Sealed Air Corporation (NYSE:SEE)
Analyst Day Conference
September 20, 2013 8:00 am ET
Jerome A. Peribere - Chief Executive Officer, President and Director
Karl R. Deily - Vice President and President of Food & Beverage Division
J. Ryan Flanagan - Vice President and President of Protective Package Division
Ilham Kadri - Vice President and President of The Institutional & Laundry Business Unit
Robert L. Tatterson - Chief Technology Officer and Vice President
Carol P. Lowe - Chief Financial Officer and Senior Vice President
Yagmur I. Sagnak - Vice President and President of Asia, Middle East, Africa & Turkey Region
Emile Z. Chammas - Chief Supply Chain Officer and Senior Vice President
George L. Staphos - BofA Merrill Lynch, Research Division
Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division
Thank you for joining us this morning, and please welcome Lori Chaitman.
Good morning, everyone, and welcome to the Sealed Air Analyst Day. I'm Lori Chaitman, Head of Investor Relations.
Before we begin, I'd like to go over a few housekeeping items. First, you've all seen the slide before, the Safe Harbor. I will not read this line by line, but I'd like to remind you that the statements made during this event stating management's outlook or predictions for the future are forward-looking statements. These statements are based solely on information that is now available to us.
Our future performance may differ due to a number of factors. Many of these factors are highlighted in our most recent annual report on Form 10-K and quarterly and current update. We also discussed financial measures that do not conform to U.S. GAAP. You can find additional related information on our website at sealedair.com. The slides for this presentation will be available on our website immediately following today's event.
I also want to run through the agenda for this morning. Jerome Peribere, our President and CEO, will provide opening comments. You will then hear a business overview from each of our division presidents and a review of our research and development efforts by Dr. Robert Tatterson. Carol Lowe, Senior Vice President and Chief Financial Officer, will be our final presenter before we have lunch and start our Q&A session. Once we conclude our Q&A session, we will spend time in our solutions showcase which is right here behind the white drapes.
With that, I'll turn the stage over to Jerome. Jerome?
Jerome A. Peribere
Good morning. Thank you, Lori. It's a great pleasure to be with you today. I'm very positively surprised to have all of you here, very pleased to welcome you in this venue. Some of you told me this morning that they saw the new older conference rooms in town. And apparently, this was not the case because this one is a new one and hopefully, it is one which is -- which was a meat packing plants, hopefully. So that's a good aura.
Many of you wanted this Analyst Day earlier in the year, and you were anxious to hear about what we are going to do in the next 3 years. Well, we're going to tell you much more than that. Besides running our operations, we have been extremely busy in addressing the strengths of this company and reinventing Sealed Air. That's what my colleagues and I will talk to you about today, taking the best of the legacy company, starting with these iconic brands and redirecting our future to become a knowledge-based great company, the great company it once was and nothing less than that. You will see 2016 numbers. But our eyes are focused on 2 recurring themes that you will hear about later today, which will guide our transformation into 2020.
I first want to share with you a little bit of how we got there. Sealed Air got its start in a 2-car garage in 1957 with the invention of Bubble Wrap. It started as a wallpaper, believe it or not, but it didn't catch on. But there was a market in greenhouse installation, and this was the first indication that sustainability would be woven into what the company is about. In fact, as the company continued to grow, Sealed Air declared in its 1973 annual report that, "Selection of packaging products which are more efficient are positive steps toward meeting all the 3 sides of the crucial triangle: Energy, environment and economy." And because the business model was focused, because it was crisp, the company performed very well and became the darling of Wall Street and the Harvard Business Review alike. Business schools across the country featured case studies on Sealed Air. But that was just the beginning.
Sealed Air expanded its capabilities into the food industry in the '80s. And with global population rising, the world was concerned about AIDS, about famine and about the environment. It was the beginning of a new era for food security, which led to the Cryovac acquisition in 1998 and tripled the size of the company while expanding capabilities and reach into over 52 countries at that time.
As you know, there were bumps in the road. And the 2000s were not good years for Sealed Air in some ways and investor confidence was dwindling. And in May of 2011, my predecessor announced the acquisition of Diversey. Whereas this move may have surprised many and certainly had its challenges, this acquisition reinforces our superiority and safety -- our superiority in food safety and food security, as well as in infection prevention, which are at the heart of our new vision and mission.
This means that our sustainability promise is no longer just about protection. It is about caring for people, caring for the industries we serve, caring for our communities and caring for our planet. It means Sealed Air will become the company that shapes a safer world through sustainable end-to-end solutions. So there you have it.
The company had all in the making of a great story. And as we continue to adapt to our bright future ahead, we cannot reach our goals by acting the way we have for the last 8, 10 or 12 years. We have to begin again with a deep feeling that if we reinvent ourselves, if we reengage our 25,000 employees in a new project which is obsessed with helping our customers increase their consumer experience, brand loyalty and productivity, we will create substantial new shareholder value and act as a startup again. It is now time for a new Sealed Air.
What you see here is a new banner, what symbolizes the new Sealed Air. The visible tip of the iceberg which confirms to our employees, to our customers and to our shareholders that we are becoming a resolutely modern, future-oriented, technology-based company. The revolution has started inside and there is no way back in this logo, and its tagline are the proof of the magnitude of the change.
Our new vision: Put sustainably at the core of why we exist. We have a responsibility to create the future. We are enabled by our portfolio and we empower our people. We are not a reactionary company. We lead, we create a better way. In this, we are always striving to innovate and improve. When we talk about a better way for life, we look to create a healthier, more sustainable future, one that benefits our employees, our customers and communities around the globe, and our mission provides further clarification.
We reimagine our customers' problems by turning them into opportunities. We reimagine the industries we serve. We reimagine on our own at every level, from every corner of our company, our solutions, our go-to markets to create a world which feels, which tastes and works better. And in order to make these happen, we need our employees who are engaged and working together with a common understanding of our values. So we crafted the new language.
Actually, how many companies have their core values simply hung on the walls in conference rooms here and there? We don't. They are referenced in meetings and in our conversations. We have asked every employees to be able to recite them by heart because they really are who we now are. Our core values guide us to deliver on our promise to reimagine and they are 4: Uncompromising ethics, because every day, we lead with a conscious commitment to always do the right thing; courageous determination, because we are empowered to do what it takes to deliver what we promised; ingenious collaboration, which is how we work, we nurture a collaborative environment that celebrates insatiable curiosity and diverse ideas; and finally, purposeful innovation, because we delight our customers with revolutionary solutions which make them win and we share in the value.
We also reframed the titles of our divisions to reinforce our vision to create a better way for life by being about care. This broader focus supports long-term flexibility and growth and conveys solution-based expertise and credibility. Food & Beverage is now Food Care. Today, this division accounts for approximately half of our sales and EBITDA. This portfolio is industry-leading. However, our approach to markets has fundamentally changed with the integration of Diversey hygiene business and caused new strategic direction as well, and you will hear about why we call it Food Care. Protective Packaging is now Product Care, which is 21% of our sales and 24% of our EBITDA. And Ryan will explain to you how he is turning this division upside down and changing this from a product-centric to a market-driven division. Institutional & Laundry, that was not really nice, is now Diversey Care, which is 28% of our sales and 19% of our EBITDA. And Ilham is taking Diversey Care into its basics of demonstrating the value it brings to its customers, committing to the sustainable improvement promises that we make and sharing the value created.
Collectively, our 3 divisions give us a great ability to deliver on our vision and mission by transforming sustainable end-to-end solutions into business-changing results. A company with all these needs a new identity. So I'm pleased to present to you our new Sealed Air brand mark, which we consider a resolutely modern expression of who we are and what we will become. Our tagline clearly states that we reimagine, words right out of our mission.
So let me draw your attention to the trilliant. A trilliant is a cut of a gemstone, nothing less than that. It expresses the multiple facets of a powerful, interconnected and forward-looking organization, and reminds us that everything we do is about sustainability, performance and cost competitiveness. I refer to this as the three-legged stool of our value proposition.
So when I joined Sealed Air in September of last year, I spent 3 months observing and assessing the organization. I divided my findings into 2 simple groups: Areas of excellence or things the company does well already and areas requiring improvement, things that the company did not do as well. In the areas of excellence category, I listed brand recognition, including Bubble Wrap, Cryovac, Diversey, TASKI, iconic brands in the field where they play. We are clearly the market leader in almost every market we serve. We have the broadest portfolio amongst our peers. With superior industry knowledge and we have the technological know-how, we have tremendous long-standing customer relationships with most, if not all, of the largest companies in the world, and strong talent inside the organization of 25,000 people.
As for the areas of needing, requiring improvement, we had an outdated Sealed Air corporate brand and image which needed to be modernized. We have years of uneven and inconsistent financial performance. We had a low level of employee engagement which did -- who did not understand our projects. We had a very volume-driven, product-focused sales strategy and the lack of marketing discipline. And there was a low-level of investor confidence among Wall Street investment community.
We have been working very hard to bring about change. And with that in mind, I started by building one of the strongest, if not the strongest, industry teams. First, I believe that leadership is about leading by example and engaging employees who -- the other ones who decide every day whether they want their company to succeed and to which extent they want them -- they wanted to succeed, every day.
We have been actively reengaging our employees through the new vision, mission and core values, through focus on execution, through a state-of-the-art intranet to communicate and engage in proximity with them, through transparency, through a clearly stated meritocracy as we modify our performance management, our leadership behaviors, our long-term incentives and our bonus structure. We have been realigning our cost structure. Our integration and optimization restructuring program will be completed by the end of 2014. And more recently, we started executing on our earnings quality program, which is expected to be completed by the end of 2015.
In addition to those 2 programs, we have been simplifying our organization and our portfolio through delayering. We have -- we are shifting from product-based to market-focused, and implementing new disciplines to drive through value-adding selling. We have implemented optimization tools, we have created marketing and sales excellence units. We have understanding of the -- an understanding of the value that we create to customers and aligned this to our incentive compensation.
We have been focusing on key financial metrics, productivity of resources through our ratio of expenses to gross profit ratio, quality of margin, of earnings and margin expansion and free cash flow. We are driving towards operational excellence. We are accelerating our lean programs, accelerating our plant closures program. We're doing warehouse consolidation, office optimization. And because all of these initiatives, I believe, we are regaining investors' confidence.
We are committed to positive progress starting from the top. That means having the right people in the right places to lead this transformation. So we have made tough choices and created a lean leadership team. We have 6 new additions to the team, highlighted in bold in -- by the blue circles in the screen. And I'd like to introduce our entire executive team and ask them to stand as I call their name. I'm sorry for those in the back, but they're all sitting here and maybe you're not going to see them all, but some of them will be presenting.
Karl Deily, our President of Food Care; Dr. Islam Kadri, President of Diversey Care; Ryan Flanagan, President of Product Care; Yagmur Sagnak, President of AMAT, Asia Pacific, Mid East, Africa and Turkey; Carol Lowe, CFO; Emile Chammas, Supply Chain and Manufacturing; Ruth Roper, Strategy and New Ventures; Dr. Robert Tatterson, our youngest in the team, CTO; Chip Cook, Customer Service and Marketing Excellence; Norm Finch, Legal; Carole De Mayo, HR; and Warren Goodman, Information Systems and Integration.
We have a well-rounded senior leadership team with extensive operational experience, half of which are in their 40s, by the way. And besides a strong gender diversity, we have at least 6 nationalities with 6 -- actually, if you count -- if you add 1 for the southerners in the U.S. And this is because we are a truly global company. We operate in 62 countries and we sell in over 175.
We have dedicated ourselves to financial and operational excellence. We have dedicated ourselves to improving the quality of the business today, tomorrow and over the long term. And to achieve these 2 objectives, we have launched 2 themes, simple, so everyone can remember them internally, but also externally: Get fit and change the game. Get fit and change the game is not a destination, it's a journey. Some initiatives began in 2012 and some will carry us into 2020.
Get fit includes completing the integration activities and realigning our cost structure. It means focusing on performance management, having monthly operational reviews and fact-based decision-making. It means improving our portfolio, establishing marketing discipline, revitalizing the R&D pipeline and implementing pricing analysis tools and also having a continuous improvement program, improving employee engagement and creating a one-company culture.
Changing the game includes having a culture of winning, includes having a company with faster decision-making processes and employees who are engaged, committed and empowered to deliver and learn from their mistakes. It means having highly differentiated solutions and purposeful innovation and aligns -- a portfolio aligned with our megatrends. It is about becoming a knowledge-based company that is selling solutions, not products, that is capturing the value and selling sustainability profitably.
So we have a plan which will continue to create shareholder value. We are changing the trend over the last decade of declining EBITDA margins. Our outlook for 2016 for adjusted EBITDA is $1.2 billion to $1.3 billion. This particular metric is just one of many examples of how we create shareholder value. We will create shareholder values in the years to come. The outlook we are providing today includes commitment that we are confident we will meet or exceed over the next 3 years. We have decided who we really are, a technology-based company truly obsessed with creating value for our customers and ourselves.
We have made tough decisions. We are implementing new operational and financial disciplines throughout the company around the world. And we recognize that we are managing through uncertain economic and political times. With that in mind, we are confident that we have the right strategic plans in place and believe our financial outlook is prudent. And you will hear more details on our plans from Karl, Ryan and Ilham and Bob. And then, Carol will provide you with what we have all -- you have all been waiting for, which is a full overview of our financial outlook.
And with that, I will now introduce Karl Deily, our President for Food Care. Karl?
Karl R. Deily
Thank you, Jerome. So good morning to everyone here and those joining us on the webcast. It's my pleasure to be with you here this morning.
As Ryan and I got up, leaving the hotel about 5:30 this morning, there was a gentleman unloading a truck and he had a trolley and he was loading boxes of boxed beef and pork onto this trolley to take in to the hotel. And I said, "That's the end of my presentation." Wholesome, branded product delivered safely with a shelf life to allow it to be produced in the middle of the country and delivered to provide ultimate customer satisfaction. So I could have just ended the presentation there, but Jerome, I don't think, would've been too happy with that. So I just want to start at the beginning of that value proposition.
As Jerome said, I'm Karl Deily, and I've had the opportunity to work for Sealed Air for over 32 years, and most of my experience has been on the food side of the business. So it's my pleasure to talk to you about the Food Care division today.
In the past, when I've spoken to the investment group here, we've been focused on our innovations and what innovations that we were rolling out to the market. I'm delighted to speak to you this morning about how we're reinventing or should I say, reimagining our division to drive to a higher level of performance.
Let me start by linking up our food vision to the corporate vision and mission. In Food Care, we have business which is centered on helping sustained healthy communities. We do this by ensuring the safety and quality of what people eat and drink. Our business creates innovative solutions that improve food safety and expand shelf life, while at the same time, we generate operational efficiencies for our customers and we enhance the consumer appeal of the products we package. In this process, we help build brands for our customers and we improve the ultimate customer experience.
