...No? Oh, there we go. All right. Good morning, everyone. Tim Mulrooney, I'm the research analyst that covers Ecolab here at William Blair. I'm required to inform you that for a complete list of research disclosures, please visit our website at williamblair.com. So Ecolab's a leading provider of chemical-based solutions for institutional and industrial end markets. The gross margin rebuild that they began in earnest last year has continued thus far through 2024, clearly demonstrating the company's strong value proposition, and it's something I probably want to get into a little bit.
It's been incredible to see what they've been able to do over the last couple of years, and now that, I think, story is largely behind them, and the story is pivoting back to, you know, investor focus, pivoting back towards the next chapter, which is organic growth, which has been an exciting thing to see. So I, I look forward to digging into that with you, Christophe. We're very pleased to have Chairman and CEO Christophe Beck with us today. This format's a formal presentation. If we don't go presentation the whole time, Christophe and I will do a little bit of a fireside chat, but then we'll have a breakout where I shut up, and you guys can ask all the questions, and that happens in the Maher Room after this half hour. But with that, we'll get started.
Good morning, Christophe.
Good morning. Thank you so much. Good morning, everyone. Good to see you, and always a pleasure to share our growth story, what our team has been doing, over the past few years and the past few months, both in terms of business momentum, as you've heard from Tim, and you will see, and also, the impact that we have on, on people, planet, and, and businesses that we serve, around the world. Obviously, the cautionary statement, we're gonna talk about the future and future expectations. You're familiar with it, and that's valid for us, as well. So what we're doing, for the ones a little bit less familiar, with the company, well, we partner with over 1 million customer locations around the world in order to help make the world cleaner, safer, and healthier.
Our purpose as a company is to protect what's vital: people from infections, and a lot of people, as you will see, and natural resources, especially water, in a way that is business-friendly. What does that mean? Is that the more we work together, the better the operational performance, cost performance, because they're reducing the impact on people and the planet, and I'm gonna go a little bit more in detail on that. We have capabilities that no one else has. We have 48,000 people out there. We have 28,000 people serving this over 1 million customer location in 172 countries in 40 different industries.
We have close to 2,000 people in R&D, and we have over 1,000 people in digital technology. Well, I guess we need to call that AI and GenAI today, but we've been on that journey for over 30 years today. Our reach is also pretty unmatched. We touch a third of the world food production, almost a quarter of the power that's generated, and we protect, protected in 2023, almost 1.5 billion people from infections. So what we do has a big impact on every industry and every human being on the planet. We're really so the partner for the biggest and most trusted brands around the world out there in whatever segment that we operate. It can be in the hospitality, what we call institutional in our vernacular. Those are hotels, restaurants, convenience stores, retail stores, you name it.
That's our institutional business. It's in our industrial segments, as you will see, so in many different segments. It's in healthcare and life science as well, and a new segment that we've opened up, Pest Elimination, because it was part of the other three before, and we wanted to have it separate because it's such a great business, operating really well with an even better future as well, so going forward. Interestingly enough, our business is very well-balanced, and we want to keep it that way, both in terms of end markets, as you can see it, being in industrial, being in institutional, being in healthcare, being in life science, that whatever happens in the world out there, there's always one area that's doing much better than the other ones, and net-net, we can deliver on our promise. This is also true in terms of geographies.
For a global company, almost half of our sales are happening outside the U.S. The U.S. is a great market for us, but the other two big markets that we call mega markets, Europe and China, are performing very well as well at the same time, while we operate as well in every other country where we are allowed to operate because we want to serve any of our customers wherever they operate. That's part of our promise as a company. And last but not least, 90%+ of our sales are recurring sales. It's a razor, razor blade type of model, so we sell the razor.
We don't sell any razors, by the way, but it's a piece of technology, as you will see as well afterwards, and you get consumables that are being used on a regular basis, which is much less impacted by any economic cycle that you might have out there. That's been true for over a hundred years today, and that's gonna be true, as well, so for the future. It's driving very interesting performance in terms of sales growth. The last few years have been very good years for us. Like the business momentum that we have, that's driven by volume, by value pricing, by digital subscriptions, as well. It's driving as well, very nice evolution in terms of gross margin improvements and operating income improvements.
