Good morning, ladies and gentlemen, and a very warm welcome to our Capital Markets Day. It's a great pleasure seeing so many of you here joining us today, being interested in Brenntag and our transformation journey. Before we begin, allow me to point out a few housekeeping items. First, let me refer you to the safe harbor statement, which you will find at the beginning of the slide deck. Secondly, today's event is being recorded, and a replay will be available on our website shortly after the event has been concluded. Thirdly, and maybe some of you already have noticed it, we have something special for you today. Actually, today, you can experience our two divisions, Brenntag Essentials and Brenntag Specialties, at our market stands in the registration area.
We have one stand on Brenntag Essentials, we have one stand for Brenntag Specialties Material Science, and we have three stands on Brenntag Specialties Life Science, covering the business units, Nutrition, Beauty & Care, and Pharma. Lastly, if you have any further questions, please don't hesitate to reach out to the IR team. We are more than happy to help with any questions. So what can we expect from today? Today, Christian will be kicking off by giving you an update on Horizon 2 and laying out our path towards Horizon 3. Kristin will then follow by giving you the financial highlights, coming hand in hand with the strategy execution along our path towards Horizon 3, and she will also be giving you an update on our midterm financial figures.
After the two presentation sessions, we have our lunch break, where you're able to connect with our management and also experience the market stands in the reception area. After the lunch break, we have the two divisional deep dives, with Ewout covering Brenntag Essentials and Michael covering Brenntag Specialties. After we have concluded the presentation sessions, we have plenty of time for all of your questions in our Q&A session before we then conclude our Capital Markets Day. So, ladies and gentlemen, having said this, I wish you all a very interesting day, and I now hand over to Christian to kick off the event.
Yes, thank you. Thank you, Thomas. A warm welcome to all of you. It's wonderful to see so many familiar faces. Also, what we saw last year, you know, this time, no tube strike, so you hopefully could make it easily to this location. We, as a Management Board, and I'm particularly very excited to have now the chance to elaborate on what is our path forward towards Horizon 3. So my chapter is actually dealing with the question of mind, driving execution while creating the optionality. That is the theme of the foreseeable future and how Brenntag will evolve, driving execution while creating the optionality. Let me start with that, what we showed you last year was our Strategy to Win Horizon 2, to become easiest to do business with.
This was our goal, and this is what we have just, very diligently, elaborated on and implemented on, and we have delivered against those dimensions, what we promised to you a year ago. A short recap, on the left side, you see the four key themes that our strategic pillars, which we have, defined in Horizon 2, in our Strategy to Win. One is the differentiated steering of our both divisions, that we continue to walk that path, make them more and more independent and autonomous from each other. A very strong focus on our digital and data and excellence journey. We are fundamentally believing in that digital and data-driven, business model and also for Brenntag, in particular, is necessary to stay ahead of the competitive game. Leading the sustainability agenda has been also a very important part of our pillar.
I will talk in that about this in a moment, in more depth. And last but not least, about a year ago, we clearly indicated to you that we will double up our M&A spend, our M&A activities, moving from a EUR 200 million-EUR 250 million spend per year to EUR 400 million-EUR 500 million. And let me summarize, we are on a very good path of delivering against this promise and against these expectations you have. Easiest to do business with, clear reference points I will share with you in a minute, of that we have progressed very well over the last 12 months. Now, today, the focus is on our path towards Horizon 3. You see it here on the right side. And I will talk about five key topics here, but also we'll have...
You will have enough insights created by my colleagues from the board, who will go in-depth into their divisions, but also in-depth into the financial framework of how we are going to drive our company forward. First of all, we will continue and strengthen more and more that those divisions become independent and autonomous from each other. Independent means to disentangle both divisions more and more from each other. Autonomous means providing and moving business services into those divisions, which allows them to steer their business on a more autonomous basis. We will align our divisional portfolios with the requirements we see in the markets. We have already announced pre-summer that we are shifting some businesses and some products. I will elaborate this also later in detail.
And then I will give you a little trailer, a little bit insights into what is really driving Brenntag Essentials and Brenntag Specialties. I would say with some unique insights, in particular in Essentials, what we believe the true potential of that business actually is. Because you have heard me saying in many interactions I had with you, I believe Brenntag Essentials is indeed an underappreciated asset in this company. And last but not least, I will describe and explain to you what is then creating the optionality, and what makes us so confident that we are ready by 2026 for the next strategic steps. Now let us remind us, let us remind us what we are.
Brenntag is the world's leader in chemical and ingredients distribution, and this is a structurally growing and expanding market, which, you know, where we are the leader in that growth area. We have an unparalleled product portfolio available like nobody else in this industry, and a very unique distribution network. With our more than 600 sites, we are covering extensively the world and the countries we are operating in. And of course, we are a trusted partner for our suppliers and our customers, with a more and more digital touch and feel while we are interacting with them, and this is also reflected in the willingness of our company to invest strongly into the digital and data-driven technologies. We are delivering on our strategy.
Since our IPO, Brenntag has delivered consistently 7% EBITDA growth organic, since the IPO, and, it is a very asset-light business model you're familiar with. So the ROCE we have created also, again, since our IPO, even in the worst economic downturns, always was higher than 14%. You will see a much clearer view about those numbers, in Kristin's presentation. So a very asset-light model with a consistent ROCE way above our WACC, and thus creating significant value. We have created EUR 8.2 billion cumulative free cash flow over that period of time, where we have almost returned EUR 3 billion to you, to our shareholders.
The last example of how we return capital to you as shareholders has been, for the first time, our share buyback program, which encompasses about EUR 750 million over 12 months, where we have already executed EUR 500 million as we speak. And that was something which we did announce on the Capital Markets Day a year ago to you, that we will add this way of returning capital to our shareholders to our toolbox. And last but not least, our M&A track record speaks for itself. So we have actually EUR 3.4 billion spent on M&A over that period of time, and have done around 100 acquisitions since the IPO. Why that is?
I will come later into my presentation, why M&A is such a strategic growth lever for us, and, how we are actually delivering against the promises we have made to you, as I said, a year ago, that we will be able to execute about EUR 400 million-EUR 500 million M&A spend every year. And you see, actually, the operating EBITDA, how nicely it is developing, even through crisis, even through difficult, situations. Last year, I still could say, well, there was never a year where EBITDA actually was lower than the year before, but, you know, in 2022, we just had such an exceptional, good year with an element of overearnings, which we have discussed with you many times, which leads that in 2023, according to our guidance, we will have the first time a lower EBITDA than the previous year.
But nevertheless, the growth trajectory and how we can scale our platform, and how we can move our EBITDA growth forward is evident. So a structurally expanding market, world market leader in that, in that market, and actually delivering consistent bankable growth on our EBITDA going forward. There's one thing you can always count on us as a management team in Brenntag, that we will continue to transform consequently and with the right speed and with the right sequence, the transformation of our company. We have embarked on that journey in the year 2020, actually, when we went from the, what we call the pre-Horizon phase, the legacy model of Brenntag, which was a full-line distributor model, into the new operating model, which we have implemented in 2021, after, you know, preparing that step carefully during 2020.
That was Project Brenntag, as you all might remember. The intention was clearly that we need to address why the company could not actually grow organically, and also addressing that the industry we are serving, our suppliers and our customers, have already sorted themselves into those two universes of either specialties player or industrial chemicals player. So there is no justification for a Full-Line Distributor Model, and we will not return to a Full-Line Distributor Model at all going forward. I think this is very clear. Why? Because the market around us has already sorted in those two dimensions. Last year, we showed you Strategy to Win with the four key elements. I have just, I've just described the differentiated divisional strategies.
That was the first time we showed to you how a strategy of essentials will look like, how a strategy of specialties will look like. We will go into much more detail today to give you insights and also new insights, which we have created while living and working in this operating model, which will be shared by Ewout and by Michael later on. Expanding our digital capabilities has been a core of our considerations, become more digital and data-driven, and we have fantastic examples for that. We have teamed up with the best of the best in the technology world, so that we are driving that, because here we have to catch up and actually also gain the leading position, which we have already in sustainability. We are the most sustainable chemical distributor.
This is expressed by an EcoVadis Platinum rating, just as one example. So we are actually also leading the sustainability agenda in our industry. And of course, very strong consolidator in the industry and driving our M&A spend and our M&A investments going forward, but also now taking Horizon 2 to prepare for Horizon 3 and using the time, which we believe is necessary, to move us into that spot where we are then a leader across all dimensions. And that's what we want to share with you today. First of all, how do we execute Horizon 2, and what have we accomplished? Plus, what is now meant by creating the optionality. So the core messages around Horizon 3, you also find on this slide, is around more and more disentangling both divisions to make them more independent and autonomous.
I already explained what those two terms really mean, and we will support them, as a consequence, with a very lean corporate center, because we move business services now into those divisions to strengthen them and make them autonomous, as I said, while we are disentangling them. And the ideas and the consequences that there will be a full business autonomy for those two divisions created in separate legal entities. So we will also clearly start the legal entity separation. Kristin will talk a little bit more in detail about it, but that's the next consequent step to moving to that independent and autonomous setup of our divisions, so that we are ready for the future optionality.
Ready for the future optionality means we are creating this optionality as we are now speaking and as we move into 2024 and 2025, and then we are ready by 2026 for the next strategic steps, which we would like to undertake to really make us leader across all dimensions. Here is a summary of the accomplishments we have done since last year. Once we have showed the first time Horizon 2 to you with those four elements I have already described to you. On the differentiated steering, while we moved into summer, you know, we announced that you will have a pre-summer announcement of how we continue that path for more independent and autonomous divisions.
We announced in July that we actually will reduce the board from five to four members, clearly reflecting already the vision we have for Brenntag going forward, and that we are also strengthening both divisions with the necessary decision-making capabilities to make them, as I said, independent and autonomous. On the digital and data side, we are very proud that we actually are able now to make our data lakes accessible and mineable, and we are using those data lakes now to team up with the best of the best in the industries, depending on the applications we are having. You see here a couple of examples of what our partners, it's Salesforce.com to steer our sales force. It is Workday to stay actually our workforce.
Overall, it is AWS to really make our data lakes accessible and mineable, and of course, Project44, a spin-off of Amazon, where we really want to drive forward our supply chain capabilities and how we manage our supply chains going forward, but actually creating value-added services for our customers with simple things like track and trace. I will not talk about this DiDEX topic today in detail, but you will see how it is actually put to work in the divisions. So Michael and Ewout will share examples of how they put DiDEX now to work, and what does it mean for the day-to-day operation, and what does it mean also how we are acting in the market and drive our growth and our profitability forward.
Because the growth and productivity levers we have implemented, and you see two small examples here, is around the Customer Growth Engine, but also our excellence program, where we are constantly driving productivity in this company, that those growth and productivity levers are actually delivering as we speak and as we go forward. On sustainability, I will share a slide with you in a moment, because that's a very important part of our strategy, because we believe that long-term, only a sustainable portfolio and only a sustainable positioning of that company will actually make you the partner of choice for our suppliers and for our customers in the distribution field. M&A, I mentioned, we doubled up our M&A efforts. We continue to do so. We are on a very good track on delivering, even this year, the EUR 400 million-EUR 500 million.
We still have one or two targets in the pipeline where we are hoping that we can still sign them before the year end. If they slip into January, it's not a big issue, but again, we are negotiating as we speak, and this is where we are confident that we are also delivering on the EUR 400 million-EUR 500 million what we have promised to you last year. This M&A effort, in our planning, adds about a 3% operating EBITDA growth, EBITDA growth, year by year by year. Bankable, executable, and this is what you can count for. Now, easiest to do business with. That was the big headline of last year's strategy. We want to become the company which is easiest to do business with. And I brought you a couple of proof points here with you.
You see the customer Net Promoter Score, then the customer Net Promoter Score we measure basically on a monthly basis, based on, you know, up to 10,000 answers every month from our customers. We have about 200,000 customers worldwide, so we monthly track the Net Promoter Score globally, by division, and can very easily detect where we do have an issue and where we don't have an issue. The nice thing is that the Net Promoter Score since 2020 has moved up from 36 now to 50, which is quite impressive Net Promoter Score for a company like ours, and I think we're continuing the trend. Every month, you know, we see slight improvements on the Net Promoter Score as we go forward.
The Customer Effort Score, this is actually an indicator which is measuring how easy is it for our customers, and in particular our suppliers, to interact with us, and that's a score which goes from 1 - 7. Here we also have significantly improved since 2021 from a score of 2.1 now to 1.9, which is already a very high-end effort scoring which we have accomplished. That tells you that our focus on what is really needed by our supply partners and our customer partners, by setting up those independent and autonomous divisions, is actually paying out, because customers feel that it's easier to interact with us, and they get what they're really looking for. Same applies on the right side to the net promoter score for our employees.
That's also something which we regularly measure, because we want to know where are we on our transformation story, and how do our employees feel about it, and how do they feel being part of that? And that employee net promoter score also has moved up since we started the transformation in 2021, from -1 now to 16. This is something which we are constantly working, trying to understand what the issues are, because easiest to do business with means also that it is easier for our people to work in Brenntag, and actually have good processes in place, which makes it easier for them to perform and actually enjoy working for Brenntag. And we see that measurable progress, as I said, here on this slide, very clearly depicted. ESG rating upgrades, I've talked about EcoVadis Platinum.
That was a big step for our company. We belong now to the top 1% of chemicals of companies which have been assessed by EcoVadis in that space, and that is, I would say, a very strong testament of how we have progressed on our sustainability journey. When I take the four pillars, I will talk in one slide now a little bit more about sustainability and the colleagues, as I said, you know, DiDEX, you will see more and more reflected in the divisions, and on M&A also, Kristin will share more details with you in her presentation. So let me just shift a little bit gears to sustainability. And the sustainability dimensions are, you know, threefold in this case, or, you know, are multidimensional at the end.
One is, you know, reducing our footprint, the other one is improving our handprint, and certainly also that we make sure that we have societal impact as a company. We are using here three examples to show you how we do this, how we reduce our footprint, how we improve our handprint, and how do we actually make an impact on the societal agenda. One thing which is very unique for us as a company, but also very unique for the industry itself, is the so-called Carbon Management Program. The Carbon Management Program, I think I alluded to it almost a year ago, at least in general terms of what we intend to do.
What we're doing here is that, we measure our Scope 1 and Scope 2 CO2 emissions in the company, and actually, based on the CO2 emissions a legal entity has, for example, they need to feed a carbon fund, which is then centrally steered from Brenntag. That, you call it maybe a tax, you call it maybe a punishment, you call it, for me, an ambition to reduce CO2 themselves. Because every year, based on a certain carbon price, carbon CO2 price, which we define in the board, those legal entities actually have the interest to reduce their CO2 footprint because they, again, need to fund the carbon fund by actually having to pay for that carbon fund based on their CO2 emissions. So they have an inherent interest to reduce that.
But that fund then is used to foster programs which are in the, in the organization to reduce CO2 footprint, where we are actually supporting, with the carbon fund, that these investments actually take place. And they are force ranked. How do they create the biggest CO2 impact for the company? Reduction impact, so a CO2 reduction in Scope 1 and Scope 2. And then, you know, out of this carbon fund, this CapEx program, for instance, is funded. And here we have very nice examples. We have now 21 projects already created in 2023, so it's an annual cycle of how we do this. And we have nice programs, for instance, like the first sites, actually trying and putting investment programs into place where they want to become net zero by a certain date.
That's, again, fostering our Scope 1 and Scope 2 emission reduction. The big question on CO2 footprint, you know, is Scope 3, and how Scope 3 can be actually reduced. Scope 3 CO2 emissions is really a very important question also for our customers, but also for our suppliers. And here we have developed the so-called CO2Xplorer. The CO2Xplorer is the only available tool where customers can actually calculate a CO2 footprint, or we provide the CO2 footprint if they purchase a certain product. But not product specific, it is process specific. That means the same product, like a simple molecule, can be manufactured in three different ways across the globe, which all have a different CO2 footprint.
So we can now offer the customers, and you can buy this single molecule you need, but you can choose whether you want to have a low carbon emission product, or you want to have a medium or a higher carbon footprint product. It's basically your decision of how you want to impact your Scope 3, you know, the products you are buying from us, with this kind of CO2Xplorer. That's the only tool which is available. We have received certification, an official certification from the TÜV Rheinland to do this, and it's resonating extremely well with our customers. Because, again, they can now choose and have alternatives of how they can impact their Scope 3 impact or their Scope 3 numbers by choosing the right products going forward.
You see, more and more countries, particularly in Scandinavia, is that many buying and purchasing decisions today are made on, "Can you, Brenntag, provide us the full CO2 footprint of the product basket we are buying from you?" We can today, because we have that tool that can immediately calculate this, the CO2 impact. And the impact on the social dimension, global living wage policies. Sounds simple, but it's a massive, massive step forward. This means how can we be sure as a company, of a global company, that we pay in every country, in every region, living wages?
This is what we have laid out in our ESG framework, what we intend to do, and we have now a global policy in place that we will pay living wages everywhere in the world, and we are one of the first companies who are actually doing that. You will find very few companies who have that global policy in place and actually are acting for that. And we are seeing now, and we're very happy about, that more than 100 employees and their families, and everybody who's associated with them, ensuring now that they really receive living wages everywhere. It's a big step forward for Brenntag, but a channel for the industry, and this is why, you know, the sustainability agenda, as I've said, is a multidimensional agenda. It's about how to reduce your CO2 footprint.
It's about how you reduce, improve your handprint, and also what kind of impact, as one example, you make on the social dimension of ESG. Now, let me switch gears. I have shared with you already that slide. Here on the right side, you see the five core topics I'm talking to you now. It's not about, you know, driving execution in Horizon 2. This is now actually, how does our path to Horizon 3 actually look like? What is the strategy update we can give you today on that path? And these are the five topics I have, I have chosen to talk about. As I said, you will see in the divisional updates, and also in Kristin's presentation, much more granularity here and there.
