Few, late arrivals that takes an extra couple of minutes to get upstairs from the, through the security check here at the stock exchange. But, thank you all for, for bearing with us and trekking downtown this morning, and I'd like to welcome you all to the twenty seventeen Axalta Capital Markets Day. The great thing about the stock exchange is it's got a lot of tradition. We're listed here. And of the things that you may not appreciate is that this room and the AV is essentially free to listed companies.
So you all today are contributing to the Axalta Way. You're saving us tens of thousands of dollars and we appreciate that. So it's worth hopefully your time in coming down. So there's a lot of tradition at the NYC and there's tradition on Wall Street and one of those is to put the legal notices first. So I'll take a minute and read through this page in detail.
No, I won't. So the agenda today, we're gonna start out with Charlie, and then we're gonna hear from Barry Snyder, our CTO, and then each of our business leaders. And what we hope that you'll take home today from this event is a deeper understanding of Axalta, particularly with regards to our competitive advantages and our moat. Easily the number one question I get asked by thoughtful investors when we speak on the phone, when we're meeting at conferences virtually every day is can you help us understand your competitive advantages as a company? You're in the coatings business.
We understand what you do, but help us understand what makes up that moat. What does it mean to Axalta? So through these presentations, we're gonna talk you through what that means to us. And hopefully when you walk out today, not only will you have had some positive interaction with our management team, but you'll have a much deeper understanding for what that competitive advantage really means. I'm happy to have with us a good cast of characters from Axalta.
In addition to our senior leadership in the businesses who are speaking today, we have a number of people who are present. And you can see them on the slide here. But we have Robert Bryan, of course, our EVP and CFO. If everyone, if they could raise their hands as I say their name. We also have Joe McDougall, our head of human resources.
Joe, where are you? He's in the back there. Take note because in the breaks and at lunch, we'd love for you to interact and speak with each one of these people, and hopefully to move around during lunch as well to make sure you meet them. We have Dan Key who's here. Dan's here at the front table, joined us a year ago as our Senior Vice President of Operations and Supply Chain.
We've also brought three of our key technologists, in the organization, Doctor. Robert Roop. Robert, where are you? In the back here. Joanne Hardy, from Wilmington.
There she is. And Matt Boland, who's coming from Michigan, our key technologist in the transportation business. So there are a number of us here present, we encourage you all to interact during the
course of the day here.
And with that, I'd like to introduce Charlie to
come up and kick us off. Thank you, Charlie.
Well, good morning. Thanks and welcome to all of you. Hopefully, as Chris said, we made this easy on you other than getting into the exchange. Saved you a trip to somewhere in The US where we could've could've held this. So we really appreciate the attendance today.
And I think we actually had a great overflow for today. So it was really great to see the the people who were very interested in hearing our story. What I'd like to do over the next twenty five minutes or so is kind of give you my perspective, the journey we've been on. And as Chris said, people really, especially in this day and age when you look at GDPs around the world, when you look at the players, what's really going on? What's the journey we are on?
And most importantly, over the next few years, why do we think we'll create shareholder value? And if we do, what are we going to how are we going to distribute that? So what I'd like to do is, again, spend a little more time and hopefully that tees up the rest of the session this morning for our team as they come up and talk about their respective businesses. And Barry talks about the role technology plays in all this. So again, I think most of you in the room know this, key encodings is having a global breadth and a global scope.
And I think by any measurement, we are a global enterprise in touch with our market segments around the world and core competencies that sit within those regions. I particularly like and exalt to the fact that we're pretty well balanced between The U. S. Or between North America and EMEA, and we've got growing regions in Asia Pacific and Latin America that now comprise about 30% of our sales. And all you have to do is look at some of the metrics like the number of manufacturing facilities, the training centers, which we've been adding the majority of those outside of North America to see we're continuing to expand our global breadth.
One of the things we've done over the last few years is react to what we believe are fundamentally changing market conditions out there. How do you grow in a slow growth world where there's one set of developed markets and there's a whole set of emerging markets with very different demands? And so we really we have completely changed how we run the company, how we think about it and how we're organized. Really starts with two segments, Performance Coatings and Transportation Coatings. Again, different segments, very different go to market segments.
And then ultimately, we're layered in with four end markets. Clearly, our Refinish business, where we're number one in the world, is really the rock of the company. That's really the business that really generates the free cash flow for us to go do a lot of things, but also presents some interesting opportunities over the next few years I'll talk about. This is a business that our structure is regionally led. Mike Carr is going to talk about it here in a little bit.
We have global technology for that business, but the people in the refinish business live in the regions, run with the distributors in those markets and very little people move back and forth around the world in that. So we really have a very close customer intimacy when it comes to servicing all the body shops, the dealers and the people involved in those segments. Our Industrial segment, we really participate in nine different sub segments. In some cases, we already have large market presence. In other cases, we're acquiring that through some of our inorganic opportunities.
And then again on the global transportation side, this is our light vehicle, our commercial vehicle markets. These are ones that range all the way from dealing with the Fords and General Motors of the world to APC plastic parts customers, Tier one suppliers and small regional players on the commercial vehicle side. There we run a global business, global strategies, global execution and global operations for that business. So what I would leave you with in our two segments and the four end market groupings is every one of these are very, very different in what the customers ask for, what they're looking for, the sale process and the type of coating that's used. We're able to leverage global operations and global technology, but when you get down to the end market, nothing takes the place of having a customer intimate organization structured around those markets.
Clearly, first and foremost, we're a global leader in coatings. We're a top I mean, we're number five or number six in the world. I don't think size really matters when it comes to some of these. I think market position does, but the customers really want to know what you've done for us. But in our business, we do enjoy scale.
In our Refinish business our Performance business is about 60% of our sales, also about 60% of our profitability with Refinish again being over 70% of that segment at $1,700,000,000 again servicing a variety of markets. Our Performance Coatings business has close to 100,000 customers around the world. So you can see very diverse, very stable, but one that is it's very regional in nature and very spread out. On the transportation side, again, very proud of our light vehicle market, the growth we've seen in the last couple of years. And really, our commercial vehicle is a segment we only formed about two years ago, recognizing that those customers are different, the technology is different.
And while in certain markets, we have really good market position, we have immense opportunity in the commercial vehicle side over the next couple of years where we think there's lot of unmet needs. We're starting to see those, and Mike Cash will talk about those today a little bit. Clearly, a global leader in our markets. I mentioned earlier, in the refinish market, we're number one in the world. It's a great place to be.
I don't know that it really matters if you're number one or number two, it's what you're doing with it. What I like the most about the refinish market, and I know a lot of you guys like and appreciate the margins in the business. And again, it's a high service business. It's one that the reason the margins are there is because of that and barriers to entry are very high. But the biggest thing I like about the market is if you look on the pie chart here, over 35% of this market is still others.
So whether it's us or a couple of our large major competitors, there's a lot of room to grow globally over the next few years in this business. For example, North America market is not going to grow a whole lot size wise, but there's a lot of technology opportunities. They're going to push out smaller players. And in emerging markets, when you look at the demands of the car park and as cars continue to advance in technology, it's a great opportunity, we think, for us. And again, Mike Carr will talk about that today a little bit.
In the industrial segment, we actually have some nice positions. We're the number two powder coater in the world today behind Axon Nobel. Energy Solutions, which is our EIS business, we're number two, fast growing around electric motors and number two in industrial e coat. On the light vehicle side of the business, we'd like to think we're right there at number two in the space. There are several of us, high barriers to entry business, but one that we feel like we're well represented with OEMs that we continue to grow, but still a lot of opportunity to continue to grow that position, not only in light vehicle, but ultimately, as I mentioned earlier, in the commercial vehicle segment.
We enjoy good technology there, but we're just now beginning to globalize some of that technology and take it into other regions. So again, in most cases, our marketplace is either regional or globally. We're number one or number two in the world. And I think you have to have those kind of positions when you're talking about pricing and technology and to continue to invest in the business at the level that we do. Clearly, our markets are attractive, structurally attractive.
Overall, the segments in coatings that we participate in, whether it's industrial or light vehicle commercial, over the next five years, we believe we'll continue to grow at about 4% overall, faster in emerging markets, a little bit slower in developed economies like EMEA and The U. S. But still, because of changing technology requirements, it doesn't mean you can't outgrow the market in these businesses. And we'll talk about that today. What I like most about our segments are they do provide a lot of diversity.
People will look at us as being 70%, 75% transportation focused. But when you do break down transportation, what you find out is the drivers are very different. For example, in Refinish, it's really about miles driven, collision rates, car park. We get a lot of questions about autonomous vehicles and active driving technology. What we see right now is no effect from that.
And in fact, if you look to the third year in a row now, fatalities are actually going up in The U. S. Big article in Wall Street Journal yesterday about what's really going on, on insurance claims, texting and driving, where are we going to go with all this? So unfortunately, a lot of factors are actually going the other way where you would worry about active technology reducing the number of collisions. It's being outweighed by other factors.
So when we look at a car park that this year has 88,000,000 new cars in the world, growing to 110,000,000 cars new cars a year in the next five years, We think the refinish dynamics are really, really good, certainly over the next five to six years. Ultimately, active driving and maybe autonomous play a part in that, but the math just doesn't work in the short term to impact the industry. Light vehicle, again, it's more about emerging economies. It's more about sentiment. It's more about geographies than it is a global demand.
Commercial vehicle, again, commercial vehicle runs on very different cycles than light vehicle does. So again, we see diversity there both in how we spread out risk, but also where a lot of those customers are going. And last but not least, our industrial growth drivers tend to be the one that's most correlated to GDP. We do better if it's trailers, if it's buses, everything else, if an economy is growing, and we believe that, that will continue to be some of the drivers. Again, that can be very diverse around the world though, which spreads out overall business risk.
A little bit about our foundation and then I'd like to talk about again, on the financials and then the journey we're on from the standpoint of shareholder creation. But the interesting thing about this company is we celebrated our one hundred and fiftieth year last year. The company between the Herbert's background and the DuPont background has always been a leader in coatings. It's always been a leader in technology. The downside of that was it was buried underneath DuPont for the last thirty years and you never heard a lot about it.
But if you go back and look all the way back to before the 1900s, Spee's Hecker, which is the premier brand in refinish around the world, has actually been around over one hundred and twenty years. So it's fascinating when you start thinking about a lot of our brands that are known in the industry, the customers have appreciated and we've continued to advance for a really long time. What I would point out is that we've been around, whether it's been advancing the technology, things like color equations, things like spectrophotometers, we've actually been at the forefront of technology a long time. We've never really told the story because it wasn't in the overall scheme of who owned the company that important. What you will see though is in the last four years, what we're now doing on the technology front is not only continuing to advance our main brands, but if you look here, we've listed some of the new brands that we've acquired in the last three years.
And these are brands that customers trust. They know they're in the more of the mainstream market or the economy market around the world. We've acquired over 14 brands alone around the world in the last eighteen months. So it is important to have product brands out there. It's less important to name on the door like Axalta or whatever, but it is important to have a brand that customers trust and know and you're putting and represent technology.
So we actually really believe our whole product development timeline has accelerated much probably more in the last four years than maybe in the last twenty, not only with organic investment in our R and D but with the acquisitions that we've started to do. Key achievements in 2016, just taking a quick walk through. As we exit 2016, think about 2017, how do we think about the business? I'm very proud. We grew last year 4.3% ex currency, including our acquisitions.
If you think back two years ago, this is a company as we IPO ed that was only transitioning to growth. We'd actually had negative growth for several years under DuPont. We transitioned. And last year was really the first full year of what we believe is starting to hit our stride. Clearly, we have larger aspirations for growth.
And we did that in an environment where Latin America actually was a big negative for us in South America. So we actually have regions last year that grew in excess of 67%. And I hope that if we can get some stability in a couple of regions, you'll begin to see that this year. We extended our core strengths. We focused a lot on Exalt Away, Chris mentioned that earlier, driving we have a long way to go in optimizing our footprint, improving our return on invested capital, taking cost out of this business.
And we'll talk about that today, but that is the gift that we'll continue to give over the next few years. Last but not least, continued our high internal return rate of return investments, 136,000,000 in capital last year, completed six bolt on acquisitions. Again, are acquisitions that were anywhere from 10,000,000 to $30,000,000 One was actually bigger than that last year, DuraCode. But we like the bolt ons. We like the low risk.
We like ones that we know the business and we can drop right in and get the synergies and move on. And last but not least, I'm particularly proud of, we made some major changes in our capital structure last year, drove our debt leverage down to three times, which was our goal and also reduced our interest expense by over $30,000,000 taking advantage of the open capital markets last year. Again, we released earnings last week, I won't spend a lot of time on this. But again, I would like to highlight, when you look at our Performance business, which is core for us, up over 6.6% excluding FX last year. And again, that was in spite of a really dismal performance out of South America, not Latin America overall, South America.
We really grew that business almost 7%. We're getting up to the kind of targets we were looking for. Picked up our free cash flow from $260,000,000 to $420,000,000 last year and really had a nice balance between volume price offset by FX in the business. So all in all, I'm as we said in earnings call last week, really, really proud of all the levers we pulled last week. A lot of those things we now have behind us.
The last thing I would mention last year, which was I wouldn't say a big distraction to us, something you guys didn't see a lot of though, was that we did exit with Carlyle. Carlyle was our private equity partner when we bought the business in 2013. So we now have a much more traditional shareholder base and private equity is in the rearview mirror. Great guys, loved working with them, but one less thing for me to have to deal with and worry about. We also transitioned to an independent Board as of the third quarter of last year.
So again, product highlights. Last year, we were actually on we added it up for this presentation. We we had paint on over 28,000,000 new vehicles last year to just talk about the diversity. And you think about there was about 88 on the light vehicle side, 88,000,000 new vehicles painted. We're a substantial part of that around the world and around with many, many customers.
Over 900 new industrial accounts, Mike will talk about that, over 100 new OEM systems launches. This would have either been new paint launches on places like an OEM, our new plastic parts line, our new bus line in Brazil, things like that. So a lot of diversity being built in with the number of customers we have. Over two twenty five new product line extensions, then these are ones that are new products, excuse me. These were not like a new color somewhere.
These were truly a new product that we developed and we launched with a new functionality with a customer. And again, hopefully, you'll get a perspective of that today as we talk about this. And then last but not least, we actually received for the second year in a row the GM, the Supplier of the Year Award from General Motors, grew nicely with them. Less than 1% of their suppliers have ever received more than one Supplier of the Year Award. So we're crossing our fingers we get the third in a row this year.
But a great credit when you think about our history, we never got one under DuPont. And now two years in a row, we're recognized as their top paint supplier. Daimler Masters of Quality, tenth year in a row. And on and on and on, we're very pleased that customers recognize the value we're creating for them. For 2017, what I expect is we'll continue to outgrow our end markets and that we'll do that with new products, we'll do that with acquisitions and we'll do that with organic growth with initiatives we have.
Absolutely continue our operating discipline, our cost focus, the Axalta way. We've got to continue to deliver at least mid single digits productivity in the company, and I think we're set to do that. We'll do that in a smart way, and you'll continue to see us take restructurings as we continue to advance the organization and improve our return on capital. You're going to hear us talk a lot about capital allocation. I'm sure to a lot of you in the room, that's a lot of interest to you.