Now let's look at this slide closer. We have -- and show you how we're going to execute our mission and vision and more specifically, why we will win. There are 6 enablers which are summarized here on this slide. And first and foremost, we believe that all of the megatrends that Jerome mentioned are tailwinds to the Food Care division. Food preservation, food safety, energy and water conservation are all at the core of the value proposition we've developed and becoming more important to the world every day, especially with the growing population and the increased population going into the middle class. And the Food Care division, we've always believed that we're more part of the industry, not just the supplier to the industry.
With over 60 years of presence in the market, we've developed an in-depth knowledge of our total value chain. And then as Jerome said, the acquisition of Diversey, especially with incorporation of the food and beverage hygiene capabilities into the Cryovac portfolio has enabled us to really round out our total value proposition, whether it's from the processor to the retailer to food service to the ultimate consumer, we know this market.
So what are we going to do different going forward? How are we going to approach the market differently? We are approaching the market differently by leveraging our experience, leveraging our knowledge and our differentiated products to deliver a higher level of value to our customers. And as our core values says, we will share in the value we create.
So let me take you a little bit further into our example and our value proposition in the next couple of slides and show you how we're going to deliver value, why we will win and showing you how we will win. Our division is uniquely positioned as the only supplier who can provide total end-to-end solutions for our customers. No one else in the market can engineer food and beverage processing plants from the ground up. With the most up-to-date hygiene technologies, select and produce high-performance packaging, dosing and dispensing equipment that will enhance and protect our customers' brands. And in doing so, reduce their downtime through service, training and even remote monitoring of their capabilities. In addition, we do this in a very operationally efficient manner by optimizing their water and their energy consumption.
So whether it's from livestock reception to the purchase of the final product by the consumer, we are the only supplier who can provide this fully integrated end-to-end solution. So I will remind you, we are the #1 provider of this farm to fork solution. This value proposition delivers measurable results for our partners by ensuring food safety, shelf life, operational efficiency and brand building, all to increase the customers' ultimate experience. Delivering this value proposition is why we're not just a plastic supplier nor a soap seller. We know the market and we know how to provide market solutions. And this is how we're changing our business model going forward. We're thinking differently. We are approaching the market differently. This is not just a statement, it's reality.
So I'd like to just look at the next slide to take a look at a recent example of the value proposition that we delivered with a multibillion customer in a developing market. As a result of our value proposition, we are recently awarded a contract, a multi-year contract worth over $35 million all at incremental revenue and a higher-than-market margin. And in the process, we also eliminated a hygiene and a packaging competitor.
So let's look at why we were awarded this business. Why did the customer not put the business out for bid? Why did they not by from the lowest-cost providers? All a good question. Now let me look and tell you why I believe we -- they -- we help them develop their business and why they selected us to do it. So in a developing geography, we were able to leverage not only the local resources, but also global expertise to execute a value proposition, starting from the plant design all the way to helping them format the finished package with every step in between.
So from providing [indiscernible] which is treating over 40 different breeding farms producing their livestock to providing dosing and dispensing equipment for direct food contact chemicals, thus enhancing food safety, to delivering advanced hygiene technologies to provide in-line cleaning for processing efficiencies, to engineering open plant cleaning technologies to main food -- to maintain food safety and also help increase their shelf life, to automating and integrating their packaging equipment, to minimize labor while also maximizing their output and their throughput, all providing operational efficiencies for the customer.
By delivering this array of packaging technologies also allowed them to enter the market and grow their brand and enhance the consumer experience for their product. So not only we're primal packaging, but also advanced case-ready technologies and even employing our latest innovation on ovenable materials so that they could provide a variety of formats to delight their customers with convenience and high-quality safe meats.
Our involvement has enabled them to meet the growing needs for safe foods in their local market, while at the same time, increasing their shelf life from 21 to 45 days while building a strong brand for their company. So we are the only single supplier that could have done this, and we established the benchmark for the market while we were doing it. So we are changing our approach and we're getting paid for it.
So as I started, so who else could do this? It's not a rhetorical question. It's Sealed Air. So we were the only ones and that's why they picked us.
So in the same manner, we generate significant value for many of our customers in the food and beverage industry across the globe. About 20% of our customers provide about 25% of our sales, and then we leverage our presence across a large range, from fresh meat to beverages, as we deliver -- as indicated in this slide. So we're privileged to work with the largest, the most profitable producers in the world, and they trust us to help protect their brand. They have confidence to award us this level of business. As a result, we deliver and provide food safety, shelf life extension, operational efficiency and brand building.
Our portfolio is wide enough to provide solutions for many end use markets, from both fresh red meat, as I said, through bret [ph] beverages. We have the capability to do this on a global scale which is unique to Cryovac. And then we passionately support our customers with a world-class sales force, customer service and technical support organization. This passionate commitment provides the proverbial win-win.
So now let's take a look at the business and environment that we are operating in. And I'll take a minute on this slide just to kind of explain where we are. Across the top, we have the markets we serve as well as the geographies we serve, and we have a variety of boxes at different colors. So we have a mix of geographies that vary from mature to emerging and a variety of geographies, as well as a variety of markets that we serve. All have a different growth dynamic. So in our forward-looking statements, as we project our growth into the future, we look at this and establish our strategies and tactics to grow in the markets.
This slide provides an indication of the growth trends that we foresee over the next 3 years as compared as to where we are today. So green indicates a higher growth over the next 3 years versus the -- our current experience and red denotes a lower growth and yellow is about the market's going to remain the same. So for example, under cattle production for North America, we have it green. It doesn't mean the market is going to grow, it means it's going to decline less than it has over the last 3 years. The North American cattle market has been declining about 3% and going forward, we expect it to decline less than 1%. So it's a positive trend going forward.
So now let's take another example on brewing and beverage. We expect in AMAT, the market to grow about 9% in consumption over the next 3 years. But it's red, that's because it's been growing faster than that currently. So we think it's going to slow down, but it's still going to have a positive growth. With this in mind, we'll be focusing on driving our strategies differently by the mature emerging markets. We'll be driving cost reduction and introduction of premium products in mature markets where overall growth is expected to be lower over the next 3 years. In the higher growth and emerging markets, our strategies are centered on investing to capture market growth and penetration of the market, while also introducing new products for growth.
So having talked about where we see the global markets going, let's look at where we are in those markets. As indicated here, we're definitely a geographically diverse business. We have no more than 40% of our business in any one geography. Today, North America is the largest and AMAT is the smallest. With the execution of our strategy, we are expecting growth in emerging markets to further improve the balance of our geography mix. We expect about 50% of our revenue growth in the next 3 years to come from emerging markets.
Turning to the market sectors, you see, we also have a very balanced portfolio, with 31% of our business being in fresh red meat. Our expectation is growing over the next 3 years that we'll only have minor changes in the mix. Okay?
So now let's turn to the competitive landscape. And we're looking at this a little bit differently. We're looking at the value proposition sectors we serve and the end-to-end solutions for our farm to fork value across the top, and then we're looking at a series of competitors down the vertical axis, okay, and these include material, equipment and hygiene competitors.
Given our global presence across the broad range of market sectors, as you would expect, we have a broad competitive landscape that we deal with on a daily basis. But the one thing that makes us unique and separates us from the rest of the pack is our ability to provide innovative solutions across a broad set of value propositions in an end-to-end manner and do it globally. We're unparalleled in this regard, and we are the only supplier who can literally do it all end-to-end and do it globally.
So Jerome has talked about getting fit in his introduction. So let me talk to you about the Food Care's efforts in this area which are significant. And they're going to enable us to execute our growth strategy while also extracting the maximum value for Sealed Air. This slide is an indication of how we are realigning our people, products and services to improve the quality of our business.
There are a few key elements I'd like you to remember as you go away today. We're streamlining our resources. We spend a lot of time over the last 18 months streamlining our global sales force, standardizing our span of control management metrics, developing a sales comp plan to drive for profit growth, not just volume growth, that's very important for profitable growth. And then we've developed KPIs so we can measure our progress along the way.
We're optimizing our portfolio, we're rationalizing our product offer and we're offering -- or pruning SKUs, we're pruning products and we're even pruning customers that are dilutive to our goals. But we're also investing in the areas that are in line with our goals. This is a real behavior change. And in addition, we've been working very closely with supply chain to optimize our processes.
We're continuing our footprint optimization, we're employing new tools to increase further productivity and we're investing where we see growth for the future. We're driving incremental profit through excellence of pricing, which is another key focus for us as pricing excellence. We're employing marketing plans also that would drive for improvement in both value and premium segments, not just for driving volume. We're also generating incremental revenue through improved equipment profitability, as well as increasing our selling of service.
As you can see, we're undertaking a number of programs which will result in reduced complexity of our operations, increased efficiency and effectiveness and in the process, generate a higher level of return. We expect that these efforts will provide about 1/3 of our EBITDA improvement going forward. So again, they're key to our plan. It's not just about cost-cutting though, we're also investing for the future. Our plan involves targeted investments to improve the quality of our business.
As shown on this slide, we are investing in new innovative products and technologies to drive higher margins and synergy sales. We're also building out our portfolio to fill any gaps to increase the breadth of our offer and further underpin our value proposition. We're also driving sustainable long-term growth. We're targeting investments in the higher growth geographies. We're also focusing on creating centers of excellence around industry expertise so we can generate revenue streams from not only what we do or what we make, but what we know. These new innovative solutions will provide about 30% of our revenue growth.
So let's just take a quick look at what we're doing with some of our portfolios. This slide denotes a few of our key portfolios with sales and profitability on the axises. So in the previous 2 slides, we spent time discussing the portfolio on how optimizing and filling gaps and investing for the future to allow for accelerated profitable growth. I'll now give you a more concrete example on where we're going with the portfolio.
So as I said, we have sales and profitability. We have several categories on the chart, but I'm going to focus my attention on the bags bubble, almost in the middle. The arrows indicate the growth and profitability direction that we're taking the bubble. So the bubble size also denotes the market size. So let's look at this segment and -- to represent how we're evolving our portfolio. In this business, we're driving increased sales and profitability through basically 3 initiatives. We're constantly looking at SKUs and in one example, we were able to reduce 14 extrusion formulas down to 2, which provided a 10% margin improvement.
Concurrently, we're also driving for innovation and investing in innovation and recently introduced a Grip & Tear bag that you'll see in the trade show later that allowed us to drive for higher margins and growth with the easy-open feature for worker efficiency and consumer confidence. Third part is we're investing this technology to drive higher-margin sales. We're also targeting our base capital investment to put the capital where the market's growing. We're investing capital in Latin America and Eastern Europe where the market's undergoing significant expansion.
So in this slide, we look at a large part of our get fit program, so also cultural changes, as Jerome had stated. So on this slide, we have our delineation between some of our past practices and the new disciplines we're currently instilling. Our new emphasis on selling value and driving EBITDA as opposed to just the value orientation is probably the biggest mindset change that we're undergoing in our division, making it a key takeaway from this slide. So we're making it clear to our vision -- our division that we used to be focused on volume growth. We're now focused on getting fit and then driving for profitable growth. At the same time, we're also implementing consistency of approach and a common set of tools to drive the outcome that we want.
As we've discussed, after getting fit, we have a focus on how we're going to reinvent ourselves and how we're going to evaluate how we can build more value into our value proposition in a manner that allow us to grow at an accelerated EBITDA level. In assessing the market opportunity and identifying the areas of potential, we've targeted food safety, food waste reduction and system integration and efficiencies as key opportunities for further revenue growth at higher EBITDA levels. We're focusing in on areas that are ripe for value solutions that have the opportunity, as I said, to accelerate our EBITDA growth. Some examples of these opportunities are given on this slide.
Key areas are yield improvement, reducing the food safety exposure for our customers, minimizing food waste through the whole value chain distribution process. Additional profit generation can also be driven by providing consultive services and even managing data that are generated by the smarter systems we're developing and putting into the supply chain. We believe that we have the ability to generate 300 to 500 extra basis points in margin as an increased revenue in our existing markets as we implement these strategies.
Now I'd like to turn to 2 of the innovative technologies that we've just introduced to the market and that we'll be showcasing later this morning. The first is a revolutionary market introduction that provides end-to-end value for aseptic bag and box packaging. This technological innovation will allow us to enter adjacent markets and -- with proprietary solutions, and not just enter those markets as a me-too.
It actually starts with state-of-the-art clean-in-place technologies that we -- will allow our customers to clean their product with shorter times and less water and energy, thus, reducing their cost of operation and improving the time that they can run product. This is followed by an aseptic system that will run 30 bags per minute compared to 8 bags per minute offered by current fillers, all of this with a smaller footprint and with quicker change over times. This system also utilizes state-of-the-art bags that can provide oxygen barrier equivalent to foil-based materials. Because there's no foil, it's a more sustainable, more eco-friendly package than our competition. These materials are made with advanced extrusion technologies and proprietary barrier capabilities which are patent protected.
Last but not least, new-to-the-world aseptic spouts can be utilized that allowed for aseptic dispensing, and we have samples and videos of this process in the booth. But the remarkable total solution allows for extended shelf life product to be packaged in the most efficient manner possible, and end-to-end solution that can only be provided by Sealed Air. As we enter this new space, we know that it's a new technology and a new space for us, but it gives us the opportunity to grow significantly in adjacent market with technology and with proprietary technology. And we believe we'll be able to add incremental sales of $30 million to $40 million over the next 3 years with this new innovation that we're introducing. Just rolling it out this week at drinktec in Europe and PACK EXPO next week in Las Vegas.
The second breakthrough technology that we've just introduced is a breakthrough skin packaging technology. This proprietary skin packaging system provides distinct competitive advantages in the market for both case-ready meats as well as Ready Meal applications. The proprietary system operates at speeds almost up to 45% greater than the systems that are currently in the market. In addition, it's been engineered to produce the package with no in-plant scrap. These 2 features enhance the operational efficiency and address sustainability. The system innovation is matched with proprietary material technologies that also extends shelf life, thus, again, minimizing food waste and also providing retail visibility in display to maximize our customers' brand development. Not to mention, we've incorporated easy-open features, consumer features, which will be incorporated in the package design, thus enhancing our customer's ultimate experience. Clearly, this is a unique innovation and one that we feel will generate about $20 million to $25 million in incremental growth in the next 3 to 5 years.
So let me just summarize by going over where we think our sales and our EBITDA are going in the next 3 years. First will be -- so let me talk about sales first. First, we're going to be leveraging all aforementioned value proposition and technologies to drove -- grow the sales line CAGR at around 2.25% to 3%. This will drive the sales from around $3.8 billion to $4.1 million to $4.2 billion. All right. I know you're all writing, I know you're all thinking, this is on much lower number than you may have expected, 2.5% to 3%. But just let me remind you, we're also rationalizing part of the business during this process and we're changing our business model and we're changing the way we must go to market.