So I give you now the overview on what is important, and in particular, what does creating future optionality really means for us, going forward. In July, we announced that we will go to independent and autonomous decisions, divisions. We have clearly spelled out that we will now have divisional CEOs driving their Essentials and their Specialties platform, respectively. At this moment, we also reduced the board from five to four members, and this is now what you have today, as a team later on stage. It's Kristin as the CFO, Ewout running Essentials, and Michael, you know, an expert in Specialty Chemicals. This is the new board which we have introduced to you pre-summer in June, July 2023, and where we will go live also with the larger organizational consequences in January first.
So we have prepared over the last four or five months that go live on January 1. We have created in both divisions, so-called executive committees. So those executive committees are groups of 7 - 8 people, who, together with the divisional CEO, is now driving the execution of our strategy in developing the strategic themes, going forward, but making sure that we have a consistent execution in place. But also that we steer those divisions according to the core themes which we have identified in our strategy. And this is, of course, in Brenntag Essentials, lowest cost to serve, using the global network and secure and make sure that we have a safe handling of our products, but also that we much better leverage our global reach with our unique Last Mile delivery capability. As I said, Ewout will talk in detail about it.
Brenntag Specialties, the same thing. We have core themes identified, I will talk about this in a minute, including, in particular, the topic about how to close the performance gap in Specialties. So we will give you more insights into how we are going to do that. So we reduce the board in size from five to four. We create more autonomous and independent decision divisions, and we move the business services step by step into those divisions to make them autonomous, and that's also including the DiDEX initiatives as well. And we have started now, over the last 4 or 5 months, to, for instance, develop the blueprint of how we move HR and HR decision-making into those divisions.
We have developed blueprints of how we move indirect procurement more and more into those divisions, and also certain marketing capabilities, which we would like to see in the divisions being established and then utilized. So a very, I would say, consequent step after we have announced a year ago that we will continue to sharpen the profile of both divisions. In summer, we said we want to make them independent and autonomous, and this, as a consequent, is leading to the setup in those two divisions, supported by a lean corporate center.
The second topic, which I think is important to share, and Kristin will give you more numbers to that, is that after having worked now in this advanced operating model, in this operating model for the last couple of years, we also understood that there are some inconsistencies of how we have designed Brenntag Specialties and Brenntag Essentials once we started that journey, and in 2021. So we took the decision, and we have already communicated this to you, that we will move businesses from Specialties into Essentials. Those two businesses are water treatment and finished lubricants. The reason for it is that their business model and their requirements from the customer's standpoint of view are more resembling an Essentials business, and in particular, the Last Mile delivery capability, which is very, very important, not only in water treatment, but also in lubricants.
So a very consequent move of those businesses out of Specialties into Essentials, but that we also move in various industry segments Brenntag Specialties is addressing, that we also move semi-specialty products into Essentials, because they are most likely and definitely better served out of the Essentials business. On the other hand, we're also moving products out of the Essentials business into Specialties, and that's particular around the Pharma ecosystem. You heard us last year talking about how we understand as Brenntag, that we operate in an ecosystem and what is really required in a certain industry segment. In the Pharma case, it is very important; this is a highly regulated market.
In this highly regulated markets, we need to make sure that the products you are delivering into this regulated market really fulfill also all the regulatory requirements which are there. We have, for instance, as a value-added service in Specialties, just recently built up a stronger regulatory team to address the needs of our Pharma customers as we speak and as we go forward. A clear understanding of what an ecosystem means, what really is necessary to be successful in that ecosystem in Pharma, and that has led us also to the decision to move products out of Essentials into Specialties, in particular for for the Pharma business. Why we also do this is simplify life for our people. You know, the setup we have chosen two or three years ago was on the commercial side, sometimes not so easy to sort through.
We also wanted to make sure that the commercial execution of our people is actually, you know, is actually, you know, easier, easier to do business with, has been the theme, you might remember for Horizon 2, that it becomes also easy for our people to really execute their commercial strategies and execute their commercial activities, more consistent with what we intend to do. So really creating coherence with market requirements, with the business models you need to have in place to serve your customers and your suppliers. That's the reason why we took the decision of those portfolio shifts, and Kristin, again, will show you, granularity will show you what impact it has on our numbers. Now, thirdly, Brenntag Essentials. Again, I'm re-emphasizing, I believe Brenntag Essentials is, at this moment, the underappreciated asset in, in our Brenntag, portfolio.
Why is that? I'm sure once you have seen Ewout's presentation, you better understand in which direction this will evolve. It will clearly focus on three major pillars in Essentials. One is the resilient and structural growth of that market Essentials is acting in. The resilience topic, and the lower volatility that business has, compared to classical chemical producers in the chemical business, is very, very much pronounced. We will show some analysis with you, what we have done, and this is clearly telling us that, you know, what is by perception associated with Essentials, that this is actually a very volatile business, is not so true, and this needs to be revisited and relooked at. Unleashing Brenntag Essentials' true potential, I come to that in a minute, but also let me be very specific on our M&A initiatives.
We will also continue to be a good parent to both divisions. So we will also make M&A in both divisions. It's clearly in Essentials, we have already made good acquisitions this year to strengthen according to the themes, to the Triple, which is in the middle here of that slide. We have done decisive steps to do that, but we will also, of course, spend substantial M&A in Specialties, but here, clearly, clearly focused on the Life Science sector. So that is what we believe, the portfolio shift is required and is necessary to change in the Specialties platform. Michael will talk about this later. But what is the Triple? The Triple is a very simple way of describing the unique setup only Brenntag has in this industry. And this is the Last Mile operations and owning the Last Mile.
I mean, this is what we do very, very well as Brenntag, and this is, you know, what also other distributors do very well. But I believe we have clear indications that we need to become better and even more ahead of the pack, and Ewout will share his thoughts around the Last Mile service operations and what we change organizational-wise to really, really get now the best out of our Last Mile service operations. This, you combine with the regional or intra-regional optimization potential you have. This means, you know, a regional setup you have in Europe, a regional setup you have in North America.
By tearing down the borders of the legal entities, what we did already about 12, 18 months ago, by tearing down the legal entity borders, we, for instance, can now and do ship intra-regional products from country to country, which Brenntag in the past has not done in a region. So we are using that increasing capability of having regional sourcing and supply chain services, which look on the supply to our customers, but also the resupply from our, from our manufacturing partners, in a way to optimize those supply chains within the region. This is what already only few can do. And what nobody can do is actually combining that with the global sourcing and intra-regional optimization. This is only what Brenntag can do. We are the only truly global chemical distributor, where we can ship products from relevant markets to another market.
This is extremely important to maintain supply, even in the worst situations, like we had it in COVID and, and the wars in, the wars which are taking place. So even in those very critical situations, Brenntag, due to its global reach and its global sourcing capability, is actually able to keep supply to the customers and, and take advantage of disparities we have in those markets once in a while. Ewout will share a nice example of how we, for instance, brought in products from North America to Europe, because, you know, there are disparities at this moment as we speak, also on the pricing side, which allows us to really draw on that, on that opportunity. And this is in a nutshell-... in my words, the simple Triple.
You know, you combine something which is the Last Mile operation excellence, you combine it with the intra-regional optimization capability, but you now bring also into the global reach, which is again, a very, very unique setup this business is really enjoying. That's the Triple. The story in Specialties is different. The story in Specialties is how to perform, which has, you know, also very three strong, strong pillars. I will talk about closing Specialties performance gap in a minute, on how we, how we try to do this. This is, I would say, the most imminent task we have at hand here. But again, optimizing the BSP platform in many, many dimensions, Michael will show how he's going to do this, and also how we are delivering consistent growth in that business.
Because that's, you know, I would say, the key challenge we have in specialties, that we actually are catching up with our pure-play specialty, competitors, where we are, you know, having this performance gap, which we fully recognize. I think we have very openly talked about it, over the last 12, 18 months, that we see that, that performance gap, which needs to be closed, and Michael will also talk about how he's going to do it. Now, closing the BSP performance gap, you know, we have a concise plan which has around five themes of how we want to do this.
You have heard me saying frequently that portfolio management, which is here in the middle, is probably one of the key drivers of how we are actually trying to improve or will improve our performance level in specialties, and that has, of course, to do with where we are coming from. The legacy of Brenntag is 150 years, Full-Line Distributor Model, legal entity-driven. That means that in a legal entity, there was a specific decision being taken, and any business was better than no business.
That has left us with, I would say, a legacy setup of our portfolio from a supplier side, but also from a product side, which is, at this moment, disadvantaged, compared to our pure-play players, who have been very, very paranoid, for instance, about how and which competitor they take on, supplier they take on, and which kind of products they are going to distribute. So I think the portfolio upgrade of specialties is, for me, one of the, one of the key topics. The other one is prioritizing the cost base adjustment. I think this is also very important, that we clearly understand what are the cost drivers in specialties and that, that we tackle them. Michael will share with you how he's going to do that, and that we also are more and more focusing on our margin management.
I think also coming from a legacy of a full line distributor, it's sometimes for our people, a long, long way to understand really value-based pricing and what kind of margins, what kind of pricing is really digestible by the markets, and what is a fair price for all the services we are providing. So it's margin management, cost management, portfolio improvement. That's the core. Left and right, you see that our value-added services, I think, is a very good starting point what we have. We are not yet satisfied of how much value contribution we get out of those value-added service. Here, we need to step up, and we will step up to really leverage, everything what we have in place.
The regulatory service team I just mentioned, for instance, one example for that, making sure that we are competitive in the Pharma world and really delivering the services the Pharma customers need from a distributor like ourselves. And then on the right side, very clear, focused M&A. And focused on M&A means that we very clearly focus on acquiring in the Life Science sector. And the intention is that we move the portfolio composition, which today is roughly 70% Life Science, 30% Material Science, to clearly above 80%-85% Life Science only over the next couple of years, also by clearly making steps on M&A in that direction. So those are the two divisions. That's as I said, the short trailer I wanted to share with you. What are the themes? Michael and Ewout will lead you in-depth through those building blocks.
Now let's come to the last focus area I want to talk about, and this is creating the optionality. That's the fifth part. And here, let's again remind us of what we are talking of. And I see long-term investors in Brenntag, but I also see some new faces where you maybe have not yet invested into Brenntag or at least look at, you know, what is chemical distribution all about? What are the drivers of our industry? Let me make a short recap to you. So those are six industry trends I want to share with you. Four are more general, and two are very, very important for us to take our decisions as we move forward. First of all, this is a structurally growing market. Why is it?
Because we have, first of all, the underlying growth of the chemical industry, which we, as a chemical distributor and ingredient distributor, accompany. Secondly, on top of that, there is this unbroken trend of outsourcing. Outsourcing means that many suppliers are trying to reduce the complexity on their side by bringing distributors into the game to handle that complexity for them. As I said, we have 200,000 customers. No producer worldwide has only a close number to that. The average order size of our customers is EUR 4,000 per order. EUR 4,000 per order cannot be managed by a chemical manufacturer. This is why they need somebody who is helping them to serve, actually, that customer base successfully, and that's what Brenntag is, is there, and that's why we are here.
Of course, they also want to reduce complexity on their side, also in particular in times now, when it is quite difficult for them, on a cost position, side, and they also need to reduce headcount and structurally make adjustments, that now the discussions with Brenntag actually start quite intensively on saying, "Can you take over more business from our side? Because we will reduce our headcount in our commercial organizations." That's a typical discussion we have almost every day with key suppliers of how that can happen. So that means that we have a structurally attractive growth market where we are operating in, and we are the world market leader in that growth market, so that's unchanged. The second industry trend is coming from a totally different angle. It's coming from the geopolitical uncertainties, which continue to play a role.
Since I'm CEO in Brenntag since 2020, I think we went from crisis to crisis, right? It was COVID, and then we had, you know, the Suez Canal issue, then we had the ice storm in Houston, then we had the unfortunate Russia-Ukraine war. Now, we have again, geopolitical uncertainties in the Middle East. So that geopolitical uncertainties will certainly not go away. And they require that particular companies like our size and our presence are really prepared to somehow balance out those uncertainties with very flexible supply chains and a global reach within those supply chains. I think we have proven that over and over again, that our customers can rely on us, that we actually are a very strong partner for them, and even in the worst situations, they can maintain operations because we are able to supply product to them.
So this global reach and providing the highest security of supply and the ability, I mentioned before, to optimize product flows and use also disparities in those markets, is positioning Brenntag very, very well in its, leadership and growth position here. The increasing regulations I already mentioned. If you want to operate in the Pharma industry, you need to also address the improving regulations, but the same is true of Food & Nutrition. The same is true also for, for Beauty & Care, and many other areas, but also in the Essentials team, Essentials business, you see increasing regulation needs and a clear request from customers: "Give us a more sustainable product portfolio.
Find the suppliers who are actually helping me to reduce my CO2 footprint." And with the CO2Xplorer I showed to you, we can immediately show him on a screen how we can impact the CO2 footprint by purchasing this product versus that product. And again, not industry average numbers. It's process by process. And a molecule out of a U.S. plant or out of a bio-based plant in Europe or out of a coal-fired plant in Poland have totally different CO2 footprints, and customers can choose now by talking to Brenntag.
We need to drive that going forward, so we will continue to strengthen and to be even more aggressive on our sustainability agenda, because that's the way our customers, and also our suppliers, by the way, are forcing us to go and requesting us to go, but we do it also out of self-understanding. And last, but not least, strong investments into DiDEX. Digital and data-driven models with artificial intelligence-supported decision algorithms are now more and more embedded into our business day by day. Ewout and Michael will talk about this. So we consider, after we had to catch up on the digital and data platform, we are now, you know, making great strides in moving ahead in this investments. So those are the general terms, which I think apply to all, all...
Active in the chemical distribution space, so that's what are the fundamental trends. The point Brenntag has to make is that we stay ahead of the game, and that we actually are determining those trends and are really ahead of it. As I've said, in some areas, we had to catch up, but I think we are now taking over. Trend five and trend six are something we want to share with you how we see the industry in chemical distribution will change going forward. And one is the bifurcation of supplier needs and customer needs between industrial and specialties.
I mean, this was the theme from day one when I joined Brenntag, that I started to explain and saying, "I believe the Full-Line Distributor Model, or I'm convinced the full-time, the Full-Line Distributor Model is obsolete." Because, I was 27 years on the other side of the table, I know exactly what a manufacturer expects from a distributor, and that means: Can you replicate my strategy? And replicating my strategy means having dedicated, resources, dedicated, players on the other side of the table who can really, really replicate your strategy. So that bifurcation into industrial and specialties is something which is one of the key drivers we have to recognize. The other one is that on the M&A side, we see a stronger, M&A consolidation going forward in that space, and I will share some analysis with you.
So the acceleration of how that industry is consolidating is happening as predicted, and it will continue. This is what I think in our bilateral discussions, we have many times discussed about it, this gains speed, and it's happening actually in bigger, bigger moves. So we see the accelerating consolidation and specialization. That means specialty platforms and industrial platforms are scaling. And also, we have, of course, sponsor-backed platforms, which play a very important role, in particular in the specialties field, which is also an, I would say, an element which you carefully need to consider in your decision-making of what does it do to the industry, and how do you need position Brenntag going forward to be part of that movement? So at the end, we want to create those two-...
Independent and autonomous divisions, but also being clearly, clearly in a position to participate in what we believe will be the industry consolidation going forward over the next couple of years. Now let me share a couple of thoughts around the bifurcation of the industrial and the specialty chemicals field. And again, I don't tell you anything new, when you had the chance to talk to us before. On the supplier needs, you clearly see that they have already sorted them very clearly into industrials and into specialty suppliers. And that's the decisive criteria of being successful in chemical distribution. You need to team up with the right suppliers.
The suppliers need to be willing to hand over their valuable product portfolio to you because they believe in you, that you are replicating their strategy in the same way, like their own salespeople are doing it. So you need to have a clear separation for that understanding, because you can't sell a commodity in the morning and a specialty in the afternoon with the same success, with the same focus, with the same understanding. So our suppliers have already clearly sorted themselves. Even if you take large, conglomerates, like the big names you see here and, and many others, the decision-making with which chemical distributor to work with is not done at the top level of that company. It's done at the third level, sometimes fourth level of the company.
This is where a business unit resides in that conglomerate, and that business unit knows exactly what it is. It knows exactly that I'm a Food & Nutrition division in a large conglomerate; I want to have a specialty distributor. And I'm a petrochemical division or a business unit in a large conglomerate; I want to have an industrial savvy and an industrial well-positioned distributor on my side going forward. So even in the large conglomerates, that separation has happened already, as I said, the last 10, 15, 20 years. And it's just consequent that we are disentangling now those two divisions and reflecting the true nature of our business environment. The same is, by the way, true for the customer needs. It's exactly the same here. You know exactly to which customer you're talking. It's either an industrial chemical customer or a specialty customer.
Just to share one number with you, less than 20% of our customers today buy from both divisions. More than 80% buy from either the industrial division or from the specialty division. I think this is again underlining why we are convinced that the Full-Line Distributor Model is actually obsolete. We will not return to a full-line distributor model. We will continue to make those two divisions independent and autonomous and create the optionality afterwards. Now, the consolidation in the chemical distribution field has indeed accelerated, and I want to share just two key numbers with you. On the left-hand side, you see actually what is the market share, and this is sales. You know, the sales market share of the top 50 distributors. I mean, the industry still is extremely fragmented.