And okay, what are you going do with all this free cash flow? We'll talk to that a little bit today. Clearly, we're now in a position having a lot of these other initiatives behind us to begin thinking about what we do with that next tranche of free cash flow. Our M and A program is up and running. We feel comfortable with the amount of capital we're putting back in the business.
So what do you do with the rest of that? And we'll continue to stay focused on improving the free cash flow and the financial discipline of the business as we do bolt on acquisitions. So a little bit on our journey for shareholder value creation. Because in coatings, it doesn't just come magical and it doesn't just come from one thing that happens to you. You really have to be pulling on a lot of levers and doing those correctly.
First of all, when we think about growth, we'll continue to reinvest in the business, adapt our culture, our people to that. And we have 13,000 employees and 4,000 distributors that we have to set the stage and we have to set the expectations and be focused on the customer. We've been investing in capacity. Our overall strategy on capacity in the businesses, we'll build it when we need it. We won't build it in advance of when we need it.
However, we've done seven major projects. We have right now all the capacity we need around the world for our core business. The one exception is as we continue to grow in China, we'll continue to add more waterborne capacity both in OEM and refinish. And we've continued to invest in new or expanded customer training centers. As we get close to the customer, what we find is in the past, distributors had many of those relationships.
We're not going to displace that. But in many cases, we're going to be closer to the customer through those distributors, have our own training centers. It's not additional cost in the business. We're already paying for that through distributor fees, but we are going to take more control of our end markets customers and do more with them. And I think that's only natural in this kind of environment to do that.
And we're real pleased. We're getting ready to open three more new ones this year, so we'll continue on that path. The biggest thing we've done in the past two years is on the technology side, we have over 1,300 scientists, engineers and technicians. We've completely reorganized that whole workforce. Barry is going to talk about that today.
More importantly, we're in the process of putting 400,000 square feet of brand new labs both in China and here in The U. S. We've got a picture here of the new Asia Pacific Tech Center. That's in Minhang in Shanghai. That is now open up and running and will be over 500 scientists there doing not only work for Asia Pacific as a region, but doing global color development and other platform work for us.
That building is up and running. And at the end of twenty eighteen, those of you who are familiar with Philadelphia, in the Naval Yard, if you drive by there now, you'll see a big new structure going up right next to Glaxo. That's our global innovation center, which will be the global R and D center for us, for the world, coordinating the lab, the over 30 labs that we have around the world. So once again, we're spending on average about $165,000,000 a year in R and D globally across the company, 4.4% of sales. But in addition, we're investing over $150,000,000 of our capital in brand new state of the art labs to service all of our existing segments.
So a really exciting time for us, but one that we don't believe will have anybody on the parallel with us when we're finished doing this, at least in our segments, not in every segment of coatings, but in the ones we run-in. We'll continue to we spend a lot of time on culture, incentives and values. If you're going to get close to the customer, there's only one way to do it and that's start at the top and build it through the organization. So we won't spend a lot of time on this, but we do as a company, turning the wheel on 13,000 employees, we want to make sure that there's clear values and that those are focused around the customers, accountability, trust and teamwork. And we also spend a lot of time defining what do those behaviors look like.
And I think you have to do that if you're really going to set the stage for the next five to ten years as this company goes. What is it we're looking for? What kind of customers are we looking for? What kind of markets do we want to be in? You've got to drive that through the organization.
I'm really pleased that I think while we're early in the journey, we know where we want to go with our people and what we want those people to do as part of the organization. We have a pretty audacious goal out there over the next five years on a constant currency basis to grow about 10% to 11%. We believe we can do that. That will actually come from a combination of both organic and inorganic. Inorganic will be $809,100,000,000 dollars of that.
We already know what we want. We're in process of going and getting it. So I think it's mid single digits organic and the rest is through mergers and acquisitions. We don't believe we have any issue with that pipeline right now and what we will invest to have to bring that pipeline on board given the acquisitions we've already done. We'll continue to seek better than market hurdle rates for those acquisitions to make sure that they're all successful.
Second of all, productivity. In this business, as much as I can talk about technology and everything else, customers demand productivity every year, Whether that's the OEMs, whether that's just overall operations, you've got to deliver that productivity. So we've talked a lot about our Fit for Growth, our Axalta Way. What I would say today is we're not doing a big presentation on that, We will continue to deliver at least mid single digits productivity into 2017, 2018. We need to bring 50,000,000 to $100,000,000 a year to the bottom line from productivity, and I think we're well positioned to do that.
And we will achieve that. We've done it the last couple of years and by no means are we out of opportunities to continue to do that. Capital allocation, mentioned earlier. For us, it's really, really simple. And I'll show you a chart in a minute of how we think about capital allocation.
Being an engineer, it's always best to have a visual. But we seek the highest return on our spend. One year, that might be internal projects. The next year, it might be M and As. The M and A could be opportunistic.
It could be planned. It could be bolt on. And then last but not least, short of that, we'll return the capital to shareholders. And we now are getting to that point when we look at overall leverage ratios, we can do that. But we are going to continue to drive the return on invested capital in this business up over the next couple of years and do that at a corporate level and a very methodical basis.
We make sure all our cash comes back and then we decide what to do with it as we allocate back out to the company. The regions have very little autonomy on what to do with their money. It all really comes back to a very small core group at the top of the company to make sure we're consistent with our strategy. So again, this is kind of the chart that we use as we think about. Nothing magic here.
The last couple of years, it's all been about debt reduction, taking our capital, putting it towards debt reduction. We'll still pay down some debt, but I think we'll do that as we balance other needs for our capital. Our organic investment capital, R and D, those are pretty well set now. R and D at about $165,000,000 CapEx at about 150,000,000 M and A about 100,000,000 to $150,000,000 and that leaves us several $100,000,000 a year, certainly at our current run rates to think about whether we do dividend or share repurchases. It's a big topic for our Board and I think over the next couple of quarters, you'll hear us talk more about this and most likely some plans come out from the company on what to do.
We're just now getting to this point to debate what to do about return of capital to shareholders and I think that will be a big priority for our new independent Board. This is kind of how we think about it. It's actually very simple and very straightforward. But we've really just now gotten to the point we can talk about the boxes in the lower right hand corner. Again, continuing kind of on our journey as I think about creating value for our owners over time, M and A will we will continue to see ongoing consolidation.
That will come through things that happen with mergers like the Sherwin Valspar merger, people selling pieces of business, still hundreds of small really good companies out there. We're now taking part in that. So we believe that's going to go on. You don't have to pay 15x for every acquisition out there. We have yet to even pay double digit for any.
So I think that we you can find the right ones that have the right incentives that are the right ones for your company and still add technology, markets and products to your portfolio in a good environment. We think that's going to continue, and we will continue to do that as a key part of our growth strategy. Again, just highlighting here, here's some examples of ones we've done over the last couple of years. Lots of smiling faces from owners more than us, but I think for the most part, these owners are staying with us. There's earn outs in some of these.
And in some cases, they'll exit over time as we take over the business. In some cases, we're taking on sites. In other cases, we're transferring technology. Everyone is different. So what I would tell you is that while we have a very straightforward process to look at M and A, We look at each one of the deals very differently and what we want to achieve.
And we do not believe having a cookie cutter approach to M and A is a way to be successful. I think our management team collectively, we've done over 100 acquisitions as we added up among the senior team, our careers. I think we know what good looks like. It doesn't mean you might not get tripped up every once in a while. We're very happy with the ones we've done so far, the brands we're bringing on board and the talent, the people who have come on board with those.
Again, the benefits, I won't spend a lot of time on this chart, but I think the benefits for us being a global player, we can drop in raw material synergies. We can take their products and take them to other regions where they didn't have sales teams. So in many cases, synergies are very cut and dried where it's really easy to be able to measure them and measure the performance going forward. In many cases, we the globalization of their products is a big deal for us and we're able to take them to areas that they those companies would never be able to afford in coatings. Some examples of the technology that we've acquired over the past two years is, for example, in our United Systems, some solvent waterborne rigid plastic coating systems for a variety of substrates.
So as we talk about composites, both interior and exterior, we're gaining technology in that area on transportation. Economy segment refinish formulations. If you look at emerging markets, economy and mainstream products can be 70%, 80% of the market. So we're building a product portfolio where we already, in many cases, own the premium market. We really want a piece of the economy in mainstream.
And that doesn't mean lower margins, but it is different technology, different formulations, different demands from the body shops. We also picked up some nice low VOC paint systems in industrial and in our transportation segments. So we're really going after not niches, but technology that we think we can expand and use in other product portfolios in our business or in a market. So that kind of leads me to technology and innovation, kind of the theme of this of today's talk with all of you because I think it is underappreciated the role technology plays in coatings. I think we probably only have one other competitor who does a pretty decent job in talking about that.
But the reality is there's not one product we produce that any of you in this room could go take and use without a lot of expertise and a lot of knowing about what you want to do with it. So there's a lot of applications that go with these, hence why you see some of the margins in the business. So for us, it really is the heart of Axalta to continue to develop that for competitive advantage, to keep the barriers to entry, to build the modes higher and to drive margins ultimately in the business. We think about technology in three ways, product process and distribution technical services, and they're all equally as important. As all of you know, you can have the best product in the world, but if you can't explain to the customer how to use it, it doesn't really matter.
Vice versa, I can have the best people in the field, but if they can't work with the product, it doesn't matter. So all of these are key and it's why the barriers to entry are so high and it's why the threats from new entrants tend to be very, very low in these fields. Somebody just can't go put all this together. And even some of the bigger companies out there who are in other segments of paint, when they look at these segments, they even realize that there's no way on a blind tray they can come in and enter these markets. The value chains are too complex, too differentiated and in many cases, the markets are already served by people like us.
But again, I think we believe we've got the differentiated franchise. We've got the footprint and it generates competitive advantages across the whole chain. So again, a lot of our R and D is focused in these three buckets, not all to the left, not all to the right. So again, the role of technology, I mentioned the creating the mode, the barriers to entry, we really think about it from the standpoint of it's our backbone. Even products today that are well received out there like Speeshecker waterborne for refinish, Every day we wake up and figure out how to make that better, faster drying, more differentiated colors, clear coats, tents that work together, things that will continue to box that customer in but also give them productivity and give them value and know what they've got to have to do it.
So it really informs our capital and drives our strategic decisions. Maximizing the leverage, again, technology can actually drive your margins higher. As we think about whether that's raw material substitution, complexity reduction, probably onethree of our technology workforce is looking at how do we make our products work better and be less expensive over time. And I think that that's just the key in the world we're in, especially emerging markets where if you look at most emerging markets, I know a lot of you study companies, in emerging market like India, they want a product that is 80% of the functionality of a product here at about half the price. And actually, doesn't matter how much money they have, that's their value proposition in a lot of these markets.
But we have to adapt to that. We have to think about that and everybody will be fine in that environment. We've been growing India double digit now for the last three years with exactly that philosophy of reformulating products, giving them exactly what they need, not what we think they need, but then giving them the service to use that product as well. And I think that's part of that, having a global footprint and knowing what the customer wants and needs and can you and will you match it up accordingly and not trying to tell them what you think they need. Technology for us, a lot of it is input from the field and from our strategy and from commercial to drive the projects.
We rest on a foundation of technology investment. We put the slide up here. We tried to go look at our competitors and see where do people sit. We believe as a percent of sales, we're at 4.4 of sales in R and D, the highest in the industry. Now that's also a function of our mix.
So when you look at some of the competitors here, they run a very different mix. A lot of them are in Decatur Architectural. So I don't think you'd ever want to go out of here going, you know, obviously Axalta spends the most. They must be the best. That's not the way we look at it.
The way we look at it is look at our business, 4.4% is what we think drives competitive advantage and drives us to success. But we are proud of the fact that in almost any benchmark, we're right there at the top on what we're putting back in and how we're growing the business and thinking about it. This year, we'll generate over two fifty new products out of our R and D investment, 800 new products over the next three years. And again, these are not just line extensions. These are unique new products that have commercial projects, have commercial value.
We don't do any projects and then go see if a market wants them. They always have to have a commercial case behind it. I've talked about the investing for growth. Our technology and service will continue to drive our growth, getting closer and closer to the customer, understanding these changes that are going on in these markets. And in any market right now, there's a whole series of technology buffer, things that are changing those markets, whether that's insurance companies driving collision shops to consolidate, whether that's moving to low VOC, waterborne, China with their sweeping environmental mandates.
Every one of these markets has driving forces that we understand and we believe we're well positioned to capitalize on, in many cases, the expense of other local players and not necessarily butting up against one of our major competitors. So with that, I'll pass it over. But hopefully what you get in the next couple of hours from us is a real view and a look under the hood on what we're doing around technology, but most importantly, how we think that technology will fuel growth over the future. Some of that technology we'll acquire via acquisitions and other will develop in what we think are some of the best R and D facilities now and best people in the industry globally. So thanks for your time this morning.
I look forward as we go through the morning and as we have our Q and A later on coming back up and answering any questions that you may have. So thank you.
All right. Thank you. Good morning, everyone. What a pleasure to get up here in front of you and talk about what I do, what I love, what I've been doing for my entire career, and that's technology. So let's start with the fact that Axalta is a technology company.
And let me tell you what that means because it may not be kind of what you thought when you walked in the door. So being a technology company, we listen to our customers. We listen to our markets. We try and understand what it is they do, what it is they need. And then we bring to bear on that great chemistry, great physics, great material science to solve the problems that our customers really care about, the things that are going to make their business better.
That's who we are. That's what we do. We've been doing that for one hundred and fifty years. This is not a new thing for us, as Charlie just showed you. We've been at this for a long, long time.
We invest significant amounts of our resources into technology, over 4% of sales, 165,000,000, 1 and 70,000,000 a year. And what that translates into in terms of the way our business operates is that roughly half the products that we go to market with today have been brought to market in the last few years. So very significant development effort, very significant impact on our business. It also means we have this great product range. We're able to walk into a customer and bring them a solution to a problem that meets their needs.
10,000 products out there in the marketplace today across our entire range, great breadth, great depth in each of the segments that we serve. And we build that off of a deep capability base. This 4% of sales, this 1,300 people that we have spread around the world who have again great understanding of our customers' applications, great understanding of color technology, of chemistry, polymer chemistry, etcetera, etcetera. So again, capability that we bring to bear to solve customers' problems. And so what that really means at the end of the day is the next customer that walks in with a problem to solve, we either have the solution ready or we have what it takes to deliver that solution to them.
Now I want to spend a second here on the fact that we sell paint. But paint is not paint. The paint that we sell is not the same as the paint that's on the walls in this room. Know, we have over here in the corner, a variety of different samples of things that we've painted and coated to give you a flavor for what is it that we actually sell. These are highly engineered, highly complex, high performance systems, not just paint.
And to build that up, it takes a lot of technology. Sometimes it takes multiple layers of materials that have to work together across those different layers to deliver a result. So what I illustrate here is what it looks like on a car body. So on a car body in the thickness of a dollar bill, you've got multiple layers of paints that all or coatings that ultimately add up to the performance that we all see. Starts at the bottom with an electrocoat, which based on proprietary resin chemistry, some unique patented catalyst technology delivers great corrosion performance.