So first, we're going to get fit. Then we're going to earn the right to grow. So I actually, personally, truly believe that we'll be operating on the high end of this growth projection, but it is what is in our plan. So the growth will be driven predominantly by 2 key areas in about equal parts. Execution of differentiated innovation programs will drive about half of the growth. And then exploring synergies, geographic expansion and organic growth will drive about the other half of the growth. Then, kind of as a kicker, like the aseptic packaging I discussed, is our entering new adjacent markets, okay?
So this gives us the top line growth, but more importantly, let's look at the bottom line. So we expect to leverage our sales growth by a higher CAGR or EBITDA. Our margin will expand from the current level of about 14.5% to 16% to 16.5% by 2016. The increased margin will be driven by managing the P&L to generate improvements at a higher multiple than our revenue growth. Volume growth and pricing excellence will drive significant added margin. We expect about 60% of our margin growth to come from this. While we constantly drive our cost control and streamline our organization that will compliment the growth in these continued improvement productivities year-over-year, we'll add about 40% of the margin expansion. Okay?
So that gives you a summary of what -- how we're going to drive sales and more importantly, how we're going to leverage that to a higher level of EBITDA growth. So I'd like to thank you for your attention, and I'd like you to visit our booth for further discussion at the end of the day, so that we can help show you how not only we're getting fit, but how we're changing the game, but more importantly, how we're executing our value proposition to enhance our position with our customers.
And now I'd like to turn the stage over to Ryan Flanagan, President of the Food Care division. Ryan?
J. Ryan Flanagan
Thank you, Karl. Good morning. I'm Ryan Flanagan, President of our Product Care division. I'm in my second tour, actually, with Sealed Air, and I've been back at the company for 20 years. My time has been spent in our Food Care and Product Care divisions and some time in our corporate offices. It's a pleasure to be with the investment community again. I had the opportunity to work in Investor Relations back in the late '90s and the early 2000s. I recognize a number of faces from those days, and it's a pleasure to know the rest of you today.
From the first time we introduced our vision, mission and values, they felt right to me. Now I think they are consistent with the solutions, the service and the value we bring our customers today, but are also very assertive, very action-oriented and they convey how we're transforming Sealed Air to create better value in a bigger and broader way for our customers.
In Product Care, that means applying engineered protective packaging solutions to help our customers reimagine their order fulfillment processes to minimize damage, maximize efficiency, reduce freight and deliver a superior customer experience. Like our other divisions, Product Care is positioned to win. We're well positioned to benefit from global megatrends, particularly increasing wealth and consumption in developing markets, global trade and e-commerce.
Products are going to be produced where they can most cost-effectively be produced. They're going to move through constantly evolving and adapting supply chains to wherever they're going to be used. That benefits product care. The longer the supply chain, the more costly and abusive it is. That increases the value of packaging that can reduce damage in freight. The more we move sourcing around the world, the better it is for Sealed Air. We provide complete solutions, combining the highest-performing equipment with the highest performing material to create the highest-performing protective packaging in our customers operations. We have the broadest solutions portfolio, so we can engage with our customers to understand their business, their products, the value, the fragility, the volume, the mix and their supply chain and their preferences. And we can then develop the best packaging solutions specific to their needs to deliver the optimal combination of performance, cost effectiveness and sustainability.
We operate in all major regions of the world. That means we can provide the same solutions no matter where our customers operate. Did you know we have 750 sales reps around the globe, 225 tech reps, 200 customer service reps globally. We have 30 package design centers manned by 80 specialists that do over 10,000 package designs a year. We have over 50 plants, supporting the product care business, enabling consistent, cost-effective supply and redundancy wherever are customers operate. Who else can provide that level of capability in support across the globe? No one. It's a competitive advantage.
By applying technology capability and experience that we've had for over 50 years across the order fulfillment process, we're able to create value for our customers far beyond just the packaging. The more involved we can be with our customers operation, the greater the value that we -- that can be created. The cost of the Protective Packaging is actually irrelevant compared to the value that can be created through its application. Our packaging is often in the range of 10% to 15% of the total packaging cost. And when you include the value of the product actually being shipped, it's in the very low-single digits. So the ratio of our cost to the value of reducing damage, reducing freight, reducing the total packaging and labor is quite good. We do this by providing package design, Lean Six Sigma assessment, process engineering and ongoing support that impact our customers from their shop floor to our customers door -- to their customers door.
An example, one of our customers is the world's largest distributor of laser printers, parts and accessories. As we engage with them, they expressed their priorities in terms of high-performance packaging to eliminate damage, smaller cube, recyclability and cost savings. We developed several solutions that will optimize their business, resulting in a 50% lower dimensional weight, 25% freight reduction, 67% lower storage cost and over 100% recyclable solutions. As a result, we were awarded 100% of their business. When we are involved with our customers broader order fulfillment process, we can often help them reduce their total costs by 15% to 20% or more.
About 65% of our sales are through distribution. Our distributors are important partners and help generate leads and efficiently move our products to our customers. However, the whole purpose of the scale and expertise of our selling organization is to reach out to end users. That's where we can create the greatest value by assessing their needs, developing solutions and selling the value of those solutions. That's how we create demand and pool for our products.
Given our market segments, here's how we see the external environment looking forward. Today, our largest segments are manufacturing and general protective applications. These are about 60% of our business and are the most economically sensitive. We see industrial production modest -- modestly improving -- moderately improving, not significantly better but not the headwind it has been over the last several years. Our outlook overall for GDP is slightly better, which is why we indicate that the world outlook is green.
We expect third party logistics, or 3PL segment, to continue to grow in the 5% to 7% per year, in line with recent trends, which is why that column is yellow. We expect e-commerce to continue to accelerate from the recent 8% to 10% growth rate to double-digit growth as a result of faster growth in regions outside of North America. For that reason, this column is green.
To help you think about our markets and geographic -- in geographic segmentation, we're still concentrated in North America and Europe, with about 57% and 24% of the business, respectively. The rest of the business is split between Latin America, Japan and Australia, New Zealand and AMAT. We expect growth -- greater market growth in Latin America and AMAT, we expect greater impact from e-commerce and a changing supply chain in North America and Europe. From a market point of view, while our traditional segments continue to be the majority of the business, consumer fulfillment and e-commerce have grown much faster and are becoming more meaningful portions of the business. Today, we're about a $1.6 billion business in a $5 billion addressable market space, and we have about a 32% share. We will benefit from organic growth trends, such as global sourcing, e-commerce in that space. But with our new innovations, we also expect to expand the addressable market.
In terms of competitive landscape, we are the leader in a highly fragmented global industry. We're 3x the size of our next closest competitor. That statement is not intended to be braggadocios. It's made in order to highlight the scale and capacity we have to service our customers wherever they operate and to leverage our investments globally, quickly and with scale. This is a competitive advantage.
To drive the business going forward, we are focused on margin expansion and improving the quality of the business. Our get-fit initiatives are focused on improving disciplined execution by improving business processes and organizational capability. We are moving non-value added tasks and providing better tools to give our sales reps more time in front of customers. We're providing better training for them to be as effective as possible in their jobs. We're changing our measurement and compensation to align incentives with the direction of the vision and the overall company. We recently modified or sales comp, which had been volume-driven to a program with greater variable compensation, greater upside, greater downside and driven by a healthy combination of volume and profitability.
We're also introducing pricing tools to provide better visibility on the thousands of price points across our fragmented channels and customer base. That visibility will help us identify variation in pricing; it will help us identify outliers where we may not be capturing the appropriate value for our solutions; it will help us set more effective market pricing where we can win more and share appropriately in the value that we deliver; and it will help us measure and monitor pricing execution.
So I'd like to spend a little more time talking about our portfolio management using this slide. It's clear that not all of our business segments are created equal, nor do we expect to manage them the same way. We have very different investments in capital, R&D and sales and marketing resource across our segments.
Let's start with the general use products, which is about 1/3 of our business today. Yes, the arrow is pointing down into the right. This product group includes bubble, foam and mailers, air cellular packaging and mailers. They are less differentiated and we're going to manage them accordingly. We will focus on profit optimization and this segment will get smaller. It's going to be important. I'm going to look back on it a little bit later as we go through the presentation.
Our other segments are comprised of specialty products and our approach there will be different. Our cushioning segment is comprised of our Instapak, specialty foam and core view product lines. These solutions are engineered to the individual application, provide high-performance cushioning and optimize cost-effective design packages. We do this better than anybody. We're investing more in cushioning with new technology, and adopting more of a market focus to identify new and under-penetrated segments of the manufacturing and other heavy-industry applications. We're investing in new chemistry and equipment systems in our Instapak business to improve performance, cost effectiveness and sustainability and providing customer platforms that are suited to new market segments. We're exploring new process and material technology in our specialty foams business.
Our packaging systems, which are comprised of our paper packaging, our inflatable bubble and void fill systems and automated systems, such as our I-Pack system that you'll have a chance to see in the booth. These solutions are ideally suited to e-commerce and fulfillment operations. We will continue to invest to maintain and extend our leading position in these offers, and we will increase the resources to service these key e-commerce, 3PL and fulfillment market segments.
Our consumer shrink business is comprised of our industry-leading polyolefin shrink film and equipment systems. Our focus here is driving our step-change CT micro-layered
technology across the entire product line and selling the value of this technology to operating leaders at major consumer brand companies.
As we implement our get-fit and change the game programs, our packaging practice and cultures will shift. I'd like to call your attention to 3 areas that I believe are most important to this business. We will shift from a product and geography-focused business become obsessively focused on market segments. We will increase -- increasingly sell to high-level operating leaders, the people who care the most about their customers experience and their overall operating performance, and therefore, value the full potential Sealed Air has to impact their operations. We will shift from a culture where losing an order is the fin [ph] to one where we position our solutions with discipline, we sell their full value, we scope our service offer accordingly and we walk from unprofitable business.
As these transforming practices become the norm, they will change our competitive game that will be -- and will be -- and we will be characterized by industry-focused solutions and a go-to-market structure focused on e-commerce and other target segments, we will be sought out by operating leaders to create business value and our organization will seamlessly adjust to capitalize on new technologies and market opportunities.
A good example of this game -- of a game-changing program is our innovative I-Pack solution. We think of product care -- many people think of product care is a material sales business. Our I-Pack solution is an automated, integrated Void Reduction System. Among its many benefit, it actually reduces the amount of empty space in the box, eliminating the need for void fill. We are happy to cannibalize our own business with this type of solution.
Our I-Pack solution is integrated into our customers' order fulfillment process, reducing labor, reducing total packaging materials, cube and freight. It can be combined with other interior packaging to create the amount of protection needed to reduce damage. As you can see in this graphic, the resulting package is smaller, but also delivers a superior customer solution. It's clean, it's neat, it's easy to open and it can be used to return a product, if needed. This solution is ideally suited to e-commerce and other fulfillment operations. And as you will recall, that was the only segment of our business that was green across the board on our heat map.
I'm announcing today that we are forming an e-commerce fulfillment business unit within the division, where we focus solely on delivering the highest performing, highest value creating Protective Packaging solutions to that market. It will include the sales and marketing resources to support it, but will also include Lean Six Sigma and engineering resources required to do process, layouts and integration. We will house certain solutions in the units, but will also pool from resources and other solutions across the company and from external partners, as necessary, to meet the needs of these customers.
A second example of game-changing innovation, I'd like to dig just a little bit deeper into our CT micro-layered shrink film technology. Sealed Air actually introduce the first polyolefin -- cross-linked polyolefin shrink film to the market 30 years ago. It was game changing at the time and there have been incremental improvements over the years. That was 30 years ago. 30 years ago. Today, this s a $300 million business and has become increasingly commoditized. In fact, overall, today, this business is not earning cost of capital.
CT is the first fundamental technological innovation in 30 years in this area. It delivers superior performance, it's cost-effective and it improves sustainability. It provides a superior customer experience as a result of the clarity, the loss in tight package appearance. It's cost-effective as a result of packaging process efficiency and results in a 30% to 50% source reduction.
Jerome likes to say that CT is the easiest product in the world to sell. Okay. It is easy to sell, but it is not that easy. It still takes work. But you have to ask, and we ask our customers, "Why wouldn't you buy it? Why wouldn't you buy it?" It's cost-effective, it looks better and it's sustainable. CT was originally introduced in a 30-gauge film, the only one in the market today. It was introduced about 3 years ago. It remains the only 30-gauge film in the market. It quickly grew to be a lead -- significant lead in thin gauge applications. We're now rolling that technology out across the breadth of the product line, and we're reaching out to brand owners, major brand owners, to sell this full value and create pool in the market. So if there are any brand owners out there, we invite you to reach out and call us. Otherwise, you risk falling behind.
Our rollout of CT is focused on improving the margin of the business through a combination of cannibalization and incremental business. I've mentioned that this business today is not earning the cost of capital. Our focus -- our approach is focused on improving the margins to the point where we can justify incremental capacity to further take share in the market, but also to move into other -- to replace other types of packaging, such as PVC and poly packaging.
As a result of our approach to this business -- to the product care business, our top line will grow about $50 million to $100 million over the next 3 years from our current $1.6 billion. That's a 2% to 3% growth, coming about 40% from price and about 60% from volume. The volume comes from leveraging our global solutions in emerging regions in the high-growth market segments, capturing a larger share of business driven by e-commerce and fulfillment. And while these 2 trends will contribute incremental growth, that growth will be offset by our decision to shift away from lower profitability products within the general use segment.
Finally, our EBITDA outlook reflects our focus on improving the quality of the business, pruning of less differentiated products, focus on higher-growth segments and solution, introduction of differentiated technology, aligning resources accordingly and improving productivity. The combination of those will result in an EBITDA margin improvement to 16-plus percent. And I assure you, my goal is higher than that.
We now invite you to take a break. And when we come back, Ilham will walk you through how we're going to get fit and change the game in our Diversey Care business.
So let's get started. Ladies and gentlemen, good morning. I'm Ilham Kadri, the President of Diversey Care. I should start by apologizing about my voice. I almost lost it yesterday. But an American doctor promised me it will be all right, so let's give it a try.
So let me ask you a question. When do you see these foots on the screen, do you see a surgeon with his crew walking on a shiny and clean floor, which was actually cleaned by the Diversey Care products? Or do you see people saving lives? Do you know that of every hundred hospitalized patients, 7 people in the developed economies and 10 in the developing world will acquire at least 1 health-associated infection inside the hospital.
The financial losses are enormous. They're estimated to $16 billion in Europe and the U.S. combined. Cleaning and hygiene in the context of a hospital is not a luxury. It's a necessity. The division I have the honor to lead does innovate towards helping hospital abuse in the health-acquired infection. And we do innovate, by the way, the same way in hospitality, in food service, in food resale and in facility management, the other strategic sectors we serve in our division.