We are the world market leader by far, and we have about 5% market share in that industry. So when you take the top 50 distributors, which is already quite a number, and you look on how they have developed from 2017 to 2022, you actually see that their share of the top 50 distributors went up from about 30% to now 40%. So you see that that consolidation is actually gaining speed as we speak, and it's actually, you know, something which you can clearly clearly depict from that from that chart. But you also see that the trend of consolidation and actually gaining speed on that consolidation is backed by the sheer number of deals which have been executed.
Here we share with you a three-year period, 2017 to 2019, pre-COVID, versus 2021 to 2023. You see that there are actually more than 70% more transactions done by the top 50 distributors than in the previous three-year period, before it was distorted by COVID and many other things. It shows you that the M&A process and the M&A and the consolidation of the industry is actually gaining speed, and it's happening in more and more transactions as we speak. Here, I want to show you a different view of how we look at the landscape, incorporating our thinking that we need to discuss about what is happening in industrial chemicals and what is happening into specialty chemicals.
Here we have depicted our competitors and what Brenntag's position is already for Brenntag Essentials and Brenntag Specialties. So we are leader in both dimensions from size. And you see how we actually see the growth rates in the industrial chemicals and in the specialties business. So Kristin will elaborate a little bit on our growth rates later in Specialties and Essentials, and what is underlying, what are actually our growth, our growth—what is our growth formula. But you see that the industrial distribution market is growing 2%-4%. That's expected on 2023-2027, whereas the specialties market is at 3%-5%. That's at least the latest number we have gained and received from relevant consultants who are in that market present.
What you also see is that, you see an incremental, particularly in the specialties field, a number of players who are private equity-backed. You see here, Azelis, you see-- and we took the liberty already to make a mental split for Univar into their industrial chemicals business and into their specialties business, because they also, you know, they have been acquired by private equity. And so we took the liberty to already, you know, according to our understanding, make a rough split into specialties and industrials. You see Caldic, you see Barentz, and you see the private equity-backed players, which are scaling very quickly and very rapidly. And private equity backbone means that actually there are enough financial means to continue the consolidation and really bet on, you know, consolidation steps, and M&A is a core, a core driver.
But you also see that, ownership, by definition, is not for ad infinitum. So change in ownerships are expected at some point of time, because that's the nature of, you know, private equity-owned platforms. So that is what we believe will trigger and drive further consolidation in the industry. And what we are doing right now, preparing Brenntag for what we believe will be the determining movement in this industry in the next coming years. And that means that you need to create that optionality for you, whatever constellation will appear, that you can actively participate in shaping the industry. This is what we have done in the past.
We were the first ones to show that the Full-Line Distributor Model is actually over, and we go into this Essentials and Specialties field, and we want to continue to shape the industry also as we speak, going forward, by clearly having an understanding what are the driving forces of that industry consolidation, and what does it mean for us as Brenntag?
This all, the whole concept, the industry trends, and whatever I have described right, so far to you, the bifurcation of supplier and customers, but also the acceleration of the consolidation and the specialization into specialties and industrials, by, also sponsor-backed platforms, are major driving forces to come up and say: "Okay, we need to make those divisions more independent and autonomous, with a clear corporate governance, where we want to have a highly efficient corporate governance in place, and also the business services, providing the services to those divisions, gradually being moved into those divisions. That we make sure that we have an improved divisional performance, Essentials and Specialties, Michael and Ewout will talk about it, but that we also are put-- that we put ourselves into a position to proactively really drive and shape the industry.
Various work streams have now been put into place, so we have those two divisions, a lean corporate center, and there's various work streams, and I would just want to illustrate of what we are working on in parallel as, over the last couple months, but now also clearly focusing on over the next 18 months. The commercial setup and the organization and operating models, I think this has been already clearly, clearly depicted and, and clearly shown. That was Horizon 1, Horizon 2, so we continue to do this, in particular, when it comes to the operating models. But now we start also, the work streams around legal entity disentanglement. Kristin will share a little bit insights of how we're gonna do this and what is the timeframe for that.
As I said, 18-24 months, this is what we, what we believe is the right time for, for doing this, at least for the big legal entity disentanglements. But also, how do we set up our IT processes, our IT setup, to allow for that disentanglement going forward? And most importantly, how do we separate operations? Again, this is a task which should not be underestimated. We have hundreds and hundreds of sites which are very, very closely entangled, where we need to come to the capability of actually disentangling those site by site, creating service level agreements between both divisions, but also making sure that we have the skills and capabilities and people on the specialty side in place which allow or which are able to really make an educated decision.
Do I, for instance, choose to take services from Brenntag Essentials, or do I go, for instance, to third-party providers because I get a better service level, I get a better cost? So this kind of autonomy, this kind of decision-making, is going into those divisions, and this, again, is the work of 2024 and 2025 to really, really get this prepared and get this implemented. Now, let me summarize. That's actually my last slide I have in my section before I hand then over to Kristin to give you the update on the financial framework. That's our path to Horizon 3. It's not very complicated, it's just a very consequent move of what we described to you last year in November, step by step, moving into Horizon 3, which we shared with you also already last year.
The portfolio sharpening, making sure that the portfolios are reflecting the business models and the requirements we have on the supplier and customer side. Full business autonomy, to really create two independent and autonomous business divisions, actually focus on the performance of both divisions, but also a clear cost focus. Kristin will talk to you about this in a minute. To reset the cost base, that's also an important part, that we are not running into a cost trap here, and we clearly countersteer as we create this autonomy in both divisions, our cost base. Creating the optionality. This is now the legal disentanglement, this is the operational disentanglement, and creating the flexibility to actually proactively shape the future of our industry and being ready for that by 2026.
That's in a nutshell of where we're going to, and now I would like to hand over to Kristin to give you an update on the financial framework. Thank you very much.
Thank you, Christian, and a warm welcome to all of you. You have heard Christian talking about the next steps on our path towards Horizon 3. I will now provide you with an update on our financials, and I will also tell you how that all impacts our financial framework going forward. Let me summarize what I want you to remember out of my presentation. First, we have a resilient business model with a unique global network, with a unique diversification, a countercyclical cash flow profile, and a sustainable earnings growth. Second, we have a strong balance sheet with ample capacity for further investments, which we use for organic growth, value creating M&A activities, and shareholder returns. Third, we will further drive the profitability and the performance of our two divisions. Our organic operating EBITDA will grow by 7%-9% going forward.
Including M&A activities, this CAGR will be 10%-12%. To support that, we will have a close eye at our cost position. We will implement cost out measures of about EUR 300 million per annum by 2027. That will increase our efficiency, and it will also counterbalance inflation. Last, we will further sharpen the profile of our two divisions by shifting to more focused product portfolios. We will make our two divisions more autonomous and more independent. We will prepare our company for further strategic steps. Let me start with the resilience. This has been a key strength of Brenntag across the last couple of years, even in turbulent times and under challenging economic conditions. What is driving this resilience? The key point to mention here is diversification. We offer our suppliers and customers with a truly global reach.
At the same time, more than 50% of our gross profit comes from the Americas, which remains to be a very attractive market. We serve a broad variety of different industries, the Food industry being the strongest, with 14% of share, the Food industry being per se very resilient and constantly growing. Further industries are very well diversified. We have a unique sourcing position with a broad variety of suppliers for our more than 10,000 products. This secures supply for our customers at any time, 24/7 and 365 days a year. We work with more than 180,000 customers. The top ten of our customers stand only for 7% of our revenues. This resilience of our business model and the diversification are also reflected in our financial performance.
We have been able to protect and even to grow our results in the last couple of years, during the financial crisis, during the COVID pandemic, and also in other uncertain times. Since 2010, we have grown our operating EBITDA with a CAGR of 7%. As it is already reflected in our guidance, the results for 2023 will be below the extraordinary results in 2022. The decline is a result of the exceptional market conditions, with extraordinary pricing in an inflationary market. On top of the EBITDA expansion, we have a strong and resilient ROCE, which is constantly and significantly above our WACC of 6%-9%. This demonstrates the bankable financial delivery of our business model. We have a countercyclical cash flow profile, as working capital is being released if revenue growth slows.
In weaker growth environment, we continue with our value creating and build on M&A activities, driving synergy realization. M&A is a core element of our strategy and also enables future growth. We can build here on a very strong track record, which I will demonstrate on the next slide. Brenntag has been the leading consolidator of the market. Since 2010, we have acquired around 100 companies with more than EUR 5 billion of revenues... In 2023 alone, we have acquired seven companies, the latest one being Old World Industries. We have spent EUR 3.4 billion for those 100 companies, at an average level, at an average EBITDA multiple, of 8x pre-synergies, which is well below the average multiple of Brenntag. To put it in other words, 3% of our operating EBITDA growth has been generated by the acquired companies.
Going forward, we will enhance technical capabilities and market positions, especially in the EMEA emerging markets, and we will selectively fill white spots in both divisions for Brenntag Specialties and also for Brenntag Essentials. In Brenntag Specialties, we will focus on Life Science industries, which is Food & Nutrition, Beauty & Care, and also the Pharma business, as we have done so already since 2020. Our pipeline is nicely filled. We have more than 400 potential targets on our list. With some of them, we are in close discussions. But we will stay financially disciplined, and we will also make sure that we properly integrate those targets. Let us have a look at our product portfolio. While we implement the measures out of our Horizon 2 strategy, we will further sharpen and strengthen our product portfolios. Christian described it already.
Beginning in January 2024, we will shift some products and businesses between the two divisions in order to better harmonize the product portfolios of the respective division. That will increase the coherence within the divisions. We will create two ecosystems for water treatment in Brenntag Essentials and for Pharma in Brenntag Specialties. That will help us to streamline our go-to-market process and to better serve our customers and suppliers. The centralization of the Pharma activities will help us to unlock further opportunities. We observed an overlap in the capabilities in a highly regulated market, and therefore, the centralization helps us to further to make our go-to-market approach more efficient. The same applies for water treatment. Brenntag Essentials and Brenntag Specialties frequently serve the same customers, and therefore, they are working closely together.
After further analysis, we decided to bring all the water treatment activities under the roof of Brenntag Essentials because of the high commodity share of that business. On top of the finished lubricants business, we will move certain semi-specialty products from Food & Nutrition, Pharma, Beauty & Care, and Material Science to Brenntag Essentials. All these shifts will increase the value creation potential. But what does that mean for our financials? You can see it on the, in the top. Water treatment, finished lubricants, and the selected semi-specialty products will be moved to Brenntag Essentials, whilst all Pharma activities will be combined under the roof of Brenntag Specialties. First of all, that will make us more efficient and will also make sure that we realize the synergies.
On a divisional level, the share of the gross profit of Brenntag Essentials will increase from 60%-70%. The conversion ratio from Brenntag Specialties will increase by 1% to 38%-40%. All those numbers are based on the pro forma numbers for 2023. At the same time, we will make some adjustments on our segment reporting. For Brenntag Specialties, we will move from a region segment reporting to an industry, a global industry segment reporting, i.e., Life Science and Material Science. For Brenntag Essentials, we will continue to report the business in regional segments. On top of that, we will move our business activities out of all other segments to Brenntag Essentials. Let us have a look at our cost position and at our more efficient structure going forward.
The sharpening of the profiles of the two divisions and the transfer of the functions into the divisions will enable the two divisions to have a fit-for-purpose cost structure, supported by a lean corporate center. Of course, we will continue to execute our Horizon 2 strategy, as also the DiDEX program. We will move the responsibility for the execution of the DiDEX program into the divisions. That will increase the accountability and the speed of the implementation. We have identified three key areas for additional cost-out measures. First, the G&A costs in the new operating model and function set up. Second, the end-to-end indirect spend management, and third, the supply chain costs. Let me give you one example for each of those categories. In the supply chain costs, we will further optimize our site network.
We will further reduce the number of sites in that network, and Ewout will elaborate a little bit more on that in the afternoon session. In the indirect spend management, we will consolidate the indirect spend across organizational units and also regions. We will implement and harmonize SAP system to increase the efficiency of our processes, and that will bring us into the position to reduce G&A costs. In sum, we expect these cost-out measures, which also include the bottom line DiDEX benefits, to be at around EUR 300 million per annum by 2027. This will increase the conversion ratio, and it will also counterbalance inflation. Nonetheless, as we expect our volumes to increase, we also expect our absolute operating expenses to increase, as you can imagine. Overall, we will further strengthen the culture of continuous improvement in our company.
Before I come to the financial guidance, let me take a moment to break out our growth into the individual components and to describe them a little bit more in detail. Before I do that, I will give you some details on our priorities going forward. First of all, as I said it already, we will continue with the existing measures and initiatives. We want to make the two division fully autonomous, and we want also to sharpen and strengthen the profile of the two divisions. To do that, we will legally separate the operation entities in all countries. We will get started with two countries, and then roll it out globally. In parallel, we will also start the operational disentanglement, for example, by making adjustments on our IT landscape and on our supply chain setup. That will help to make the two divisions more independent.
The legal separation and also the implementation of our product portfolio shifts will start at the beginning of 2024. In parallel, we will make sure that we further strengthen and improve the profiles of the two divisions by executing the differentiated growth strategies of the divisions, and Michael and Ewout explain them in more detail in the afternoon sessions. By 2026, we will have shaped two divisions, which are leaders across all dimensions and which have the full autonomy. We will prepare our company for further strategic steps. Now I come really to our growth formula, and you can see on the next slide how that is building, how that is built. First of all, on top of the market growth, which we suppose to be between 2% and 4% annually, we will see continued outsourcing trends.
The chemical distribution market is still a fraction only of the overall chemicals market, and therefore, we see further room for organic growth. On top of that, we have the divisional growth strategies, which are explained by Michael and Ewout later on, and we have our cost-out initiatives, which I mentioned before. Each of them will be contributing 2% to our organic growth. On top of that, we will continue with the realization of our inorganic growth by value creating M&A activities. These will continue to contribute 3% to our growth formula. All in all, that sums up to a CAGR of 10%-12% in terms of operating EBITDA. If you take out the M&A activities, the CAGR will be at 7%-9%.
Let us move to the financial guidance and also the key metrics, which I will display on the next slide for both the two divisions and also on group level. The basis for the financial guidance is the outlook for 2023. On group level, the operating gross profit will grow with a CAGR of 4%-7%, while the EBITDA will grow with a CAGR between 7%-9%. That will result in a conversion ratio of 35%-37% by 2027. For Brenntag Essentials, we will see a CAGR of 4%-6% on operating gross profit level, while the EBITDA will grow with 5%-7% on an annual basis. We will realize a conversion ratio of 32%-34% by 2027.
For Brenntag Essentials, the operating gross profit will grow by 5%-7%, while the operating EBITDA will grow by 7%-9%. This will result in a conversion ratio of 43%-45%. It is important to notice that these numbers include our DiDEX program benefits, and also the cost-out measures I mentioned before, but it excludes the inorganic growth we also foresee. As we have discussed it already during the capital markets last year, we will have one-off costs for the implementation of the DiDEX program and also for the implementation of a harmonized SAP system. We expect these costs to be at around EUR 250 million until 2027. We will continue to report these costs within the operating EBITDA, or, if applicable, in the CapEx numbers.
We expect these costs to be front-loaded and also to impact the result for 2024. In addition to that, and this is new, we have additional costs to achieve the new cost-out measures and also the legal and operations separation. We expect these costs to be in a range of around EUR 450 million-EUR 650 million until 2027. These costs also include tax leakage from the legal separation. We will report these costs below the operating EBITDA as a special item. This range is a first assessment, and it is broadly in line with similar reference cases of a similar size. We expect the majority of those costs to occur in the middle of the planning horizon. Having this guidance in mind, let us come to our capital allocation framework.
We will spend between EUR 300 million and EUR 400 million per annum as CapEx, and Michael and Ewout will explain later on the reason for the slightly increased CapEx guidance. We will continue to spend EUR 400 million-EUR 500 million annually for value-creating M&A activities. In line with growth strategies of the two divisions, our growth will be built on both organic reinvestments and value-creating M&A activities. We will distribute 35%-50% of our profit after tax as dividends, as we have done so already in the past. We will consider additional capital returns if that maximizes the value for our shareholders. In 2023, we have paid EUR 305 million as a dividend, which equals EUR 2 per share, and in addition, we have executed the first tranche of our share buyback program with EUR 500 million.
The second tranche of EUR 250 million will be initiated in due course. The boundaries of our capital allocation framework are to keep an investment-grade credit rating and to have a target leverage of 2x. Currently, our leverage stands at 1.4x, which is well below the target of 2x. This gives us sufficient flexibility to finance the next steps of Brenntag's journey. In conclusion, first, we have a resilient business with a unique network, a unique diversification, a countercyclical free-cash flow profile, and a sustainable earnings growth. Second, we have a strong balance sheet with ample capacity for further investments, which we will use for organic growth, M&A activities, and shareholder returns. Third, we will further sharpen the profiles of the two divisions. Our operating EBITDA will grow by 7%-9% annually...
If you include our M&A activities, the CAGR will be between 10%-12%. To support that, we will have a close eye at our cost position, and we will implement cost out measures of around EUR 300 million per annum by 2027. This will increase the efficiency, and will also counterbalance inflation. We will further sharpen the profiles of our two divisions by shifting towards more focused product portfolios. We will make the two divisions more autonomous and more independent, and we will prepare our company for future strategic steps. With this, I will hand back to Thomas.
Thank you, Kristin. So, ladies and gentlemen, I hope you enjoyed the first part of the CMD. We now have the lunch break. I kindly ask you to be back here at 12:30 P.M., and with that, I wish you all good discussions and a good lunch.