On our way to get to this 20% OI margin that I've committed to in the next few years, as I've said at the investor call last September 2023. When you look at our trajectory, we were at 16% in 2019. We were 13% operating income margin, so two years ago, as we came out of that hyperinflation time, we wanted to deal with it in a way that was good for customers, good for us, good for our shareholders as well at the same time, and we've retained all our customers during that time as well. We reached 14% last year. We will get 16% this year, and in order to get to the 20%, we need to get back to gross margin we used to have.
We're very close to that, as you've seen as well, or maybe you haven't seen, but in Q1, very nice improvement and digital technology helping SG&A productivity as well at the same time, both at the frontline and as well in our back office. But generally, the direction of travel is basically to say that the company is gonna keep growing. Our workforce as a whole, not so much, because the difference is gonna be driven by technological improvement. Last but not least, it helped us ultimately get back to this past trajectory of double-digit earnings growth, and as you can see on that chart, so a very nice evolution. We can look at the last 10 years, 20 years, 30 years, 100 years. It's been a very steady, good compounder as a company.
Our targets that we've committed to as well, it's 5%-7% organic growth. On top of that comes, M&A, but that's a lumpy proposition. As always, we're very strong at that. We've done 100 transaction over the last 10 years. We know how to do it. We know how to do it in a way that's good for our customers, for our teams, and our shareholders as well. Reaching the 20% of OI margin, driving 12%-15% earnings per share growth. So 20% is not an end, it's just the next step before we get to north of 20%. Many of our businesses are already north of 20%, by the way, and this is true of our markets as well, in many places around the world. So we have strong momentum. We like where we are.
We like even more where we're going, for a few reasons. First, the macro trends are clearly in our favor. We're gonna be more people in the years to come. I guess that's a very good news. One billion more by 2030, 3 billion more by 2050. We will need much more food, like 56% by 2050. We will need 47% more energy by 2050, and we will need 56% more water by 2030, twenty years earlier than that. And AI and digital, obviously, is driving power more than ever, which needs to be cooled.
That's gonna require a huge amount of water that ultimately we don't have, because the Earth is using as much water as nature can replenish, which is partly a problem, which is why we need to reuse and recycle the water wherever we operate, which is what we do for a living as a company. We have close to $10 billion sales that are water-related in whatever business that we serve, which makes us the world's water company. We're by far the largest in water services and technology, reusing and recycling water in ways that you do not generate wastewater. So you don't need to treat it anymore because you reuse it within the data center, within the hospital, within the hotel, within the car manufacturing, whatever you serve, as you will see, as well, in a second.
So in a great position to serve what the customers exactly need, because we won't be able to keep growing, without reusing water. At the same time, we're not only, the number one in water, we're the number one in hygiene. We are, the emerging leader in life science as well, and as you can see, we're a $15 billion company out of a $152 billion market out there, and our competition is pretty far away, from us. Very fragmented market. We're the only company that can serve all those customers globally with a consistent service and set of technologies anywhere, around the world. How do we drive value? Our promise has always been, since 1923, when the company was called Economics Laboratory, so it was a business, economic idea, not an ecological idea at the beginning.
It's really helping our customer get the best results at the lowest total operating cost. How do we do that? We bring expertise, technology, chemistry, data insights, in order for our customers deliver better outcomes. Can be guest satisfaction in a hotel, can be better paint in a paint booth, in a car manufacturing, can be better uptime in a data center, or it can be less hospital-acquired infection in a hospital. You do all that in a way that is reducing your total operating cost by reducing the impact on people and the environment, water, energy, or waste. That's the way we deliver our value. We measure it as well with what's called eROI. It's three components: business outcome, what I'm delivering for my customer, consumers, for our customers, what's the cost performance, and what's the environmental impact?
We translate all of that in dollar terms or in gallons for water or in terms for energy. You can see it on our website as well. Second by second, you can see how much energy we saved, how much water we've saved, how much waste we've saved, how much cost we've saved as well, anywhere around the world... any industry, any customer, any customer location. That's the way we plan, that's the way we track, that's the way we charge, that's the way we get price, as well, as a company, which is a core point of it. For us, in order to deliver these improvements on all three fronts of business outcome, performance, and environmental impact, we need huge innovation.