When I joined the company exactly 8 months ago, I spent my first 100 days auditing the company history and performance, doing a complete due diligence bottom-up, just like we will buy this again it again. I would like here to share with you the why before we get to the how and the what. If you think about it, the hygiene and cleaning industry serves virtually every single industry you can think of. Our division purpose is not just to sell products, soaps, detergents, machines. Our duty is to create operational efficiencies that generate significant savings for our customers. Our duty is to protect our customers brand and raise the bar in the food sanitation and the food safety. Our duty is to enhance the user experience, therefore, increasing the customer loyalty and satisfaction, therefore, the revenues.
Finally, sustainability is at the core of how we do all of these in the way we innovate, in the way we support our customers, in the way we produce as most of our chemicals, are, by the way, 50% waterborne. In everything we do, we do it safely for ourselves, for our employees, for our customers. We do more with less: less water, less energy, more concentrate, more productivity.
On the megatrends, we will be 3 billion more people by 2030, as you know. These people, they need food, they need water, they need health care for themselves, for their kids. They need hygiene and cleaning solutions. Today, there is an increase in demand and more change in the regulatory environments in our state. With the new labeling system in Europe, Biocidal Regulation, if you know about it, and also an increasing food safety regulation around the world. We do not see this as a threat. We see it as an opportunity for our industry.
I was inspired when I joined the company with the Diversey brand history, which started, believe it or not, 90 years ago. 9-0. It's accumulated over the years in legacy of consumer brands and acquisitions, like the fast key one which has more than 100 years, by the way; which makes us today a well-established and recognized brand in the professional and institutional sector. I'm sure you know that 70% of the world GDP will come from emerging markets, with the waste here in middle class. But do you know that today, the hygiene and cleaning standards in emerging markets are 10x less in terms of consumption per capita than in the developed world. Therefore, in the addition to the growth, we will witness technology penetration. On distribution, we have the largest distribution network in the industry.
Finally, on products and integration, if there is one takeaway out of my whole speech today I would like to leave you with is, we are the only player that can integrate machines, tools, utensils, chemicals and consulting together in the world, in order to reduce the total cost of ownership.
Let me quickly now tell you more about our solutions, which you will have the opportunity, by the way, to familiarize with when you come and visit our booth later today. The building care portfolio is our biggest portfolio and combines machines, trolleys and chemicals which can supply any floor-care needs. Typically, only 3% to 5% of the operation costs are related to the products. The rest is related to labor cost.
Our key brand is -- in building care is the TASKI machine here, you can see here. The second-largest portfolio is the kitchen care, where we supply manual and automated dishwashing chemicals, floor and surface cleaning chemicals, as well as consulting in food safety and training. We launched recently an innovation I love, Suma Combi, a 2-in-1, making it a detergent and a rinse at the same time. A perfect example of sustainability.
In infection prevention, we supply solutions for hard surfaces, as well as personal care product. Our most differentiated technology is the accelerated hydrogen peroxide technology with brands like Oxivir, which we are working hard on expanding globally out of North America. We have, by the way, Oxivir wipes waiting for you as a gift just to make you -- to encourage you to hit our booths later today.
Then fabric care, which targets mainly professional laundry. In the laundry environment, 80% of the costs is energy, water and labor. We launched recently a low-temperature wash program, which brings water and energy savings to our customer. We also differentiate through the extension of linen lifetime, which is a valuable asset for our customers. We leverage our relationship with our 2 legacy companies, Unilever and SC Johnson, and we have consumer brands in our portfolio, which is, by the way, pretty unique in our space.
Finally, consulting. I'm very proud of our specialized associates who are experts in their field, in auditing, in food safety, in sustainability, in toxicology, in microbiology or labor productivity and you name them. These people, they don't sell products. They sell IQ and expertise to our customers all around the world.
I would like to take you through some concrete examples of value creation we did for some of our customers. In the 2 examples I'm going to display here, on the right side of the screen, we supplied innovations, such as the intelligent TASKI machines you will see later or Revoflow on the walls to our customers. The CO2 emissions, you can see a reduction here. The water and energy savings are simply spectacular, not to say that this also contributes to the bottom line, either in terms of product savings or labor productivity. A perfect example that we can do good for the planet and we can do good for your pockets.
For the other global retailer out there, with 1 branch in Asia, and by implementing our labor management program in building care, we allot more than 50% of labor cost-reduction. The potential annual savings for that customer per annum could never have been achieved with other portfolios.
Finally, let me tell you about my favorite story, and I like to collect stories. The fleet management one. We offer to our customers full leasing contracts, depending on the size and the dimension of the projects, with full-service options. We held the customer by just reminding the right machine in the right location and have them expect maximum productivity from their investments.
We also drive optimization of working capital by having them pay an operational lease in bases, rather than expensing the machine at the start of the contract. For a fleet of a 1,000 machine, I'm giving you that example here, the total cost of ownership can be reduced by 13% over 5 years. And for sure, we will be extracting more margins out of this new business model.
We go to market food directly and indirectly. Distribution is a very large part of our business. And where we are successful, we have them ingrained into our business model. We have 20 major customers and they do account for 20% of our revenues.
We focus on 5 major sectors. In food service, the main subsectors are quick-service restaurants, as well as catering. The main drivers here is food safety. And as you all know, there is or there should be 0 tolerance for food poisoning or sanitation problem. Often and as I said earlier, it's a case not only for food safety, by the way, it's a case for brand protection for our customers.
In the hospitality sector, we serve hotels all around the world. Our offering is to support their sustainability programs and they all have 1, in terms of water and energy savings. You can read, for example, the Shangri-La public Sustainability Report who values our greenhouse keeping and fabric care low-temperature washing program. At the end of 2012, we recorded a reduction on water consumption by over 22 gallons due to the use of the low-temperature laundry that protects linen and reduce water and energy.
The Building Service Contractor sector includes the facility management's player. They supply cleaning services to different industries, to your offices, for example. The biggest players may employ up to 0.5 million workers, where laborers or another [ph] can be at 11% or 70% annually. Can you believe it? It's an experimental lab for training. Labor represents at least 80% of the total cost. We held them through our integrated solutions, as well as distance training or e-learning.
In retail, we mainly target food retailers. We provide 2 main solutions: the front of the house with building care solutions; and the back of the house with food-safety solutions. As I've said before, our value proposition in health care aimed at reducing the hospital-acquired infection.
Finally, distribution. We partner with distribution to develop and grow their organic business, serving the state [ph] or the BNC [ph] customers. While they do help us serving direct accounts, leveraging their logistics and product portfolio distribution capabilities and accessing remote zones, which has to be part of the value proposition -- our value proposition.
By now, you are all familiar with the heating [ph] fundamental. I'm not going to go -- I'm not going to cover all the sectors and the geographies, and you have the luxury to have it the leisure [ph] credits in your deck. And some of the related dynamics have been already explained by my colleagues.
Let me focus on 2 examples here, food service and food retail. We track food service through traffic growth in restaurants. It's reported that traffic will stabilize in North America and Europe. But if the economy improves and consumer spending picks up, this sector will definitely turn to green.
It's very challenging to have indications in Latin America. And despite the volatility of the Brazilian market, sorry, as the middle class emerges with major sports events coming soon, the growth in food service is likely to happen. In AMAT the recent food-safety issues with the avian flu, the chicken antivirals story and the government austerity had hit the sector badly. China contributed to the biggest decline, and this may improve at best if the China economy gross recovers. In food retail, we track what we call the modern growth redistribution floorspace inside the shop.
I would like now to focus on the red flags and decelerating regions. In AMAT and Latin America, despite deceleration as compared to 2012 numbers, it's important to know that we will still experience 8% and 3.8% growth rate levels, respectively, in these 2 regions. In AMAT particularly, consumers will continue transitioning from the traditional growth reformat through the use of modern-supermarket type of outlet.
We estimate our accessible market to $28 billion. You can see here the split by region. This regional business split is changing as we are growing faster in emerging markets than the rest of the world, in line with the megatrends I shared with you earlier. We will decrease our vulnerability to the European economies smoothly, while focusing on the right sectors in each geography.
The fit [ph] by sector makes you appreciate that we have a quite well-balanced portfolio, which is a good news, by the way, implying less vulnerability or dependency on one single sector. Our estimate at global market share is 8%, and I would like here to remind you about the following: We are #1 in every market outside the U.S. and Australia and New Zealand. We are #1 in Asia. We are #1 in China. We are #1 in India. We're also #1 in Turkey. And finally, we are #1 in Latin America.
Let me now talk a bit about the competitive landscape. The cleaning and hygiene industry is highly fragmented. You can see in the bar chart that more than 60% of the global market is populated with millions of suppliers having a very small market share. Globally, there are 45 top competitors we track, and they accumulate almost 30% of the market besides our own share. You can also appreciate from the chart that only 2 competitors are global in scope, and nobody has the breadth of our portfolio again.
In conclusion and the takeaway I would like to leave you with this, opportunity is far bigger than what the top few global competitors have in hands today. And there is an unchanged unique value proposition for our division if we do leverage smartly and effectively the portfolio breadth we have.
Let me now move to my first [ph] 200 days focusing on redesigning our operational model. Our former model, displayed in the left side of the slide, has proven to be very complex in several areas of overlap [ph] that was causing friction in our own internal organization with the lack of quick decision-making. We also developed historically heavy verticals around sectors, specializing all sales force in each country. Without a good balance, between the need of having generalists against specialists and keeping the affordability in mind. My intention with the new organization, displayed on the right side of the slide, is to become more agile and nimble, restore accountabilities, as it should be, with clear P&L responsibilities and with no unnecessary management layer [ph]. Simplicity and affordability were may my key principles for designing this new operational model.
I have also observed in this business how critical is the service and the focus on global and strategic accounts and players in the value chain. These players are expanding and they do value innovations and leadership in areas like sustainability. We want to grow with them. That's why we do have now a department focusing on the big G30 [ph], with the right focus and culture into managing those accounts.
Finally, marketing will take care of the 4 Ps [ph] or the 4 Cs [ph], developing the right value proposition for our customers and also for ourselves, while also reforming as we speak the technical service departments and R&D departments to ensure we effectively respond to the market needs and anticipate the unmet market needs.
As Jerome said and the other division presidents as well, we, as a company, we are engaging into the get-fit journey. But before getting there, in Diversey Care, we are aiming to get first the basics are right. In addition to the right organization structure and the rightsizing by sector, by region, we have been busy with implementing the right financial dashboard. Obviously, product pricing matters, but our biggest cost is people and servicing our customers. That's why the selling contribution will become our profitability indicator, allowing us to select the right profitable opportunities, as well as rebalance [ph] and resources to serve the most promising business cases.
In terms of compensations and rewards, as was shared by Ryan, we are aligning sales force incentive plans with our intention for growth, increasing variable portions. In the U.S., we have already increased it to 30% level, by the way, and why not more. And eliminating cap in what sales force can achieve. As Jerome said, this is becoming a meritocracy organization, with a pay for performance being the only viable principle. All of these has to be delivered with almost, I would call it, a military execution model in order to focus on doing the right thing in the right way.
Then we will be pursuing our journey by reforming R&D. We're investing a lot of money in R&D. And we are not here to spend the most, but we would like to do it with quality and high returns. As we speak, we are challenging every single projects in the pipeline and asking our teams to review 3 things: is the opportunity real? Can we win? Is it worth it?
We will deliver better results out of our innovation. In our operational model, we are looking at each sector as a business case by its own. We will focus on investing in the most attractive sectors, and we are comparing the sector attractiveness against our own readiness to serve such sector.
Finally, Jerome mentioned this with the business presidents, decent offers or pricing is becoming a corporate language for value capture. In our division, this goes from educating the sales force in value-selling and value-capturing to our marketing crew, who is really responsible in value-pricing, to ensure that every deal we do is accretive in terms of EBITDA generation. Today, any deal below 12% EBITDA comes through my hands. No need to tell you that I am the debottleneck in my organization because I would like to force a cultural shift, a mindset change towards doing a better job and a more diligent financial homework internally and with our customers before we sign and we start any new business.
Here, I would like to share a few examples in the way we will be managing deals. First of all, large deals are an important component of our day-to-day business. We challenged recently, and this is another good story, a customer on his focus on getting 10% cost down on chemicals. It was a unit dollar per liter or per gallon or per unit conversation. The chemicals, by the way, represented only 3% of his costs, rather than talking about 10% cost saving on labor, which represented 97% of his costs. After affecting by the zero [ph], we had that dialogue, and we could value our offering through our integrated solutions. And we commented to the performance and the life cycle cost. This is the only way we will be able to extract more value for our shareholders.
The next point, and as I said before, a big part of our cost is labor. And we do negotiate service-level agreements with our clients. We are questioning, since I am in service, the existing ones, as we want every single service to be aligned with the customer real needs, without being too generous and, obviously, not underperforming.
Thirdly, Europe, our biggest region of sales. We have implemented what we call a deal desk procedure, which approves every single deal that is being done. These are checked for profitability, levels of service, level of investments, terms and conditions.
Finally, we had established a listing we call bleeders. They can be products, they can be countries, subsectors, customers that are below the profitability target level. The best example I experienced in my 8 months on the job, and I like very much to repeat it during my town hall meeting, is the one of that small catering customers with a negative performance, but who valued relationship and the service and the history with Diversey Care. In this case, our team's could renegotiate and will reduce a number of visits, many of them, by the way, were not involved; reduce the number of deliveries with a sustainability, other [ph] arguments as a plus; change of product mix, allowing us to extract more margin. Obviously, all the bleeders may not have such happy endings, you can think. But then, we will need to take courageous decision into serving or not that piece of business.
Now we are showcasing here our sector portfolio, which we have just recently reviewed and challenged in terms of attractiveness, profitability and growth perspective. The commercial laundry at the top left, the business reflected here, despite being very small, is growing fast and takes place in the emerging markets, like the AMAT region. We look selectively into growing that business by deploying a differentiated value proposition, while leveraging what I talked about, our fabric care innovations to drive extended life, linen lifetime, laundry efficiency, water and energy savings with low-temperature washing programs.
Another example is food retail, where we typically grow with our international clients, and we need to manage the right service level while bringing value, such as productivity. Confident now building service contractor where we do have significant opportunity to grow share in machinery as one example, but also deploy some innovative programs I will share with you in a minute.
Healthcare is a highly interesting space, where we can extract better premium as product mix and certifications are critical, and we are working hard on expanding our Virox brand globally.
This is our vision of success. We ambition to reimagine the division mission. First of all, we will work hard on valuing our total cost of ownership. In many segments and sectors, I'm still hearing people speaking about unit price per gallon or liter or units rather than the whole life cycle costs. As I've said many times by now, we do not sell soaps. We measure it by its value, we measure by its IQ, and we want the total cost of ownership to become the language of our industry.