Good afternoon. We've not talked about this. We've not talked about how we'll unleash the true potential of Brenntag Essentials, how we will turbocharge everything that we've got to accelerate our growth. Quite frankly speaking, this afternoon won't be sufficient to go into all the details for how we will unlock the true potential. My name is Ewout van Jarwaarde, and I'm CEO of Brenntag Essentials, and also on my behalf, a very warm welcome. What we're going to talk about this afternoon, I'm really looking forward to share with you why Brenntag Essentials is resilient and structurally growing. We're going to the nitty-gritty of what's really driving that structural resilience. We'll go into how we'll drive up our performance through our performance enhancement program, building on The Triple business model that Christian already started to talk about.
However, also tapping into the unique network opportunities that are only accessible to us. On top, we've redefined our M & A strategy to accelerate our growth even further. Let's get started. We are operating in a highly attractive, globally growing distribution market with structured tailwinds. So what's driving these tailwinds? Well, firstly, our customers, our suppliers, they're looking for a partner, a partner to whom they can outsource their complexity to, to drive their own cost efficiencies. And that has never been a more important theme than it is right now, given where the chemical industry is at globally. Secondly, they're looking for a partner that can offer supply chain reliability. Thirdly, they're looking for a partner that's able to offer value-added services close to the local demand centers everywhere in the world.
Lastly, in this world, with increasing regulation and the growing complexity of tackling the sustainability challenge together, they're looking for a partner that, quite frankly, can help them to execute safely and reliably and compliantly to all of those standards. We are the undisputed market leader. We have around 7% market share, and it offers a huge opportunity in this heavily fragmented market. It's also a great foundation, as we'll talk to you about later, as it provides us with significant scope to capture this intrinsic growth and drive market consolidation, and we're very well positioned to do just that. Why is that? Well, the Brenntag Essentials platform is a market-leading industrial distribution platform with immense scale and a very strong cash conversion, around 70% throughout the cycle.
We have a global reach, owning hundreds, owning the Last Mile, operating hundreds of sites across our 70 countries globally. With that local market reach, we reach deep in the high demand centers globally. So more than 80% of those high demand centers globally, we have within a same-day delivery. That's unique by any dimension and by any size, for any distribution platform in the world. But in addition, just look at those transactions. There's no one else in the industry that's doing more transactions than we do on a day-to-day basis, annually, adding up to more over 10 million in Brenntag Essentials alone. Whereas we love those transactions, just think about the potential of that data that it's going to offer us to optimize our services and drive value-added services to our customers over time.
Lastly, we are highly diversified from an end market perspective, from a geographical perspective, and from a product range perspective. It's exactly this vast diversification that decouples our financial model from chemical producers, and chemical markets overall. Makes the profitability of Brenntag Essentials very much in line with our industrial distributor peers. This creates a unique, resilient, and structurally growing distribution platform. Out of all the pages in the presentation, this is probably the one I truly want you to remember. Because what you see on this presentation, on the left-hand side, you see the year-over-year growth rates. You see in the purple dot, that dotted line, the commodity chemical sales. You see in the blue dotted line, the producer sales.
In the pink line, the industrial distributor GP, and the thick, dark line is the GP year-over-year growth for Brenntag Essentials over the last 10 years. And what you can clearly see is our strong resilience through the cycle. But there's more. Just look at those consecutive growth years. 10 out of 10 consecutive growth years overall, with an average GP CAGR of over 6%, putting us right in line with the best-in-class chemical distributor peers. And you see this resilience also reflected in the growth volatility over that same period. Because if you rank that growth volatility, ranking from the highest growth volatility to the lowest, you can clearly see chemical producer sales, more volatile, less volatile versus the chemical commodity markets.
Even better are the industrial distributor GP year-over-year volatility, and Brenntag Essentials clearly leading the pack amongst those couple of peer groups. And so you may ask yourself, "What makes this platform that we didn't hear about so resilient and structurally growing?" It sits in the unique business model that we run, the Triple business model, as we call it in Brenntag. Serving the needs of our customers and suppliers on a local, regional, and global level. So let me talk to you about what this is all about. At the heart of our business model, we have our last-mile operations, where we offer a broad range of products and services into those local demand centers everywhere in the world. This is also where our team's providing service excellence at the highest cost efficiency levels. It's a repeatable model everywhere where we are globally.
And on top, we started to build our regional sourcing and our supply chain capabilities, leveraging our unique regional reach, being able to source our products across the region, but also really optimizing through our infrastructure, the access into the regions. This is what we call our Toll Gates, and we'll come back to that later. But also managing the entire first mile, all the way from the access to the region, onto the rack of our last-mile warehouses. Globally, we offer unrivaled global scale, access, and insight through our inter-regional optimization and global sourcing capabilities. And the great thing about this business model is that every single pillar, every one of the three, is accretive and is driving our growth independently. But there's more.
We're increasingly tapping into the network optionalities that this unique setup has created, and this is actually helping us off the back of our structurally growing the local last-mile demands, and resilience in that Last Mile, creating all those untapped opportunities for us across the globe. The best thing just yet, if you think about this as a platform business, there's no one else in the world that can cater to the needs of our customers and supply partners in a similar way. Because through this Triple strategy, we meet customer and supply partner needs across all layers into the value chain. Let me start to peel the onion for you.
At the global level, we provide access to products globally to our customers, and to our suppliers, we provide actually market insights and access, access to demands that otherwise they wouldn't be able to tap into. At the regional level, we support our customers and supply partners in efficiently managing their supply chains, driving actually and supporting them on their sustainability journey, and optimizing their end-to-end inventory levels. At the local level, through our ownership of the Last Mile, we are a trusted partner for our customers, offering safe, cost-efficient, and reliable delivery. And the best thing of this all is, there's no one in the industry that can do this. Our business model is unrivaled amongst our competitors, who do not have the same skill. They do not have the same depth to match our capability, nor the cash flow to invest in getting to such footprints.
This is the case at local level, where many smaller competitors cannot compete with the efficiency of our regional and global core operations. This is the case at the regional level, where there is no one else versus ourselves. With regional infrastructure in every continent, being able to play that network, those network optionalities. This is particularly true for our global capabilities, where we are able to optimize for volume and price, backed by a regional and local demand. Overall, there's just no one that can provide these services and offer access to the unique network, network opportunities our business model offers. Let me go through the unique capabilities in each of the Triple of our business model. Starting with our Last Mile.
Our dense local Last Mile distribution network is highly coveted by our suppliers, offering access to thousands of customers, thousands and thousands of customers in over 70 countries. We possess local market knowledge, we drive Last Mile service excellence through customer proximity, bundled in roughly around 100 Last Mile service operations that are principally doing all the same thing everywhere in the world. And let me give you an example. Now, just going here into the U.K.. The U.K. Central, from where we're covering the high-demand centers of Liverpool, Manchester, Leeds, and Newcastle. Here, our team of 125 colleagues, all focused on driving service excellence and making those deliveries, are making over 45,000 deliveries coming from these three sites with our 30 trucks in that region.
The best thing just yet, with this very simple setup, they're generating over EUR 200 million of revenue per year. But there's a little bit more to that Last Mile operation, because this is also the place where we actually put all of our value-added services. So think here about our bulk breaking, our packaging capabilities, our mixing and blending operations, in addition to the broad product and services catalog that we offer everywhere in the world. And you know, the great thing about operating a Last Mile distribution business, that once you get to a certain density and you start to get to and you start to grow the density, you get into a virtuous circle. Because more volume means more cost efficiency. More cost efficiency means you can invest more in customer service and differentiation.
With customers being more happy, they will likely place more orders, leading to more transactions. With more transactions moving over your platform, you attract more supplier, a broader range of product catalogs, and with that, you attract more customers and grow. That's actually how all of these Last Mile Operations are growing continuously over time. It's also the beauty of our model. No matter where you go, our thousands of employees are actually focused on executing this to very well serve our customers and supply partners in those local markets. You see that passion, and you see that dedication, by the way, everywhere you go in our operation. But specifically on this page, in a Net Promoter Score of 51. Christian talked about it before, but this is just a high number by any standard in any industry.
So let's take a look at the next pillar of our business model. Our regional sourcing and supply chain services network is critical in supporting our Last Mile operations and manage our network optionalities. And so what is this all about? Well, firstly, we manage the sourcing of major products from our regional toll gates in over 20 countries globally, where we stream all those product flows from our toll gates onto the rack of our Last Mile operation. And so, for example, here in the Southeast of the U.S., where we've put in place actually what we call a mesh, a network overlay, really connecting all of the dots to allow us to transport our products in the most cost-efficient and reliable way.
We've guaranteed ourselves access to deep sea water ports, barge terminals, rail infrastructure, and actually road transportation, which we'll be playing, depending on the product, depending on the time, to be able to always move products efficiently and effectively and reliably across our network. And with our skill, our knowledge, and access to infrastructure, we can offer these services at truly competitive cost levels. Now, in addition, we're leveraging our regional capabilities. We have amazing product teams that know everything about over a hundred products that we're sourcing through in each region. They understand the supplier positions, they understand the pricing, they understand the volume developments. And that means that even at the most pressing times, our teams will be ready to serve our customers, and even better so, I would say, serve the world.
I mean, you all probably know still from the COVID times, that the immediate periods around 2020, when COVID came up, and all of a sudden there was a surge in demand for hand sanitizer. One of the key ingredients into hand sanitizer is actually ethanol. And so you can imagine with that incredible demand uptick, there was actually a shortage in ethanol. And what our product teams did with all the knowledge they had, they gained access to that unique supplier, streamline the supply chain, and made sure that actually that product landed exactly into the right manufacturing spots to serve actually the world's needs.
Although that's a very vast disruption, there are a lot of those examples, just on a day-to-day basis, where our teams are making all the supply chains work end-to-end, and obviously, making a difference for our customers, for our supply partners, and of course, also a good profit to us. This type of infrastructure is not something you can buy. This type of infrastructure is not something you can easily build. It's something that only we can deliver. Let's now take a look at the third pillar as how do we connect we, how we connect everything globally. At the global level, we connect our unrivaled local distribution network with an extensive global sourcing and inter-regional optimization capability. And just think about this: we have access to all the supply globally, and we know the amount of our customers.
We always say in Brenntag, probably we know the demand of our customers even better than they know the, the demand themselves, because of the rich data and the history of our relationships that we have with these customers everywhere in the world. Leveraging our relationships and leveraging that unique data, we can move products across the world and benefit from the network optionalities, which are intrinsically built into our business model. This is where we leverage our regional toll gates. Let's take a look at Rotterdam. This is one of our sites, our regional toll gate sites in the world, where we have actually multiple shipping lanes coming into the port of Rotterdam, and then actually backfilling the entire demand through proprietary access to barge, to rail, and road transportation, moving to the backland of Europe over time.
And it's truly our global scale and leverage, in combination with our superior market intelligence, that allows us to harness this optionality and exploit optimization opportunities to ensure competitive sourcing anywhere around the world, while ensuring security of supply in our regional and local networks at any moment in time. And this is just the foundation. So let's take a look at what we're going to do to actually turbocharge that Triple and unleash the true potential of our growth going forward. We have a detailed strategy to execute along each aspect of the pillars of the Triple, delivering a 5%-7% organic EBITDA CAGR in the medium term. And the great thing is, we have all of this in our own hands. Everything that we're talking about, we can execute independently within Brenntag.
Let's take a look at how we get there. Christian and Kristin before talked about the shift of portfolio from Brenntag Specialties and Brenntag Essentials, which will just give us a higher base. We're now actually at the lower end of the cycle, and so through market recovery or normal market growth, we'll together with our improvement initiatives, we will more than offset any inflationary pressure that we'll see over the coming years, driving actually that accelerated growth. And how we'll do that? We'll unleash the true potential of the Triple. But there's a further upside. I talked to you about how we've redefined our M&A strategy, really tapping and creating more access to leading positions in our last-mile operations, getting to that critical density that allows that virtuous cycle to really take off.
We actually invest in white spots. We'll reinvest in regional infrastructure to the extent that we need to, to accelerate our growth even further. And so let's take a look at how we get there by going through the different pillars one by one by one. At the local level, we're driving operational excellence through these initiatives. And there are three. It's actually reversing our last-mile operations to the mean. It's a next wave of site network optimization and driving the implementation of our digital data and excellence program. And some of you may say, "Well, Ewout, but, this local thing, didn't you do that already for the last 150 years?" "The answer is yes. The last-mile operation sits in our DNA, and it is what Brenntag has been founded on.
The reality today is, depending on where you go in the world, we may not have organized for that that way. We may not have created actually that local ownership with proper P&Ls at the last-mile operations level to really drive and accelerate the growth in a way that I talked about before. So we'll set that up in a common way throughout the group under a common performance framework. This will obviously have a number of positive impacts. It will actually drive up our GP, it will improve our conversion rates, and will actually further improve our customer net promoter score. I'll go into details on each of the... On the following pages, on a couple of examples on how we get there.
We've organized our global network of sites around 100 last-mile service operations, and those last-mile service operations are truly at the heart of our operations globally. It's a place where our salespeople, our local procurement teams, our operational teams, and drivers really connect. And one of the things that we have in that repeatable model is pretty much the same model in all those 100 locations. So what we are doing is we're putting in place a common performance framework, tracking actually quite operational KPIs. We're creating peer groups across the group to make sure that we have comparability. And you can just imagine, if you have access to that data and that level type of operational performance transparency, it's a very small step to stack rank them. And that's exactly what you see illustrated on the right-hand side of the page.
Just think about stack ranking the Last Mile service operations, with the most efficient being on the left-hand side in terms of warehouse OpEx per ton, and the least efficient being on the right-hand side. Just by driving the fourth quartile to the third quartile level, we always already gain around 10% cost improvements. Taking it to the mean, it will be significantly more than 10%. We won't only be doing this on this metric. We have actually a vast area of KPIs that we'll be monitoring on the supply chain side, on the service side, but also on the sales productivity side. Allowing us to tap into that untapped potential of Brenntag and managing it in a way that we've never managed the company before. Let me give you another example.
We have an exciting portfolio of sites which we have optimized through our Horizon 1, and started to also optimize through our Horizon 2. You may recall from Project Brenntag, we announced a hundred site closures, which we completed successfully. In addition, we announced the next wave of site network optimization earlier this year, with 25 site closures already completed this year alone. We'll continue on that journey going forward. Obviously, what this will bring, it will bring us efficiency, it will bring us scale overall. But there's more. We're also going to invest into our supply chain capabilities. We're going to invest in expanding our sites with value-added services that our customers and suppliers are looking for. We're going to invest into the quality of our network, particularly when it comes to safety, sustainability, and reliability.
But we're also going to invest when we bundle those sites into warehouses that are not just fit for now, but also fit for the future by expanding their capacity overall. Let me give you some examples. Recently, we opened our new energy services hub in Maurice, Louisiana, from where we are actually serving deep-sea drilling in the Gulf of Mexico. We never had those unique value-added services capabilities, but with this site, we tap into a very attractive, very good market for us to drive our growth forward. Let me give you another example.
In Moerdijk, in the Netherlands, we recently consolidated three of our sites into the Moerdijk facility, which gives us access to a much broader scale and capability in the local market, making this now one of the leading warehouses for this scope in the Netherlands. And lastly, we expanded into China, a very attractive growth market for us, where through the Zhangjiagang site, close to Shanghai, we're now catering to that Last Mile operation and at a size that could really cater to actually getting into the virtuous growth cycle in China as well. And there's more that we are doing. Last year, I stood before you and I announced the Digital Data and Excellence program, and I'm very happy to share with you that we've progressed very well.
We've launched our omnichannel platform, and within actually a year after launch of the program, that omnichannel platform is already catering to more than 60% of our overall GP. It's a unique platform, putting our customers and putting our supply partners really at the heart of what we do, among any commercial channel that we have in Brenntag. But we also started to tap into the unique data capabilities that we have. Firstly, by creating full transparency around our supply chain. We talked about track and trace last year. We have track and trace now globally live, tracking ocean shipments, and we're expanding this now into our regional supply chain, particularly focused on rail, on all of our inbounds and outbounds trucking transportation. The great thing is, this is a great service to our customers, who like actually the reliability of our tracking data.
What we're also starting to use this for, is to start to manage our inventories in motion, where there's a significant further improvement potential for us going forward. Last year, I talked to you about the Customer Growth Engine, and you may recall that we made a commitment. We said, "You know, we are going to get to over 1 million relevant customer-based recommendations from this AI engine." And already by the end of the third quarter this year, we achieved 1.2 million. We have our sales teams using this tool everywhere across the globe, knowing just one step ahead of the customer, of what that customer needs and what that customer wants, further driving up our efficiency and further driving up the proximity to our customers everywhere in the world.
But let me also share with you how we're leveraging our data platform when it comes to generative AI... We're leveraging our state-of-the-art data platform, which we set up on AWS, to tap into the unique opportunities. And you can imagine, in a business like ours, that there's still a lot of emails floating around. And no matter how well you are integrated through APIs, through EDIs, through digital platforms, there's still lots of emails floating around, millions and millions of order-related emails.
We said to ourselves, "Well, with these large language models, they can actually pretty much interpret any email." We'll start to run all of our incoming emails actually through this engine, and they will ingest it, and they will actually start to prepopulate, actually, for our sales teams and our customer service teams with all the data that it's providing. Well, firstly, generating a unique efficiency, because the processing time per email is going down. But now taking a little bit of a forward-looking perspective, if you have AI ingesting, you're ingesting this data and populating this into our Salesforce system to automatically process an order, the AI also knows what data is missing. So can we actually then program it in a way to play this back to our customers?
Can we actually train our models to proactively reach out back to our customers whenever there's changed in terms of order notification and order windows? And although that may sound futuristic, the reality is technology can do it. We just need to enable this on our platform, and we're very well on the way on tapping into the potential that generative AI has also in our business. And I can share with you, there are more uses, use cases that we're working on that at some point will come to market. And finally, I mean, with all that vast amount of transactional data, obviously, we have all the price curves in the world, and we've really embarked now on a journey of getting those properly into models to expedite our speed to market, be there faster with our suppliers and much faster with our customers.