You and I don't worry about our cars rusting out anymore As well as being the basis to form all of the appearance, all that great color, all that great sparkle, all that great mirror like finish that the rest of the coating is built on. On top of that goes a primer. Primer makes everything stick together, keeps it from, prevents it from being damaged when it's assaulted. You know, you get a stone that chips up, doesn't, your paint doesn't chip off anymore. That's the primer that kind of holds the thing together, again, based on unique chemistry that we put in there that bonds the thing together.
The base coat, this is what we see. This is what we emotionally relate to and the reason why we go pay that upcharge to put that special color on the car when we buy it because this is where the color is, this is where the sparkle is, this is where the appearance is that we all respond to. And that's based on, again, unique polymer chemistry, unique formulating chemistry, unique understanding of how pigments interact and go down. And then finally, that mirror like finish comes because of the clear coat that we put on top. So complicated, multifaceted, multi technology systems that have to come together to work together to ultimately deliver the performance that we deliver.
Now when I came to Axalta a couple of years ago, I laid out a strategy for how I wanted to drive the function. And really my vision was that we need to not just be investing in technology, but to truly be the best technology organization in our industry, in our markets. At the end of the day, there are three prongs that go into the strategy and delivering on it. One is having world class capabilities everywhere where we need them. The second is making sure that what we do is focused on growth and absolutely aligned with where our businesses are going.
And the final thing is to make sure that not only are we building what we need to meet needs our customers' needs today, but that we're looking to the future, that we're actually building the pieces that we need so that as our markets change and evolve, we're ready with a solution ahead of the game and sometimes as much as possible with a unique situation or unique position. Charlie mentioned what we've been doing in terms of some of our laboratory builds. That's actually part of an entire laboratory rationalization that we've been investing in to set ourselves up to not only be able to deliver on the development capabilities that we need, but also to be able to bring our customers in and work closely with our customers in our facilities. That lab in Shanghai that he showed you the picture of, the Ground Floor of that is actually a refinished training center. And so we bring customers in there every day to interact not only with to interact with our scientists as well as to be trained.
We've retooled our organization, brought a lot of focus to what we do. It's really, you know, what we do today is all about delivering on programs that we're driving. Those programs are all meant to ultimately bring fit for purpose products. It takes just as much technology investment to deliver an economy grade product as it does to deliver a premium product. The mix of performance is different.
The challenge is the same. And so it's critically important that we actually balance our effort and make sure that we tailor the solution, that we right size the solution to what it is that our customer needs. We build off of platforms and that enables us to actually quickly respond to customer needs. And then as we look to the future, one of the big shifts has actually been to make sure that we have robust roadmaps in place so that as we invest in next generation products, they're really aligned with where our markets and our customers and our business is going. And that we again look at where can we go further out into the future based on emerging trends in the marketplace.
We're adding capabilities to our mix. We're adding not just a focus on product, but also a focus on process and raw materials to make sure that actually we're a state of the art in terms of the way we make our product, what our cost structure is, the quality of our products, etcetera. And we do this with, as as we say, over 1,300 people around the world. Now we retooled the organization to focus on these three key areas, product, process, and service. Dedicated organizations that develop new products and build platforms that we then take around the organization.
Dedicated organization that's focused on making sure that what we develop in the lab actually gets out of the lab, gets into production, does it in a high quality, consistent, low cost way everywhere that we want that product made around the world. And then finally, leveraging those platforms locally in our labs around the world, working with our customers to be sure that we, that what we bring them actually works on their line, that we understand how they apply the paint, how they use the paint, and that when we bring a product, it really works for them. It's not a generic solution. We do this in a network of labs that again, we've recreated. The reason for the investment in labs is not just to invest in labs, it's to rationalize our lab footprint.
Why do we have over 30 labs around the world? You'd think that as a chemical company we ought to be able to do this with a few centers and just spread it around. Well, that facility that we're building in Philadelphia is our global R and D center. It is the place where we develop the basic core product technology. In Mount Clemens outside of Detroit, where we're upgrading our facilities there and expanding, in Wuppertal in Germany and in Shanghai, we've built major centers of excellence where we have the depth and breadth to service our entire business and to be the conduit of technology out to the rest of the world.
But then we complement that with a network of labs locally, Mexico, Brazil, Colombia, India, Japan, on and on and on, to be close to our customers, to make sure that we work closely with them to bring them tailored solutions, make sure that we understand their needs locally because what works in India doesn't necessarily work in China, doesn't necessarily work in Japan, doesn't necessarily work in Mexico or The U. S. Or Germany. So a very rational, very clear network of labs that we drive. Now it's all about, at the end of the day, creating value for our customers.
That's why we drive product, process and service. And we create value at two levels in the value chain. We sell paint to people who make things. But you and I are all, at the end of the day, consumers of that paint. So the things that we care about as end consumers are a little bit different than the things that our direct customers care about.
We've got to build all of that in whenever we go develop something. So, you know, we're looking for it to look great. It's got to have the right color. It's got to have the right sparkle. Sometimes it's glossy.
Sometimes it's matte, whatever it is. But it's gotta be great. And we're all about delivering on that color. It's gotta last. Whether it's a car that you park under a tree and it gets tree snap on it, or whether it's a great big earth moving machine, you want that earth moving machine or Caterpillar wants that earth moving machine to stay yellow, right?
It should stay yellow. And at the end of the day, it's also got to protect. Again, as I said, we don't want our cars to rust. When we go put a pipe into an oil line and it's got to stand up to high temperatures, high pressures, aggressive chemicals. It's got to protect that pipe for the life of that pipe.
For our direct customers, what do they care about? It's got to be easy to use. We've got to make it easy for them to use. It's got to be productive. And one of the things that we talk a lot about as a company is our ability to deliver on the productivity mission.
You'll hear a lot about that today. We've got some stories about productivity. And then the compliance environment, the environmental environment is continuously evolving. And so we're constantly having to stay up with the times and retool our products to deliver on the changing environmental landscape. Not only do we drive product process and service to create value for our customers, we also drive them because it really allows us or enables us to deliver significant competitive differentiation.
Now it's easy for me to kind of talk about the product differentiation piece. That's the part that we all kind of see, feel, and touch. And, you know, 70% of the resins that we use are our own recipes, our own developments unique to us. And that gives us an edge when we go take product out to market. The part that you see much less of and we talk much less about is actually the advantage that we create through process.
Now if you follow the sort of traditional chemical industry, you'll hear about shaving a penny here, shaving a penny there to gain advantage, to gain differentiation, to drive profitability. That same mentality is something that we're bringing into Axalta and using to make sure that we've got the best cost position, the best quality, the best asset utilization in the industry as we look to the future. And then finally, the service component, really being in our customers, with our customers, understanding their lines, on their lines, day by day, making sure that when we bring them something, it works. And great depth in our facilities with equipment that actually mirrors what our customers have so that we simulate their facility before we go run on their lines. Because the last thing we want to do is disappoint them when we get there.
Let say, I think we're really good. You know, when came to Axalta and I looked at who we are and what we have and what we do, we're we're really good at what we do. We're absolutely world class. But we grade ourselves pretty hard. And so we set some goals for ourselves for how do we want to drive improvement in our organization?
How do we want to think about how we operate going forward in a way that really continues to distance us as we invest in our future. And so we looked at a variety of different elements of this and I think again, laid out this map of areas for improvement. And I think we're making progress. We've got more to do. We've got a lot more to do, but we've come a long way in the last couple of years.
We've retooled the way we think about the portfolio of things that we work on. We've identified where we have gaps. And one of the big differences today versus in the past is we're very open in terms of how we actually close those gaps. So we don't have to develop everything ourselves. In fact, the fastest, most expedient way to get a solution to a problem sometimes isn't to develop it ourselves.
It's to rely on another partner. And so as we think about how we close gaps in our product and technology portfolio, we're actually much more open today and we have very different strategy approach philosophy around how we bring to bear or how we acquire the technology that we bring to bear to solve customer problems. Charlie mentioned those acquisitions, those 14 brands that we brought in, in the last couple of years, some of those were really consciously driven by wanting to close product and technology gaps. And again, that's, for us, that's the fastest, most expedient way to actually go and get it rather than build it. Our infrastructure is maturing.
I think we're moving, you know, again, there's the piece that we're doing around the physical plant. The interesting and more challenging piece is what we do in terms of the people in our organization and continuing to shift their mindset, shift the way that they operate to focus on customer and focus on delivery. And then lots of work to bring in more process, more discipline, more rigor, more measurement. We deliver great quality to our customers, but quality is a way that we can actually differentiate ourselves even further looking to the future. And so that's an area that we're investing in and driving forward on how do we do that.
We've embraced within technology the Exalta Way. And this is again, Exalta Way for us is it's about how we do our work. It's about bringing that mindset of delivery, that mindset, that rigor and discipline, that focus on execution, that focus on being lean, doing more with less. And so we've introduced processes that allow us to manage what we do better. Our portfolio management processes has borne huge fruit in terms of making sure that we focus on the stuff that's truly important.
And we sit down twice a year and review every one of the several thousand projects that we're working on across the globe to make sure that they are absolutely aligned with what our customers need and that there's a real meaningful business opportunity that's behind each of those. We're leveraging these global centers that we're building to help us drive productivity. We get huge synergy by putting people under one roof. We get huge sharing across businesses in terms of technology, leveraging shared equipment, much more rational footprint. So there is an actual ROI on these investments in this lab footprint that's meaningful.
And then on the output side, making sure that we do our homework so that when we go to market, we do it once, we do it right. So launching products in a flawless fashion, building quality in upfront so that when we get there, it's right and we have no rework and we don't disappoint our customers. So again, lots of focus on building in systems processes tools to enable us to drive the way we want to drive. Now part of our strategy is to make sure that we're actually, because we're, at the end of the day, we're a project organization. We deliver on projects.
What is that portfolio of projects? How is it aligned strategically with where we're going as a business? How is it simply not reactive to the problem du jour? And so we've laid out roadmaps for where we're driving our product lines across our business. And we've aligned our effort around different slices of that roadmap.
So our customers care about a variety of attributes. We're building product lines, not individual products. And two thirds to three quarters of our effort today goes into really supporting that existing product line, tailoring solutions to customers, tailoring transferring solutions from one part of the world to another. Again, that's an important piece of our business. It's an important piece of how we support the business today.
And you'll hear some examples around our HighSolids three wet system that we launched in China for Ford. You'll hear about our NAPGuard. There's an example out here of the next generation of spectrophotometers that we've launched in the refinish business. There's some really good robust examples of what does that look like. About a quarter to a third of our effort actually goes into developing that two twenty five products that Charlie mentioned, that next generation of product that really is a step out.
It really requires some invention to get there and to move our technology forward and bring some advance in one of the attributes that's really important to our customers. And then finally, there's a piece that we're investing in today which is much more future looking. What are the major trends? What are the major drivers in our markets? And how do we make sure that we're ready?
Our lighthouse effort. Some of this we do internally. Some of this we do externally. But things like what does autonomous vehicle mean? What do we have to do to develop a coating that actually works with LiDAR?
What does it mean when our customers put not only aluminum into a car body, but they put magnesium in or they put fiber reinforced plastics in. What do we have to have in terms of corrosion technology, base coat technology, clear coat technology in order to enable those things to happen for the future? So important piece of what we do as well. You get what you measure, even in R and D. Now I can tell you R and D scientists hate being measured.
They don't like to have metrics in place. But actually it really works. And we've implemented now a suite of metrics for how we look at our capabilities and technology and how we drive technology. We look at what are our inputs, How are we actually driving our programs? How are we working?
And then what are we delivering on? What are our outputs? I mentioned one of the key things for us within the Exalt Away banner is do more with less. So we're not initially looking to increase our budgets. I think we have a very nice level of investment in technology.
It works for us, not necessarily a reason for us to drive because there are efficiencies that we can gain as we do our work a little bit differently. We've upped our content of growth oriented programs and we will continue to drive more and more toward growth as where we invest our technology dollars. On time delivery isn't necessarily something you think about from an R and D standpoint, but yet it's critically important. There's always a customer at the end of what we're doing and we want to make sure that what we're doing actually delivers on time when our customers expect it. We've seen dramatic improvements in our on time delivery and Mike is going to talk about some of the things in the Industrial business.
But last year in Industrial, we were over 75% on time in full for development projects in Industrial. And we continue to work to ratchet that up because that's an important driver for us and for our customers. On the output side, it's about getting more out the door. The two twenty five products in 2016 was about 10% higher than the year before. The two fifty products for this year is about 10% higher again this year.
And what we would expect and what we plan for is to see that continuous increase in the number of new products that we bring to market across our business. We didn't talk about the number of colors that we developed. Color, and you look out here, you'll see color is core to who we are. It's our identity. We developed about 25,000 colors
That was up about 15% from the year before. We plan to develop about 15% more this year and again, continuing to drive up the number of colors that we bring to market. Cost reduction is again within this realm of process, an important thing that we actually drive, whether it's improving our yield, improving our throughputs, reducing or changing out raw materials to make sure that we continuously look at driving cost out of our products and our out of our fixed costs. And then finally, upping the invention content. As we look to the future more, as we build those next generation products, as we build those lighthouse programs, the invention content, the inventive content continues to go up.
And we've seen a step up year over year in the inventive content of what we're delivering. Now I'm not saying patent because as I said, you get what you measure. And frankly, generating more patents doesn't do us a whole lot of good. Generating more inventions, generating more intellectual property and making sure we protect it does us a whole lot of good. And we actually have put in place a very conscious approach to how do we protect intellectual property and do it in a way where we get the maximum protection at the lowest cost.
And so we are actually upping our inventive content and we look to, we project that we will continue to see more and more inventions that sometimes we're going tell you about them through our patents and frankly, sometimes we're not. Now this is an eye chart. I want you to try and read this chart right now. If you want to study it later at your leisure, that's fine. The point of this is really that
one
hundred and fifty years of very high level of investment in technology in the markets that we serve means that we really have everything that it takes to deliver in each of these segments. You want water based, we got water based. You want solvent based, we got solvent based. We've got medium solid solvent based, high solid solvent based. You want one component systems, we've got one component systems.
You want two component systems, we've got two. We've got acrylics, we've got urethanes, we've got polyesters, we've got polyamides, we've got polycarbonates. Again, you want it, we've got it. You want conventional systems for an OEM line, we've got that. You want a harmonized system, we lead in that.
We've got metallics in powder. You name it, we've got it. And so across our markets, we have the tools we need and we have the organization we need to deliver on the problem solving the problems that our customers have everywhere in the world. And what that means is that over the last couple years, we've launched hundreds of products. We've launched tens of thousands of colors.
Few examples here, could spend all day. I'd love to spend all day telling you about some of these examples because they're all great stories. They all have a customer behind them. They all have a need behind them. But I'll let my colleagues tell you a little bit about some of that we've launched in the last couple of years.
But all these out in the marketplace today, and they're all really exciting. So just to finish up, Axalta is a technology company. We leverage technology to help our customers, help our customers make their business better to create value for our customers. We leverage technology to build differentiation versus our competition, product process and service. We leverage technology to make sure that we make our business better.
We differentiate. We drive growth. We ultimately build competitive moat. And so with that, I'm going to turn it over to Mike Carr to tell you a little bit about the Refinish business.
Okay, folks. I'm going to talk to you today about Refinish. We'll talk about how we employ technology there and what it does for us with Refinish. This is a very and Charlie alluded to it, it's a very profitable part of our business. And we really are in a very good market position.