As I've told you also frequently by now, we are the only one who has the portfolio breadth to allow us to make our machines speak to our chemicals. We make our tools fit with our utensils. We will do a far better job in the future into extracting value from this.
Secondly, we are reimagining smartly the service by sector. we are used to look at cleaning at the microperimeter level. For example, a washroom as compared to a laundry in a hotel or kitchen. We are developing smart programs, which I will share with you in a minute, and we will be looking holistically at the total value proposition. We will be looking at the output, not the input. And some of them, by the way, are still in the early stages of development.
Then finally, we would like to move to a knowledge-based business model, as shared by Jerome, where technology reduces customer risks, such as food safety alert or improve the operational efficiencies, like remote monitoring for laundry machines, or helping our customers to improve the customer experience, like the restaurant appearance or the store appearance program for retail.
Before ending with a number, I would like here to share with you 2 examples of how we reimagine some of our businesses. Building care, by the way, is truly the ideal space, where integration does make fully sense and will bring the most optimal value creation. We need to do a better job into leveraging our product systems, like, for example, dosing systems. We have a high degree precision systems in dosing in the market combined with ergonomic tools and Diversey consultants, which brings the case of experience on the table on how to effectively deploy labor with the right tools and the right equipment, aiming always to deliver the optimum productivity for our customers.
This program, we call it smart savings. It's available to our strategic clients, using a model for the total cost of ownership, the language we would like to push in our markets. And let me stop a moment on our machines here and give you some color on the type of innovations we will be bringing in the markets.
Our subscribers feature what we call the Infinite Flow System, rapidly about the IntelliFlow. It controls how much water goes onto the floor and synchronizes it with the speed of the machines. So instead of overusing water a bit careless, as you can see on the screen, for traditional machine, you always use the right amount of water all along. This technology can drive up to 30% savings in water and extend the tank usage, which drives productivity as you need less tap for refilling purposes.
Our IntelliDose features an integrated dispenser onto the ultra scrubber machine. That will always ensure you have the right amount of chemical products. And you will see one, by the way, in our booth today. The results is our Intellitrail system, which allows combining both to better manage the right output. Ultimately, we would like to be able to remotely know where a machine is, the time being used and also why not geosend the machine, preventing it to be taken out of perimeter without permission. Such programs will bring tens of millions of dollar of incremental new business in the next few years, as our customers are shifting procurement mentality to full total ownership model.
My second example is about retail store. This slide provides you with the breadth of technologies and services we are able to provide. You can see here all we offer in the retail, and this is not about hand soaps again or cleaning floors. It sends on course on every single operation in the store, in the front of the house, welcoming guests, welcoming you, where cleanliness is one important KPI for having a recurring visitor, or on the back of the house, in the kitchen, or in the quality department's caring about food safety, or finally, the general manager who wants to accept the best productivity out of his operations.
There is someone you will witness an evolution of the retail program towards new systems that supports retailers in driving operational efficiency and customer experience far better than what we do today. In retail environment, labor has very high turnover rate and training is critical for food safety imperative and brand production.
We launched the e-learning program last February at the Global Food Safety Initiative in Barcelona, which allow often customized training program over Internet. One other addition to our solutions and food safety management for retail companies is the centric innovation we launched early this year, and we have one displayed on the booth. This solution will offer customers temperature control and compliance across the core chain.
Our temperature control system is unique as it's continuous and cloud-based. Retailers and their suppliers can use the data not only for improving operations, but also to reduce food waste, ensure compliance all along the way from farm to fork. Because we are using a reusable Temperature Monitoring Tag, the retailers can use the Tag again and again for their shipments, from their distribution center to their store.
By the way, we have recently signed a first important deal with a major retailer in the U.S. We have signed up over 140 new suppliers and are looking to double this when the final distribution centers implement this.
Finally, my previous example, remember, on labor management and building care will apply to the retail store. This will make our smart programs interconnected and bring in a customized value to every single customer. Such programs will create a new way of doing business, bringing us closer to that knowledge division we aspire to become.
Now some numbers. Here, you can see the future growth expectations. One of the key sales driver is we will leverage our unique infrastructure in emerging markets. In many markets, we were the first in, a good recipe to become a winner tomorrow. Like in China, India, Turkey, Russia, we target to take advantage of the high-growth rates these regions will experience, as well as technology penetration, as I explained earlier.
As soon as we build critical mass, we go closer to these markets, to local manufacturing, such as TASKI machines, who are now producing in Malaysia. Or we start making R&D in these markets rather than broken technologies from Europe and the U.S. and make them happen and work in these markets. This is the case for Fabricare, by the way, who are now developing innovations in our R&D center in Mumbai.
The second key sales driver here, we also know our big customers and their expansion. In the cases of food retail, food service, hospitality, our larger accounts are an important source for expansion, and we do have significant opportunities with them for cross-selling and innovation.
In Building care, we're expanding to Fleet management program, as I shared with you. We will also buy or lease choices. And while expanding our products and solutions, such as TASKI machines, just here in the U.S. markets as well as in Brazil.
We will continue to push our healthcare program with our unique disinfection technology, Oxivir, beyond Canada and the U.S. [indiscernible] is an area where we expect double-digit growth. In fact, from a very small basis today, as often the service was part of the part of the product. As we speak, I launched a campaign. I call it "from free to fee" to start extracting the value for our sites.
As a takeaway, remember that this business earned the right to focus on the right opportunities. We will make tough decisions along the journey and may exit segments, portfolios not matching our ambitions and shareholders' expectations.
Finally, where do we plan to land in terms of bottom line improvement? And this is the good story. We reached double-digit EBITDA levels, and we will be growing the bottom line at least 3- to 4-folds factor than the top line growth. We do expect higher margins from our new innovations to kick off into the plan, while improving sales and technical service productivity to reform in both departments and looking at best ways to service each sector.
Our estimates for margin improvements in larger accounts are underway, and we continuously look at ways for improving our supply chain while moving goods. We will be challenging the number of assets we need to become the best-in-class manufacturing and logistics player in the institutional market.
For those who are staying with us, I will welcome you at our booth to give you there some concrete examples of the solutions we supply. I'm truly excited about this journey I've chosen to join for one simple reason, which is, I believe in the project. I'm definitely not happy with the 9% EBITDA number and I have only a unique mandate, which is improving the quality of this business.
I hope I had been able to talk with you some of my excitements and determination today. I work with a team of highly committed people to making this turnaround paying off. Thank you very much. And let me now introduce our newest senior leadership team member, Dr. Robert Tatterson who joined just a few weeks ago and who will be talking about R&D and innovation. Thank you.
Robert L. Tatterson
Thank you, Ilham. Good morning, and thank you for the introduction. Today, I'm going to walk you through at a high level, our R&D and new solution innovation capabilities and opportunities for the future, as we reimagine our business.
As soon as you may be aware, I've joined the company a little more than 6 weeks ago, so this represents my preliminary prospectus. With Jerome in the Business division, my role is scoped more broadly than in the past as VP R&D and Chief Technology Officer. Specifically, I have broad responsibility to ensure that we maximize the return of our investments in research and development to profitably grow the business with new products and services and maintain a current $8 billion product portfolio, doing both with continuously improving productivity always being a priority. This is achieved through the technical execution and organizational leadership of our 800-plus scientists and engineers around the world.
Where in the scope is the combination of all of our equipment and systems development with our materials and R&D services activities. This will allow us to better find new innovations from the closed combination of these 2 elements to create full system solutions.
My personal profile includes a Doctorate in Chemical Engineering from the University of Michigan and 15 years of intense experience within General Electric's Corporate and Plastics R&D functions. I was then able to take these skills to Brady Corporation, a publicly-traded industrial products company, where I served as VP R&D and CTO for the past 7 years.
I successfully led many technical programs, processes and transformations across diversed technologies and market sectors. I feel well-prepared to identify and deliver on meaningful opportunities to change the game at Sealed Air, from increasing effectiveness of our project and quality management processes, through defining and delivering our longer-term technology platforms, always in alignment with the business strategy.
Next, I will turn to a short inventory of the resources we have at hand and how we can think simply about the combination of these resources with our core values. On the resource side, I would like to highlight my initial observations with respect to our R&D talent. I've had the opportunity to visit our major U.S. and European technical centers over the past weeks, as well as a number of our manufacturing plants.
I'm very impressed with the deep technical and application expertise possessed by the large pool of experienced and passionate team members that we have. This is important as we look to accelerate meaningful innovation, creating value for our customers and ourselves. These technical resources often understand their customer's processes from a technical perspective better than the customers.
We have some great people and I see significant opportunity from improved productivity and results. For example, I see opportunity for significant improvements and critical capabilities, such as new product development and project management.
With the stronger application of our values and better defined and followed processes, we can identify and act on a richer pipeline of new innovation opportunities and improve the speed, quality and costs in our execution, and last but not least, achieve more reliably our sales and margin expectations. We must improve our measurements and our expectations for accountability across the R&D and the related functions to deliver the improvements we seek.
Lastly, I want to highlight the very high degree of relevancy of our values to our R&D mission. These values really set the underpinning of an effective culture to create value and include, of course, uncompromising ethics, courageous determination, ingenious collaboration and very appropriately, purposeful innovation.
Global megatrends are the drivers behind many of our new product and service strategies. I will highlight one of these to make the connections more obvious. Higher standards of living, which is another way of saying a globally growing middle class, that wants to have the comfort, convenience and safety of developed markets middle-class, is a huge driver and tailwind for all of our businesses.
The convenience of a supermarket with a clean, safe, shelf-stable packaged poultry and meats is attractive and an obvious area for growth. As Jerome highlighted to me from his recent visit to Russia last week, celebrating our 20th year in that market, there's been a huge shift from people bringing their meats home wrapped in newspaper to today where there is much more use of our film solutions.
Our ability to meaningfully participate in this and other important megatrends is exciting as we look to the future and was certainly one of the reasons I chose to join Sealed Air.
Emerging markets are exposed to many of these megatrends, and I have highlighted here some of the thinking from an R&D perspective. We have R&D resources today in many of these emerging market countries, but we look to increase the focus and capability in many of these over the coming years.
Specifically in Asia, Middle East, Africa and Turkey region, AMAT, we have a vision for creating regional centers of excellence for development in Asia over the next 2 years. Today, across the whole spectrum of systems, products and services development, we are focused on cost, performance and sustainability and our solutions that are vital in both emerging and developed markets.
When we look to the future, we will drive innovation in a focused way on emerging market needs and along the way, create innovations that may have significant value proposition back in the developed markets.
The next slide highlights 15 of the technical elements of our competitiveness today and in the future. The majority of our revenue and profits are built on mature technologies that we've continuously improved and leveraged in combination to create more value. Many of these technologies, we developed and commercialized 30 or more years ago. That said, we have continued to drive quality, costs and incremental differentiation in these product lines, including some of our original legacy product lines with Bubble Wrap, poultry bags and floor care.
Newer, more emerging technologies that have been commercialized over the past 5 years have a significant patent life and continue to be fertile ground for innovation, including such technologies as our revolutionary micro-layered films and the associated processes: advanced converting processes, leading to easy-open and reclosable solutions; oxygen and odor scavenging technology; remote monitoring of customer operations; and chemical dosing dilution and dispensing solutions. I'll elaborate in more detail on micro-layered films on the next slide.
Finally, we have our truly new breakthrough activities that, for obvious competitive and IP reasons, I cannot go and elaborate on too fully. High-temperature packaging solutions, obviously tied to food and medical packaging businesses, where other ready meals and sterilization are of interest.
Sustainability breakthroughs speak to some of our most recent packaging products, such as our Restore and PakNatural products. We are looking intently at alternative materials and processes with a step change sustainability improvement.
Research and package sterilization, which is an area of synergy between the legacy diversity and Cryovac Food businesses is underway. Surface modification technologies speak to a broad category of technologies that modify the physiochemical behavior of our products or services. Our recently launched Suma Combi product, which Ilham referred to, combines wash and rinse aid for kitchenware wash, is an example where some of our unique chemical innovation is creating value for our customers and the sustainability benefit.
Finally, services covers a broad range of developmental activities. We're seeing the opportunity to cost-effectively communicate electronically 1 or 2 ways with our equipment and/or our customer's equipment to collect, analyze and/or control the efficacy of our solutions. These meaningful innovations create value, which can be shared between Sealed Air and our customers.
Looking more closely at one of our emerging technologies, our revolutionary micro-layering materials and process innovations are already delivering significant revenue and taking share with much more opportunity ahead, as Ryan explained. First commercialized in 2009 in Product Care at CT-301, this extremely thin yet durable 30-gauge thickness strength film is comprised of dozens of distinct polymer micro layers.
While multi-layer film technology is a mature technology that we use and others use, and micro-layer technology is used by others as well for other applications, our application of micro-layer technology in these applications is unique.
Precisely engineered micro-layer technology yields dramatic synergistic effects in terms of mechanical, optical and various physical properties and thus, performance in our customer's applications. Product care is leveraging this innovation with an expanding portfolio of products. This technology captures the 3 elements of our triad that Jerome spoke of perfectly: cost competitiveness, performance and sustainability.
It possesses strong sustainability benefit with a 50% or more fitness reduction, which allows a lower mass film per area of application. It improves customer experience to improve visual performance and package sealing versus competitive materials. It provides real cost benefits in distribution and in our customers with less mass and volume to ship and store longer-length rolls that reduces change over times in the application, et cetera.
We generate significant IP in the form of patents and trade secrets with respect to the material compositions and the processing technology for micro-layered technology, which will give Sealed Air strong competitive position for years to come.
As I mentioned previously, I see significant opportunity for R&D to team better with other elements of Sealed Air, the stronger application of our values, enhanced skills and better-defined enthralled processes, such as project management. This will allow us to identify and execute on a richer pipeline of new innovation opportunities and improve the speed, quality and cost of these developmental processes. This will result in us more reliably achieving our sales growth and margin expectations. And again, we must improve our measurements and expectations for accountability across R&D and the whole function if we want to really deliver these results.
We plan to accelerate these improvement activities as we get fit, and this will be my primary area of focus in the near future. Concurrent to Getting Fit, we need to lay the groundwork and begin to change the game, delivering significant, profitable organic growth through technological innovation.
Next, we highlight, at a high level, some of the technology-relevant divisional business unit strategies and some of the high-level innovation themes that are associated with these strategies. These, which are common across all business, speak to generating more attractive cost performance tradeoffs, pursuing materials that deliver a more sustainable product and more tightly integrating systems and materials to create new value, including opportunities to use and promote data and control capabilities to create additional service base value.