As you've seen, we have close to 2,000 people in science, in chemistry, that are helping us develop new technology, and we adding over 1,000 people in digital technology that is compounding all the innovation that we're bringing as well on the chemistry side, and I'll come back to that. And this is really opening up some great breakthrough innovations, so for us and our customers, that are game-changing for them. It can be overall programs that are helping data centers get to net zero, which is really hard, as we know that. It can be as well, having new technology in order to get the right quality of a biotech drug or vaccine that's being produced.
We create those filtration systems in order to make sure that it's produced the right way, it's safe for people, it's safe for the environment, and we reduce the total cost of it. Or it can be in a restaurant, as well, where labor has become a big issue. How can we automate the operations of a restaurant, which is where we started 100 years ago, in a way that is helping them produce more food, safer food, in a way that's less expensive, so for their own guests? Last but not least, digital technology, so has been part of our journey for the last 30 years. We invented what we call 3D TRASAR Connected Chemistry in 1991. That was before the internet even came on Earth, which allowing us to measure the quality of water or fluid in real time anywhere around the world.
Today, we have 100,000 systems that are connected to ECOLAB3D , which is our cloud around the world, which allows us ultimately to know what's the best performing data center out there? What's the best performing restaurant? What's the best performing hospital? And we can help those customers know, well, what's the gap of performance that you have versus this best-in-class? At the same time, we know how to deliver that because we have that on the cloud, and our people have delivered it as well, which is how we've developed as well, what we call Industrial Asset Intelligence for power plants, to give you just one example.
Well, it's to optimize all systems from the boiler to the turbine, to the condenser, to the cooler, to the wastewater, in order to make sure that you produce the most power at the lowest total cost with the less risk, as well to people and environment. Always the same approach that we have. It's a subscription that we sell to our customers, helping them how to optimize the operation within a site, understanding what's versus best-in-class, and how to get to that performance. They need more of our services. That's driving them better performance. We capture part of that in our own value pricing as well, and that's how the whole model keeps going. The more they invest in what we do, the more they save, the better it is for us, and that's how we generate value day in and day out.
The interesting thing is that we have $15 billion, as mentioned, of sales of a $152 billion market out there. But the most important part is we have $55 billion of opportunity with customers that we already have a relationship with. So we can more than triple the size of the company by selling all our services to customers we already have today. You take the pest elimination business, we do $1 billion today at very high margin, very high return. We could triple that business just by selling more to our key customers around the world, a service that we know exactly how to deliver. If I give you a few examples on how we do that as well, let's take a hotel, what we call lodging. Well, we start by serving their restaurant.
We serve the dish machine, which is back to this razor, razor blade. The dish machine being the razor, the blade being all the proprietary chemistry that you use in that dish machine. Those are blocks, usually of solid chemistry that you use regularly, and you don't need to change it too often because it's so concentrated that ultimately you put it in there, and you just use it as long as you can, and then you switch it when it needs to be. Make sure that your dishes are clean. You need little labor to get it done because it happens pretty straightforward. You use less energy, you use less water, you create less waste. We add to it all this food safety solution in order so to protect lettuce, for instance, from any risk of E. coli.
You've heard about that as well. It can be housekeeping in the hotel in order so to clean all the rooms. It can be the water system. It can be the cooling air conditioning system as well, that's on the ceiling. That can be the pest elimination as well in the hotel, and so on. So we start with one, and then we add all the services around in order to make sure we deliver the best performance at the lowest total operating cost, which is good for the customer, it's good for us, and we do it everywhere around the world. We call it Circle the Customer within one location, Circle the Globe anywhere around the world. This is true in a data center as well, since it's the latest business that we've built, the last five years.
So we work with the cloud computing company, helping them have a program to drive data centers that are as close to net zero in terms of water and carbon usage at the lowest total cost, with the best uptime that you can have as well. We've spent the last few years retrofitting a lot of data centers around the world that were built one by one, and we're developing with cloud computing companies the new systems that we can copy and paste anywhere around the world as this industry is booming as well, and that's the way we grow our new businesses. Ultimately, it's a business that's doing really well by doing a lot of good around us, and that's true in our own operations.