Great progress on all dimensions of the DiDEX program overall. So let me talk to you about the second pillar overall, and this is how we really built our regional sourcing and supply capabilities to drive efficiencies. And there are a couple of things that we're doing. Well, firstly, we're structuring our organization in a way that can actually tap into these network optionalities. We increased the regionally sourced product portfolio, currently being around 100 products, to more products to be covered through those teams. And at a regional level, we're really optimizing that, we're optimizing the flow. We're investing into our toll gates to really serve our networks, overall, to make sure that we have access, and we can actually build these network optionalities in what we do. We leverage our data that we talked about on our digital demand forecasting.
That's actually highly interesting to our suppliers because they all want to know as well, what's happening in the markets? How can you actually drive supply, and how can we actually monetize those trends that are in the market? We have the data, and we're productizing it actually for our suppliers and for our customers overall. And thirdly, and Christian talked about this, this is also the place where we're going to drive sustainability. Christian shared the example of the CO2Xplorer. So literally, all of our sales teams across the world are equipped with this tool. They're having conversations with our customers. We're scanning the portfolios of chemicals that our customers are buying with our tool and coming up with very tangible concrete suggestions on how we can reduce the CO2 emissions.
And sometimes, changing one chemical or exactly the same chemical from a molecule perspective, can have a vast difference in the CO2 emissions that are associated with it, because the chemical was just produced in a different way. That's information that's not accessible to our customers. We have the data, we have the tool to provide actually an end-to-end Scope 3 emission on those programs, and with that, are helping our customers step by step by step, to reduce their CO2 emission tonnages. So now moving to the third pillar. Let's look at how we leverage our global footprint in our interregional optimization and global sourcing. Given the ability and skill and access to data in our, in our interregional model, we have a unique opportunity to capture these optimization opportunities.
This will enable us to drive up our growth and profitability, while we ensure that our customers have access to demands they are looking for, and our suppliers have access... their customers have access to the supply they're looking for, and our suppliers have access to the demands they are seeking, which may actually sit out of the region that they're operating. This is one of those partnerships that is actually mutually beneficial to all parties involved. So we expanded our global interregional optimization team with our data, looking at our global global data trade flows, the pricing, and how we leverage the insights and digital to ensure that we have the right products at the right time in the right place.
For example, when you see just a curve that I'm sure I don't have to explain to any of you, you see this actually reflected on the right-hand side. For this particular chemical, the European market was short, the U.S. market was long, and obviously, that offered quite a broad optimization opportunity. So we worked with our supplier, we looked at actually demands and started to make that match over time. In a world that is geopolitically decoupling, where we're starting to get more trade blocks between the Americas, Europe, and Asia, we'll see more and more of those opportunities going forward. We are uniquely positioned to capture these opportunities, to work with our suppliers, and to tap into those long and short positions over time.
There's simply no competitor that can actually do this, backs up with the regional and local demands that we have everywhere in the world. That's what makes us, yet again, a unique player. Now, having covered the very tangible aspects that will deliver 5%-7% organic EBITDA growth, I will now take you through the further upside potential that our M&A agenda presents. Our disciplined and targeted M&A strategy will deliver compounding growth and further margin improvement. We set a very simple framework. Three priorities: We create leading positions in attractive markets, ultimately creating the right density in those last-mile operations to spiral that virtuous growth over time.
We invest in access to our infrastructure to backfill white spots we may have in that network mesh that we talked about, but also in access to selected infrastructure that we need to actually leverage the optionalities that are available to us. And finally, we'll be looking closely at acquiring digital and data services businesses to the extent they would be accretive to our business model. We have a significant pipeline of actionable opportunities built up across the supply chain, which represents a multi-billion revenue opportunity for Brenntag Essentials alone. And we started to demonstrate we can do this. Just in 2023, we made two acquisitions, Aik Moh and Old World Chlor-Alkali. And let me share with you a little about how they fit into that model.
Aik Moh gave us a leading position in the Last Mile operations in Singapore and Malaysia, while giving us access to the Southeast Asia leading mixing and blending capabilities for that region. So ticking both the box of the Last Mile operational density, as well as selected regional capabilities for Southeast Asia overall. With the acquisition of Old World Industries, Alkali, Chlor-Alkali, we reached a leading position on caustic in the U.S. Old World's Chlor-Alkali gave us access to all that infrastructure. In the deep sea ports on the East Coast of the U.S., specific terminal capacities, actually in the middle of the U.S., that allow us to overlay the network with that mesh and that connectivity that we talked to before.
In summary, both of these acquisitions were highly aligned to our strategic opportunity priorities, creating a market-leading position in their respective markets, while also improving our regional infrastructure and capabilities for our customers and supply partners. With a pipeline this filled, there's just more to come. Let's now take a look at what this does financially. Despite the overall market slowdown, the increased inflationary environment versus a year ago, and as Kristin said, we are increasing our guidance for Brenntag Essentials to unleash the true potential of the platform. By executing on our strategy, we are expecting to deliver sustainable and structural GP growth, gross profit CAGR of 4%-6%. Looking at our operating EBITDA, EBITDA is expected to grow 5%-7% CAGR.
Moving to our EBITDA to GP conversion rates, we target a 32%-34% range. As I said, our M&A is coming on top of those numbers. So in conclusion, we're a unique, resilient, and indispensable industrial distribution platform, with scope for highly attractive earnings growth of 5%-7% organic EBITDA CAGR, and very strong cash conversion. During my presentation, I've shared with you why Brenntag Essentials is resilient and structurally growing. I've shown you the things that we have fully in our own control, how we will unleash the true potential, and drive up our performance through our performance enhancement program, and tapping into the network optionalities that are only accessible to us. And on top, I shared with you how we've redefined our M&A strategy to accelerate our growth even further. Thank you very much.
With that, I hand over to my colleague, Michael Friede.
Thanks a lot.
Also from my side, a very warm welcome here this afternoon. I have the pleasure to walk you through our specialties business. For those of you who do not know me, I'm Michael Friede. I've joined Brenntag in the second quarter of this year, and I've, a bit like Christian, a long history on the producer side of specialty chemicals, 20+ years there, and I have now the pleasure to take charge of specialties. What attracted me to join this fantastic business of Brenntag is, you know, besides the fantastic board colleagues I obviously have, is the interesting and very, very exciting value chain position that the company occupies. With that extra scale that we can deliver, and we haven't even begun to tap into that, especially for the Brenntag Specialties offering.
What I would like to do is walk you through a very, very concrete plan with three different strategic pillars that we have worked out for Brenntag Specialties to power BSP to perform. The good news is, a bit like Ewout has explained to you, many of those levers, if not all of those levers, we have in our own hands. So let me walk you through the three levers here. We have embarked on optimizing the platform of BSP. You've heard Christian and Kristin talk about business shifts. I go a bit more into detail and explain to you why that is the right thing to do, and why this will position BSP even more in the specialties space.
The second strategic pillar that we've worked out is a very clear performance improvement plan that we will implement over the next years, that will have a significant value uplift, potential for the business. The third lever that we have will deliver significant, very attractive growth organically, and for all of what I'll show you, there's significant upside and runway from M&A as well. I would now like to walk you through all of those three strategic levers, starting with the very first pillar that will explain how we are optimizing the portfolio and the platform for BSP. So as you can see on this chart, and you've seen that before today, we've decided to allocate businesses to Essentials, where they're better home, where they find a better home from a, from a business model point of view and from a go-to-market strategy.
We've done that for the water treatment business that we run. We've done that also for the lubricants business, and we will be shifting the entire ecosystem of the Pharma business to specialties because it is better home there, and we have a better go-to-market home in order to cater to our Pharmaceutical ecosystem customers. We will run our businesses in two separate divisions in two different segments. We will also report in those segments, Life Science on the one hand, with three business units, Nutrition, Pharma, and Beauty & Care. And then we have our Material Science segment, with a couple of sub-segments underneath. All of those businesses, unlike in the past, will now be steered through global P&Ls. This is a change for BSP. We've been traditionally running these businesses a bit more locally, a bit more regionally.
We are now changing that, and we will run those business units with clearly allocated global P&Ls, because we do believe that will better position us in order to be adequately and best representing the supply partners that we cater to, the customers, and the end markets that we cater to in those markets as well. So we will leverage with our global setup here, the innovation that we will, that we are trying to scale from one region to another. I will share some of the examples with you later. And we will also use this, as I've said before, to allocate a clear P&L by business unit as we, progress in implementing our strategy.
On top of changing the global steering of that business to a clearly market, supplier-oriented P&L ownership, we will strengthen BSP's platform by moving certain functionalities into BSP out of our corporate team, and we will be also equipping BSP with what we need in order to be successful on the supply chain side, as well as in our operations. On the next slide, what I would like to do is show you exactly how we plan to strengthen BSP's operations. So you see here on top, the clear shift from our regional steering in the past to the global end market-oriented steering. And more importantly, on this chart, you see on the bottom, what we try to do in order to equip BSP with the functions and the capabilities that are needed to become a truly specialty distributor.
We're moving certain corporate functions over into the division. We have HR here, and we are equipping the division with supply chain capabilities, as well as supplier and custom excellence functions, which so far had been hosted on the corporate platform. This will strengthen business ownership, and it will increase the agility and the speed with which we can implement our strategies in those four global business units in our two segments as we progress. But we're not waiting until January first in order to, you know, reap the benefits of this new strategy. We are actually in full execution mode since I joined in the second quarter already. And what I would like to show you on the next chart is some of the great achievements that the team has implemented and reaped the benefits of since the second quarter.
You can see on the left side, we've been extremely active and accelerated our activities on M&A. We've closed, since the second quarter already, four acquisitions in the Life Science space, and total five acquisitions for specialties. We continue to expand and open new innovation application centers, which are at the heart of what we do in order to adequately represent our supply partners... and deliver innovation for our customers. I'll talk about those innovation and application centers and the vast network that we have as I go through the slides a bit later. We also were significantly successful in expanding what we would call our value-added services. We have unique assets that go way beyond classical distribution.
We do mixing, we do proprietary blending, we have our own patents for certain technologies, and we've been successfully expanding those capabilities in the U.S., in Europe, and in particular, also in Asia and in Southeast Asia. Those activities, they have significant upside margin potential compared to the normal distribution business that we also do. We've been also very successful in gaining new partnerships with sustainability-advantaged polymers on the materials side. Why do we do all of this? We want to become more attractive, the most attractive partner as a specialty distributor that you can find in the market. Guess what? We are also successful there, so we've signed more than 10 new significant supply partner agreements just since the second quarter of this year to add to the scale and the portfolio of BSP.
So in conclusion, I've now explained to you how we're optimizing the platform with our strategic pillar number one, and I would now like to take you into the details of our second strategic pillar, which is the significant performance improvement plan that we have worked out for BSP. So as you can see on the left side, just like Ewout showed you, the portfolio shift has an impact on our conversion ratio. It helps us to move from 37%-39%, to now 38%-40% as a starting point. And then we have developed an organic self-help performance improvement plan with four organic levers that I'd like to walk you through step by step. The first lever is significant potential in optimizing our pricing, optimizing our margin management that we have identified.
The second lever is our cost out program that we will execute alongside the overall cost out program that you heard Kristin and Christian talk about earlier today. And the third lever, and that is a very important one, is about portfolio management of the supply partners that we work with on the one end, and equally importantly, the technologies in the portfolio that we represent and sell into the end markets. Fourth lever is the expansion and the scaling of the value-added services capabilities that we have in our company. Those are four self-help levers, and we have a significant additional opportunity beyond those levers that will get us to 43%-45% conversion ratio by 2027 from further M&A, and I'll also explain to you our plans on the M&A side.
So let me take you into the first of those levers, price and margin management. I've brought a very concrete example here, which is not new to many of you. It's very intuitive, but we're using a lot of the digital tools that also Ewout has mentioned before, in order to structurally leverage pricing opportunities across the globe. We've done this in an okay manner, more or less manually in the past, but we've not comprehensively and structurally rolled out a significant margin and pricing improvement program through commercial excellence and customer segmentation. We are doing this right now, and it has a significant value upside. And this is just an illustrative example where I show you one of our customer segments, and you can clearly see a couple of bad outliers that we should have priced a significantly higher price with.
With that, it's just one of the examples how we are identifying a significant value uplift for pricing and margin management. We do use digital tools in order to be getting a hand around, a handle around the, the vast amount of data, the vast amount of customers that we also serve in our specialties business. Again, the DiDEX platform has built, has laid the great foundation for the tools that we can now apply also in specialties. The second lever of our performance improvement plan is the cost out plan. Let me walk you through the details of the cost out plan for BSP. Like I said, it's baked into the overall cost out that you've heard about earlier, especially in Kristin's part. For BSP, it comes down to four different buckets that are the most promising cost out levers.
On the left side, you see transport management and warehousing. We are building up dedicated specialty warehousing and transportation management capabilities within our business, but we're also, of course, working with Ewout's team, as we're sharing a lot of the assets, to jointly bring down the cost of our global site network and optimize our go-to-market there. On top of that, there's a significant opportunity we see from optimizing how we share our corporate services, how we use the business services that we operate, for both BES mantras as well as BSP. Last but not least, we are also not complacent on the commercial side. We see opportunity to be more efficient in how we design and how we approach the go-to-market on BSP as well.
And also there, our DiDEX initiatives will play an important role, and I'll walk you through some of them later in more detail. So that was the second lever of our plan. The third lever of our plan is the focus on our dynamic portfolio management that we will implement, both on the supplier side, but also on the technology side. Let me walk you through some of the elements that we're focusing on there... So we'll drive further growth from optimizing how we manage our portfolio on the supplier side. We'll bring in better technologies that we hadn't been focused on in the past, and we'll also be swapping out some of the historically grown, organically grown suppliers that we might not have managed as diligently in the past as we should have. We focus on true specialty chemistry, less non-branded ingredients.
You've heard us talk a lot about non-branded ingredients. Those have been shifted out as part of the portfolio shift to essentials. So what is left within BSP is already a truly specialty-focused chemical ingredient business. But there's more upside to this if we adequately manage the portfolio for our supplier partners, as well as the technologies within those supplier partners that we represent. We broaden our offering on sustainability advantage, so-called, we call them internally, accelerators. Those are those products that not only have high quality and a decent cost base, but they have a significant advantage from a sustainability point of view. And all of this will improve the attainable average margins that we can get to by optimizing the portfolio. So there's a significant value uplift from consequently managing that portfolio that we see.
On the next slide, what I would like to do is walk you through the fourth lever, and the fourth lever is how we want to scale and expand the values, the value-added services that we provide to our customers beyond the classical bulk breaking, Last Mile delivery, warehousing that we also do. Couple of examples I've brought you with me, and this is not an exhaustive list. These are four very attractive examples, but we have more of them. The application and innovation centers that we run, they are really at the heart of what we do. This is where we meet our customers' technology challenges, and this is where we develop a lot of the innovation.
We will expand that network, and we will better leverage it going forward through a refocus on training our people, as trivial as it sounds, paired with connecting those innovation application centers, we have almost 80 of them by now, through digital means to better leverage opportunities that arise in one part of the globe, in another part of the globe, to scale them. I'll brought one example with me where we've done that very successfully.
We will further scale our comprehensive set of regulatory services, and Christian talked about the Pharmaceutical example, which is, I think, a prime example that we have in our company, where for now, in Europe, as the only region, we have developed a comprehensive set of regulatory service management teams that take care of the ever-changing, ever more complex regulatory environment for our Pharmaceutical customers and our Pharmaceutical suppliers. There's no one else in the market right now on the distributor side who can deliver that service, and this service is so attractive that we can actually charge it out, and we can command a very, very attractive margin, way above the normal margins that we can get for selling our ingredients. Now, we haven't scaled that yet, so the big exercise now is to further scale that. We know how to do this in Europe.
We will scale that across the other regions. We have other examples from an ecosystem point of view, where we have extremely successful business models applied in one region that we just need to leverage in other regions, because we know how to do these things. We just need to scale them and leverage them, and that will be a big focus on what we'll do here on the value-added services side. Second example I want to walk you through real quick is our capability to blend products, where we go beyond classical distribution as well. Not only do we blend products here, we also have proprietary formulations. I'll give you one concrete example. So some of you know, in, in Asia, the moon cake that is handed out for celebrating New Year's festivals in some of the countries.
The moon cake usually is being produced with using a lot of palm oil. So we had a large bakery customer came to us and said: "Look, I got to replace the palm oil in my formulation. It is not sustainable, it is actually not very healthy for the body as well. Can you help me with that?" Our team of innovators in Southeast Asia went into the lab, and they found a formulation with a combination of several ingredients that actually got multiple jobs done. It did take out the entirety of the palm oil in the formulation for the customer, delivered the same quality cake or muffin or moon cake in the end, that was needed compared to what was produced with the palm oil.
It was a cheaper recipe in the end for our customer, even though we could gain a significant margin from not just selling that one ingredient, by selling a blend in the blend, which ultimately will also make it a bit more difficult for that customer to replace Brenntag as they try to, you know, further improve. But that's what we need to do more of. We have what it takes from a capability point of view, but we don't do this in all regions yet, and I want to expand this with the team because it has significant value creation potential for a specialties business. So in conclusion, we have four very, very attractive organic growth levers, and they will bring us to 43%-45% conversion ratio by 2027. But there's significant additional runway and upside potential from M&A.