Lastly, I'd like to highlight some of the key products that contain significant technical differentiation versus our competitors, so you can look for these as we move into the trade show portion of today's event. In product care, you've heard already about CT and I-Pak technologies. Also explore the Restore product that represents some breakthrough thinking in cost effectively addressing product care applications with nonfood-based sustainable materials, a true innovation.
In Food Care, we've used some of our solutions, such as Diversey Dicolube for beverage processing, as well as unique case-ready packaging and new aseptic liquid packaging solutions, which Karl described. In Diversey Care, we're presenting several of our TASKI system solutions, including IntelliFlow and IntelliDose capabilities, which are differentiated in the market. We're also sharing the Suma Combi chemistry previously discussed, as well as a number of unique dosing and dilution systems.
In summary, new levels of visibility and accountability of R&D investments are beginning to reshape priorities, which will increase return on investment immediately today, right now. Significant opportunities exist that are now being pursued to get fit and change the game that will increase R&D efficiency, product quality, the output of the R&D organization and our return on investment effectiveness, accelerating our growth and quality of earnings. And importantly, our refreshed corporate values strongly support our objectives.
Thank you, and now let me introduce Carol Lowe, our Chief Financial Officer.
Carol P. Lowe
Thank you, Bob, and good morning, everyone. I joined Sealed Air in late June 2012, and I'd like to say I'm very honored to serve as Senior Vice President and CFO of the new Sealed Air. The financial outlook I'll provide today assumes no great revolution unless I otherwise indicate.
So let's begin with a review of our 2013 guidance, which has not changed from that, that was provided during the second quarter earnings call. We are maintaining our full year 2013 net sales to be in the range of $7.7 billion to $7.9 billion. Our adjusted EBITDA is tracking towards the high end of the $1.01 billion to $1.03 billion guidance previously provided.
We're also tracking towards the high end of our previously forecasted range for adjusted earnings per share, $1.10 to $1.20. We continue to expect free cash flow to be in the range of $275 million to $325 million, which compares with $280 million in 2012.
Our capital expenditures are forecast at $160 million, which includes $25 million in restructuring activity. Cash restructuring charges, which include items such as severance that excludes CapEx are forecast at $135 million for the full year 2013.
Our interest expense for 2013 is expected to be approximately $355 million, and that includes approximately $290 million of cash interest expense. We expect our core tax rate, as previously communicated, to be 25% for the full year.
Throughout the morning, you've heard a lot about how Sealed Air is Getting Fit. Ryan, Karl and Ilham have told you about new sales disciplines, and Bob just highlighted that our innovation spend will be evaluated and measured for return on investment. In fact, we've implemented a new investment review process and it encompasses not only our research and development spend, it also includes capital expenditures, operating leases and any significant project that's being undertaken in the company.
This new process provides a much better means to evaluate investment options. By managing through our current resource constraints, we are building our core discipline in selecting investments that provide the greatest return for our shareholders and for the company.
Jerome noted in his opening comments that performance management is a key part of Getting Fit. In 2013, we have introduced 2 new annual incentive metrics to the company. In addition to achieving our EBITDA goal, which has been a past metric, we now have a productivity measure, which is focused on support expense to gross profit and a cash flow metric focused on working capital as a percent of net sales.
For every dollar of gross profit earned in 2012, we spent $0.67 in sales support and R&D. Either our support expense is too high or our gross profit is too low, while in reality, it's both, and we are going to improve this ratio year-on-year by executing on all of the Get Fit activities that you've heard described this morning.
Before moving on to the next slide, I want to mention that one of the primary ways that finance is contributing to the improvement in earnings is through quality and resource allocation is by providing transparency in a more timely manner and making key financial data available throughout the company.
We have introduced standard financial packages, rolling forecasts and qualitative analysis to support near- and long-term decision-making. In the past, Sealed Air reviewed financial performance utilizing legal entity books. This would include things, such as transfer pricing and other types of items. We're now introducing management books, which will provide us with more meaningful results by customer, product, solutions and geography.
And let me clarify here, these are internal ways that we're looking at it. Our financials we publish are in accordance with GAAP, always have been and always will be. But having this view is really, really critical as we shape our portfolios to make sure that we drive higher margins and quality of earnings for the business.
So now let's take a look at our estimated sales growth over the 3-year horizon. We expect 2% to 3% growth on average from 2013 to 2016. You heard Karl ask you the question when he set forth the food care CAGR and said, "Well, it probably doesn't look very exciting." And I'm sure on the consolidated basis, you look at 2% to 3% you say, "Well, that's not a lot."
But I want to remind you of a few things that you've heard throughout the morning. First, the plan we've set forth is one on which Sealed Air can consistently deliver going forward; Second, we've told you today we need customer, product and geographical portfolio rationalization. It's required for all 3 of our divisions. Also, our estimates reflect the outlook for our end markets. You've seen the heat map for each of our businesses, and we have reflected that into our 3-year strategy.
We're not here today to make commitments that we can't deliver on. You've heard throughout the entire morning that top line growth is no longer the single primary driver for Sealed Air. Let me confirm one more time in case there's any doubt. This company, this management team is focused on quality of earnings.
As we head towards the end of 2013 and look towards the next 3 years, we're not modeling any meaningful improvement in Europe in the numbers that we've set forth. With growth in developing markets outpacing mature markets in a meaningful way, we expect developing regions to grow from representing currently about 26% of net sales in 2013, where they'll represent 30% of net sales in 2016. The most significant growth will be contributed by China, Brazil and Russia.
Food Care is focusing on selling value and margin expansion with more favorable product mix and growth in emerging markets. Product care, as Ryan described, will have very specific customer, product and geographic rationalization. And while this may negatively impact our top line, it should favorably impact our margin.
Diversey Care, the European economy remains a wild card, as all of you would expect. But we have very positive growth drivers, as Ilham described, in Latin America and Asia. And let me also remind you, as she pointed out, we continue to win in those developing regions day in and day out, and we are #1.
North America also provides great opportunity for growth as we build our critical mass. And our estimate of 2% to 3% net sales growth, we have seen currency will negatively impact net sales by less than 1%. Excluding the currency impact, pricing is forecast to contribute approximately 50% of growth over the 3-year period. Volume, which includes innovation, will represent the remainder.
Now I'd like to talk a few minutes about supply chain and our supply chain network. Cost of goods sold represented $5.1 billion in cost for Sealed Air for the 12 months ended June 30. Our supply chain network is critical to how we are going to get fit and how we're going to change the game.
For purposes of developing the midterm plan, which we're outlining this morning, we've utilized the CMAI outlook to model material costs and are assuming an average cost increase in the mid-single-digit range per year, driven by feedstock costed and supply/demand constraint until additional ethylene capacity comes online in 2016.
Raw material costs and purchase products represent approximately 55% of our total cost of goods sold. Of course, this percentage will change depending on how resins move up or down.
Under the senior leadership of Emile Chammas, who serves the Senior Vice President and Chief Supply Chain Officer, our supply chain has launched numerous programs to drive efficiencies critical to achieving margin improvement. Our supply chain is redefining and optimizing the network across an integrated order fulfillment process. This is moving away from what you would traditionally see as a purchase make store and ship approach.
Our initiatives include consolidation and rationalization of our 360 operating and storage sites. We're doing this to meet the needs of our businesses, we're providing low-cost country sourcing, repurchasing -- repurposing and relocating key manufacturing equipment and partnering with world-class third-party service providers and institutionalizing lean and continuous improvement company-wide.
In addition to the many restructuring Get Fit optimization initiatives that we've talked about, we will continue to deliver improvements in cash, service and EBITDA, the other global supply chain, and they're doing this by driving several new frontier programs to significantly change the game and create value.
Well, I just want to share one example with you. By applying a new production planning and customer fulfillment methodology that eliminates an entire production step and radically reduces our investment in inventory, we're moving elements of our production and distribution to a more make-to-order model. We're going to drive meaningful reductions in work-in-process and finished goods inventory. This will be -- provide mutual to improved total costs but much faster turnaround time to better service our customers and match their demand. This new plan for production and inventory, just looking for North America and Europe, we are projecting a reduction in stocking locations of approximately 25% over this 3-year horizon.
Another critical component of our midterm performance is driven by realization of the cost synergies and restructuring plans that we've all announced over -- since the Diversey acquisition, as well as the one that was announced this year. We have -- they are 2 major programs again, as a reminder. The first is Integration and Optimization Program associated with the Diversey acquisition. It would generate over $200 million in savings. It's important to note that, that $200 million is relative to the 2011 cost base, when the program was announced.
The cost of this program is approximately $240 million, excluding $30 million in capital expenditures. The $240 million breaks out in cash spend in the following manner over the years: $135 million was spent in 2012; $90 million under this program will be spent in 2013; and an additional $15 million will be spent in 2014.
In the second quarter this year, we announced Earnings Quality Improvement Program, which Jerome reminded you of in his early comment. This program has an estimated cost savings of $80 million to $110 million, compared to the 2012 cost base. The total cost of the program is estimated at $130 million to $150 million, and this excludes approximately $50 million in capital expenditures. If we assume the high end of the program cost of $150 million, we will spend, in 2013, $45 million, 'in 2014, $95 million; and in 2015, $10 million.
Our sales growth, pricing discipline, supply chain effectiveness and efficiency, the restructuring and savings programs will all contribute to 5.5% to 8% growth in adjusted EBITDA and improvement in margins of 140 to 220 basis points over the 3-year horizon. Pricing, value capture and mix will make up more than 50% of this improvement and growth in EBITDA margin. Inflationary cost for wages and benefits will partially offset pricing and volume growth.
Now let's move on to cash flow. Our 2016 estimate for free cash flow is approximately
and it will be available on the slides. Sorry, I was pushing the wrong button.
So now let's move on to cash flow. Our 2016 estimate for free cash flow is approximately $600 million. We will achieve this level by executing all of the Get Fit and a number of the Change The Game initiatives discussed today.
At the end of June, we had more than $2.1 billion that was invested in inventory and receivables. We had a net working capital, as a percent of net trade sales, of 20%.
When we do a peer comparison and look at other industrial, we are in the bottom quartile in terms of working capital management. It's clearly too high, and as Jerome would say, we can do better and we are going to do better.
We're going to improve our days sales outstanding by pursuing timely collection of customer payments. The amount of past dues is just clearly unacceptable. It's a clear focus for the company, and we're pursuing timely collections with all of our customers.
We also have meaningful opportunities for improved inventory management through SKU rationalization and the other strategy will reach -- will reduce our days on hand, but even also, it will positively contribute to EBITDA improvement because it costs us for every SKU that you support and maintain.
Historically, even though Sealed Air has always been known as a strong cash flow company, I can tell you it has not been disciplined in working capital management. By establishing these disciplines around key working capital metrics, we will make the strong cash flow number even stronger.
Now let's recap 2016 outlook. We're estimating our net sales to be $8.25 billion to $8.5 billion. Adjusted EBITDA is estimated at $1.2 billion to $1.3 billion, resulting in margins of 14.5% to 15.3%. We are estimating depreciation and amortization expense of $340 million, interest expense of $325 million and a 25% effective core tax rate. Our adjusted earnings per share are estimated at $1.70 to $2.05.
As we already discussed, free cash flow is projected at $600 million for 2016. That cash flow number includes CapEx of $180 million to $200 million, and cash interest expense estimated at $255 million versus the previous estimate of interest expense of $325 million, the cash flow piece of it will be $255 million.
Our outlook, it doesn't assume any Grace resolution, settlement or even trust being funded. Funding of the Grace trust is estimated to favorably impact our earnings per share by approximately $0.13, provided that we use a significant portion of the cash on hand to fund the trust.
Our net debt includes our outstanding borrowings and the principal and accrued interest on the Grace settlement, offset by our cash and our short-term investments. We've applied substantially all of our free cash flow after paying dividend to reduce our net debt balance since we completed the Diversey acquisition. We expect to continue to aggressively reduce leverage until we achieve a net total leverage ratio, 3.5x to 4x. And that's the level we expect to achieve by early 2015.
As our free cash flow increases, our rate of deleveraging will increase. While funding the Grace settlement will not have an immediate impact and effect on our net leverage, it will benefit us over time in 2 ways: first, by reducing our interest expense; and second, by realizing the cash tax benefits when the trust is funded.
Our debt maturities remain manageable, and we have continued to prepay our outstanding term loan. Aside from the Grace settlement, our largest near-term maturity is $150 million, 12% senior notes that are due next February. We anticipate funding their repayment with available cash or short-term borrowing facilities, and this will reduce our annual interest expense. We will consider additional refinancing activities that provide value through lower interest rate or maturity extension. We'll be opportunistic about this.
Everyone always wants to know about Grace, so here's our quick update. Grace has publicly stated they plan to -- they expect to emerge from bankruptcy in late 2013. I know every year, you hear that, so that's what they say and we can't make any assurance that it will or will not happen in terms of the timing for emergence. We don't know if it's correct. We don't know if the target date will be revised or it won't be revised.
But there has been progress on Grace's side. The Third Circuit Court of Appeals affirming the district court's decision to overrule the respective objections of 4 of the 5 primary appellants. They -- that have challenged Grace's plan.
We're still waiting on the decision related to the objections to Grace's plan that have been brought by certain holders of Grace's pre-petition bank debt. All 5 of the appellant group have the right to attempt and appeal to the U.S. Supreme Court.
As we look forward, the Sealed Air management team is committed to reducing leverage so that we may operate within a capital structure that allows us to prudently invest in opportunities for return on investment, to manage through global and regional economic challenges, as well as end market cycle.
We've discussed over the past 9 to 12 months that we believe the appropriate leverage for this company, if we have and continue a strong cash flow profile, which should accelerate as we wrap up restructuring program, and provided we have a stable economic outlook, the appropriate rate for us is somewhere between 3.5x to 4x debt-to-EBITDA. We plan to create value for all of our stakeholders, again, by investing in the business for the right return on invested capital.
You're going to note from the slide up here, there's not a bullet there that talks about acquisitions. At this point, we don't plan and making any significant acquisitions. We're focused on Getting Fit in the businesses that we own and changing the game in those businesses as we move forward.
If there were any acquisitions, they would be small bolt-on technology acquisitions that provide our businesses with meaningful, competitive advantage or market-disruptive technology.
For the current year, Sealed Air will return approximately 35% of its free cash flow and more than 40% of its net income to investors through dividend. If we can -- if we execute, and we will execute, and deliver on the 3-year plan that we're putting forth today, we are going to be in the position that we'll go to our Board of Directors and recommend an increase in the excess cash that is returned to our shareholders, and that, that increase happen in the first half of 2015. Our primary goal is to create and profitably grow an organization, which is focused on creating value for all of our shareholders.
We would like to now invite you to take a quick break, grab your lunch, quickly return to your seat and take advantage of the opportunity that you have Jerome, the business leaders in front of you, to ask more questions about the strategies and the plans as we move forward.