We take it at heart to really make sure that our own company is run in a way that leads to net zero. Carbon, water, 100% renewable powered. We're 80% renewable powered around the world today, 100% in the U.S., 100% in Europe. We will electrify all our fleet at the lower cost, starting in California, where we will have, in 2024, actually the largest commercial fleet in the state, expanding in North America as well, in order to make sure that we are environmental friendly, and at the same time, have better cost performance as well. This is especially true for our customers as well, where it's 1,000 times more important because our impact is much, much bigger.
So we combine both what we do in our own operation and what we do for our customers, as I shared with you as well. Interestingly enough, many companies out there have done a lot of commitments, and it's really hard to get to those commitments in a financially responsible way, which is what we do for a living. I hope that you've understood it by now. It's really so reducing your total operating cost by reducing your impact on people and nature. So we're working with all those companies, making sure that they can get to their objective in a way that's financially really good, so for their own P&L. When you bring it all together, the impact is huge. Our objectives are by 2030, it's to help save enough water for the drinking needs of 1 billion people.
It's a lot, obviously, and as you can see on the first column out there, so we had saved 226 billion gallon with our customers last year. Those are the drinking needs of 750 million people at a lower total cost for our customers. The same on climate, the same on food, the same on health, and we measure that second by second around the world, making sure we deliver on customer promises, and we deliver on our promise as well by 2030. All that leading to a very strong financial position. We've made our commitments, as you've heard before as well, so to get these 5%-7% organic growth, to get to the 20% operating income, driving 12%-15% consistent earnings growth in the years to come.
Cash flow has been very strong, the last few years. It's been especially strong as well this year, with a cash conversion north of 90%. The last three years has been further north of 100% because we have such a cash-generating machine, which is a good problem to have, obviously, getting always a very strong balance sheet after whatever acquisition that we're doing, small or big as well. We have one of the strongest balance sheet we've had in a very long time, and really happy about that as well. And if you have any question what we're doing with capital allocation, it's been true for the last many decades, that it's dividends, investing in the business, and buybacks. That's always the same three priorities that we have, and we've done a lot.
The last 10 years, we have returned close to $10 billion to our shareholders, both in dividends and in buyback. And as you can see, it's been very consistent over time, and it's gonna remain the same in the years to come as well. Nothing is gonna change in any time in the future. So last but not least, so I hope that I could share with you why I'm so bullish about where we are, what we've done, those are actuals, but most importantly, where we're going. We have leading position in most of the industries that we serve. We have a good model that's driving top-line growth.
We have a good model as well that's driving margins improvement as well at the same time, and ultimately, obviously leading to very good financial performance in good, like in less good times as well at the same time. So really proud of what the team has done and even more about where we're going. So with that, Tim, if we have a few minutes left for questions, we can even start.
Yeah, let's do it. Thank you, Christophe. That was great. You know, but contractually obligated to ask the data center AI question, or they replace me these days.
Mm-hmm.
It's in every meeting, it's in every topic, so maybe we could go there first, 'cause I remember you guys actually identified that as a key growth market back in 2021 before it was cool, before the, you know, Gen AI and all that. You guys, in your Investor Day, you brought that up. So it's an important market for you. Can you just take two seconds to talk about what it is that you're really doing there? Are you doing the liquid cooling, or what is it that you're doing when you're doing those retrofits? And then how big is it for you, and like how big could it be? Has that changed? Has that changed in your mind over the last year or two, given the-- I mean, the build-out has certainly changed. The trajectory for that market is changing dramatically.
How is that? Could that impact you? Is it a needle mover, is it not?
Digital technology has been a driver for a long time. For us, it's accelerating very clearly right now on, on three fronts. The first one is the one you mentioned. It's data centers, it's semiconductors manufacturing as well. Very different, but connected, obviously, so to the end usage-
Yep
... in a data center. For both, you need huge amount of water. One, because you use a lot of power to cool down a data center, you need a lot of water to cool that data center down. It can be water technology, can be air technology, can be direct-to-chip technology. Whatever the technology is, we're working on and providing data to our customers that ultimately, that they can cool down with net zero water, net zero carbon at a lower total cost and a higher uptime. On semiconductors, we're helping cut and slice and polish silicon. In order to produce semiconductors, you need ultra-pure water for that. We do not want to generate any wastewater, so you need to treat the water in order to reuse it as ultra-pure water in the process.
