. Tremendous energy efficiency, I showed you the check they received. Indoor air quality because of its ability to inherently control the air moisture and thermal far better than conventional construction. Lead with safety, a much safer way to construct than traditional methods. Climate change and volatility, of course, being very, very durable, that's a good thing. But you can build this way no matter what the weather is, there are no inherent weather delays. And then the thermal stability or harmony, this is a 100% thermally stable building, doesn't contract and expand [ although a lot of concrete ]. Okay. I'm going to shift gears here. On my original branding slide, you have seen Tremco Power of One. And this is an example of one of our hospital customers. And it's an example of bringing things together across our entire group and all of RPM. So on this parking garage restoration, there will be Tremco, Willseal, where there are only 2 companies in the world that do to these wide joints, we'll cover with you that later when we do -- we host you, what's unique and special about us. Euclid, which is on the concrete side. Rust-Oleum for protecting metal. WTI, our own self-performed capability. In this case, that's what the customer wanted. And Fibergrate, which is a sister company for FRP composites on that parking garage. We also did the facade, that's Tremco and Dryvit for the finishes. Willseal, again, for the joints. WTI that is self-performed. And then roofing and HVAC restoration. So you've heard plenty about roofing, so we did that on a self-performed basis. Pure Air was a recent acquisition. So everything I told you about roof restoration, we are now pursuing on HVAC and air handling, right? That's a market 3x larger than roofing, all built on run to failure already on the roof. We've already persuaded the customer about the benefit of asset management, why not apply that to your air equipment. And so in this case, we did that for that hospital. And certainly, again, the benefit of no tenant disruption key for us, right, it needs to run 7/24. Legend Brands, that's an RPM sister company. You'll see later on about the importance of Legend Brands and doing roofing, right. And Fibergrate, again, on the composite side. So this the ability to bring all these different things together. Frank's question from 2016 brought to life with one project, with one customer, one hospital. So we talked about platforms within my group. I think it's often not well understood that RPM itself is a terrific platform. So I'll give you 3 quick examples of my -- about my group working with the others. The first one is on the CPO side is Tremco working with Rust-Oleum. And Rust-Oleum had a terrific relationship with Grainger. There's nobody better than Grainger working with chief procurement officers to optimize your MRO spend. So we went to be with Grainger to say, "We'd like to partner with you so you can bring value to the chief procurement officer in building restoration and building maintenance." So we have a big partnership with Ranger to do that today. Once we've learned how to do that, then we went to Dave Dennsteadt, who runs the Performance Coatings Group and said, "Well, your Carbolines, Stonhard and Fibergrate companies all have the same phenomenon we do, but how to work with these chief procurement officers. Why don't you come with us? We'll introduce you to Grainger, and we'll partner with you about how to get that up and running." The second example I have is Tremco primarily serves what I call the Tier 1 marketplace in terms of Tier 1 contractors and specified work, where there's Tier 2 and 3 and DIY. So we've really partnered with Rust-Oleum, who excels at DIY and 2-step distribution, for how we serve the Tier 2, Tier 3 and DIY marketplace. So a lot of exciting initiatives underway there. The third one, you see the word technology appear over and over. Legend Brands, we'll again show you later on when we host. Mantrose-Haeuser is in biomaterials. So we're doing a lot of work ourselves on biomaterials, and Mantrose-Haeuser has really educated us on that. DayGlo is a very, very sophisticated resin manufacturer. So a lot of our next-generation resins to solve problems that couldn't be solved come from DayGlo. You see that down there, Finishworks, which has a very interesting business model, which we are taking back in on terms of how we go to market, partnering with them. And then last but not least, Wood Finishes, who's a high-end player in wood finishes. And you see a lot of that -- those Wood Finishes parties are starting to show up in our own products. Who knew, right, that wood finishes would translate to roofing with some key breakthroughs there working with them as a partner. So in closing, I talked -- so far, if you listened to me, you'd think, oh, you're about selling products and systems. But earlier, I mentioned asset management, right? We really want to persuade people on asset management. If you buy into asset management, then you're going to be receptive to my restoration strategy. So in this case, what we're talking about here is fundamentally trying to raise up the industry, right, to better and better building and construction practices, build once, build right, maintained forever as opposed to run for fit, run to failure. And this is really a summary of us saying our whole emphasis about putting more and more feet to street, so we can really help everybody be present in the industry. We're very, very unique in being able to do that and invest in that on an ongoing basis. I'm going to turn it over to Frank for some concluding comments.