And what we're going to do is we're going to allow one question for anyone that wants to ask, so please don't make it a multi-part question because we have a lot of people in the room, and we want to try to cover as many questions as we possibly can. Thank you.
Ladies and gentlemen, please finish your break, grab some food, and please return to your seats. Our program will begin again in 5 minutes.
Ladies and gentlemen, please take your seats. Our program is about to begin. And as a reminder, please make -- keep the questions to one single question, please.
So who's got the mic?
Jerome A. Peribere
All right. Do we have the mic? Here. George.
George L. Staphos - BofA Merrill Lynch, Research Division
Thanks very much for the presentation of details and best of luck to you over the next 3 years and beyond. My question is for Ilham. Ilham, you quite rightly said that you're not happy with the 9% EBITDA margin. You gave us a target of 12%, I believe, 11%, 12% by 2016. You gave us a lot of the initiatives that you're working on, but I was not 100% clear in terms of how those initiatives bridge to the 11% and 12%. So can you give us a bit more specificity, a few more numbers into how we get there?
Yes, definitely, as I mentioned, we're happy with the 9%. There is room for improvement, right? There was no one single day I spent in this company, since 8 months, that I didn't see room for improvement. So we would make it happen. Now in terms of the granularity, I'm not sure if Carol Lowe will allow me to give that granularity. I will push it on her. But definitely, the key initiatives, I mentioned, one of those are -- is pricing and Carol has already given you some breakdown at the corporation level. Pricing for Diversey Care is more than products pricing, as I mentioned. Lots of our cost is about people cost, right? It's how we service our customers. So it's about the selling contribution, optimizing the way we service each sector and each customer according to affordability and target within our profitability. It's been more dynamic in our product mix. Believe it or not, in some businesses, we kept our old products. So we have huge sale of products and SKUs. Our customers, by the way, are asking us to rationalize and to help them rationalize their SKUs and standardize them, and we should do it for ourselves. So that will be also an origin for margin improvement. The other one -- and margin expansion is the emerging market expansion. And I talked a lot about our leadership. We are #1 in most of the emerging markets. We will grow there. We are hiring as we speak. We are also building critical mass in the U.S., right? And you know all [indiscernible]. So that will be a source for revenues and margin expansion.
Jerome A. Peribere
I would just add 1 or 2 words, which is that we are simplifying our organization to increase accountability, therefore, delayering and putting the power in the countries. So by putting the power in the countries, you demand better performance. And by weeding out some of the low-quality businesses, you also are going to get improvements there. And finally, as Ilham has shown you in one slide, you have the effect of -- customers choose you, and you choose your customers. There are always pricing -- price buyers. These are not the ones we want to deal with. We want to deal with those type of customers who understand that there is much more beyond the price of the chemical or the price of the equipment, and that there is a lot of value in helping them become more productive and increase level -- increase the bar. So they ensure customer loyalty, and there is -- and by having clean, less [ph] appearance, et cetera they can get revenue growth also. So it takes a little bit of time to educate and work together. But we can make people more productive and raise their own bar so there is value to be created for them and, therefore, for us. Let's go in order maybe here.
Jerome A. Peribere
I just had a numbers question for you. When I do kind of a back of the envelope on the EBITDA guidance that you gave for $200 million, $300 million improvement over the next few years. And then I look at EPS, it should -- that should translate or it looks like it should translate into $0.70 to, call it, $0.95 of EPS improvement, and yet your guidance range is below that. So can you walk me through what maybe we're missing or if there's any puts and takes where it, with regard to interest expense, I mean you put the tax target out because I'm not sure how the numbers add-on.
Carol P. Lowe
Right. So the difference that you've highlighted through your back-of-the-envelope math is the fact that our depreciation and amortization is increasing on the high end of where the range is at going to EBITDA to earnings per share. We're growing our depreciation and amortization by $30 million. That additional amortization of $30 million is represented by an increase in our long-term incentive plan. Overall, our HR team has done a great job conducting a market study and looking at our total compensation. And while our compensation in total, compared to the market and where we want to be, is not significant, there was a big missing piece. And that missing piece was not having our LTI or our long-term incentives in terms of equity ownership by our employee at the right level. We were well below market. And we are convinced and committed to the fact that we want our employees, our management employees, to be aligned with our shareholders. And that means they need to have equity ownership. The other key thing about how the Sealed Air LTI program works is the actual payout and award of shares is tied to performance. So if we are not meeting our performance targets over the 3-year period, in which the -- that equity vest, it would be at lower rate. So we help pay for it, in terms of the performance for the company, and we believe we'll be able to accelerate the performance of the company by making sure we have that alignment with shareholders. Jerome, I don't know if you have anything additional to add.
Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division
I got 2 more in here. Go back to your free cash flow value of $600 million [indiscernible] to where it's been over the past -- well, I guess -- if you sort of think about restructuring programs that you have taken at this point, right, there's 2 of them. Are we assuming then that in 2016 that there won't be any sort of restructuring, residual cash to follow through? And if so, what are they? And if not, why not? It seems like there's quite a bit of an opportunity to [indiscernible].
Carol P. Lowe
Right. So Ghansham, in our -- the current 3-year strategic plan, all of the restructuring cost, they end in 2015, and I provided the different amounts per year. There could be additional opportunities for restructuring. But before we would announce that, we want to make sure we are managing through the current program. And then as part of the getting fit activities, we continue -- we do find opportunities. And if there's something a size enough to constitute a program being put in place -- we've also communicated, we don't want to be a company that's just a serial restructure, that we want to focus on things that are going to help grow the business. But I mean, if you were to ask us, "Do we think there are additional opportunities in the company?" Yes. But we're not in a position at this time to frame it in terms of a program that we would or wouldn't roll out and announce at this time or even maybe over the next couple of years. I guess, we'll just -- we'll continue to look for opportunities and go after them. We also have a high criteria for what that payback needs to be and the return on investment. And we're looking for programs that will actually, if we move forward and we get this past these current 2 programs, that they will generate quicker payback and actually help fund some of the cash flow as we move forward.
Jerome A. Peribere
And as we have -- also, we only announce big programs, but it doesn't mean that we just don't do a few things here and there outside, as part of normal operations.
Yes, I just wanted to get some details, if you can provide us, on how you see the ramp going to -- from where we are today to the $1.2 billion to $1.3 billion of EBITDA. Do you see that linear? What milestones in the interim can you give us that we can look for to make sure you're on track towards that 2016 target? And how do emerging markets [indiscernible]?
Carol P. Lowe
So, Al, what I would tell you in terms of -- because we would expect to ask, okay, what's 2014? What's 2015? And every year doesn't play out exactly as you expect. Some will be higher, some will be lower. And if not linear, we'll acknowledge that. 2014, we still see that there will be some challenges from an economic standpoint. And I discussed that we don't -- we're not modeling in, early on, any meaningful improvement in Europe. It's not a hockey stick as you look out to 2015, 2016, but we will see some acceleration. What you should look for is that we continue to have year-over-year improvement in performance. And if absent large or significant economic hit, you should expect to see that as we execute, because there wouldn't be a reason for us to fly backwards in terms of a margin improvement.
Jerome A. Peribere
[indiscernible] asking also related questions on emerging markets. What specifically -- or on emerging -- how we view emerging markets? Why don't we have Yagmur make a comment on emerging markets?
Yagmur I. Sagnak
Well, on the emerging market side, we don't have any of this overly optimistic or pessimistic picture. So the market is kind of [indiscernible], as you know. But if we were talking about this a month ago, probably, you would have a more pessimistic view in the Middle East with Syria and Egypt. Today, while it's 20 days down the road, it looks a little bit better, warming up -- relation is warming up with Iran, even. So we have taken a prudent position. So as we have shown in the markets or the heat map, so we expect the emerging markets' growth, remain, more or less, same level in the last 3, 4 years. Some parts -- some business is deteriorating like retail, we mentioned, so which was growing very fast, or for beverages. In some parts of the business like Lodging and, as you know, food service, maintaining the current growth rate. So we've been positive in delivering double-digit growth and then also good leverage at the bottom line, costs and fees and we expect to continue to do that in the coming 3 years.
Jerome A. Peribere
So Yagmur, you have grown in AMAT, Asia, Middle East Africa, Turkey at what rate last year?
Yagmur I. Sagnak
Our growth last year was 11%. And this year, so far, we are doing closer to 13%. So although the market condition has deteriorated a little bit at the beginning of the year, so we have a good momentum especially in food care side. So we've been investing strongly in the last 2, 4 years and then we're collecting the fruits. And likewise, in Diversey Care, so we've been also modest investing and then now we have a very strong momentum. Product Care, as Jerome also mentioned, is one area. Now, we are investing and leveraging the Diversey -- legacy Diversey footprint, so expanding our business to many new markets, especially in Africa and Southeast Asia beyond what we already did in China and in India.
Jerome A. Peribere
So what has changed a little bit in the past few months is in some countries, a little bit of the cooling off of the economies. We see that as in country like China, that has been temporary. The hotel industry has been, in China, specifically, has been a little bit hit during the summer for some political reasons. The government was willing to stop having big parties down there in hotels and just to show a new trend and a new style. Those kinds of things are seen as temporary for us. We have observed currency devaluations. And of course, we'll be affected a little bit by currency devaluations in some very specific countries, specifically India, for example, which have suffered a big, big devaluation. But overall, we have a competitive advantage in emerging countries. And this is valid especially for Diversey Care and for Food Care. And in those countries, we are intending to continue making sure that we capitalize on our competitive advantage there.
I appreciate the emphasis in the presentation was profitable growth. The big part of the growth, going forward, I think you mentioned was pricing, which is going to be 50% of it. Can you help us understand what portion of that is just real price appreciation or mix towards more profitable businesses? And when can we start seeing a real ramp up in the prices, the expectation was pretty limited price this year, but also most important in '15, '16. So can you help us understand the dynamics?
Carol P. Lowe
So we have -- we're not providing a breakdown between actual pricing, just specific price increases on the various products and solutions versus what is mix. It's a combination of both that, that gets really specific, and we're just not going to provide that. Karl, Ryan, and Ilham, all, in their comments, they talked about pricing and what percentage that represented, but it does include mix. And part of that mix is -- includes both selling and different solutions, as well as the different geographies and moving towards higher-margin products. And we will, again, we'll have the rationalization, which impacts both from a mix standpoint, as well as from a volume standpoint.
Jerome A. Peribere
The simplest way to look at this in my mind, which is as I'm a simpleminded-guy, is I just turn to those 3 guys or to my 4 business guys who are present here, and I'm telling them, I want to see, in your P&L, margin expansion. I want to see gross profit margin expansion. Now gross profit margin expansion is not only pricing, it also mix, it is also cost reductions in our manufacturing plants, et cetera, et cetera. But I want to see that we, number one, absorb our cost increases of raw materials; and number two, we are having a better GP percentage quality of the business. And very serious are this concept of productivity. Productivity -- we as consumers wants productivity improvements because we don't want to pay for the additional cost for innovations. So we want more for less. And as a result, throughout the whole value chain, those productivity -- improvements need to be done. And I'm saying them, you should get it from anywhere you want either through GP improvement or through resource reduction. And actually it is -- I want to see it in both.
Thanks for all the details today. Somewhat related question, more targeted at Food & Beverage. If I think about how the prior targets that legacies still there had set out for the business. There's a roughly 15% EBIT margin, which would kind of imply 18% EBITDA margin target across the businesses, and Food & Beverage has a target of 16% to 16.5% EBITDA margin percent. So given that this business seem to be where you guys have been pretty vocal about the pricing opportunity, I guess I would have thought there might have been a little bit of a higher margin target there. So I just wondering if you could provide a little bit more color around that. And I think kind of tied into that is the question with respect to the raw materials or something that you have, mid-single digit increases in resin. So I'm wondering if the pricing somewhat ties to the resin's forecast or if they're kind of separate and discrete elements as you think about them?
Jerome A. Peribere
So I will ask Emile Chammas to make a comment on resin after Karl makes comments, but what you have to remember is that Food Care is not food packaging. Food Care is the mix of our food hygiene and our heritage Food Packaging business. And food hygiene was a lower return business. Why don't you make comments?
Karl R. Deily
Thank you for taking my answer. No -- but -- and again, my question was -- more my first opening comments was going to be, it depends on what element you were using the higher EBITDA from. But with the combined of our hygiene business and packaging business, our numbers show going from mid-14 to mid to higher 16 levels, of which pricing is in there. It's a key element. We get about 1/3 from pricing excellence, 1/3 from cost reduction and optimization and 1/3 from volume. That's a combination of core and new product introductions. And yes, we want to leverage that. We want to leverage it higher. And as we get into the more of our outcome-based selling, we think we can take that even to the next level as depicted in one of Jerome's earlier slides in his presentation that we want to continue to build and accelerate that. But it is in there. And then there are kind of 2 elements of pricing: There's pure pricing to cover inflationary, and we will do what we need to do for resins and for inflation into various geographies of the world. But then, there's also part of what was mentioned in one of the presentations on deal and offer, which is just a much more structured view of how are we pricing our products in the market? It's about half of what we do in deal and offer's true pricing and about half of is then targeting where in supply chain we need to do -- continue cost optimization to deliver incremental improvements on margin and gross profit in an ongoing manner.
Jerome A. Peribere
Emile, some comments on resin?
Emile Z. Chammas
Just on resins, Ricky. In terms of the plan for the next 2 years, we base it on what we know from the industry, what CMI outlook. But as you all know, nobody knows exactly what's going to happen on resins. But in terms of the industry dynamics, the next couple of years, it's still going to be essentially supply/demand equation. So even though there's a lot of great news in terms of shale gas, shale oil, that's really mostly impacting the profitability of the producers whether they are U.S. based or European based. But in terms of the pure final resin price, we don't expect a huge change over the next 3 years like. I've said low single -- mid-single digits inflation. The big game changer is going to be in 2016, starting 2016, when all the big investments on ethylene in North America will come online. Until then, it's going to be barring major changes in terms of economies or disruptions. That's how we put it on there.
Jerome, you had a slide with the EBITDA targets, and I think after 2015, you have the chart going up, I think almost 20% by 2020. Is that an official plan? Is there anything behind it? Can you just talk about why that was in there?