Well, if we see what's happening in Taiwan, what's happening in South Korea, what's happening in the U.S., partly in Europe as well, well, it's booming. It's generated a few hundred million of sales so for us in those two segments that we call the Global High Tech. But interestingly enough, it's also technology that we're using to improve the performance, the productivity of our own operation as well. In our frontline, so to automate all the work that we don't need to do, we're driving to a million customer location every single day. Well, there's a lot that can be remote monitored, and we do that for 100,000 systems already today. Well, we can do that for the million of customers that we have out there. We know the cost is going to go down.
And last but not least, it's generating information about all those customers we serve anywhere around the world, as I mentioned, that nobody else has, which is helping us demonstrating them how to get the best-in-class performance and delivering it over time as well in ways that are good for them and good for us. So the whole digital move that's happening right now is good for us in all three fronts.
Got it. Okay, that's helpful. We got a couple of minutes left here. I actually got a question emailed to me. Someone was curious if you could just comment about the input price volatility these days and commodity prices. You know, if the environment is changing or has changed at all in your mind on pricing or inflation?
Well, they're both related, but quite different. So it changed a few years back, obviously, so when, when inflation, so-
I remember.
I think so. We remember when we were here together, so two years ago, in 2022, after the war started. We all try to forget all those times, obviously, as much as we can.
Mm-hmm.
Our cost went up 50%, within less than a year, and we recouped all and more during that time, but we did it in a progressive way, in a way that is a net-net positive for our customers when they look at the savings we're providing in their operations and the incremental pricing that we're getting out of the savings share, that we're getting out of the savings that we're generating for them. We generated $3 billion of pricing, in the last two-three years. We've generated double that in terms of savings for our customers during the same time. So it's demonstrated to our customers, to our teams, to our shareholder as well, that we can get much more of the value we're generating for our customers in terms of value pricing, as we call it. It's not list price that's just driven by inflation.
It's value price that's a value share of what we're generating for our customers over time. That's why, if in the past, we've always been going up in pricing every single year of the last 20 years or plus, it's always been 1%-1.5%. And I think that now we can get 2%-3%, and if we can get more than that, we will do it as well. But that's where I see the steady state for now, this 2%-3%, which is driving a lot of earnings, obviously, and value for our shareholders.
I mean, it's an exciting situation. Like, if I think about it, like, you guys, really, you strengthened your pricing muscle-
Yeah
... right, over the last couple of years, and that's going to help you for the next 10+ years. The tough time that you went through, something good came out of it, which is you're showing your customers in a different way than you were before, the total value delivered. Can you talk a little bit about that? Like, how—what are you actually doing? What have you systematized or put process around that you weren't doing before that you are doing now that's going to enable that pricing growth?
At the highest of times, so we generated 13% of pricing. Keeping in mind that the pricing we were asking our customers to pay had to be backed by a real value we either delivered or will be delivering-
Yep
... documented at every site, anywhere around the world. That requires, obviously, an execution discipline, which is quite amazing. That's all existing now, and that's what we're exactly using with our customers as we speak, and even more going forward. So the last few years have been a blessing, for us. Our customers have seen that we were here for them when they needed us the most. Think about hotels and restaurants. There was no one left, in the hotels and restaurants. We were here to help them reopen and get their operation up and running. When they didn't get the supply, from many suppliers out there, we were always there. Whatever it took. We were shipping 747 to help Starbucks in China, during the difficult times as well. We never, ever let them down.
At the same time, the whole value pricing, we did it in a way that was beneficial for our customers. When I think about all those three steps, ultimately, the company is doing much better today. The relationship we have with our customers, which was good before, is even stronger today because we were always there for them, doing the right thing the right way, which is paying huge dividend for us going forward, which is why our PNL is even better than it is today, and why I'm seeing a very clear line of sight of the 20%. And going beyond that, that's where I'm focusing my attention.
Okay, I think that's a perfect place to end it. Thank you for your time.
Thank you so much, Tim.