So if you walk away today with one thing, know that we're number one in the refinish market worldwide. Number one. We'll talk about how we got there and why we're in good position going forward. When you look at this chart, what you see not only is our number one, but you see a fragmented you see a 28% in other. Those are fragmented, small regional players, largely small players, and that spells opportunity for us, absolute opportunity for us in the refinish business.
In addition to that, we're projecting the market to grow conservatively at 3% CAGR through 2020. So how did we do it? We did it with technology. We have the most productive premium products in the world today. There's no question about that.
That's not in dispute. Our products really are the most productive. I'll explain why that's so important. That's a very customer focused development. In addition to that, we have a broad and diverse brand portfolio.
That's very important too because we're trying to go after everything from economy and mainstream all the way up through the premium end of the market. So you can't do that with just one brand. So we have multiple brands, and we have segmented them to attack each part of the market. And then, of course, we have our global presence, which really helps us. So looking at the refinish market, it's a very attractive market.
And you can see here that the CAGR that Orin Voss has put against it is 3.6% CAGR through 2020. Again, that's part of the attraction. We're also growing share in this space. We are growing share in this space today, and there's a lot more share for us to get. Why?
Because the market is really coming to us. The things that are changing in the market really play to Axalta. So for example, growing eco regulations. We have the most productive waterborne coatings in the industry. Okay?
So we have the performance. We can deal with the regulations. There's a consolidation trend in the market, especially in North America, but in other parts of the world as well. So we have the MSOs that are the shops that are banding together like a Caliber and a Service King, but we also have consolidation at distributor level. We have the largest field sales and training force in the industry.
And it's not just this really adds value to our customers. I'll explain why that is. Color requirements are getting tougher. We have a very good OE position. We really know how to deal with color requirements, and it's not so easy.
Productivity is important, so you can see how the market is moving, playing to Axalta and our strengths. So when we break it up into different regions, because it is still a regional business, we do see some common themes. First of all, first and foremost, and a couple of the other speakers have mentioned this, we have a very good position in the premium part of the market. There's no question about that. We have the products.
We have the technology. We have the training. We we have the wherewithal to do well in this part of the market, and we do, and that's pretty much across the board. However, what you see on this chart is that there's a growing opportunity in the mainstream and economy segment, and we're getting at that with new products. Xerox is one of them.
It's right over there, and it was mentioned by Barry, and we'll show it to you here in a few minutes, but also with acquisitions. So we've done it both ways to get to that economy and mainstream market. There's headspace for us there. There's headspace for us in premium because there's a lot of opportunity, and we really do have the ingredients to take advantage of that. So the refinish process, many of you kind of know how this works.
But for those of you who don't, obviously, it starts with an accident or some sort of incident with the car all the way to the vehicle being repaired. There's an average the average here in The U. S. From key to key, dropping the key off to getting the key back is twelve days. Some are more, some are less, but twelve days is the average.
And the focus and there's a lot of stakeholders in this, right? We have insurance companies. We have consumers who own the car. We have body shops. We have distributors, a lot of stakeholders in this, a lot of folks that we have to satisfy.
But the most important thing to that customer satisfaction is color, how does it look when it's done, and we really feel we we're unmatched in that space as well as speed. Speed. The body shops need to get it through the shop so they can get on to the next one so they can satisfy the insurance company who wants it through the shop, so they can satisfy the consumer who wants it through the shop. So we'll talk about speed and how we approach that. All those things along the bottom there, and during the repair process from preparing the surface to clear coating, we play in all those spaces, play in every single one.
So the refinish market, one of the most important things we do, and Charlie alluded to this, is we insist on having a direct relationship with the body shop. We are not gonna delegate that to our we love our distributors, but we're not delegating that relationship. It's very important to us. Why? Because we have to help to train them.
Right? Our our quality reputation is at stake. We wanna make sure they know how to do this. We we helped the the profit performance of the body shop. We help the a lot of things that The Body Shop does just in the day to day business.
We have folks who help them with that because that really puts us in a position to get more business from them and is one of the reasons why we're growing the share. So the direct relationship is a very important thing to us. We had a lot of successes in 2016 around the world. There were a number of new product introductions. Two of those at the top there are all about being ultra productive, getting the car painted and through the shop as fast as possible and still having great appearance, in fact, better appearance than what the other products had.
The other one that's notable there is Cyrox. Now that was a product designed for the mainstream part of the market, where maybe a small shop who doesn't have a mixing machine, it doesn't require a mixing machine. Okay? So if you've been in a body shop, you see these big racks of mixing machines. You don't need that with Cyrox.
It's really designed for a smaller shop, and they can still do an adequate repair. They can still do an adequate repair. To excited about And And to
opportunity got to our
market. Three market. Market. Hundredth shop converted with them, and that's a pretty big achievement for us. That puts us in a lion's share position with Caliber in terms and then we've put up a couple of training centers this year.
One was this one shown here is in Charlotte. We also put one in Belgium. So training is very important. I'll explain to you why. So our product technology and how we address consumer and customer challenges.
Remember the stakeholders, insurance companies, body shops, consumers, a lot of folks involved in this that we have to deal with, we have to satisfy. And you see in the first gray box, the insurers have KPIs, how fast it goes through the shop, how quickly the key how quickly you go from key being dropped off to key being given back to the consumer, how quickly do they get their car. Cycle time is important to the shops. They got to get that through the system. Organic growth is very obviously, is very important to the shops.
We want to help them grow because then Axalta grows. Then Axalta grows. So how did we do what did we do about this? Well, we did a number of things with our product. First and foremost, it's much more productive.
It takes 50% less coats to hide. You don't think that's important? That's very important to the insurers. That's very important to the shops because that's labor. It's got to be applied, okay?
So we're saving time for the shop. It's easy, and it's a nonstop process. You don't have to wait. It's a wet on wet process. And there's also the fast clears and primers I've mentioned before.
So there's a number of things we did in product always based, as Barry said, on customer needs. In addition, the gray box or the light gray box, quality and customer satisfaction are critical. This really is around color. You know, we don't we don't get into the parts. That's important.
But the thing that the consumer knows when you drop your car off and you pick it up is the color. Does it match? And did you get there fast? That's what we're trying to solve for, and that's what we, in fact, solve for. In addition to that, we also have environmental in the green box, and that's important, as I mentioned.
If you think about the regions around the world, you got The U. S. With California at a low VOC compliant product required. There's three other states in The U. S.
There'll be more. Canada is there. Western Europe is there. China is going there. So it's an important thing in our business and will continue to be important, and we have to have waterborne.
We don't only have waterborne, we have the most productive waterborne. So we're going to give you a couple of actual examples. Instead of listening to Mike up here talk, you can listen to the customers tell you what this is about. Now the first one is about a high productivity primer that we introduced. And this improves productivity by about 3x.
So it's about energy required and it's about cure time. And of course, they kind of go together, how much you what you bake what temperature you bake the car at and how long you have to bake it. But this is a big improvement over our competitors' products. It cures faster. It takes less time.
Go back to the productivity challenge of the shops. And with that, we'll jump to the video. So you can see right there the importance of productivity, and that's coming right from the customer. Our second example is our high productivity clear coat. So again, this based on the same polymer technology, but it's a clear coat, not a primer.
And here, we require onethree less energy and a cure time of twothree less. So again, getting at productivity, also getting at energy usage. And by the way, the appearance is better than ever, and we got an award from Renaud based on the appearance of this product. So it's something that's we're gaining market share with. It's done quite well.
And it's really, again, all around that productivity, but also delivering that great appearance at the end. Okay. And I think the other part of how we use technology is with some of the services that we provide. This is a very important part of our model. Remember when I talked about that direct to customer relationship that we have with the shops that actually are are doing the work in applying our paint.
And and we do a lot more for them than just train them to apply paint, although that's very important. So when you look at this look at this slide, what we see is challenges on the one side, same challenges we talked about before. The other side is how we use service and some digital innovations to get at this. So for example, well, to start with, you take data integration solutions. So we can see with many of our customers, we can see right into the body shop yesterday what happened, and we're getting data back that around productivity, around profitability, around paint material usage, around all those kinds of things.
And we are able to then take that data, develop some processes. So we are in a lot of body shops, so we have best practices around this. And we develop processes, and then we get our team. We have performance teams that are out there, training experts, technical experts, business experts to help them to make their body shop the best it can be, especially when it comes to paint paint application and making money on paint. So the the that whole system works together, and then we keep getting data and we keep improving over time.
If you look at kind of the way we differentiate ourselves, we have leveraged information technology to improve the productivity of the shop. So we're very active there every day. So we have a product called Profit Net that the shops can use to really it's a ERP for a body shop. So they can do everything from procurement to, productivity to all manner of metrics. And we use this system and they use this system to better manage their business, to get the most out of it that they can, to get the most profitability and productivity.
The second thing there is a is a product. It's a spectrophotometer. It's a product called Acquire. This one is called Acquire Plus EFX. So what's interesting about what's important about this is it's a very fast way to match the color on the car.
There's a couple of them over there if you wanna take a look at them at the break or at lunchtime. You actually put this device on the car, move it around three times, take three measurements, and it will tell you exactly how to mix the paint. In addition to that, the latest development with it is it also measures the sparkle in the paint. So it's not just the paint. It's also the amount of sparkle that's in there.
You might have look close at your car. If you have a car, you might have to look close at your car to see that. But it's important. We want we want this to be perfect for someone who gets their car back. That's the way you would want it if you had a problem and you need your car repaired.
So that information out of that machine goes into the ColorNet, and ColorNet is a computer system that tells them exactly how to mix the paint, how much and how, okay, how what different, pigments go into it. So and then PBE Exchange is an e commerce platform. So there's a number of different product technologies. So it's not just enough to have a paint that's productive, we do, but we also wanna make sure that they're using it right so they get that productivity. So we do that too, and that's the service part of it.
So let's, we'll we'll let the customers talk about the color match as well.
Here.
So it's a very important part of our model. We have things like paint material scorecards. We have sort of areas that we focus on, things like how to write an estimate, do it the best way, that sort of thing. So you can see how intimately involved we are with the customer at the body shop level.
There's a lot of resources we put against this, and training is really a critical part of what we do. That's why we invest in our training centers, why we opened a couple up last year. It's a very critical part of making sure that the body shops get the most out of out of our technology. So what about the future when it comes to refinish? I think there's a couple, there's a couple of three buckets here.
There's color and aesthetics, there's productivity, and there's environmental. And we've really touched on all of them, and we expect that this is going to continue to be a challenge. When I said that the market sets up well for us, this is these are three reasons why, because we're really leaders in the technology area. We really are able to deal with all the new colors that the OEs come out. Part of that's because we have a very good OE position.
But part of that's because we have the technology to do it, like spectrophotometer that measures not just color but also sparkle. There's unique pigments and improved gloss coming out from OEs. We expect that to continue. Productivity continues to be important. There's always going to be pressure on getting that car through the shop as fast as possible.
We are industry leaders at that, and we really help our customers to deliver on that. And then environmental, as I mentioned at the start, The U. S. Is going to be more and more 3.5 BOC, I am sure. And so we're really well positioned to deal with that.
China is going there. Europe is there. And I'm sure, at some point, rest of the world will be there. So just a moment about our M and A activities. There's a number of things that we've done here just in the past year with M and A.
Three of these four, three of the four, Chemspec, Hypic and Ellis, are really acquisitions that are going to help us to be more, effective in the mainstream market. These are companies that were really good at that. And there is some technology to this. It's called fit for purpose. Not everybody wants to have the top end product.
Some folks don't want to pay. So we have other opportunities here, other ways to get there, and that's the mainstream space. There's a lot of headspace for us here. We're gaining ground very fast in this space, and it's a great, great continues to be a great opportunity for us. So to summarize, first of all, Axalta is a global market leader.
It's not important, by the way. That's not, by itself, is not important. It's what are we gonna do with that, and is there the potential to get even better? There is. Make no mistake.
There is. Just like the race teams that we sponsor, we wanna get better every day. That's the similarity between us and them. That is exactly the similarity, and we try to get better. It's a culture of continuous improvement.
We try to get better every single day. The refinish market is great. Don't think anything different than that. There are two sixty million cars on the road in The United States. Two sixty million.
That's almost one for every person, not driver, person. Okay? That's a lot of cars. 30,000,000 in Canada, 290,000,000 in Europe. There's a lot of cars.
So, you know, Charlie made reference to autonomous driving all this. Okay. But there's still $260,000,000 of the other $260,000,000 of the other kind on the road, dollars $290,000,000 in Europe. Okay? So this market is going to be around for a long time, and we're going to be a big player in it.
Secondly, we have a strong market presence in every region. It does matter. We are able to get products from one place and put them in another, for example. It does matter. Third, we have product technology.
I mentioned to you, we have the most productive waterborne product in the industry. There's no question about that. That's not in dispute. So that really is why we're gaining share, especially where productivity is so important like here in The States. It's one of the reasons why we're gaining share here right now.
We will continue to offer customer focused service offerings, things that help them to do better with our product because in the end, that will help us. That will help us. And then we, of course, will continue where we need it to complement our organic growth with targeted M and A. So with that, we're going to go to break, which is going to go till about 11:00. Thank you.
We'll get we'll get everyone to can we get everybody
Chris, you good?
Okay. All right. Good morning, everybody. I want to personally take an opportunity to thank everybody for being here with us today. My name is Mike Cash.
I have the privilege to talk about our Industrial Coatings business, which is a topic that is extremely exciting for me. This is a nice business that we've really kind of put together on a global scale over the last four years. So you'll hear a lot of the discussion. I want you to just keep in the back of your mind, this is very much a work in process. We're just getting started.
And that's a little bit of a great story as we go throughout the next few minutes. This is going to give me a great opportunity to illustrate the people, the products and certainly some of the acquisitions we've done as we've gone about the last couple of years in building this industrial business. And I hope we're able to give you a very nice glimpse of what's ahead of us in terms of the future. As everybody, I think, knows and understands from Charlie's comments and really from everybody's comments that have gone throughout the day, Industrial Coatings represents a great growth opportunity for us as a company. As we look at the Industrial Coatings business sorry as we look at the industrial coatings business sorry, this is just the markets that we participate in, so oil and gas, architectural, ACE, electrical insulation, coil and the general industrial space.
This represents a $28,000,000,000 market space for us. Now these are the markets we compete again you'll compete within. You'll notice within our business, we don't compete within packaging, marine, wood and certain parts of protective that are more infrastructure related today. So that will make up the difference between the global universe of industrial coatings and the $28,000,000,000 that we focus our business on. The markets that we compete in are typically growing at an average rate of 5% per annum.
You'll notice as you look at these industrial coatings businesses that they're primarily non transportation linked as they look at the different market indices. We primarily compete against global competitors on the left hand side, so coil, oil and gas, agriculture, construction, earthmoving equipment, primarily with global competitors. On the right hand side, within general industrial, we compete with some great regional competitors as well as global competitors as well in that space. While today we aren't a dominant player in the industrial coatings space overall, you'll find that we are a very formidable competitor and have good positions in the markets that we do compete in today. We also have a lot of room for growth and expansion in those spaces as well.