Jerome A. Peribere
So I didn't put the year there because Lori asked me to take it out. So -- but I'm pretty serious in the fact that this company has the knowledge, has the know-how to continue transforming itself. And actually the hours of get fit and change the game, I don't know if you noticed, but the get fit arrow was more darker in '13 and '14 and lighter as the years were passing by. And the change the game was lighter in '13 and '14 and darker as the years move on. And one, the get fit is about military discipline, about doing what we have to do. It is right -- it is left brain. It is do, manage this company as a modern company needs to be managed. The change the game is -- part of the change the game is left brain -- is right brain, sorry. Where am I? It's right brain. So it's creativity. It is how we reimagine this company. How we add -- how we can really truly add tremendous value to our customers and sharing that value created. And I do believe that the day we truly become a knowledge-based company, the day we prove to our customers how much value we can add to them, we can get much better returns. You want an example? When we go and sell packaging to a company, a protective packaging to a company, we sell them today a package. Well, what about if we would go and say to this customer, "We -- the package -- the packaging cost is free." And they say, "Oh my gosh, the packaging cost is free." And what about if we convince them that we have ways to reduce their damage. And therefore, because, truly, if you can prove that you reduce damage and that you can reduce freights by 20%, 30%, 40%, in the case of e-commerce, with the I-Pack system that we showed you. The true cost of the packaging is irrelevant. What about saying, "We are going to commit to reduce your damage by x percent, and we want half of it." You move yourself from the supplier of materials to a knowledge-based company. What if we go to hygiene -- in our hygiene business, and we say, "The chemicals are free." Okay, chemicals are free. So chemicals are free, but we're going to share the yield improvement, the reduction of change, of formulations, et cetera, et cetera through our technologies. And you're going to have your [indiscernible] become more productive. Let's talk about those kind of things. So is this [indiscernible] ? No, it's not. Is it hard to do? Do we do a lot of that? No, we don't. But we start doing some of those pilots. And like always, you've got price buyers, who say, "No, no, no, I'm more interested in how much you could make than how much I could save." Then I say, "Okay, wrong conversation. Let's move out." But some people have said, "You can make me $5 million. You want half of it? No problem. I still can -- I still make $2.5 million" We have those discussions right now.
I also think it's great that you've renamed the business. I'm not going to miss I&L.
Jerome A. Peribere
So great, great decision. I just had one quick question. I know we're focusing on the long term, and it's great to see those goals. But one issue I think is as we look at the guidance for this year, it's, the earnings, I think, are up around $0.20 per shop or so. And we, I think, are going to see $95 million from the cost improvement program. I think now, which is around $0.30 to $0.35. So you kind of look at it and say, "Well, without that, we wouldn't show any growth." Next year, I don't think you have a lot of cost-cutting built in, and yet a lot of us on the street are expecting an equal or greater amount of earnings growth next year. So could you just give us a little comfort with how, not having that cost-cutting benefit next year, you'll be able to bridge the gap?
Carol P. Lowe
So and this is where Emile might -- we might make him come back up, we'll let Jerome decide, but part of that will be a lot of the supply chain efficiencies that we talked about, because we've publicly stated that we have approximately $16 million in annual inflationary cost to cover labor, salaries, benefits that we have to offset through internal efficiencies. So part of that will [indiscernible] that's why one of the items that was up there was the lean and continuous improvement. There are additional opportunities with that program beyond just what we currently do in this more typical approach to lean in terms of shop floor and expanding it across the entire breadth of the company. So those are a few ways. And I know all of -- everybody here, my colleagues and Jerome, would have additional things that will [indiscernible]
Emile Z. Chammas
But I think it's also fair to say some of the things we're paying for this year won't manifest themselves in the P&L until next year and then they'll leverage again the year after. So I think that's a key component of it. And then obviously, we do the daily manufacturing improvement programs. We do the getting greater productivity. Jerome, as he mentioned, we have, every year, an objective to improve our productivity ratios. And all of those things will continue to roll and multiply themselves, so...
Jerome, as I listen to and the rest of the management team, it sounds like one of the threats here is that you're really looking very hard at sort of cost to serve the customers and whether you're really getting paid by all the customers for the amount of expense. Does this mean, generally, that you are going to just reduce the amount of time that you spend with some of these customers or will you move some of the volume to distributors rather than...
Jerome A. Peribere
No. No, we're not. Interestingly enough, I was so delighted when we were doing some rehearsal to hear those 3 guys, those 4 guys, keep on saying, "Customer experience, customer intimacy, and we're here to add value to our customers. " Which is the company, which you don't hear that from? Everybody talks about the customer. I tell you, I am so amazed as to how much those guys, including myself, are in the field, meeting with them, searching for answers to help them improve their brand loyalty, the quality of their product and reimaging their business. So we truly are going to do that more and more with this value. We're here to create value for your mentality. So that cannot go through a field cost reduction. When I talk about delayering, you don't delayer down. You delayer up. And there are some jobs, which -- quite a few jobs, which we have eliminated in the minus 1, minus 2 levels. But what we are going to be doing is called a spade a spade, which we have started already, which means you need to understand whether your offering is about price and, therefore, your product has commoditized; or whether it is about value or whether it's a specialty. If it is about price, you need to accept that it is a commodity. You need to accept that it is about price. And in some places, we have products, which are mostly purchased on price. Just -- let me give you one example just enough to point that one specifically. Bubble Wrap in Europe. There are plenty, plenty manufacturers who do that in their garage. And given the state of the European economy, you've got the purchasing people who are saying, "Bubble Wrap is Bubble Wrap. " No Bubble Wrap is not Bubble Wrap. But they're saying, I'm not prepared to pay a premium. Well, if it is about price, then take out the whole service behind it, and that's weathering out. So what we're doing is -- -- and this gross profit to expense ratio or expense to gross profit ratio is exactly about that. So you get it to gross profit. And if you can't get it to gross profit, take your resources out. But call a spade a spade. Don't be in denial. That's what those guys are doing. Charlie -- sorry, go ahead?
I have a question regarding Diversey in Europe. I have heard, it may not be true, that some of the sales force was kept out. And this is a business where the number of people in the ground is actually quite important. So I was wondering if Ilham could give us a feel for what she's doing out there.
Yes, for sure. I said with -- in my presentation, the new organization principle. And as Carol said, I'm not necessarily restructuring neither. I will get the facts. I will never cut in the matter. When I came into the job and I walked into a country in our organization, I needed to probably to talk to 4 people to understand before increasing prices and what we are doing. Our organization principle was overcomplicated, not simple in a way we manage our customers' decisions. So that's why we reorganized organization, the operational model around 3 principles: Accountability, simplicity, and affordability. We were used to be organized around verticals to specialize our sales and marketing force in each country, around the 5 sectors. But there's nothing wrong with [indiscernible] , I like it. It's about fertilization. It's about being smart, right? And [indiscernible] market but there is a balance to find between generalists and beneficialists. There is an affordability as well which comes through this. The second piece that we had is that we have many managerial level. So we have people managing the sales force at the sector level. And we have the country leaders managing the rest. And this was just not acceptable and not efficient neither. So what I did basically is that I delayered. I call it right size it, that's what we've done so far. I launched my organization mid of July, which by the way was applauded by our associates, as well as by our customers, because they were a bit as well lost in that complexity. So I think we are doing the right thing in term of getting leaner. My management, my leadership, is becoming leaner. So we are 6. We used to be more than 10. And second thing is that we are looking at each sector. And that's why selling contribution is important. Jerome is pushing on us to bring better quality of the business. Gross profit is on, but services and selling contribution is another one. And it's not about cutting services that was the former question. It's about getting the right service to the right sector at the right amount. If you own a restaurant, you may not need me to come and visit your restaurant 3 times a month, right? And sometimes I go there and everything is working, and I go back and then I receive emergency call. We need to have better conversation and dialogue with each customer by sector about what is really needed, right? And I think it's a win-win. It's good for the customer, it's good for us. So all has been done, we're not going to cut in the -- in the people on the street, but our really people who are chasing business. Our business, even 20% is global. We got often, out of all global deals, the license to enhance. Enhancing means we need people on the ground, very locally, very regionally at the country level. So we'll keep investing there.
Wanted to go back and ask a question on the pricing for value point. I think to do it successfully, you need have the difficult conversations with the customer on either raising their price or taking away some of their service in order to have cost of capital returns? And for each of the businesses, you listed some of your top customers that you have -- for those businesses. Can you talk about what inning you're in, in terms of your discussions with those customers on pricing for value, and what the initial feedback has been there?
Jerome A. Peribere
So we're not going to take you into the conference rooms and give you too much detail, but there are 2 types of terms. One is that you first need to recognize that you are in a very competitive world, and we do. And this is why there are all kinds of terms. One is pricing discipline, which is you have contracts or you have negotiations and when you have raw material increase, you just simply can't absorb them in -- with a 6 months lag time or whatever, et cetera, et cetera. You need to have in your formula something which makes sense. So you don't -- you just don't have to absorb those kind of things because it is pay me now or pay me later. And it's just a question of discipline there. The second one is about return on capital investors. And the good conversation is a mature conversation to have, which is, if you Mr. and Mrs. Customer, if you grow at 5% per year, because you have exports or foods or whatever, et cetera, et cetera, you are going to be needing more products. We are the innovator in this industry. We have followers or fast followers, but we are the ones who come with innovative products and solutions. If we can't invest, reinvest. At this point in time, you'll call in and say, "I need more. " And we're going to tell you, "We have no more because we couldn't reinvest." And in that case, who's going to bring the innovation? So those conversations are good conversations. And there is a very short term and there is the longer term. And if our product is commoditized, we've got to recognize it's commoditized. So I'm not worried about those things. And then the next conversation is, what is it that you need to help you grow? And these are very good conversations, and they are extremely successful conversations that we're having with our partners. And once again, let me repeat, you have pricing -- price-driven customers, and you have value-driven customers. All of them are in a competitive world. Some are bottom fishing, and some are value creators. And if you do bottom fishing, your only alternative is to go and squeeze your suppliers. Well it works sometimes, and then, it's going to work less and less. We have to have a return on our capital investment. What did we have last year, 7%?
Carol P. Lowe
Jerome A. Peribere
7% capital investment. All right, just can't -- we don't -- these are not reinvestment economics. But those are good conversations. And we meet with mature people who have their own interest in mind is that and I need Sealed Air to enable me for my future growth. They're very interesting things. We've been meeting several, several, several customers in -- at my level and below. And when we show them the breadth of our -- of the new Sealed Air, the breadth of technologies, those people -- most of the times the reaction is, I had no idea that you could do all of this.
I just wanted to ask question for Carol with respect to the free cash flow. As you work from what's called the mid-point of this year's guidance, $300 million to roughly doubling to $600 million in '16. What are the big buckets? So, I mean, you talked a little bit about CapEx differential? Is there -- 2 pieces there. Is it differential for restructuring cash you're anticipating, number one? Is there a -- it sounds like in 2016, you're talking about resin costs falling a chunk as shale gas comes online? Is there a big working capital differential within there too? Just maybe a little more color on what the buckets are.
Carol P. Lowe
So the key components, the CapEx, $180 million to $200 million, that is in the 2016 number, as compared to $160 million that we're forecasting for 2013. From a cash interest standpoint, we'll be at $255 million in the 2016 number versus the $290 million of cash interest that we expect for 2013. We will have approximately $135 million in restructuring charges that'll flow through for cash flow for 2013. We don't have any in the cash flow model for 2016. With respect to raw material cost and purchase component, the mid-single-digit inflation that we have modeled in, we've actually molded that in for all 3 years within the planning period. So even though we do expect additional capacity to come online in 2016 relative to ethylene, which then will drive through for resin, it's coming online in availability. So we have taken a conservative approach in terms of the raw material cost and aren't modeling in any benefit for that additional supply specific to 2016 because really, reality is, we would expect to see more benefit in periods after 2016.
Jerome A. Peribere
Okay, Charlie? I guess we're going to go to the last question, and you need to know that we are -- as we go to the booth, you're going to have the business presidents and/or the other executives there. So you also can continue and ask questions.
I've been following this thing for about 35 years. So first of all, Dr. Kadri, I am impressed. I got to tell you.
I didn't understand half of the things you said, but I appreciated it. I didn't really appreciate and I'd like some granularity on this. And then I have a somewhat second question is basically, Ecolab, which was one time, I know, 4 years ago, was Economic Laboratory, which was a piece of junk. And then they had a management that basically decided to "circle the world and circle the globe and circle the moon." They went from selling cleaning products to rats -- killing rats to buying Nalco, and now they're buying Champion. They have basically become a larger and larger entity in the world of services to the industrial institutional world. So how do you align yourself up against them because you obviously showed one chart that showed all the areas you participate in and where they are participating. But I don't understand how -- what's the game plan, other than right-sizing and all that, which is fine because you have to do that. But how do you align yourself up competitively? Is this to become a duopoly, you think? Or is it to become everybody's out to kill each other? Or is it going to be something where you're differentiating from them, you're not going to sell rat killing services and boiler treating services, and energy services? How do you align yourself up? And then I have a second question.
Jerome A. Peribere
So Ilham is going to make a comment. What I'd like you -- it's not a duopoly. You add their market share with ours, and it is, by far, below 30%. So that's number one. And number two, we are overlapping in many segments. But there are plenty of segments where we're not. But why don't you...
Well, thank you. It's a great question. First of all, I always respect competition. In my 20 years of experience, it's good to have good competition, all right, because it makes us better. So that's number one statement. Number two, as Jerome said, if you add us but also the others, and I'll come to the others, it's about 1/3 of the market. So when we are -- we were, as well, internally very myopic on number one, two, three. I'm telling to my people, look out there, there is 70% or 80% of the market available to us. Let's come back to our uniqueness and differentiate -- and by the way, I call on you guys to really compare apples with apples, so institutional, the new Diversey Care, it's $2.1 billion. It's the $3 billion probably they have, okay? So that's the number they have to match. Because obviously, as Jerome said, we are not covering the same markets, right? Always. Please, I reminded you, and I wanted you to really take it away from today's presentation, we are the only one in the world, and please come to our booth to see that, that have chemicals, machines, tools, [indiscernible] and consulting, right? In the machines world, we -- there are other competitors than Ecolab, right, et cetera, et cetera. Now you can challenge me. Maybe this is a tough question. You can say, what did you do with this so far? Probably we can do a better job. I'll give you an example. In R&D and Bob knows that our R&D department in the machine was not speaking with chemicals. They were 2 two separated entities. One is [indiscernible] and other one in [indiscernible]. I want our component, our solutions to speak to each other, because when we would supply intelligence machine, supplying the right amount of water of chemical, then we have a unique value proposition. And we are sitting on it. So I actually believe we are not cloning here any other competitor. We are not serial restructurer. We will do whatever I have to do to fix the business. That's why I was hired. But we are reimagining the future of this business. And that's what I try to share with you. It's a system story. It's a knowledge business story. And if you come, we'll share with you some great breakthrough innovations, stories which are amazing and which created the wow moments for me since accepting the job.
Jerome A. Peribere
Thank you. Thank you very much. You can ask your next question in the booth. So with this, we are -- we have a webcast, which is going to close.
Yes. So everybody on the back of your name tags, you have a number, which has a designated group. We'll have the 3 business leaders back at the booth as well for a very product-focused and a very product-centric view. Please join us at the solutions showcase. Thank you.
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