What, what I would like to do is walk you through our priorities on the M&A side, and I would like to walk you through some of our track record here as well. Starting with the priorities, we have mapped out those search fields very clearly, and this is just a very, very high-level summary for the four business units, the three in Life Science and Material Science that we have. With the shading, we wanted to give you an idea for where we want to double down our M&A efforts. We, we do M&A with three clear priorities for specialties. We either want to go for scalable capabilities in high growth areas, that we can get on board in one region and then use our platform to scale quickly.
We have a good example how we are doing that right now with an acquisition we've completed in North America with Colony Gums, with hydrocolloids that we add to off, you know, Food & Nutrition business. The second priority here, the second objective is a simple one, accelerating market entry. You can see we still have certain white spots, and if you, you know, go into more detail on this map that is on high level, you will see that, you know, despite us being number one in many markets, there are still markets where we, we're not number one yet, and we have certain capability or technology gaps that we want to close and thereby accelerate the market entry. And then in general, in APAC, across all of the segments, we see significant headroom for M&A.
Again, here, we're also not waiting for January first in order to implement and execute on that strategy. Since I've joined in the second quarter, we've already closed five deals, and all of those deals pay into the priority list that you see here, most of them actually expanding our Life Science businesses. I brought you a summary of the impressive track record, and this is also done way before I joined the company, of BSP's M&A strategy. The company was able to bring on board, just over the last five years, EUR 1.2 billion in additional top line for BSP alone, signed 20 value-accretive, synergetic deals that were implemented well—sorry, integrated very well into the company.
So there's a strong track record of executing and bringing on board, at scale, significant M&A for BSP, and you heard the same story earlier for Essentials as well. But the impressive part is here, maybe not so much on the left side, because that's done and that's all good. The impressive part for me, and again, part of what attracted me to join this fantastic company, is what you see on the right side. We have a clear number one position in many markets, but the market share is still fairly low. I mean, if you look at specialties, it's around 5%. In many of the markets, maybe it's still below 5%. So the runway is almost unlimited if you scale this platform.
What you also see is not only is there runway, we have a very juicy pipeline, a very healthy pipeline of M&A targets for BSP, which we are executing very swiftly, again, with just five deals already signed since the second quarter of this year. So more than 200 targets for BSP and a multi-billion-dollar and -euro revenue opportunity to bring on board. Fantastic opportunity to scale the platform. So now that I've shared with you the details on the second strategic pillar of our BSP strategy, the performance improvement plan, let me walk you through the growth component. Why is this such a intrinsically attractive business that we are focusing on? And what will we do to turbocharge and boost the growth beyond the very intrinsic market growth rates that we see, both for Life Science as well as for Material Science?
So you can see by the focusing of the portfolio, the clear alignment with four key segments, four key Global Markets, Pharmaceuticals, Nutrition, Beauty & Care on the Life Science side, and Material Science. We are already focusing on intrinsically very, very attractive markets that grow way above GDP. So already from that angle, there's a lot of tailwind we will be able to use. But on top of that, in each of those segments, we have extreme strengths for each of the business units. In many of them, we have clear number one positions. In Nutrition, no one can compete with Brenntag globally, with our number one position that we will now scale even further. The same you can say for, for, for the other business units in the segments as well.
Not only have we identified the clear strengths, we also have developed tailor-made strategies for each of those four business units that we are swiftly executing as we speak. What I wanted to share with you at the bottom of this chart is also that we have a clear idea where we want to double and Triple down in terms of M&A. You can see that depicted in the blue. Of course, this will mainly be catering to our Life Science businesses, as Christian has also mentioned before. Now that we've talked about the very, very attractive, structurally growing end markets, what I would like to do is to take you through the growth trajectory that we want to add on top of that by leveraging our Innovation Application Center network that I've talked about earlier today.
This is hands down the vastest, best Innovation Application Center network you can find in the chemical distribution space for specialty distributors. It's a huge network with close to 80 innovation and application centers focused on our end markets, three in Life Science and Material Science, and we're getting better every day connecting those innovation application centers. What we want to do is, we want to increase the connectivity, again, through training our people, but more importantly, through using the digital tools that we're rolling out. We're, for example, rolling out a very nice stack of opportunity management and portfolio management activities here to guide and share success cases around the globe when they occur, because the opportunity, if you identify one innovation in one market, the likelihood that that same innovation will work in another market is very high.
To show you how much money is in that, I brought one example that hopefully everyone in this room can relate to, because you all have used sunscreen before, I hope, and I guess. This is one example where we had a customer come to us in Southeast Asia, and they said: "Look, you know, we hate it when the sunscreen stays white for too long, and we hate it when it's greasy and sticking to our fingers. So can you help us develop, you know, a formulation that is actually non-greasy and transparent?" Through hard work of our team in the innovation center in Southeast Asia, they actually came up with a proprietary formulation that got, you know, the job done. They got a sunscreen that was delivering what it was supposed to deliver, which is protecting you from the UV light.
It was non-greasy, and it was transparent after, you know, applying it very quickly. You know, the customer was extremely happy. It was proprietary formulation, so we could keep it for ourselves and could share it around the globe, and that's what the team has done. What started with one customer in Southeast Asia was rolled out to, right now, six different countries, 150 customers, and a multimillion-dollar gross profit we brought in-house. That's just one example. If you multiply that times the end markets that we deal with, if you multiply that times the innovation application centers, you see how much potential is in that. We need to better leverage and scale that platform, that great capability that our people have around the planet, and that's what I'm committed to do with my team.
But besides leveraging the innovation capabilities, we also see significant additional growth by using the DiDEX platform within BSP. You will see some familiar examples that Ewout has also mentioned to you, how we will scale and leverage the digital capabilities to drive and turbocharge growth. I've talked about pricing, so I'll skip that example for now, but the Customer Growth Engine is such a powerful tool also for BSP. We use the AI technology to do a couple of things. We use it to identify interesting cross-selling opportunities, which, especially for a specialty business, is very, very attractive. And what we find is that, you know, of course, good salespeople, good sales technicians, they have sometimes a feel for, you know, if a customer asks me for formulation A, I might be able to position a formulation B as well.
But with the vast history and data that we have, we can actually automatically populate those suggestions into our CRM system, into our Salesforce system, and then actively notify our sales team in order to go about, you know, bringing those leads home. We also use our Salesforce CRM in order to not only generate more leads, because we have what we call an omni-channel approach. We don't care if a customer wants to send us a fax still, wants to send us an email, wants to call us, wants to go through our website. We want to be the easiest to do business with, so we generate significantly more leads by being flexible there. And what we see by populating that into the, you know, workbooks of our sales teams, into their CRMs, we're significantly better in converting those leads into actual business.
Now, these are just two very concrete examples out of a vast stack of digital technology that we will roll out even further and that will deliver significant extra growth, you know, beyond the very attractive underlying growth of those markets that we've decided to focus on for BSP. So in conclusion, not only have we optimized the platform for BSP and developed a very comprehensive performance improvement plan, we also see a significant upside growth potential by turbocharging the attractive underlying growth of the markets that we see here. And then again, we see significant upside from M&A. Now, how will all of this shape the division BSP as we transition into 2027? What you can see here in the donuts is, you know, before we had adjusted the product portfolio, this is how the division looked like.
We had a, you know, roughly 50% share of our Life Science business. We probably had something like 22% of Material Science, and then water treatment, finished lubes, and some of the Semi-Specialties that we've shifted out to the Essentials' colleagues. Now, the starting point here is roughly 70% of Life Science, roughly 30% of Material Science. And with implementing and executing the strategies I've just shared with you, we'll be moving the Life Science share to north of 80%, 85% by 2027. So on the basis of our three strategic pillars, we're confident to deliver the following financials for you. We'll be delivering 5%-7% gross profit CAGR until 2027, 7%-9% EBITDA growth, and we'll be moving this business organically to 43%-45% Conversion Ratio.
That is all without M&A, with additional upside from M&A. So in conclusion, let me summarize. We are optimizing the platform for BSP. It's a significantly more sharpened business model. We've optimized also the product portfolio and changed the go-to-market approach to global business units because we're convinced that we will be better equipped to adequately represent our supply partners and serve our customers that way. We have developed a very significant improvement plan that will close the performance gap to our esteemed pure play specialty peers. And then we are active in significantly, intrinsically attractive growth markets and have everything it takes to supercharge and boost that growth beyond the underlying market growth. With that, I thank you for your attention, and I'm happy to answer any Q&A later when we get there. And with that, I hand over to Christian. Thank you very much.
Well, thank you very much. Is the mic working? Okay. Well, thank you very much, Kristin, Ewout, Michael, for presenting our case to you. Let me summarize before we do go to the Q&A, what are the actual key messages I want to leave you here. Is that showing already? All right. Actually, all of what you see here on the chart has been elaborated in great detail during the day. We want to create two distinct and autonomous businesses with one lean center. That's the consequence of making both divisions independent and autonomous. Disentanglement and autonomy in the divisions is very important. We move business service functions more and more out of corporate into those two divisions to make them really separate from each other.
We also made sure that we took the learnings we had over the last two years about inconsistencies we had with our definitions of the product portfolios, which we are serving in both divisions. We consequently changed that now, so that in January first, you see the new and revised portfolios for specialties and essentials at work. And I think with Kristin, our Q1 numbers, you will get the first insights of how that really looks in detail, also by the development over the last year. Left and right, you see how—what are we doing in the Brenntag divisions. I think you have seen a very exciting opportunity for essentials. I mean, essentials is a business which has fundamental strength, is a unique platform, which cannot be easily copied and cannot even be bought.
So I think this is where we want to draw on those strengths. The Triple is just one example. You will hear us more and more talking about the repositioning of Essentials in the next 12, 18 months. In particular, when it comes to the debate about how volatile is that business in its earnings, is it as resistant as we believe it is, and also what is the relevant peer group we should compare this business based on the fundamentals, where Ewout gave you first indication of where we believe this perception around Essentials needs to shift and should be shifted. Power [Brenntag] specialties to perform. That's the headline for Specialties. It's a different story. We don't tell anything new here for you. [Brenntag] , our specialties distribution story has been told and is being told.
Our task, and Michael's task, is closing the performance gap and bringing that division to a similar and equal performance level, what you see in our pure play competitors. We will, Kristin has showed it to you, actually deliver 7%-9% organic growth on EBITDA level, based on all the measures we have put together in Essentials and Specialties, but also for the whole group. So that's the medium-term guidance, which goes now to 2027, based on 2023. I might remind you, last year's capital market day, we used 2021 as the basis, 'cause we all knew that 2022 is a difficult year to start the trajectory, so that's based on 2023 forecast. And most importantly, while we are doing all of that, we create the optionality for the future.
We want to be clearly in a position to be ready for the future strategic steps by 2026. With that, I thank you very much for your attention. And now, I think we move to Q&A. I hand over to Thomas to lead us through the logistics. Well, thank you very much.
Okay, so I think we can start. We have one question here in the front row. You need the microphone here.
Hi, good afternoon. I'm Suhasini from Goldman Sachs. Sorry, I'm carrying my laptop, so I'm not standing up. But a few questions from me, please. One is around the EUR 300 million cost out and the costs relating to that. First, please, can you clarify that the EUR 450 million-EUR 650 million costs are over and above the EUR 250 million spent on DiDEX? How should we think about the phasing of the EUR 450 million-EUR 650 million? I appreciate you said that it could be front-end loaded, but what are the implications for 2024? And therefore, the cost savings around EUR 300 million, how should we think about the phasing on that as well? That's the first part. The second question is actually on the Essentials business, actually. A decent...
I think in the slide 42, you actually put in a further inflation offset or a deflation, effectively, correction to the essentials business in the medium term CAGR. Can you quantify the assumption over here, and how you see normalized pricing stacking up versus 2019 levels? Thank you.
Okay, then I will ask Kristin to answer the first question, because I think she is very fluid, and then Ewout on the essentials topic. Kristin?
Thank you, Christian. Hi, Suhasini. Good to see you. So first of all, the EUR 300 million is a combination of the DiDEX benefits we mentioned last year, and also, but only the bottom line, part of it, and the new and additional cost measures. We indicated last year that we have EUR 350 million of one-off costs, for the implementation, the DiDEX program. On top of that, we have built in some of the costs, for the SAP system. That is reflected in the now going forward, EUR 250 million. And on top of that, and exactly, it's on top, we have the EUR 450 million-EUR 650 million, which are composed by basically two things. First of all, it's a cost to achieve for the additional cost levers.
The second one is then the legal and operations separation costs, which is the major part, definitely. Of costs to achieve, there are some costs to achieve, but the major part is the separation costs. Included in that number is the tax leakage, and that is also, if you come down to the separation cost, it then again the major part. Other parts are then IT costs, consultancy costs, internal project team to get it done. So that is the composition here. We expect the majority of those costs sit in the middle of the planning horizon, so it's neither front-loaded nor back-loaded, but it sits more or less in the middle.
We see the phasing of EUR 300 million, I think that was the last part of your question, to be twofold. So first of all, the additional cost out measures, they will be also sitting in the middle of the planning phase. The majority of that will come across under 2026, and the DiDEX part that will build up in the next couple of years on a linear basis. I hope that this helps.
Yes. Thank you.
As to the second part of your question, you asked, to recap the question for the audience, you asked, how are we looking at the market development, particularly when it comes to inflation and actually pricing, going forward? So, as we've seen in the markets, where we are now currently in the chemical cycle, volumes have been going down for many of our producers, and actually, prices have been normalizing and, stock levels are now at historical lows everywhere in the supply chain. We expect this trend to continue for a little longer, although, the degree to the decline is, I think, in our perspective, diminishing. So we'll see a gradual recovery.
And nobody knows whether that will be at the beginning of 2024, in course of 2024, but by the end of 2027, for sure, we'll see a recovery overall, and that's what we've baked in our plan overall. What we've also baked in is actually a normal organic growth rate of the market development, really illustrating the structural growth of the market that Brenntag Essentials is operating in. When it comes to inflation, we've made a commitment to offset any cost inflationary pressures firmly with the self-help program that we're putting in place, driving Last Mile excellence in our Last Mile operations, building our regional capabilities and tapping into those unique optionalities of our global sourcing and into regional optimization worlds.
Any assumptions we've taken are the current macro assumptions that are out there, that, of course, as you know, could be prone to change, but our commitment firmly stands.
Got it. So just to clarify, the inflation offset is more a cost inflation offset, not the chemical pricing offset?
It's a cost inflation offset.
Thank you.
Hi, Annelies Vermeulen from Morgan Stanley. I'll try and stand up with the laptop and hopefully not fall over. I have two questions, please. So firstly, on your comments around 20% of your customers buying from both divisions today, I'm just curious as to if you have any color on how that's trended over time. I guess what I'm trying to understand is what has triggered this decision to no longer focus on being a full line distributor? Not that long ago, you were talking about seeing value of having both divisions under one roof. So I'm just wondering if it is that customer and supplier shift that you've seen, and also what you think has driven that. Has it been COVID, supply chain pressures? What do you think has got you to this point?
And then the second question is on specialties. You know, you've talked about all the organic levers that you've talked about, so the network of innovation centers, you know, the digital capabilities. Is there anything in there you think that actually you could do better than your competitors? You know, in terms of bringing the performance in line with the pure play peers, how are you going to bridge that gap in terms of what you could do differently or what you could offer your customers that perhaps your competitors can't? Thank you.
Yeah, let me take the first two questions. So the 80/20, roughly percent, so it's more than 80%, buying on one or the other division. Let's remind ourselves, we have implemented and provided the transparency on, you know, essentials and specialties now 36 months ago. So three years, we are now running into that, in that setup. There have been still some shifts in 2021, back and forth, until, you know, it was clear which customer is where, where suppliers were. Again, we have 6,000 salespeople where you need to assign now, really, the 200,000 customers, really, exactly. So there were still some shifts, but nevertheless, the number plus 80%, either essentials and specialties, are more or less the same, since, you know, we are able to, to really, to really have that, that granularity.
Actually, we'll not shift dramatically, I would say, with the portfolio shifts, but, you know, more and more, of course, to a higher number, where it is absolutely clear that I'm a specialty customer, I buy from specialties, and I'm a, I'm a industrial chemical supplier, going forward. So that's concerning the question on, on that split. The other thing is, you know, what has caused that? And I think here we need to clearly distinguish between? Do we create two separate divisions which can operate under one roof in addressing the needs of the customers and suppliers accordingly? Versus, is a split the only way to really address that? And, again, we were the first in the industry to clearly say the Full-Line Distributor Model, at least for a company our size, cannot be scaled anymore.
This is why we go to that, to that separation in those two divisions, and also recognizing that the world around us just has changed the last 10, 15 years. You could even argue that should have, these are steps Brenntag should have taken maybe 10 years ago already. And I think before I even came, there were the attempts to, you know, create a Food & Nutrition business and making this as separate as possible. But, you know, what we learned over the last years, to disentangle that from a full-line distributor model is extremely difficult if you don't do it full-heartedly.
We have done it full-heartedly now, with, you know, giving you transparency on it, and we just consequently walking that path, as we have outlined also last year in November, very clearly creating the independent and autonomous divisions, still under one roof. But then also creating the optionality that, should the year 2026 be there, that we are ready to, you know, be part of the further strategic moves, which will inevitably come in this industry. So we need to prepare ourselves for that progression in that direction, which we have, you know, I would say, as the first ones described in 2020, 2021. And now I can hand over to Michael for specialties.
Hey, look, so just to recap for the audience, your question was, you know, what are we doing already today better than some of our competitors, and how do I assess that? So let me tell you a bit of story. So when I came on board, what I tried to do is, you know, get a lay of the land and try to meet as many people as I could. So what I did do is I traveled quite a bit intensively, you know, of course, meeting customers, meeting suppliers, but also meeting our own people, because I wanted to form an opinion on how strong is the team, how capable are they, how technically savvy. And what I really found out is that Brenntag has fantastic people.