So when you think about what's attractive to us within Industrial Coatings and the segments that we compete again compete within, certainly the attractiveness of the segment, certainly the opportunity to apply things that are good for us as a company, our size, scale, familiarity with being able to have approvals and reach high technology hurdles and segments where customers will value technology and also value the relationships that we're able to bring and the service we're able to bring in their particular plant and place of business. I mentioned before, as we look closer at the types of industrial markets, you'll see that when we think about infrastructure, we have agricultural construction earthmoving equipment as well as general industrial products that we supply into infrastructure end markets construction and building equipment or construction and building products, which we supply with our coil coating products as well as our architectural extrusion coatings and the energy sector, which we supply with our oil and gas products as well as our electrical insulation products.
We'll talk
a little bit more about that as we go through the next few minutes. We have good starting points. I think Charlie alluded to this. We're the second largest supplier of powder coatings into industrial markets. We're the second largest supplier of electro coat into industrial coatings applications.
We're the second largest global supplier of coatings for electrical motors that insulate electrical motors. We've supplemented those positions with some great bolt on acquisitions with Century and Ellis. But the other thing that we've done that's very important to understand is we haven't been afraid to step into a new market segment like coil coatings with the DuraCode acquisition over the last year. We saw this as just a great adjacent market for us, something that fit in terms of technology, in terms of the customers that we were dealing with and the markets we were dealing with, there were a lot of crossovers and a lot of similarities to what we're dealing with within our other industrial businesses. And I'll use a good example.
We had actually been doing some existing products we had into the coil coatings market over about a two year period of time prior to us acquiring DuraCoat. And so this was a very nice market for us as we looked at it and we got to know the customers, we got to know what they valued. The interesting thing was over about a two year period of time, which is products that we already had in our portfolio somewhere else in the world, we trialed our products at about 35 different customers or customer locations. And the interesting thing was, as we went through those trials, we typically hit a trial with about 80% or 90% of meeting the objectives. So I can honestly say that up until the end of that two year period of time, we really weren't hitting 100% of what was being required by the customer in a coil coating line that was typically running between four hundred and six hundred feet a minute.
So it's a very technologically advanced kind of application process. But the interesting thing was, it's not so much that we failed and but it was the customers' reactions. I mean every customer to a person invited us back with Welcome Arms. I mean they wanted us to come back. They were begging for somebody else to be in this market space, somebody who could help them with technology, somebody who could bring them product and something new and something different.
And that was really the attractive part to us in DuraCoke. As we talked to every coil coating customer over that two year period of time and got to know this market space, the one and we always ask the question, who do you see as the company if you need a product, you need a new application, you need something unique and different, who do you go to? And it wasn't the global players that you would have expected. It wasn't, in many cases, the companies who had the lion's share of that coil coaters business in that particular time. It was DuraCode.
More times than not, the name that they told us was DuraCode. And that was a little bit of the attractiveness to us in how we saw DuraCode and what gave us the confidence to be able to step out into a new adjacency. One of the attractive aspects of the market segments that we participate in today with Industrial are the fact that most of these market segments require multiple technologies. So whether it's e coat, powder or liquid, whether it's certain aspects on certain components that might be come together as one end product or whether it's multiple products within their production process, most of the customers and most of the segments value a supplier who has multiple technologies. Now this also works the technology breadth also works to our benefit.
And I'll give you a couple of examples of that. As we've acquired the liquid extrusion coatings with DuraCoat, it's been a great fit for the powder extrusion coatings that we promote to architects every day, and we've had great success. You'll hear about that in a few minutes with some of the examples. But the liquid extrusion coatings now give us both products that an architect may want in any commercial structure that they may build anywhere in the world. The other aspect is powder technology, being able to take our powder technology and apply it to bus bars, which are a small electrical component that also needs to be insulated and typically is done with powder coatings by a lot of the same customers that we're already selling electrical insulation coatings to for their electrical motors like ABB, Bosch and Enercon.
So a great fit there in how we've taken existing products and being able to take those to capture more share of an existing customer's wallet. So as we build out our Industrial Coatings business, the two most important success factors are adding new products and the rate at which we're able to add new products, and this becomes a pretty key enabler to us being able to add new customers. And you'll see the growth over the past couple of years in what we've been able to do in terms of bringing new products to market. A lot of credit goes to Barry and the fact that he's realigned his labs. He didn't really touch on this a whole lot, he's realigned his labs from being specific to certain layers of the coding process to actually being aligned and specific to end markets like industrial and even within industrial certain energy solutions or agriculture construction equipment.
So today, actually have very capable chemists that are working on specific aspects of our industrial business and customers within that industrial business. And that's really helped us to speed up the new products that we've been able to bring to market. You can see from the above charts, we've almost doubled the rate of new products and new customers that we've brought to bear over the last two years. You'll always notice that we talk about these two things very much linked together because it's always important in our mind that product development starts with a specific customer, specific opportunity in mind. You'll hear some of those examples as we go through the next few minutes.
But then it's up to us to have a road map on how we would scale that product development that we've done for a specific customer into a much broader base of customers, much broader applications. Now when you think about the link between products and new customers, it's not always and it's not as clear cut as just being able to bring new products to market. There's a lot more to it in order to be successful. So out of fairness, products play a big role and are really a leading indicator in us being able to bring new customers to bear. But it's also invested the investment that we've made in our sales force and the training that we've provided and invested in for that sales team to really get them comfortable with going out and talking to new customers, talking about new products, asking for the business, all the things that we're looking for as we build a group of hunters and the three twenty salespeople that we have within our Industrial business.
We've transferred products across regions. And that was really one of the key things that we did within the first couple of years, being able to take great products, winning products in one part of the world and transfer it to another part of the world as well as customer relationships. If we're doing business in Bosch and with Bosch in one part of the world, which we were very successful in Europe, we want to do business with them in Czechoslovakia and China and in North America. And we had to transfer those relationships as well. And being able to build up the visibility of our industrial business and also the investment in capacity and footprint for our industrial business, all those factors in addition to having great products have played a role in us being able to bring close to 1,000 new customers to market in 2016.
So there's really three dimensions. As you think about what gives us a competitive advantage or what creates a competitive moat for us, there's really three dimensions for this. And in turn, this is a catalyst to enable us to continue to bring a high rate of new customers First is product. So having fit for purpose product that has a broad application window and be able to meet whatever stringent customer requirements you may have.
You'll hear some of those examples here in a few minutes as well. But product, first and foremost, process, being able to get these products to our customer as quickly and in the right quantity that they want, okay? Fast response, small batch capability, so process of being able to get it there and being able to react to changes in their business. And finally, every bit as important as the product in the can, you heard Mike talk about it and you heard Barry talk about it, every bit as important as the product in the can or the product in the box is being able to have your sales and technical service team, our sales and technical service team as closely attached to that customer, understanding what that customer's objectives are and being able to understand those objectives and understand how we can impact them for their business and also in the eyes of their customer. I think a lot of our opportunity over the past few years have really come through being able to understand what our customer was trying to accomplish with their customer and just asking the simple question, what can we do to help you gain business with your customers?
And as long as we're listening to that feedback and we're reacting on it, whether it be with products or process or whatever we need to do, as long as we're doing that, we're going to help our customers be successful and we're going to grow on their backs and together with them. So let's talk about some of the specifics, okay? And hopefully, I'll be able to kind of add some color and some real world examples of some of the things that we've talked about over the last couple of minutes have come to life. As we think about the agricultural construction and earthmoving segment, this is a great space for us. Customers are looking for high specifications, so the technology and especially the durability of these products has to be at a very high level.
They look for global suppliers, so the ability to take care of their equipment in North America, in Europe, in China, in South America, everywhere where they build these agricultural construction and earthmoving equipment units and having a coating supplier that has all three technologies available, e coat, powder and liquid, because all three products are typically used in different components within an ACE unit. We started three years ago with very few approvals and virtually no position in this space whatsoever. Today, we have close to 100 approvals with the big five, and those big five would be Caterpillar, John Deere, Case New Holland, AGCO and Komatsu. Our EC6100 eCote has met the most stringent and the highest bar, most recent bar that Caterpillar and John Deere have set. We have launched specific ACE products in China, developed in China for the Chinese market, which have been a huge advantage rather than being able to take global products and trying to apply the different requirements for the China agriculture construction earthmoving equipment customers.
And we've recently responded to Caterpillar's request for a true capable consistent dry on dry process with powder coatings. So as everybody knows, powder coating is applied and baked. And if you want added durability, you apply, bake, apply, bake. The products that we've developed have actually taken the middle baking step out. So it's applied, moved to a different part of the production line and powder is immediately applied over that the initial layer of powder coatings.
So it's electrostatically applied twice and then baked one time. And they have had other competitors that have gone that have come to them with this innovation, but they've never been able to make it work. We're the first company that's been able to test to the level and make it work for Caterpillar. I'm very proud of that. Zalesda Link that we launched earlier this year.
The technology needed for harsh chemical environments within the oil and gas market has been a strength of our NAPGARD powder coatings products for more than the past ten years. This is the these are the kind of coating challenges that we absolutely love, being able to get our product to work, in a lot of cases, very high heat without any risk of being able to dissipate or rust or anything to happen to the exterior of the coated lines, a lot of cases that are either buried underground or in some cases taken offshore and buried underwater. Even though the oil and gas market was down considerably this past year, any time that there's a market challenge, a lot of times opportunity can follow. And a lot of times that opportunity that follows is directly linked to being able to have technology and be able to bring some type of technology answer solution to market. Let me give you a couple of examples.
First of all, normally, water transmission lines are coated with a liquid coating. This past year, we were able to take our NAPGARD powder coatings products and apply them and substitute them in place of and offer a better solution for customers for water transmission lines in The United States and Canada, and we're particularly proud of a large project that we did in Berlin to coat the water pipelines throughout the city of Berlin. We developed and launched a new line of interior pipe coatings. Again, interior pipe coatings traditionally are liquid coated, And we've been able to develop a powder coatings with a very similar technology that we use on the exterior of the pipelines, but be able to withstand the heat that's required on the interior pipelines and launch it in a powder coating product line. And through our Century acquisition, we've been able to add a polysiloxane, so it is a chemistry that's used typically on the inside of tanks or storage units for oil and gas and harsh chemicals.
And we've been able to acquire the polycyloxane technology. And today, we're coating about 150 tank units for Archer Daniel Midlands, and that's our first major project together in this with this technology. So one of the other things we've done over the past years, we've been challenged with the market conditions in oil and gas, is we've really gotten outside of the mature markets and outside of the markets where traditionally, whether it be The Middle East or Europe or North America, where a lot of the pipeline production has been steered or coated. And we've gone to markets like China and India, and we've looked for whatever projects we can get there, whatever relationships we can build there. We've been very fortunate in building and gaining business in both India and China in the past year.
And one of the biggest success stories we have had has been with the China National Petroleum Corporation, where we started testing our products at the beginning of last year. Towards the end of last year, as all those products became qualified and testing results came back in, they began awarding us projects. And we had three projects at the end of last year. We actually have a group of people over there this week that are working on getting us specified for the next wave of new projects that are coming down the pipe. So a very successful story for us in how we've expanded this business within China.
And I'm going let our new customer talk about it a little bit. Cue the video, please.
Thank you.
Okay. The next segment is particularly exciting to us because it involves electrifying. And I want to use a statistic here. Ten years ago, if you bought a luxury car, you would have on average 20 electrical motors operating within that vehicle. Today, if you buy a luxury car, on average, you'll have 120 electrical motors operating within that vehicle.
So this is a great example of why this market space for us, which is the market space of being able to insulate those motors, becomes something that's very exciting. From power tools to motors and electrical vehicles to generators that power the 3 Gorges Dam in China, our Voltatex products enable motors to last longer and to consume less energy, okay? And a great example of this is Tesla. Our impregnating resin, so being able to take the in essence, the inside operating part of a motor and impregnate it and insulate that motor have enabled these motors to last up to 30% longer before the motor reaches a heat point where it switches to the second motor in the vehicle. This is a primary reason that we've moved from being the supplier of this insulating coating for Tesla for their Model S to winning the business being awarded the business within the past couple of weeks for their Model three business.
In fact, more than 60% of the electrical vehicles that are produced every year globally are coated with our Voltatex electrical insulation products. We have an example of an electrical motor on display here to my right. Unfortunately, we were kind of hoping to get a Tesla motor here, but they're running a little bit of a backlog right now, and they need every motor they can get their hands on. So we went to one of our other customers to get a very similar type motor that's produced. I'm happy to kind of walk everybody through what a what kind of coatings go within that motor when we take a lunch break.
Across all aspects of our electrical motor market, innovating continuously is the mode. At any point in time, we will have up to 50 projects, 50 development projects that are helping us to provide better coatings, whether it be for the wires, whether it be for the motors, whether it be the external insulation of those motors. A couple of great examples that I'm particularly proud of. This past year, we launched the first waterborne version of an impregnating resin globally. And within China, over the next several months, we're just reaching the final testing phase for this product, but we will launch the first corona resistant product line made in China, developed in China for the China market.
Switching over to general industrial. By far, our largest and most diverse market segment within our industrial business, There's a wide variety of products to be coated and you see some of the diversity in the pictures on the screen in front of you. This segment is particularly exciting for us when we have a chance to match unique and challenging customer requirements with some of our technology and colors. And then we have an understanding and a road map for how to scale those products and those technologies that we've developed for a specific customer application. And I'll use a couple of examples here.
You'll see also in the lobby that our coatings were chosen to coat the torches that were used at the Rio Olympics and the Rio Paralympics games. And you'll notice it's a very fine metallic mica blend. I mean it's just a beautiful color. As we went about developing this color and we came to the end, our the folks in our general industrial business looked at this and they said, Wow, we need to create a color collection with these types of looks and these types of very fine metallic and mica blends across an entire color range. So you'll see later this year, we will have taken that idea and that concept that we worked on together with Rio and the Olympic Committee and being able to take that and launch it as an Iconica color collection that we'll be able to launch globally.
Another great example is Ameristar. Ameristar is the world's largest supplier of security fencing. They do the fence around the White House as an example. Great customer of ours. We just converted them to Axalta this past year.
And the requirement from them was being able to take an e coat on e coat process to be able to give the highest possible durability and weatherability for their fencing systems that they sell. And we were able to do this actually, we were able to do it with two different chemistries that needed to be blended together, something we've never done before. But you start to think about how we can take that same technology approach to other fencing manufacturers around the world. Another example is there's 20 different manufacturing facilities here in North America that actually coat rebar. And I don't know if everybody knows, but rebar is actually the steel reinforcement rod that's used in concrete buildings or in concrete roads.
And the unique thing about this is they're typically coated in 30 to 50 foot rods. They're then cut and shaped. So you'll actually and they're coated before they're actually shaped. So what happens is our coating has to be flexible enough so that if you want any shape for this rod, if you want this rod wrapped into a small ball, the coating cannot chip or peel. And typically, these coating lines are running at 50 to 60 feet a minute.
We had a customer here in North America that came to us last year and presented a beautiful business case. What if I were able to run and coat rebar at 200 feet a minute? What would that mean to my business? How would that make me more competitive and more profitable? And over the course of about a year, we were able to develop a rebar coating that can run at up to 200 feet per minute.
Now it's up to us to go out to the other 19 rebar coating manufacturers and help them with that business case so we're able to have an opportunity to upgrade that technology to what we've developed. But that's just another great example of where we've been able to take a product, develop it with a customer or a customer challenge in mind and turn around and scale it to other customers. I want to talk about one other example with Schutz Sports. You saw the football helmets here. Schutz came to us with an opportunity to coat and develop a super durable coating that would apply to plastic substrates, okay?