So I'm going to wrap up our prepared remarks, just to kind of summarize the things that we've been talking about. We threw the MAP program that developed a culture of collaboration, serving RPM, our customers and our shareholders exceedingly well. And we have been able to marry that entrepreneurial spirit, that's the hallmark of kind of our foundational success with operating efficiency, but there's a lot more work to do. We've got a strong balance sheet and a very disciplined capital allocation program and that will continue throughout the MAP and in the next few challenging years. Sustainability is an integral part of what we do and who we are. And RPM companies have been driving a building -- and Building a Better World for decades. But we have to get together and tell the RPM story, it's what society demands, better, and take all of that success of our businesses and coalesce it into an RPM approach to ESG. Tracy Crandall is really leading that effort, both across our businesses to drive those sustainability improvements, but also to better communicate the sustainability story that's been part of RPM for decades. And then lastly, I appreciate you all being here because you're going to get to touch and see more concretely with a tour in our Tremco Sealants facility some of the things that Paul previously talked about. So I wanted to thank Tracy and Tim and Paul for their presentations this morning. And we have about 25 minutes for any questions that you might have. If everyone just wants to raise their hand if they have a question, I'll come down with the microphone.

Mike Sison, Wells Fargo. Just 2 questions. When you think about the 5% organic growth -- it's been hard for anybody to grow 5% in the last couple of years. Can you maybe talk about how much of that is sort of the economy and what you can do on your own in terms of volume growth? And then just a follow-up, what type of free cash flow you would be able to generate over the next -- over this time frame?

Sure. So on the growth, when you look over the last 20-year period, our organic growth has been in the neighborhood of -- on an average basis, by 5.5% or 6%. So I don't think these numbers are certainly out of reach. It is organic growth, so it will be a mix of price and unit volume. Certainly, we're benefiting significantly from price this year. I think in Q1, up 17% -- or 15% -- about 15%. And so -- but we're anticipating that slowing down in the coming years. So we think the 5% organic growth numbers can be achieved. On the cash flow, allow us to address some of the cash flow dynamics. We have not put together for public disclosure the cash flow pieces of this yet. There are critical working capital goals internally and related to compensation about our MAP to Growth programs. Do you want to add to that, Rusty?

Can you hear me?

Yes.

Yes, when it comes to cash flow, our cash flow results have been poor because of the supply chain challenges. We've had to actually stock up when we can over the last 1.5 years just to be able to supply and granted, not supply at the fill rates we prefer to supply, so that's been a challenge for cash flow. But Tim, I know you've looked at the MAP goals in regards to working capital and cash flow, so I'll let you comment on that.

Yes. So our -- we have some -- working some targets around improving our working capital. We do expect to improve our working capital as a percent of net sales around 400 basis points. And it's going to be largely focused to better processes around our inventory as we right size our inventory coming out of all these supply chain challenges that we've had is going to be a key focus.

Kevin McCarthy, Vertical Research Partners. I have a 3-part question on your MAP program. First, as I look at the sources of savings, it seems as though the majority or perhaps a vast majority would hit the COGS line. Is there a portion that hits SG&A as well? And if so, how much cost savings can there -- be there? The second part would be, what is the cost to implement? And then third, obviously, price and raw material costs can wreak havoc or be a tremendous benefit on the gross margin line, as the case may be, as we've seen in recent years. So what are you assuming in the plan for price contributions and raw material costs there?

Okay. So Kevin -- is this on?

Yes, it's working.

Kevin, the first question again, please?

Any SG&A savings?

Okay. So our plan is we do expect to have some small amount of administration savings but it will not be material. Our -- we're making strategic investments into our product revenue, and we also have the normal SG&A inflation, so I did not call that out as a workstream. There still are some opportunities for consolidation around some of the accounting locations, but it will not be material in the overall MAP savings. I'm sorry. Next question?

Sorry. Yes, [ third one is -- one at a time ]. Cost to implement?

So on our cost to implement, we are currently looking at being less than $200 million with about half of that in CapEx.

I would just add to that, the original MAP program costs to implement was probably about $300 million. And the difference is we were able to consolidate and close 31 manufacturing facilities in 2020 MAP to Growth. While there will be some modest footprint reduction in 2025, we won't have the same level. And so that's the significant difference between $150 million and $200 million cost to achieve in this program versus the $300 million in the original MAP program.

And please, the third question?

And the third one was what are you baking in, in terms of assumptions for price increases versus raw material cost trends as it relates to the 42% gross margin?

So what we would expect, as I mentioned, is that we were near a cycle high in fiscal year '22. We have, obviously, been going out with price increases as we, reported 15% of our -- in Q1 was price. We are still behind on catching up. We actually had sequential inflation, as was discussed on the call in this first quarter. So right now, we haven't seen the peak of that. I do expect that sometime during this period of MAP 2025, that we would get back to a more historic normal. And we're just going to have to -- as we go through this, the continued inflation, we're going to have to continue to keep an eye on that, the increased prices [indiscernible].