So I've no doubt that with the team I have inherited here, we'll be able to pull this off. What we need to do better is coordinate them, and what we need to do better is scale aggressively and swiftly some of those very great success cases we have around that Brenntag Specialties universe. Some things we already do much better than competition, in my mind today. On the value-added services side that I've talked about a bit, you see we have very unique assets as well. I mean, we're asset light, of course, don't get worried, but we have very unique assets on the blending and mixing side that I think are unmatched, especially in the Nutrition space. No one can compete with what we can do there on a proprietary basis.
I also do feel that on the regulatory services side, what we have built up in Pharmaceuticals in Europe cannot be matched by any of our competitors. But yet again, the next step will be to do that same thing in other regions. The other example, which I think is extremely attractive within specialties, is what we've built up for biopharma in Southeast Asia. We have an entire ecosystem offering for our biopharma cluster customers in Southeast Asia, and we are really looked after by our large Pharmaceutical customers to take care of a lot of complexity in the biopharma value chain.
So these are three examples that jump out at me right away, where I do believe we are already significantly advanced against our esteemed competitors, but a lot of catch up to be done on other sides, especially when it comes to scaling and consequently managing those things globally. Thank you for your question.
Thank you.
Good afternoon. It's Rory McKenzie from UBS. I wanted to come back on your cost base again. Your adjusted SCNA is up about 40% against 2019. Your volumes are flattish. So even in that context, taking out EUR 300 million is only taking out about half that increase. So I guess, why were those costs added in the first place, if we look at the business that way around? And what would you say about the ongoing operating leverage of this business in absence of these large, costly restructuring programs? And then secondly, a question for Michael in specialties. How much of your gross profit or your orders today come from orders where you are actually blending or mixing custom products compared to where you're just selling a supplier product? Thank you.
So first of all, if it comes to the cost base, in 2019, I think there are different things to consider. So first of all, we had heavily inflated numbers since then. In parallel, we have also added a lot of additional capabilities to our company. If it comes to IT, if it comes to compliance, also in the QC environment, and if it comes also to some other aspects where we had to strengthen our organization. In parallel, we have come up with a Project Brenntag at that time, to make our processes more efficient and also to get our people out in some areas where we saw already some inefficiencies earlier on when Christian and the team at that time started the Project Brenntag in 2020.
What we can see now is that we have some inefficiencies, and that is also driven by less volumes. But we also see further opportunities, and I think that is a positive here, that we see further opportunities in the supply chain area and also in the overall administrative costs. And that is also somehow driven by the lack of IT investments we did in the past. So if I look especially in the finance area, then we can see that we have multiple ERP systems everywhere, which makes it extremely difficult to have really state-of-the-art processes and to take these efficiencies out. And that is something we are committed to work on, and that is something we want to get done in the next couple of years.
Your question related to how high, how large the share of our mixing and blending capabilities, or businesses compare to the overall, business? It varies, depending on the segment that we talk about, the business unit that we talk about, and it's mainly relevant within Nutrition. That's kind of the prime example of where we do this, where it's low double-digit percentages, so there's still a lot of room for growth and leveraging that further. Secondly, it is something we do in Beauty & Care. That's still high single digits, so also there a lot of room to grow. To a lesser degree, we do this also for parts of our Material Science offering, where it's also single digit percentages of the overall business. In Pharma, it's not really a significant business that we do there.
Does that answer your question?
Thank you.
Thank you. Christian Obst from Baader Bank. I have two questions. One is, the, the pricing. So going forward, you talked about some kind of active pricing, and so on and so forth. So when do you think you have a system in place where you can really put direct pricing and, and more active pricing on almost every product going forward? And second one is on the separation of the business. When it goes down to the side, what is the most complex and most, most costly measures to do so going forward, and when do you really, really come to an, some kind of an end of this kind of operations, or separating, specialties from essentials? Thank you.
Yeah, I will take the second question. The first question I ask Ewout or Michael to answer about the pricing and the pricing algorithms, and what we have learned. Before he, they do that, maybe just to remind ourselves, we have embarked on the digital and data journey, twelve months ago, last year, November, when we disclosed what we are willing to do. And I think already one year later, we see clearly how that digital capability and also artificial intelligence support, it is starting to create impact, and that's just the starting point of that. And I think this is something which I would really like to also raise some enthusiasm on your side, that Brenntag was actually behind in that dimension, but we are, you know, closing the gap with big steps. So are we leading that? No.
Are we really at the forefront? Not yet, but this is, for me, just a matter of time, and we are willing and committed to continue that journey full speed. Now, let's talk about pricing, and then I will come to your question on focus and disentanglement questions. Ewout?
Thank you. Before I give you the answer on what we're doing today, it's important to realize how the industry generally has been working in the past, and to a large extent, is still working. Pricing in chemical distribution is an art, typically conducted by very experienced people that know the markets, that know the customers very well, and on every transaction, they're pricing up or down a couple cents per pound or per kilo on every product. That's actually how most of the industry worked not too long ago. Also in Brenntag, that's how we historically have worked. But we said, actually, now with all that transactional data that we have, in Brenntag Essentials, over 10 million transactional points, we actually know better than our customer what their demand is.
We know probably better than our suppliers, what actually the supply position on the various products is. And that means that we have actually pretty good access to data that actually provides these price and elasticity curves, that knows exactly with which price there's a higher likelihood that our customers will churn. And we're leveraging these algorithms to, from the front end, move away from the arts and put it into a science, creating more pricing consistency. Michael talked about an example for pricing consistency with our various customer segments. But also to get those price recommendations much faster to our colleagues in the field, so they can actually have the right conversations at the right time with our customers. Because it's this type of insights that the human brain just simply cannot comprehend on the complexity of a portfolio like ours.
What you can count on us for is we have embarked on this journey. We'll be constantly rolling this out, improving those algorithms, and aid our colleagues in the field to do the right thing for Brenntag, serving our customers and our suppliers with optimum price points.
Mike?
Yeah, two things. Yeah, so all of what you said, and then on top of that, for specialties, what we see is two things in my book. So I see there's kind of the good old homework to be done, supported by tools, and that is pricing consistency, that is, you know, the agility with which you push price increases through. So there's what I would consider commercial excellence, homework supported by digital tools. That's one bucket with significant improvement potential. The other one is a bit of an attitude and training topic. So, you know, our people are quite nice, which is not bad in many environments, but they're sometimes a bit too nice, especially when it comes to, you know, commercial negotiations, getting the fair value for all the good things that we put out in the market.
I've seen firsthand the power of changing that dynamic in other businesses I've been involved in, especially in the high inflation times before. So for me, it's twofold. It is doing the homework, it's doing the tool-based digital support, the analytics, but it is also a capability and training topic, especially for those parts of the business where we, we sell on a different value-added basis compared to maybe other parts of the business where we sell based on availability.
Coming to your second question about disentanglement, and where the complexities are, and what I deem as the most critical steps. I mean, first of all, let me remind you that we have already done quite good steps in this disentanglement. Separating the commercial force was probably, you know, the market-facing part was a very important one, which we did already some time ago. So that's done. Now, the next will be customer service. So how do we actually channel our ordering patterns through our system? So but that's, you know, I would say, not so critical. You can handle that. Where I see most issues is the operational disentanglement.
I mentioned the several hundred sites we have globally, which currently serve both divisions, and they are, you know, very much intertwined because it's a warehouse, is a warehouse, is a warehouse, to say it, a site is a warehouse. So in this warehouse, and then you have Specialties and Essentials, and the same teams who actually are serving both divisions. So we need to now come to a disentanglement. Today, we do it just by cost allocation. But what I've described before, for me, it's absolutely important, in particular for Michael, it is absolutely important that he can make educated choices of where he receives that service from, because he always has the alternative to go to a third-party warehouse and source the services there instead of Ewout.
And then Ewout, on the other hand, needs to figure out if he's leaving some sites, how does he drive his costs down so that, you know, he is not sitting on a huge residual amount of cost? So, you know, everybody who has done disentanglements here in the audience, who have seen it, know that this is a big topic, and that is what just takes time. That's not something which we can fix easily overnight, but we will do it side by side, by country by country, by region by region. This is a thick, how you call it? Something thick to drill through. So that's one thing. The second thing, which is a little bit tricky, is this whole tax disentanglement.
When you go into the legal disentanglement, you immediately create substantial tax consequences, which are different country by country. You know, we're operating in 72 countries, so you can imagine how complex that is. As one of the first steps we will undertake, we'll ask ourselves the question, "In how many countries in the world do we actually need to be present?" You can also ask that question first before you go to a costly separation. That's also in its making, but that also takes decision and decision time to really not make the wrong decisions. Also coming with those tax requirements, there are also certain time windows you need to be cognizant of, because if you move them too quickly, this tax leakage is very high.
If you move at the right time, this tax leakage can be zero. So in that sense, what Kristin has shown to you is our very first preliminary view of the numbers we believe are associated with, the majority being, of course, tax leakage. But you also can manage that to some extent of how you structure it and how you do it, but we wanted to be prudent and give you a number where you say, "Okay, this is, you know, a most realistic picture as we speak today." And the last, which is really tricky in my point of view, is moving now the business services into the divisions.
We see this now with the first business services, which are moving into the divisions, clearly defining what is a reserved matter for corporate and what is really going into the divisions, and how brave are we in doing that? I think this is, you know, an ongoing debate we have among the four of us, how to fine-tune that, so that we one hand, you know, give as much autonomy to the divisions as much as we want, but also avoid anarchy, afterwards, where everybody thinks, they know what is the best thing to do, to put it a little bit, anecdotally. But I think these, these are, for me, the three major topics. It's the operational disentanglement, supply chain sites, with that is the tax leakage topic, and the corporate matters.
I have not talked yet about IT and the IT backbone on how we do this. But again, here, coming to my introductory remark, we have already done a lot of no-regret moves, not to make any mistake over the last two years, so that we always can decide when it comes to shared service centers, when it comes to the IT landscape, to really start to, you know, tailor-make this, to what the two divisions actually need going forward. So that's in a nutshell. I hope that answers your question.
[Audio distortion] Research. I also have a question on the operational disentanglement, which Kristin mentioned, and that relates to management remuneration, especially on divisional level. The two divisions have a different starting point; they have different priorities. So actually, is there also some sort of differentiated variable management remuneration, and what are the key metrics? Since you also do not have in place any, yeah, segmental information on the divisional level, there is no EVA; there are no EVA metrics by divisions. So actually, how will that sort out, and also, how will you steer these two divisions without the corresponding metrics in place? Thank you.
No, this is a work in progress that we think about, you know, what does it mean for the board, board remuneration, incentivization, which is, you know, of course, the business of the supervisory board, and basically the discussion we have with them of how we do this. We have, for 2024, decided to still have collective KPIs, because we believe in the situation where we are with our company, it doesn't make sense now to do, you know, an incentivization along certain KPIs for Michael and for Ewout. We need to incentivize against the performance of the whole group at this moment. But we gradually will, of course, shift more and more into, also call it independent, incentivization schemes going forward, but that's I see for 2025.
Then we need to also see how that incentive schemes go down into the organization, and how much, you know, we are going to really incentivize division-specific. In the moment, we are in a position where we said, we don't want things to fall through the crack. So this is why we still go for collective KPIs, but again, tailor-made for the regions where we are operating, North America, Europe, and so on and so forth. But for me, it is out of question that the more independence and autonomy we create, the more differentiated those compensation schemes will and need to become.
Okay. Stand up here. Yeah, Michael Schäfer, Oddo BHF. Two questions to Michael. First one is on Pharma. I mean, you're, you were pretty proud on the regulatory experience which you have and the capabilities which you have. However, can you just remind us, basically, on the new organizational structure, what kind of gross profit contribution Pharma was? If I'm not totally wrong, basically in 2021, you presented something like 5% share of the then different setup. And you also elaborated, basically, that this is obviously a growth engine for you. However, if you look into M&A, there was hardly any Pharma-related M&A in the pipeline. So how, how do you see this evolving going forward? So what are the measures, basically, that can strengthen this potentially underrepresented end market? This would be my first question.
And the second one is on your application labs. You talked about 80-something, with a bit of an split, similar to basically the materials versus versus Life Science. Is this just coincidence? And is this a necessary step, basically, to expand this network, and what are the milestones basically bringing you have in mind going forward, towards 2027? Thanks.
Yeah, so thank you for the question. Take maybe the last question first. So we will not expand this network of innovation application centers until infinity. We are also looking into optimizing some of the smaller innovation application centers. So having more is not, not necessarily what we will go for, but having high quality at the right places. If you split them, we don't disclose exact numbers, but I can give you a feel for that the majority of those innovation application centers are indeed for our Life Science businesses, and the minority is for Material Science. And on Pharma, it is the smallest out of our Life Science businesses. We do not disclose the numbers externally, so we'll report on our two segments, Life Science and Material Science.
But you are right, it is the smallest amongst the three Life Science businesses. We're very committed to change that. Of course, now having the full ecosystem under the leadership in BSP helps already, so it's significantly improving the scale, but we're not satisfied with that. We want to increase that. On M&A, you're right. This year, we have not signed a Pharma deal that I'm aware of. So I think you said there's nothing in the pipeline. That's interesting that you know this, but that's not true, because our pipeline, hopefully, you don't know.
So rest assured that we're working on this also on the M&A front, and we're very committed to, as you've seen in one of my charts, with three pluses under Pharma, that in M&A, that is the highest priority search field for us, for sure. Did that answer your questions, or did I miss anything? Yeah. Thank you. That makes me sleep a bit better.
Hi, Himanshu Agarwal from Bank of America. I just wanted to ask about the- as you think about the operational disentanglement, have you thought about what are the dyssynergies in terms of revenue and also cost? Like, you mentioned around 20% of the customers buy from both divisions, so there could be some potential dyssynergies. And also in terms of the cost, as you think about supply chain disentanglement, warehouse, so there could be some unused capacity and also IT admin, so there could be some dyssynergies. So that's one, and the second one, on the on the 2027 targets, when I-
... If I'm doing my math right, when I add the two divisions and try to get to the group number, it seems like you're baking in some reduction in the corporate costs, which I think are around EUR 110 million for this year, based on consensus. So if you could confirm that, please. Thank you.
Yeah, I will hand over to Ewout for the first question. Operational disentanglement, also, Michael, feel free to add out of your perspective, and Kristin will take then the cost question. Ewout?
Firstly, since, since the launch of Project Brenntag, we've been working on disentangling the two divisions already, operationally speaking, from a commercial perspective. And so already today, and you see that reflected into two very different business models, of Brenntag Essentials, with a different go-to-market approach, versus actually the model that Michael presented for Specialties, with a very different model. We're actually speaking; we may be speaking at the same customer, but we'll be probably speaking to different stakeholders in the customer, in the, in the customer. So on the Essentials side, we're speaking to the procurement organization, and Michael and his team will be speaking much more on the R&D side, of the development of the products and all the applications that are going into Specialties. Obviously, we'll manage this very carefully.
We pride ourselves in our customer relationships, and so to the extent that there is going to be an overlap, we'll take it step by step by step over the next 18-24 months to limit any dis-synergies. When it comes to the operational side, Christian already alluded to, there is some overlaps in the warehouses. Now, here we are going to be very practical. To those warehouses, that majority are going to be BSP, Michael and team will take them over and start to run them independently. To all those contracts that we have with 3PLs, and Michael, we need to get access to those contracts, though actually, those would actually be moving over. But I actually also start to see BSP, and that's how we talk about it internally. Actually, they're going to be one of our key accounts.
And you've seen our customer NPS score of 51. And so, by the way of how we're talking about it in Essentials, we are going to serve our Specialty colleagues, the same or even better, as we serve actually our key accounts all over the world. We have our vast network Last Mile operations ready for them to use. Any complexity they have, we'll happily take that on board, very similar to how we work with our suppliers and to our customers. And to the extent that we need to have specific services expanded to our product portfolio, we'll put that in place also through some formal agreements.
So also from that perspective, yes, there will be certain dis-synergies, but I think we are taking it very positively and see also a unique opportunity for us to continue to keep actually the local density in our networks. And probably, if we do it well, we can also grow together with this very important customer.
Yes, of course, music to my ears. Maybe on top, maybe about the 20% where we do have an overlap, but part of that is our global key accounts, large customers, and there, the value proposition of Brenntag still is indeed to be able to offer everything, right? So because there we do take out complexity on their tail end spend on the incoming side. And Ewout and myself, we agree that we will be shooting ourselves in the foot if we don't find a solution to still cater to those accounts that way, also going forward, independent of the legal structure and so on. So also from that angle, there we will already take care of a part of the 20%, which will probably stay that way as we service those global key accounts through our colleagues from Essentials going forward.
Maybe to add also from the cost perspective in terms of dis-synergies, so we have not built any major dis-synergies into the cost for the time being, because we will do that all very carefully and cautiously, making sure that we do not double all the capabilities and capacities. So just to give you an example, we have an M&A team very well contributing to our M&A activities. We will not double the entire team and then have two entire M&A teams in the two divisions. On the supply chain, for instance, there is of course always a question about the timing, and Christian also said it before.
Also, here, we do that, that we do not realize all the dis-synergies at once, and over the time, those dis-synergies will not be that big. On top of that, you had the question on the guidance, and how that all fits together in the end. So first of all, all the ranges are ranges, so does not mean that it's always necessarily as a midpoint. And second, yes, there is also cost out in the headquarters, which is driven twofold, by our reduction of the D&A costs, and on the other hand side, in 2023, and you know that we had one, of course, for the DiDEX implementation included, which should be lower, at the end of the planning period, which also will help to take the cost down.