So think of it beyond football helmets. But I want you to listen to what our customer has to tell you about the coating that they receive from us and think about the other markets we may be able to take this to. Okay. Cue the video, please. Okay.
So as we look at that, as we think about that, naturally you think about appliances, you think about plastic furniture, you think about other things that are very that require very high durability coating outside of even the helmet industry. So let's talk a little bit about one of our largest and fastest growing industrial markets, which is architectural. And architectural for us has grown 20% per annum on an average over the past three years. So it's been a very successful market space for us. Now maybe I want to preface this.
Architectural to us is not halls and walls. It is the aluminum and steel coatings products that are coated for residential windows, doors and frames as well as aluminum extrusion for commercial buildings, building frames and curtain walls. And this business is a great combination of color and durability, care for the environment, whether it be leads, approvals and certification or seeking a powder coating that will replace the anodizing process and requires a global capability and expertise to be able to compete. The primary reason for that is a lot of architectural products are coated in one part of the world and actually assembled into a structure in another part of the world. In 2016 alone, our coatings were used on more than 25 monumental building projects around the world.
Things like the Signature Tower in Kuala Lumpur, which you see a picture of here, which will end up being the largest tower erected in Malaysia the King Abdulaziz Airport in Jeddah Bishop's Gate 22, soon to be the tallest building in London and the new concert hall in Paris developed and rendered by Jean Nouvelle, who's a very high profile architect in Europe. So let's hear a little bit more from Al Ural, who is our largest architectural customer in Europe and also a customer that's been a customer of ours for twenty five years. Okay. Let's talk about our newest segment, coil coatings, where we acquired a great technology company in Duracoat that I mentioned before, track record of outgrowing the market two to three times over the last eleven years consecutively, including the fact that we were able to do it together in 2016. Duracoat built a successful business on the strength introducing new products, products like DuraCryl, which is an acrylic coating applied to the RV and trailer siding market, KryptStone, which is a very unique micro texture look that's applied to the aluminum roofing segment and a high reflectance lighting white product that can reduce the overall lighting costs.
I'll talk I'll come back and talk about that here in a second because there's something else that's very important about the dynamic between Axalta and Duracoat and how we brought that product to market. On average, over the past five years, Duracoat has launched five to six new innovative products each and every year. And one technology that we're particularly proud of that's right at the tail end of us being able to test market it and be able to take it out to wide distribution and market it globally is a product called HydroPond, which is the first waterborne product, PVDF product for aluminum extrusion market. Let's take a minute to hear from Bob Ruff. Bob has actually been one of the customers who has used HydroBond to coat four or five buildings in the Midwest.
We have another test market going on in Hawaii that we've had going on for about the last couple of years. So this product is actually out in the market in certain limited test markets, and Bob will be able to talk specifically to it. Okay. So you've heard about how DuraCoat's focus on innovation has helped us enter a new market segment and how we're poised for success well into the future. We're also very excited about Ellis and Century, two also industrial coatings companies, although very different, that we've acquired just since the beginning of this year.
And really, the attraction in both of these companies had to do with not only their facilities, particularly in the case of Century, but even more importantly in the products that they had. Century has got a great dip coating for structural steel and joists. This fits together very well with a lot of common customers that we have on the architectural side, particularly with coil coatings and DuraCoat. We also were able to acquire in both cases some very good low VOC waterborne and solventborne technology that we can apply pure industrial products that we can apply to all of our industrial markets, whether it be primers or top coat systems. So aside from the market access, I think it's important to understand that Axalta has been able to help each of these companies, and certainly, DuraCode is farther along in this journey than the other two companies are, but has certainly been able to help them with their competitiveness in the market, being able to do certain things in house like resin manufacturing that traditionally they have outsourced to other people and being able to help them to find a way to get production into the right place where it makes the most sense, whether it be big batch or bringing small batch into their facilities.
And a great example of this, I'm going go back to the high reflectance lighting white product at DuraCoat that we brought to market under DuraCoat within the last three or four months. This product was a product that was on the shelf at DuraCoat. They couldn't get it to market. It was too high cost. And within the lighting white market, even though this product would give them higher reflectance and allow them to use less energy, it still would only command about a 10% to 15% premium over standard commodity lighting white products.
And they just couldn't bring it to market with the recipes that they had for that type of margin. So we were able to come in with our raw material purchasing, with the fact that we were insourcing resins, the fact that we were able to help them in how to produce this product more economically, we're able to bring this product to market together in something that's very unique and still something that's very, very profitable and works well for both of our businesses. So finally, with the help and support of our 12,000 customers, industrial customers globally, we're using technology to push hard for growth in our industrial segments. We've proven the ability to be able to grow organically, and we have built a reputation as a company to be a part of for potential acquisitions as we're out talking to different companies that would be great fits within the Axalta family. We've shown a fearlessness to go after new markets.
We've shown a fearlessness to go after new products and new geographies, all with the benefits of our customers in mind. So as we move into the future, we'll continue to focus on products which enable our customers to consume less energy when applying promote both sustainability and functionality, which is a great balance to have if we can accomplish both and coatings, which our customers can count on to last longer. It's early in the game for us. There isn't any question about that. We have we've really only had a global industrial business for the past four years.
But through the products that we've been able to bring together, through the investments we've made in the business, we're having some nice success, clearly outgrowing our end markets and clearly outgrowing our competition. We have work to do. There isn't any question about that as well, but we're building the right mix of product, people and process to be able to make this a successful recipe well into the future. So with that, I'm going to turn it over to Steve Markovich to talk about our Transportation business. Thank you.
Good afternoon, everyone. For those of you that have not met, my name is Steve Markovich, and I'm responsible for our Transportation Coatings business and our overall business in Greater China. It's always a great opportunity to share with you our strategy in the transcoding space and also share with you some of the recent testimonials that we've gotten with regard to our strategy and I think the overall effectiveness of that strategy. Charlie touched on this, so I can go through it quickly. Transcoding is basically light vehicle, commercial vehicle.
It's historically been defined as more of the decorative Class surfaces. But within transcoding, we also pick up functional coatings for corrosion, for heat, for wear as well. Like many of our markets that both Mike spoke of, I mean, we've got industry leading positions in transportation coatings, which we enjoy and we continue to build upon around the world. We like trans coatings for a number of reasons. Number one, it's a large market between 10,000,000,000 and 11,000,000,000 Historically, it's enjoyed, I think, relatively stable, steady growth, and we see that going into the future.
We like trans coatings because the customers in this space value technology. They value innovation, and they're willing to pay for it.
I mean you've heard, I think,
on multiple, multiple occasions about more productive systems, taking energy out, taking paint out, taking floor space and capital, making improvements in appearance and corrosion resistance. And again, that's alive and well in the transportation coating space as well. With our footprint and our scale around the world, we're extremely well positioned to take advantage of what we consider some of the megatrends, the globalization of our customers, a lot of regulatory changes in environmental. And I think with, again, with Barry's group and our technical teams, we're very well positioned to really be advantaged by some of these trends and actually help shape them, and I'll share some of those examples with you. Our vision in trans coatings, I think, pretty simple.
It's above market growth. Some of you may ask if you're number one, number two in your markets, how do you accomplish that? And it's a fair question. And I think we've got a pretty good answer historically. And I think and with Axalta, I should say, our strategy is everything about the customer.
We put our customers first, and we've got a lot of examples of how we've done that, where we've done that. As an example, and I was asked at one of the breaks, historically, the former DPC was driven more and organized more from a regional standpoint. And you get into transportation, very large, complex global customers, global approvals, color match. We rebuilt our organization around their structure. So we've got the people and the executive presence to basically mark our key decision makers on the purchasing side, on the engineering side, built our organizations so that we can support these global organizations.
And we've kept the local capability, no question about that. We launch locally. We support paint shops locally. So bridging that gap has been extremely important for us. We're a pretty competitive group at Axalta.
And as part of our strategy, we've built, I think, some not only world leading paint systems, but also some of our information systems we have as well. And I can assure you that every paint shop I don't have, every layering system I don't have, every color that I don't have, I'm aware of it. And our people are aware of it, and we've got, again, strategies. We've got a focus. We've got incentive systems in place to go get what we don't have.
So there's a big focus there. Historically, there was we inherited what was called a forced forced fade strategy. There were key components of the market that were walked away from. We estimated somewhere around $2,000,000,000 to $2,500,000,000 of this $10,000,000,000 market. That's back in play under the Axalta flag.
An example would include the J OEMs, Toyota and Nissan. Happy to report that we're doing quite well with both. Back in production in CIVOC in Mexico and Canton in Mississippi, we'll be spraying bodies in Q1 with Toyota in Brazil. So a keen focus on some of our underserved customers and markets that haven't been the center of our attention in the past. A big part of the strategy, and it's not that common, I think, in coatings as it is in some of the other areas in automotive, is discussion about how to increase content per vehicle.
As I said, historically, it may be the Class A surfaces, but we're taking a much closer look at that. And again, a couple of examples. Our automotive plastics business, that's probably a $1,200,000,000 business historically, again, kind of left to the local teams. Today, we've got a global organization in place working with Barry's group. We've got a global product pipeline underway with new ad pros and new clear coats and a very much of a renewed focus in that area to increase our content on the vehicle.
Interior is another I think most of you are aware we bought United Paint in the summer of last year, which opens up the interior for us. And again, we're not going to stop with United. We expect to find the next United, which gets us into the domestic North American OEMs, gets us into the domestic tiers. We'll find the United equivalent in Europe.
We'll find it in China, and we'll continue to work with those tiers and those OEMs, again, gaining space in those areas, gaining the approvals that we need to grow this business. I think lastly, we've done a lot again with systems and capabilities. This is a big business. It's a complicated business. These are some of the most demanding customers in the world.
And we feel pretty good about some of the systems and processes we put in place. I mean kind of basic things, global pricing capabilities, so we know more about our customers than they know about us. They're our partners, but there's also some positive tension in the mix sometimes, and we've got to make sure that we manage that. With regard to launch and launch capabilities, launch execution, big topic of discussion internally. And again, with Barry's group, we've done a lot for fit for purpose products, putting in not just the product discussion, the voice of the customer discussion, but the gate processes, the disciplines that we put in place to make sure that we're going and not going at the appropriate times and for the appropriate reasons.
So we're working hard within Transportation to really run this business as a top tier, continue to take all the great things, the footprints, the technology, the relationships and continue to build on those around the world. How we're doing with regard to some of that? Just a couple of examples on the next two slides. We track our wins and launches around the world. You can see on the left hand side, clearly, a set of global figures with regard to wins and launches.
Again, I think a testament, and you'll hear more about it from our customers. We track a number of key metrics in our business today. Key pillars or tenets of our strategy is growing in the emerging markets. Charlie talked about the growth of the middle class, and I'm continuing to be in a position to buy vehicles. Again, the underserved customers are very close metric of ours.
Harmonized Coatings, some of you may know them as our consolidated systems, but our Harmonized Coatings, more the advanced three wet technologies, two wet monocoats, high value add systems. And again, we'll talk more about it momentarily, but we track that very, very closely. We look at our wins. We look at our share. We continue to look at where the customer is going with this technology and make sure we're in front of it.
Mike Carr made an interesting comment about being the leader in refinish. And he said, so the question is what do you do with it? And I think, again, here's an example of a number of blue chip customers of ours where Axalta has won some of the most prestigious awards for support, for quality, for innovation in the space. And just one example with General Motors, as Charlie said, we've won supplier of the year in 2014, 2015. We've just been notified actually.
We've won it in 2016. So it's a three peat for Axalta, which we feel very good about. But just some examples, again, of what we do with those awards and how it changes the dynamic. I mean we're working with General Motors on their sourcing strategy for coatings. Historically, they may have looked at it more from a layer system, a color, try to quote the high volume black and white colors around the world.
And we worked with them to change that and say, look, if we take an entire plant, all the layering systems, the ecotank, we can deliver x amount of savings far above and beyond what they would expect through their normal strategy, one example. A second example, we're working with GM on the paint shop of the future. I mean a lot of these harmonized systems, advanced systems require fundamentally different manufacturing technologies and processes. We'll talk about the Corvette factory in Bowling Green, Kentucky, where we're actually working with them. We've worked with them as the material supplier, the material expert on a new generation of paint system with their engineering community, their third parties, their executives to ensure that we help take them to the lowest unit cost possible.
And lastly, a third area that we're working with, and again, you'll hear this on the testimonial, we're working with them extensively on light weighting, and I'll share that with you momentarily. We've talked a lot about value proposition. It's alive and well in transportation, no question about that. Some of you may think that it's about making paint and selling paint, and I assure you that's an important part, but that's not the only part. And again, we're back to product and product innovation, technology, very important process, both our systems and our capabilities internally, but also in this space, a lot of discussion about their systems.
Because when you think about paint, a lot of people say, well, it's a commodity. It's kind of like a lubricant or windshield wiper fluid. And you go, well, last time I looked with windshield wiper fluid to finish out the vehicle, you needed a funnel. And that's about it to fill the tank. With paint, you're sending in a liquid, you're sending in an unfinished chemical reaction and it's leaving as a solid on a Class A surface on a $50,000 SUV.
And to do that, you need a
$05,000,000,000 paint shop. And that's where we come That's consuming 50% to 60 of the energy. It's generating significant environmental impact. And when we're when we do our job, we're helping them take, again, waste out, energy out, labor out, improve first time quality day in and day out. When they have a good day, Axalta has a good day.
When they have a bad one, we have a bad one. And our mission is to be an extension of their organization. Our mission is to be indispensable to them day in and day out because you've got the daily considerations of supporting a paint shop, but then again, you're also working with them. That allows you to work with them on the paint shop of the future, as an example. So service, again, is extremely important.
And I think, again, as Axalta and part of our strategy, again, putting that customer first, having those relationships on the paint engineering side, on the commercial side, in the paint shops are key tenets of our strategy. A couple of case studies for you for different customers. The first one, again, harmonized coating systems. I think when we when you think about taking labor and energy and the volume of paint out, we're creating these harmonized systems, these advanced systems, these high salt soluble bornes, three wet water, three wet solvent borne effectively by taking steps out of the process, simplifying the process, taking bake ovens out, taking flash ovens out, taking entire layers out with our Eco Concept and our Primerless system, combining layers with our two wet Monocoat, basically combining the clear coat with the base coat. You're simplifying that process through your formulation, again, your chemistry, through physics, and then you're taking out robots, you're taking out ovens, you're taking out conveyors, you're taking out energy, you're taking out labor.
That's the productive side of our business. That's where we can create the win win with our customers and within Axalta. So this video will talk a little bit about Ford in China and some of our high solid solvent borne technology. So before we move off this, two points I want to make. One is there's a lot of competition for who's winning in this space again.
And as we look at every paint shop around the world, we our calculations, we've got around 30% of the harmonized systems, the advanced coating systems in the world, number one. Number two, when you look at Ford, we are the only paint supplier in Ford that supplies every system they have, whether it's conventional water, conventional solvent, three wet water, high solvent borne, two wet monocoat, we are the only supplier that provides all technologies, and we provide them around the world, number one. Number two, interesting point about this high solid in China. Most of you know several years ago, the Chinese government basically mandated every new paint shop will be waterborne. Well, that's not Ford's standard.
High solid solventborne is their standard. And actually, they're pretty good with maintaining that standard, driving that standard around the world, again, for productivity, appearance and everything else. We actually worked with Ford. Our technical teams in China, our product teams, R and D teams worked with Ford doing very detailed studies, environmental impact studies, energy studies, COT, VOC, all those things. And collectively, between Exalt and Ford, we convinced the Chinese government, the equivalent of the EPA and the CNCIA, is that High Sol Turbomor was actually more environmentally friendly than water.
So again, a great example of how we partner with our customers, find the win wins. They continue with their standards. It's good for them from a capital standpoint, from a management standpoint and also I think reinforces the nature of the relationship that we build with our customers. Switch gears a little bit on this next case study. Another area we think we lead in is color and custom color within Axalta.
And this is we switch from LV to a CV example. But a couple of key points. In the commercial vehicle area, heavy duty truck, the ambulance, fire and rescue, you hear a lot about the need for a show car finish and appearance, all right, high gloss levels, has the wet look, perfect surface, but it has, as they call it, real truck durability, all right, as far as fade, chip resistance, stone impingement, I mean, those physical characteristics. The nice thing is that they're willing to pay for it, number one. And number two, we have some of the industry leading systems in this space.
And again, I you heard a lot about spectrophotometers. You heard a lot about color vectoring and color algorithms. We have our Mobius system, and this is with our Imran brand that you've heard a lot about. We've got examples over here. I mean our system, our color system in CV has got over 18,000 colors, all right?
And these guys come in with state colors or township colors or if it's a Class A truck, it may be their daughter's favorite shade of whatever, and we shoot it. And I think the key points again is these are very productive systems with regard to cure times and efficiency, consumption, but also our ability to customize color very quickly is one of our competitive advantages. So you may think somebody comes in with a unique color. So from the time that you shoot it, you create it, you formulate it, you mix it, you put into production, not much time. I mean a day, a week, a month, thirty minutes, okay?
And these guys, these OEMs are ready to roll. So they value that type of technology, that type of responsiveness. And again, we see that in how we work with our customers. Again, you'll hear in the case study a little bit about that and also the importance of the productive systems in their environment. So again, I think a great example of our Imran technology that we've got here, a lot about custom color.
You see some very unique color combinations, two tones, three tones, lots of different scenarios here and, again, very productive systems with it. Our next case study is about corrosion and e coat. If we've been the leader and are the leader in harmonized systems and color and custom color, I'll say e coat's probably been one of our opportunities, if you may. And I feel over the last several years, we've made great strides in this area. I mean we're a player in this market.
I think originally, we're about 15% of the global market. But through innovation, through new products, new product introductions, we've taken about 12 large tanks in the last two years. We've picked up about two points of market share. And again, working with our customers, working with Barry's group, I mean, we've got a pipeline now of new technologies. And I think in certain applications, we've got some of the best corrosion protection, the best appearance.
And I think from an economic standpoint, the right price targets as well. So AquaEasy in that suite of products again, I mean a lot around the areas of environmental and environmental compliance and improvement to the footprint there. One comment they made too was about edge coverage. It seems like a small thing. But many of our customers are in very, very competitive markets.
They're actually thinning out the steel in parts that take cost out and parts that take weight out. Sometimes they're specifying lower grade steels with rougher surface specifications. And a lot of discussion and work with our customers around what's how can we help with that. When we look at rheology and our the ability to flow the product to compensate for some of those changes in appearance, we often use these relationships and technology to not only provide them an environmentally attractive solution, but also from a product and product specification standpoint, them to continue on their strategy to reduce costs, reduce weight in many of their vehicles. Last case study is about light weighting, again, through CAFE, through CO2.
And again, these regulations aren't going to go away. You hear a lot about vehicles with eight speed, 10 speed transmissions trying to get more efficiency there. You hear about high displacement low high displacement small output engines. So the transmission in the powertrain is big, but they've got to take weight out of these vehicles as well, not only getting efficiencies in powertrain. And again, we're in the middle of this working with many of our OEMs as well as the tiers in this area.
And when you think about it, in the example we have, the Corvette, which is kind of the laboratory for GM engineering is one example. And the Corvette, mean, 50,000 vehicles a year, it's not insignificant. But if you go down to that factory in Bowling Green, Kentucky, I mean, it's a beehive from an engineering standpoint because on that vehicle, they've got no less than seven different substrates on the exterior. Barry mentioned, they've got long strand SMCs, they've got nylons, they've got carbon fibers, aluminum, high strength steel, a lot of moving parts. And if you look at the evolution of that lightweighting initiative and the fact that all those panels have to come together.
They're Class A surfaces. They've got to look perfect. They've got to match perfectly. But not long ago, they were bringing most of those components in individually from the tiers. They were hand sanded, hand prepared, hand painted.
And when you think about the paint shop of the future and how they're trying to bring those disparate substrates together, all with different thermal properties and again, surface conditions and then do that in an automated in line fashion. So again, this is this vehicle, just one example. I mean you're seeing carbon fiber and SMC around the world. You see it with BMW. See it with Mercedes.
You see and hear about the F-one 150 being the first all aluminum body. Now the new Expedition that just came out is new aluminum. And they're taking 300, five seven hundred pounds out of these vehicles, again, in part to achieve some of the regulatory requirements, in part also to free up capacity to continue to put the creature comforts that they're putting in the vehicles as well. So when we think about coatings in the transportation space and we think about the future, the regulatory changes are not going to stop. The need for productivity, not going to stop.
And I think Axalta is extremely well positioned with our focus on the customer, with the systems we put in place, the structure we put in place, I think, again, with Barry's group having, I think, the right balance of customer facing but also people actually developing new molecules will continue to serve us well in this space, and it's an area that we're extremely excited about. In closing here, we're a leader in light vehicle and commercial vehicle coating systems. It's a great business for us. I think, again, it's got great growth prospects as most of you profitable business. It's an accretive business, and we'll continue to invest in this space.
We're being rewarded by our customers around the world, the VWs, the BMWs, the Mercedes, the Tier 1s as well as some of the domestic OEMs. We've got a great portfolio of products and great service capability, and these are areas we will continue to invest into and I think harvest the benefits. And I think wherever the technology takes in transportation, whether it's autonomous, whether it's whether paint, a Class A service can recharge a battery, we'll be working with our customers, with third parties, with universities to make sure that Axalta is a big part of the solution. On that note, thank you very much. I appreciate your time.
And again, I think we're ready for a Q and A session. Thank you.
If the members of the panel could come up and take a seat, we'll just jump right into Q and A. We ran a little bit late on the presentation, so we may cut the Q and A just a little short, but we obviously have lunch to follow. So any questions, plenty of time to get answered. We don't really have a firm stop either on the other end of lunch, so feel free to get all your questions answered as we go. But Arun, if you want to
kick it off, feel Arun Viswanathan, RBC. So
the view has moved more towards technology. Maybe you can just give me your view over the last couple of years. A couple of years ago, you were speaking about 4% to 6% organic growth at last year's Investor Day. It seems like you're shifting a little bit more towards M and A as well in certain several of your markets. Maybe just give us a composition of how you see the top line shaping out over the next couple of years.
Yes, sure. I think what we're reacting to there as we've backed off on the organic a little bit is just the fact that our general view, for example, of certain countries like Brazil, South America, that we don't believe there's going to be that kind of some of the growth that we thought was going to be there. Overall, global GDPs have come down 1% to 2%. Should those GDPs go back up, then I think then we gain a point or two back on that. But I think that's just reflective on the organic side of a little slower.
Now our goal though is we're going to like we said earlier today, we're going to grow, and we're going to grow in that bandwidth. It may just take it's going to take more on technology side, more share gain and ultimately a few more bolt on acquisitions. But I think it's just strictly reflective of a downward view that certainly we have on just global GDP growth and what it's going be the next few years. And we just don't see what the driver is going to be, whether it's The U. S.
Or Europe or Latin America. Back here. John Roberts, UBS. Industrial Coatings, you mentioned there were three significant segments you don't play in packaging, marine and wood. It's kind of hard to see how you might get into marine or packaging, but there might be an interesting wood coatings business to give you a foothold there.
Is that a good fit or interest to you? Mark, do you want to Yes.
I think the dynamics of the wood market are pretty compelling in a lot of respects. I mean the customers tend to value technology. As you look at what really is important when you think of the dynamics of all the different substrates that are coated and the variation between those substrates, having a great technical service team is on-site and in the customer's location is something that's very similar to what we do well in other industrial markets and certainly within transportation and our refinish markets. It's kind of a core part of our DNA. We feel that's something that I think we would be very comfortable with.
We look at the customer requirements for color in the wood space and how that's evolved over time and how that's becoming I mean, you just think of kitchen cabinets as an example and how custom color and the idea of having more colors available and having them available in a shorter period of time and you kind of relate that to what's happened in the helmet industry and what you saw with Schutz Sports. So that's something I think from a color standpoint that also plays to our strengths. I mean it's we kind of see that as a real nice potential market space that if the right opportunity came along, we feel confident that we could step into it and be successful.
Kevin?
Yes, Kevin McCarthy, Vertical Research Partners. Charlie, you've been quite acquisitive over the past year or so. We heard a lot today about how Duracoat and a lot of the smaller deals fit in terms of products, processes, technologies. What we haven't heard so much about would be capital return to shareholders, share repurchases or an initial dividend distribution. So my question is should we infer from that that M and A is really kind of highest and best use of Axalta's excess cash flow, let's say, over the next year or so?
Yes. I think it's a good question, Kevin. I think certainly, as I look out over the next three, four, five years, if you just do the math, which I'm sure all of you have, we generate a substantial amount of free cash flow that I actually don't believe either high IRR projects or mergers and acquisitions will use up all that cash. I do think as a Board and as a company, we start to look at what is the likely return for that. Now there's always, I guess, should something big opportunistic come up that made sense, sure we would look at it.
But I think right now, we're going to get into a situation over the next year where truly there's excess free cash flow that we'll be our bolt ons, I think, in any organization, there's a certain number you should do. And past that, you probably outrun your cover on being able to manage all those. And I think we're very sensitive to when we look at the level we're at right now, we could probably do a little more, but I wouldn't be trying to do 10 a year. I think that, that stresses your organization a little too much. And I think we're learning to walk before we run.
But do think we'll get over the next year or so to a point where we're just building cash on the balance sheet. And some of that's our private equity background and other opportunities we've been in, which is we're not interested in sitting on that cash. I So think we will turn our attention to most likely returning some of that cash to shareholders. Whether that's a share repurchase followed by a dividend or I'm not going get ahead of the Board on that. We have a good independent Board now, I think that's certainly one of our top priorities to think about as we go through this next year on how best to return that.
But you shouldn't walk out of here thinking it's a management team that we're going take all the cash and go buy a bunch of stuff. We're going to do acquisitions as they make sense for us and as they fit the profile that you heard from our team here today. But I think having done all that, we'll still have free cash flow to distribute back to shareholders. And I mean, you guys have all heard me talk before. I'm more of a repurchase person than I am a dividend person, but I think we'll have to think through in a rising interest rate environment, how do our shareholders feel about one or the other.
And we have been dialoguing over the last few months with some of you here in this room because I do think in the end, you've got to go talk to your top 20 shareholders and say, look, you're in this equity for a reason. And if we want to return value, how best would you like to see it? Because I think that's got to be a there's got to be a two way dialogue with us there with not only myself but other Board members. But I think we'll end up with excess free cash flow as we start going through this year and just piling it up on the balance sheet. I do think, Robert, I think we highlighted in the most recent earnings call that paying down any more debt right now probably doesn't make a lot of sense.
We're kind of a victim of our own success in that I think our average cost of debt is 3.8 percent. And in the capital structure, we've got a really nice natural hedge in it and it's been pushed out. That doesn't mean we won't pay down more debt, but I don't see that as a high priority right now to go down any further. Mike,
we need to meet him up.
We'll go
to the nearest.
Yes, think
it was Jeff.
This is Matt Kreger from Baird. Just wanted to know if you could run us through the inflationary dynamics that are hitting your business throughout 2017. And then maybe we could hear from each of the business heads on the nuances of how that inflationary dynamic affects each one of the businesses.
Yes. I'll just start. Just overall, big picture, I think we'll see moderate raw material inflation. TiO2 gets a lot of press right now. We're not a big TiO2 buyer.
But I think that, that one gets more press than anybody else. But the last couple of years, we've always seen pigment prices going up, dispersion prices going up. But I think we'll see this moderate pressure on certain solvents this year, certain resins, and I think we'll have to raise price to accommodate for that is the way we kind of think about Other inflationary pressures, we don't see a lot of wage inflation pressure around the world. I know the Fed here in The U. S.
Looks at that. We're not having trouble attracting talent, keeping talent. I tend to think we have a value proposition for people that is exciting for them, and it's not always just about money. But we're not having to raise wages outside of the norm anywhere in the world right now because of low unemployment or anything like that. Do you want to?
Yes. Well, I think that Charlie touched on it. I think the way that we look at it, first of all, there's a little bit of a lag time for the refinish part of the business, but with raw materials. But second of all, we will we've typically shown a proclivity to be able to get it with price, and that's what we'll have to do.
I mean, I think just from an industrial standpoint, I mean, you've seen the flow of new products, and that always has an insulating effect as we're looking at any kind of inflation we have to have. So typically, the products that we're bringing to market are of a higher value than the products that we typically have on the market today. So that helps us. I think the other aspect is this is a good test for us. And we've been working and trying to be a global industrial business for the past four years, and we've built a lot of intimacy with customers, And we need to stand in front of those customers, and we need to ask for their help in some cases where we need a 3% or 4% price increase, and we need to be able to explain to them, here's the value we brought to you over the last two or three years, and we need your help now, Mr.
Customer. And for the most part, the initial reactions we've gotten have been very supportive.
I think from a transportation standpoint, I mean, we see obviously some modest push there. It's incumbent upon us to find ways to offset that. I mean, again, Barry, Matt Boland, we work a lot to look at leaning out formulas, reducing complexity, ways to create scale, to create additional purchasing power. The other thing is we work with our customers, and it's a bit different, I think, for a lot of the coating suppliers, is we're working to get on material escalators with our customers. And we've been successful in some of the clear coat areas, some of the e coat areas to find a basket of inputs because there's no perfect there's not an LME, so to speak.
But creating a basket of inputs with great correlation and working with our customers to try to get on that. So whether material up or down, we will ride with that. So
a lot of work
to do in that area, but that's a key part of our discussion with our customers these days.
Yes. Steve Byrne, BofA. In your pursuit of moving down into that economy refinish market, what levers do you have to pull on cost cutting to offset the lower pricing to maintain margins? In the and I'll let Steve comment I mean, Mike can comment on North America. But overall, it's a whole different product range.
Now there's there'll always be 20% of the refinish market that is just we'll never really go after. It's that really low end, older technologies, cheaper clear coats. But in the mainstream and economy, the products we're going into, the brands we're going into, these are very different formulations. And I won't I wouldn't say like cheaper resins, things like that. But the colors are more basic, the pigments are less expensive.