Yeah. Thomas, Société Générale. Two questions. First, on Specialties, we've seen some unwelcome earnings volatility this year. My question on that is, is this going to be fixed with the portfolio reshuffling already, or will you need the implementation of your growth strategy and all the other levers to get this fixed? And the second is on Essentials. When you showed the competitive overview, you have put a label on some of the competitors saying partial traders. So my question to you is, what is the proportion of trading in your portfolio in Essentials, and how do you think about that going into the future? Thank you.
Yeah, I'll let Ewout answer the first question, then, and then Michael, next one.
So let me make a statement: We are not traders. So actually, the proportion of the trading volume, in the definition you understand trading, is close to zero. What we do is we optimize interregionally, and that's a very different business model. Because I've talked to you about the uniqueness of the Triple. It's based on the Last Mile operations, our vast regional networks and sourcing capabilities, and how we collect that actually between the different regions, tapping into those network opportunities. What we do is we leverage those relationships we have with suppliers everywhere in the world, and we move that product already knowing what the demand is going to be in our Last Mile operations everywhere in the world.
What we're essentially doing, we're leveraging our global position with the relationships that we have, with all the data-unique insights, but with a unique backing of local last-mile demands. That gives us a very different proposition versus trading.
In terms of earnings volatility for BSP, indeed, the product portfolio shift that we've implemented should reduce the volatility quite significantly. Because what we've done is we've indeed not just shifted the finished lubes business and the water treatment business, but we've also taken those elements out of the other business units that are more volatile in nature, more commoditized, Semi-Specialties, however you wanna call those products, and have shifted them over to Ewout's team. It's interesting because, you know, 2022 was an extreme success case year for BSP, right? I mean, if you look at the margins, they were fantastic. I think BSP's benefited from having access to raw materials that no one else still had access to, especially in those non-branded ingredients type of products, to a degree that there were significant over-earnings in those years for BSP, especially in 2022.
And now, if you draw a line, and you go a bit further back in history, and you draw that line through the kind of expected outcome for 2023 for BSP, it's still a very, very impressive track record of consistent EBITDA growth, with an outlier year in 2022, where we've been selling citric acid for EUR 1,600 margin per ton. And that is just unheard of in the industry, right? So there's a huge over-earning situation that just was arising out of the special supply chain challenges that you all have witnessed in the coverage you have. With the changes of the product portfolio, the vast part of that is moving over to BS, so you should see significantly less volatility in the BSP earnings going forward.
Thank you. I have an additional question. If you're talking about growth, of course, M&A, is divestment also some kind of an idea to close the performance gap going forward, especially for the specialties business?
First of all, Brenntag is not a good seller. I think, if you look at the history, we are actually pretty good acquirers and have built that M&A track record. Nevertheless, while we are talking about upgrading the portfolio in both divisions, but in particular in specialties, we also come to some, I would say, parts of the business where you could raise a question mark whether Brenntag is really the best owner for that business, or is it significantly dilutive to the performance of specialties? We are looking at this. I think we have identified one or two candidates where this could happen or where this could make sense. But again, it's too early and premature to say that, but we also look from that angle to improving the portfolio.
But again, we do this in a deliberate and cautious way, and not really destroying value here, so we can wait for the right time as well.
Hello, it's Dominic Edridge from Deutsche Bank. Just a couple of questions. Just firstly, on managing risks. Obviously, there's been an awful lot of IT change that's come through and is coming through. I think I sort of saw things like transport management system, warehouse management system, ERP, was obviously still to come through. Can you say how much of your IT stack has already been changed, and how much is still to change, and how you're managing those risks? Because particularly with the ERP side of things, I think there's probably a few shudders from investors around, given the number of issues there have been in the past with ERP implementations. The second question is on the Essentials side.
I know the fact that you've benchmarked yourselves against a number of industrial distributors. Obviously, those business models have been driven a lot by organic plus M&A in very fragmented markets. Can you just say whether you feel that is the opportunity? Because, for instance, I understand in the U.S., you and one other competitor are the only two with a national distribution network. Do you feel that there is significant opportunities to consolidate the U.S. market and any other markets as well? Thank you.
Dominic, I will ask Ewout to answer both questions. On the IT topic, as the responsible for also the digital and data and IT part, and also, of course, the peer group, Ewout.
Thank you. When we embarked on our digital data and excellence program, we really thought about: How can we do this at scale? Because we realized, we realized with our digital data excellence program, we needed to change many different levers, and you mentioned a few of them. Our commercial teams would need to change how they work, our supply chain teams would need to change how they work, and actually, with the upcoming ERP consolidation that Kristin announced, our finance teams will also need to work. I think we found a really good way of launching those programs in Brenntag. And so what we've done over the last year, we've established lighthouses. In every region in the world, we have a lighthouse, and they were the front runners of really embedding those changes.
Whatever we do, we first go into the lighthouse. Now, we started with Brenntag Excellence. The next thing is that we rolled out our commercial platform. We added on the digital, the data tools that I've been talking to you about. The next thing that we'll be doing is we'll be actually starting to bring on board the lighthouses on the ERP journey to make it work, make a change in a very controlled, smaller environment. But the way of how we set it up, and that's how we de-risk it, is, of course, that we think big, we start small, and then we're ready to scale fast. And with the infrastructure that we set up, both on the data side, on the modular way of how we've launched our applications, we've also de-risked it from that perspective.
Now, finally, and I also need to talk about the change for our people. It's a major change for our people, having to embed new tools. We made a pledge last year that we'd be training more than 10,000 of our people on actually these new methodologies. We'll be training hundreds of black belts and green belts to support our people on their journey and optimize our processes throughout the group. Now, one year into the journey, I can only say that we are very well on the way. We've rolled out, for example, the commercial platform to now cover more than 60% of group's GP, and the remainder of solutions actually is shortly trailing that overall.
And so, hopefully, that illustrates that we've taken out a lot of that risk, and we put a lot of management attention that actually these initiatives are properly executed on time, on budget, and on value. Now, to your second point on the peer groups. You commented on the business model and the strong growth trajectory of industrial distributors, which we referenced in our presentation. I hope I've shown you through the business model of Brenntag Essentials, we are very comparable. Through the cycle, our financial model is very comparable to industrial distributors. Our profitability model is very comparable to industrial distributors. And one of the things that they indeed do very well, on top of a very strong organic performance, they have a very structured M&A agenda that's also helping them to deliver compounded growth over time.
I hope also that you appreciate that in a Brenntag Essentials presentation, which I think is something that we may have talked about, but have never been that explicit about, what it could actually do to a Brenntag Essentials platform to truly unleash the potential that we have in the market. I've also shown to you that we have only 7% market share globally, and so there's ample of opportunity to further consolidate the markets, and we have a very rich pipeline across all regions to further complement the market consolidation, and we are actively executing on that M&A pipeline with more and more of those targets to come. When we have made it to signing, you'll be one of the first to know.
Questions here.
Thanks. This is Martin Roediger from Kepler Cheuvreux. I have two questions. First, regarding your forecasts for the two divisions, you have penciled in, in your slides, the, the fixed cost inflation. I would like to understand, is there a... I guess there is a difference in fixed cost to variable costs between the two segments, because, in Essentials, you have bigger volume products. And B, what is the kind of, say, fixed cost inflation rate you baked in into your, your, calculations, into your plans? Is it 3%, 4%, or 5% annual growth? And the second question is on your digital platform. I think to remember that a couple of years ago, you announced that you cooperate with, Chemondis, which is a digital platform or called an Amazon for chemicals.
You have been rather quiet on that, so can you provide an update? How important that is? Do you think that this can really be an important outlet for you, or is it more or less dead? Thanks.
No, no, let me, let me answer the second question, and then I'll ask Kristin and the colleagues to answer the the inflation topic and the cost topic. Now, Chemondis was a, a pilot for us, and seeing, you know, trying to what could such a platform... And we talk now about three years ago, where still, I think there was some conviction in the market that digital platforms might disrupt our business model away. That, I tried to explore what can such a platform actually do when Brenntag puts, puts the booth on that platform. And, the outcome, you discovered it, has been very, very disappointing.
And this is why we decided to actually walk our path, which we have disclosed to you a year ago, that we believe we can build those capabilities and really scale our platform digitally by our own means. So that's at least, you know, the learning we took out of that pilot, and this is why we don't talk about this, because again, it has been not the greatest success, if I may say so, very openly. But then, you know, I hand over to Kristin and to the other colleagues.
So on the cost side, we have built in the macroeconomic economic outlook for inflation according to our regional mix, because, of course, we are operating in very different countries with also a different outlook for inflation, and that is built into our cost. Maybe to remind you, 60%, close to 60% of our cost base is personal expenses, and we have also reflected the outlook for those. And then we have the other costs, which are then maintenance, energy costs, and transport costs on top. And as I said, we have built in the mix of the expected inflation into our plan.
Slightly higher for 2024, because we still see slightly higher inflation compared to a normal situation in 2024, and then normalizing to the end of the planning horizon.
If I may add to my first statement around, you know, the pilot we have made with this digital platform. I think it is, it is extremely important that you understand that we are very, very diligently following the trends and what is really necessary to become the data and digital-driven dominating player in that, in that field. And that we are actually bringing in these capabilities we need to have to be very, very strong on that, on that field. We're constantly talking to service providers on the digital side, which are, you know, in many cases, coming from how do I actually optimize supply and demand and come with a good algorithm which allows me to do that?
There are very prominent, prominent platforms, there, where we are in constant exchange and exploring what could, could be done jointly together. But we also discover, while talking to these colleagues and to these companies, that they are lacking what is so fundamental in our business, is the really commercial and operational execution, more or less the operational execution. Bulk breaking capability to really, you know, bulk break materials down to the last canister and then delivering this in four hours. That's not what a platform really can do. But what we need to do is, we need to come to a good approach to integrate what they are really good at and combining with that, where we are really good at.
Out of that, I believe there can be a strong, strong mixture, coming, and we are willing to take also investments into that, dimension. Ewout has mentioned it into one bullet point, if you saw it, on his M&A strategy, that we also look into a space of digital and data-driven companies and what they could do for us, and if they are interesting, how to bring that knowledge into our company through an acquisition or a cooperation with them. So that's something which we have in our pipeline, and we will work very closely. Brenntag needs to become a data and digital-driven company, very clear.
Thank you. It's Chris Counihan from Jefferies. You put in the essentials presentation, the proportion of group gross profit from the different regions, and obviously, one of the key areas of strength and growth as well is the global sourcing. I was wondering if you'd be able to comment on the proportion of procurement, maybe from the different regions, just so we can really understand what and how big a driver that is today?
If you look at, so firstly, thank you, thank you for your question. We are strongly diversified from a geographic perspective, but also from a product range perspective of how we're sourcing those products across the different geographies. Whereas, if you ask me, am I fully happy with our geographic footprint? I would say, well, yes, we have a very strong base in North America, a very strong base in EMEA, but I'd love to have a stronger base in some of the high-growth areas in the world, particularly in the APAC region, when it comes to India, the Southeast Asia platform, and China. You actually do see the diversification much better reflected when it comes to the sourcing side of our business, where actually we...
Just a fun fact, 20 years ago, we were one of the first in the world to open up a global sourcing office in Beijing, where, with whom we are having privileged relationships with our Chinese suppliers, and actually making sure that we help them in their go-to-market approach everywhere in the world, to the extent that their products are marketable in those parts of the world. And so what you can count on us for is that we continue to invest in those relationships in China, but also with our North American suppliers, our European suppliers, everywhere in the world, to give them actually a global access to the demand that we have everywhere.
And to my first point, you can also count on us on continuing to expand in very attractive high-growth areas, both organically as well as inorganically, to further diversify ourselves geographically going forward.
We have room for two more questions. One here in the front.
Yep.
Trying for a long time. Yes, finally. Thank you. Just a few more questions from me, please. I think you mentioned that you had moved selected semi-specialty products into Essentials. Can you give us maybe some examples of what these are and why you moved them? And then second one, the growth targets for Essentials has probably changed upward by 1% compared to last year. Is that basically reflecting maybe portfolio mix, the IT strategy, you know, enabling better pricing, you know, global sourcing, or just a combination of all of this? Within Specialties, actually, you mentioned that you want to develop own branded products. Does this mean that you will have Brenntag Specialties, branded formulations? I mean, what, what exactly does it mean, please? Thank you.
Given the focus in M&A on Life Sciences within specialties, can you maybe give some color on how the valuations are at this point in time, and how you mean to navigate that? Thank you.
So let me start by answering the question on which products were shifted from Specialties into Essentials. Without going into the specifics, typically these were products that we would classify as Semi-Specialties, would have typically more of a bulk nature to it, would require actually more heavy supply chain capabilities to market those products towards our customer. So for example, when it comes to certain sulfuric acids, to certain glycols, where actually bulk transportation, movement by rail, movement by ships, and certain break bulk capabilities in the Last Mile are actually quite essential to be selling those products.
Now, the majority of what we call Semi-Specialties would follow a similar logic, making it a much better fit to the business model of Essentials versus the business model that Michael alluded to in his presentation. The second question. Sorry, can you repeat your second question? Oh, yeah, sorry. The growth going up by 1%. So well, firstly, I think we've raised the ambition for Brenntag Essentials. We started to realize, as we are going through our strategic review, that there's a massive market out there, and there's still a lot of untapped potential we could be going into, playing into the Last Mile distribution strength overall.
In addition, what we've now also done, we fully embodied the digital data excellence program, that last time we didn't present it as part of the divisions, now into the divisional plan. I think the combination of the two shows our accelerated growth plan, that we very much look forward on driving and further accelerating through additional M&A.
On multiples for Life Science targets, so a couple of comments. First of all, yes, Life Science multiples tend to be higher than Material Science multiples. That's true. What you should keep in mind that oftentimes we are negotiating with family-owned, medium-sized type of businesses. So, while the multiples are on average higher than for Material Science, they're also not off the charts either. And we're very diligent to make sure that, we're value accretive whenever we go and entertain one of those acquisitions. And I'm not so sure if you had a second question for me, or if that was the growth question for Ewout?
Own branded.
Oh, own branded products. Yes, you're right. No, so own branded products, we have that already. So, here we sell under our own product brands. Usually, we don't use the corporate brand to kind of trademark our products, so we have different product names, fantasy names, and appropriate names in the markets. That's in those cases where we blend, oftentimes where we do have a blend in a blend, where we don't want to disclose the composition of that blend. It makes us less replaceable. It is higher margins that we can command in those type of products, so we will expand that. We also do a bit of white label work for some of the products that we can blend as well and mix, and those are the two examples that we have.
So it's, you know, much more geared towards those higher value-added branded products where we can command higher margins.
Last question.
Hi, my name is Hannah Heuser. I'm from EOS at Federated Hermes. I was going to ask, sort of coming from more of an ESG and long-term shareholder perspective, it's nice to see that you have some sustainability initiatives sprinkled in here and there, but then you also talk about rolling out a supply center in Mexico or in Louisiana to supply the oil drilling platforms in the Gulf of Mexico. So, I was just wondering, to what extent sort of physical risk and transition risk, but also the opportunity that can be in the transition, is implemented into this whole Horizon 3 strategy?
Yeah. Yeah, thanks for that question. And, actually, it's very nice to hear at least one question around ESG, because this is always high on the agenda, but I never get asked for that. But seriously, I mean, Brenntag has undertaken substantial steps in the sustainability agenda the last two, three years, I must say. And this is clearly, clearly visible in the upgrades of ratings we have received from almost all rating agencies, and EcoVadis Platinum is just, I must say, a very, very strong, a very strong signal. We must continue that journey. We have put a very strong ESG framework in place. I only talked about two, three small aspects of that, to illustrate, what we are doing.
So but we have a very strong framework in place, and one testament we have been given is that we, as a company, first time, have issued a green bond that we, you know, tied to the refinancing of our group towards very tangible ESG targets, diversity, but also safety, for our workplace and other criteria. So I think we are have a very strong commitment towards sustainable, and to be honest, I personally have a very strong commitment to sustainability, because in my career I have never felt that there is, I would say, a disconnect between economy and ecology.
I was that, that, they go hand in hand, and those companies who recognize that, for instance, a sustainable product portfolio just outperforms a regular portfolio, will, when it comes to growth and to profitability, I could see and I could prove myself, I would say, the last 15 years in my career and also other companies, where you clearly see that sustainable product portfolios are actually outgrowing the average of the market. And we will shift very clearly in this ESG framework, also our portfolio into higher sustainability regions. We have defined products where we will exit, and we will not distribute those products anymore. Will be a very clear commitment, will be given to the markets once we have done the final alignments.
But it is for me, absolutely clear that we as Brenntag, should upgrade and need to upgrade our portfolio in sustainability, and that portfolio management will again change the quality of our portfolio going forward. Because at the end, you are then representing more modern products and typically products which are also growing faster and interestingly enough, in most cases, also have a higher profitability. So in that respect, you know, we are fully aligned in expectations and what we want to do, and the ESG framework we have put into place, I would say is best in class for chemical distribution, but we will not stop there, so we will very, very consequently implement those steps above and beyond.
So with that nice last question, we conclude the Q&A session, and I now hand back to Christian for some closing words.
Yeah, and I would like to ask the team to come in front of me. With, not with me in front, not in front of me. And, again, we showed you our path to Horizon 3. And when you look actually at this picture, and some of you who know me a little bit, I like symbols. So this is the best picture you could choose for that path to our Horizon 3. I think we or I hope you, you could convey the message and, and could receive the message we tried to convey, that have conveyed to you. We are an extremely strong platform. We are the world market leader in our industry. It's a structurally growth market. It's a bankable, repeatable growth we are generating for you as investors, and that should make you interested in our company.
With all the plans we have now also laid out and our trajectory to go to Horizon 3 and become the leader, really the leader in all dimensions. This is the team which will deliver that. Thank you very much.