Clear coats are a less expensive clear coat, a thinner clear coat. So I think as we move into economy, what we don't do is take our premium brands and just try to move them down. In fact, I think it's really dangerous to do because then you confuse the market on what is what are you paying for, what are the productivity barriers to going up or down. But I think almost every one of our economy or mainstream brands are completely different formulations, different price points, and we're able to maintain very similar margins to what we have in the premium segment, but a very different product line, a very different sale, very different service component with the distributor. And you saw some of them, the ChemSpec line, very good line of products we acquired last year, but those have no similarities to, say, a Speeshecker or Standox in the premium brand.
No one would confuse the capabilities, the raw materials or the price points.
Mike? Mike Sison, KeyBanc. Dollars 6,000,000,000 in sales by 2020 seems like a total order from $4,000,000,000 in 2016, but coming from Cleveland with the Cavs Union, certainly anything is possible, right? So if you do happen to get there, can you maybe walk us through the profitability levels you should be at there? And then hopefully, year, you'll have a nice Cleveland Browns orange helmet instead of the Cowboys.
We're working on that, Mike. I think just a couple of quick points. Think, one, we've actually had $700,000,000 of currency in the past two years. So had there not been currency, we'd be well on our way. But that's just a fact of life for everybody in the business at this point.
And I think we'll continue to probably see 3% or 4% currency going forward. But I think what you didn't see on one of my charts, there's a couple of bars there that didn't show up. I'm not sure what happened this morning in the translation, but it's about half organic, half inorganic. Now on the we're not we get asked a lot about margins and how do you continue to push up margins and things like that. Well, life would be great if everything was refinished, but it's not.
So I do think when we look at our transportation businesses, their upward mobility on margins, yes. When we look at the Industrial business, these are businesses that, again, good solid markets. But I don't think the margin profile will ever be the same as Refinish. It's just a different value proposition. So when I if you look at us overall, I think we'll see margin expansion in some of the areas like Refinish and maybe Transportation offset somewhat by as we grow Industrial, I think most of those businesses are low to mid-20s kind of EBITDA margins.
So at the end of the day, I think you could look out five years and us be low to mid-20s in our adjusted EBITDA margins, again, continuing to see upward growth in some segments, but other ones being where we would take a more moderate expectation. But clearly are driven off the bottom line and other things that we want to grow the bottom line. Less we're less about what would the precise margin be long term. But yes, we can get you a Philadelphia Eagles helmet, too, probably.
Yes. Don Carson with Susquehanna. I want to continue on the margin discussion, Charlie. And if you go to Slide 20, you've got you're going to complete Exalt Aweight. This year, you've got a $200,000,000 target.
You've got a higher bar for 2018. So if you come up with a new sort of Exalt Away II and a formal target, and then the second part of that would be what's going be new about the ongoing productivity and cost cutting? Is it more logistics and manufacturing footprint driven than simply structural costs?
Yes. I think, first of all, our Exalt A Way targets kind of remain the same. As we go over the next two years, we believe we can deliver $125,000,000 a year to the bottom line. Or in productivity, absolutely. I think what's different is and maybe Robert and Chris have talked about this some on the analyst calls and in our earnings call is that we really are now moving into complexity reduction.
We're moving into some footprint rationalizations. Some of those footprint rationalizations we don't talk about publicly, obviously, because there's everything from government to people to employees affected by it. But I think there's footprint rationalizations that go on and quite a bit in the complexity reduction area. As many of you know, we inherited a technology base regionally driven, but also came from Herbert's and the HerxBest side of the business and came from DuPont. And just still way too many SQs, way too many projects, too many products out there and actually too many resins, too many sole source situations.
So it's really moving to be around sourcing, logistics, simplifying logistics in Europe, where we ran both a country and a regional structure, and we just don't need both. And we're starting to take a lot of that out. Actually, some of it's easier than what we've done up until now as we go out into the field and as we work on the operations. Still very little of it impacts our customer, though. The customer doesn't see this going on.
If you want to know more about that complexity reduction, encourage you to talk to Barry,
talk to Dan Key, some of these business leads over lunch. They each have examples they can share with you of the kinds of things we're doing. Jeff?
Jeff Sokoskas at JPMorgan. One of the success stories at Axalta has been its growth in China. How big was your overall business in China in say 2014? And how large is it today in 2016? And one of the stresses that Axalta has been under is there's been a cyclical downturn in South America.
What was the size of your South American or your Brazilian business in 2014? And what is it today?
Yes. I'd almost have to have Robert up here to quote all of it. But in big picture numbers, the Brazil we're the big player in OEM in Brazil, and that business is less than half of what it was three years ago. Now the good news is we see so I think between Brazil, Venezuela, some other things, South America, that's been a couple of $100,000,000 in sales that evaporated. So we've actually been taking a whole series of actions there.
We stayed profitable. But the only thing I can say in that area is it certainly looks like it may have bottomed out. We've seen in the last couple of quarters some upticks in Brazil. I'm not wildly optimistic, but certainly, I feel great about our team that we stayed profitable through all of that. And I think we're well positioned that as Brazil does recover, we'll end up with much better margins as we come out of that because of the structural changes we've been able to take.
China for us has continued to grow high single digits the last couple of years. You haven't seen that on the sales line because it's just about been offset by currency, 67% a year on the currency side. We had a very good year last year in on the transportation side of the business. What we saw in the industrial businesses and refinish business last year was we grew but just very little. And a lot of that was I think a couple of our competitors saw the same thing.
China is undergoing a pretty radical transformation in the refinish business to one, they're solvent to waterborne, but also insurance companies are really they're really trying to pressure driver behavior by raising insurance rates, no different than they do anywhere else in the world. We've seen this happen in Korea. We've seen it in Japan. And you can normally get about a one to two year dislocation in the market of about 10%, and then it kind of comes back to where it was. We kind of saw that.
And our Refinish business grew last year, but it was not the high single digits that we had been seeing. So I think we remain, Jeff, pretty bullish on China overall, but not double digit growth. I think for us, it will continue to be high single digits. And some of that is just consistent with the amount of investment we're willing to put into China. We're now we announced Nanjing recently, and we'll start to build some more resins capacity, and we've got to put some more waterborne capacity on the ground for OEM.
If I can follow-up. Of your $150,000,000 that you spent in CapEx, how much do you spend in
China? If you look out
in the last couple of years, about onethree of our CapEx has been going into China. So that was between Jiaiding Waterborne expansion I showed a picture of earlier. We just finished the big new tech center in Shanghai, and we've done some selected other smaller powder coatings expansions. So I don't I think we're really for me, I think we'll continue to spread our capital out around the world. We could go faster in China, there
is no doubt. But I
think you want to be a little cautious right now just to kind of watch how they somebody asked me earlier about what sectors are in favor over there and everything else. I think you ought be cautious. But I think about 30,000,000 to $50,000,000 a year seems about right for us short of any acquisitions we might do. You.
Alex Zupram of Nomura Instinet. Just following up on China. What is your market share in Chinese refinish market today? And where would you like to see it perhaps two, three years from now? And how is your competitive strategy in China in Refinish different from U.
S. And Europe?
I think in our Refinish business in China, I think we're about 17% market share, something around there, a little lower than we would be like in Europe or North America, more established. DuPont had taken a slower path on refinish there. We have a very good facility there for the products, but they had really limited China expansion for they ran it regionally. So Capital and DuPont went to all the businesses there. And so I think we got a little slower start.
At the same time, I would tell you we've ramped up our plans in China for Refinish as it's a very different market if you're in the Tier one cities than the two, three, four. And I think we're in the process of acquiring a couple of local brands. You've seen one of our competitors recently acquire a couple of local brands actually two competitors did. I think we're all kind of on the same page that as the market moves to Waterborne, as it moves to higher value cars in two, three, four cities, that's going to continue to push out the local players. And there's a need for technology in those marketplaces.
But I think we'll do a combination of both organic growth and probably a couple of small acquisitions to accomplish that. Just it's just too slow to do it all organic with the growth that's going on. But we do see a lot of local players who do not have access to waterborne or low VOC technology starting to either put their businesses up for sale. They have good distribution, good market access. They don't have the products that the market is going to need.
So I don't have a market share target for three years from now or five years from now, but I think we want to we'll continue to aggressively grow there. John, one more. John Roberts again. You talked about a 30% market share in Harmonized Coatings. How big is that?
What percent of the light vehicle OEM market is Harmonized Coatings? Where's Robert? You
can if you have an estimate, I think
it's a question what do you
want to disclose? I mean, it's we'll have to come back to on that. Don't know if we want to give you Okay. Back
number of the videos talked about customized resins. What percent of your resins do you produce or have toll produced for you? And is it different than the competition? Are you do more resin development and production yourself versus what your competitors do?
We do a substantial amount of internalization of resin depending the business. We haven't disclosed a data point on exactly what that material is, but it is a significant source of competitive advantage. We produce the majority
of our resins. We will tend to farm out the generic resins and specialty ones, our higher value ones we do ourselves. And in some cases, we won't put some of those resins in certain countries just because of IP. I don't know, Barry, you want
It is the lion's share of the resins that we really do develop ourselves and whether we manufacture or we have manufactured for us. But that's one of the key pieces of the secret sauce that goes into the products that we bring to market. It's really a key way we deliver the performance.
We can take one more from Mike.
Mike Harrison with Seaport Global. You talked a little bit about your technology advantages in the Refinish business. And then you called out Caliber as an example of an MSO where you're actually taking some share and converting some of the shops that they own. Can you talk about the puts and takes around winning new business with existing MSOs that may be using a competitor product right now? I know, for example, that the painters themselves are actually very brand loyal and prefer if they spray Axalta, they want to always spray Axalta.
They don't want to switch. What are some of the puts and takes? And how much of an opportunity do you have to take shares within some of the MSOs?
One comment and I'll hand it to Mike. I would say what we do see is the majority of the bigger shops in The U. S. Are aligning between one of two producers, Us and one major competitor. And a lot of that's driven because of the productivity of the paint, the cost position, the training, all the things you have to have.
And so I'll let Michael comment on kind of how they think about the MSOs here. But we do see an alignment going on where to support these MSOs, you've to be able do it nationwide. And there's only a couple of us that have that kind of a footprint to be able to do that with distributors and training centers and everything else.
Yes. I think it does get back to the direct relationship that we've been able to forge between us and the shop level, and that really helps us in the MSO space. And I think that I think it does we do have to convert them. I mean we have to go in. We have to train the folks.
And that's one of the reasons why our field training force and sales force is so important to us because we really it does take our paints a little different, our systems a little different, and we have to make sure that they're doing it right in order that the product comes out the right way.
Painters are loyal to brand, which is actually really good for people like us that have high market share. But unlike Mike, you still we've gone into, say, for Caliber's acquired shops or Service Canning's acquired shops, and they had these loyal painters. But the moment you show them that, hey, look, these guys are paid on parts, they're paid on gross profit in their paint shop. And the more you show them whether you're a painter or a body shop tech, depending on how their teams are running, the moment you show them they can make more money using your product, loyalty is now one of several factors. And in most cases, we can go in there and show them, look, here's how excuse me, here's how you can go faster, better, quicker color match, and you and your team are going to make more money.
And in many cases, they don't believe it until they see it. They don't believe it until they see it. And once they see it, then a lot of them are quickly converted.
And sometimes these are twenty, thirty points better on gross margin than some of these paint shops. And these bigger body shops, as I think somebody maybe Michael was talking about earlier, we get a report on every Caliber shop, every Service King shop, every single day, gross profit per hour in the paint shop. And if one day, one end shop isn't where it was supposed to be or it's off, we're either sending a person in there or we're on the phone with them and trying to figure out was this a parts issue, what happened that day. So these big shops that are doing 400, five six hundred cars a day are way more sophisticated than the average person thinks on how they make their money, how they deal with insurance companies and their expectations. So there's a lot of pressure to perform.
And I would tell you in most of those shops, if the painter tries to stand on protocol or loyalty, he gets fired. They don't have time
for that.
They just don't. Smaller shops, very different game. You've got to find out what the customer is really looking for. And by the way, this is happening in Europe. People will always say, well, gosh, this would never happen in Europe or how we're seeing it in The U.
K, we see it in France, we're starting to see it in Germany. Very different drivers. Some is private equity. Some of it is just wealthy individuals buying at big body shops and consolidating and working with the OEMs. So this consolidation already happening in China.
So we think that this model and that's why we feel pretty good about being able to grow share in some of these areas is that there's only a couple of us that know how to do this well. And it will push out the more local producers just because the economics of filling up a body shop that was running half full can now be loaded up with insurance business.
Thank you all very much. Charlie, you want
to offer any last words?
Yes. I know everybody is probably starved to death. Know I am. First of all, thanks for all your patience this morning. I know it's a five hour slog.
I guess just two points. One, I hope what you got to see from us is that we are a technology driven company, and we're using technology for commercial success. We're not doing it just to have fun with patents, as Barry said, do technology for technology's sake. Everything we're doing is to ultimately drive customer success and make more money for us. It's a very simple, very simple focus for us on why we're using technology.
But hopefully, what you got to see in all that is for the companies that are going to succeed over the next five, ten years in coatings, the sky is wide open on opportunity where you can bring something to a customer and get paid for it and get paid for it in a timely manner in a sustainable way. So I think we have a very good road map of where we're going with our technology, but we are a competitive bunch, we said earlier, and that we're only doing this because we want to grow Axalta and we're serving the customer and helping them be So we are picking who we deal with, picking the right customers, ones we think are going to be successful and bring something to them. The good news in coatings is outside of a couple of players, it's not that sophisticated of a world. And we actually are able to bring technology to a lot of customers who can pay for it and will value it, and their choices are pretty limited. So I think the more we learn about this, the more we get excited.
So hopefully, you saw that in all our presentations. And then the second point I would just make is, I'm just actually really proud to be able today to be able to introduce you to some of our members of our team who some of you haven't met, haven't had the chance to meet in some of our earnings calls and investor presentations. We normally have them out selling paint and making money for us. But hopefully, you saw from Mike and Steve and Barry and Mike Carr and others is just the passion by which we go about the business. We are a competitive bunch.
We're out to win. We will take share. We will run people out of business, but we always do it in a good spirit and with a passion behind it. Hopefully, some of that came through in the presentations today. That being said, it's a very tough world out there, and there's a lot of good competitors.
But I think we believe we have the right formula to go out here and win in these markets in the last couple of years. Step by step, we're actually doing that. And we can also react, as we mentioned earlier, Brazil, a big disappointment Russia, a big disappointment. Those are big businesses for us, several $100,000,000 of revenue that went away, but yet we're a diverse company that we stepped over all of that and still grew pretty significantly without taking a hit. So we do have a lot of levers to pull.
We do have a lot of diversity as I kind of start off my pitch with. But I believe we can react to a lot of changing economic conditions out there, whether that's needing to raise price, whether that's a customer who has a problem and still roll on and deliver for shareholders what I think that they've come to expect out of us. So again, thanks for everything. It's been a lot of fun for us to be able to showcase a lot of things we've done that you probably haven't heard about. And I really hope we have a few minutes during lunch.
Please feel free to pick their brains and we're happy to share a lot with you.
We're going have each of these gentlemen spread out among the tables as well as those of us who aren't on the stage. So feel free to grab lunch and come back. And I also just want to mention, before we stand up, I want to thank Joe McDougall's team, including Matt Winoker and Vanessa Navarro for the tremendous work they did on the videos as well as the rest of our team, including Maggie back there, Alicia in the AV Room and Evelyn. So thank you all for your help.