Hi, good morning. I'm Jeff Zekauskas. I analyze chemicals at J.P. Morgan. It's my pleasure this morning to introduce the management of Ecolab. Representing Ecolab is Christophe Beck, who's been the CEO of Ecolab since 2021. In my opinion, Christophe has done a really remarkable job in that the previous CEO of Ecolab was Doug Baker, and he was a very, very capable executive. When he left Ecolab, you know, we were a little bit post-COVID. There were pressures and demand in the institutional business. There were issues around raw material inflation and pricing. You know, I think Christophe has really managed those issues very, very well in tandem with the Ecolab management and really revived the company from where it was three or four years ago. We are very much looking forward to his presentation. He may have some time for questions afterward.
Christophe?
Thank you so much, Jeff. Always a pleasure to see you, to be here, in New York. Always a special conference for us, and always an opportunity to share our success story. We've been 102 years in business, which is unusual for an American company. There are a few, including J.P. Morgan, by the way, which is great. I'll share with you a bit where we're coming from, where we are, where we're going. As Jeff has mentioned, we'll cover a few questions as well at the end. I'll draw your attention, obviously, on the cautionary statement since we'll be talking about the near future and the future as well, which is not obvious to fully understand, obviously, since it's changing a little bit on a daily basis.
We're really trying as an organization, as a company, to focus on what we can control and truly what matters, which means our customers, our team, and our shareholder. That's been true for a very long time. For the ones a little bit less familiar with us, what we do, what's our purpose? Our purpose is to protect what's vital: people from infections and natural resources, and doing it in a way that helps our customers improve performance. Our name, Ecolab, came from Economics Laboratory in 1923 with the promise that we would help customers do better, produce better results at a lower total cost because they use less natural resources and less labor. That was the promise in 1923. It was always a business promise, a business idea, and it's remaining one as well, even if the views and sustainability are changing all the time.
Improving business performance the right way is something that has been at the core of who we are and who we want to be as a company. We have the means as well of our ambitions, which is important. It's not just a slogan out there, this is what we've been doing and what we're doing on a day-by-day basis. We have 48,000 people, 28,000 people of that team are serving millions of customers in the world. We help protect 1.4 billion people from infection last year. We touch a third of the world's food production, almost a quarter of the power, the electricity, that's being generated, which is becoming even more important, as we all know, as you know, because of what AI is requiring. I'm going to come back as well to that in a second.
What's important as well is that we have 3,000 people in science, in R&D, in digital technology, in data science that are helping us power all the offerings that we are providing to our customers. When we think about it, most of what we do is around water. 70% of what we do is helping customers produce better outcomes while reducing their water usage, their net water usage, and ideally to get to net zero at some point as well. In many cases, we've reached that as well. We have roughly $10 billion in sales in water technologies, which makes us the largest water company in the world. That has been true for quite a while. We keep growing and performing very well because of that promise. We are protecting the most trusted brand out there in all industries.
We serve 40 different end markets. It can be in industrials, like many companies that have been presenting over the last few days as well. It can be in institutional markets. What it means for us, it's restaurants, it's hotels, it's retail stores, convenience stores where people are going. Obviously, it's in life science, which is the pharma industry for us. Last but not least, pest elimination. Those are the bugs that you see. The other ones you don't see, but those ones that you see matter too, obviously, which is a great business for us, which is essential for many of the brands that we are serving, being in retail, being in food and beverage, being in hotels, wherever we serve. It's always a B2B promise. We're not in the consumer business, as most of you know.
When you look at our portfolio, I'm really proud of this one, because we have great end markets and they're pretty well spread. At the same time, we serve 172 countries, so 40 industries in 172 countries. When I look back, then 15 years ago, we were in a very different place. Our earnings, 90% or 80%+ , were coming from one business, institutional hotels and restaurants in the United States, our great business that has built a great franchise, but that was a bit of a clear focus. That has changed, over time. Today, half our business is in North America and half is outside, with a very good geographic coverage. What's really interesting is that the heads of those businesses, by end market or by geographies, is very strong.
We make more or less the same margin within more or less 5 percentage points, the same in every business and in every market around the world, which is really a great way to build resilience as a company because we never exactly know where the growth is going to come from, especially so short term in terms of geographies or in terms of end markets as well. Wherever it comes from, we have a healthy balance, a mix of earnings, which helps us stay very steady as well from an earnings delivery perspective. Talking about margins, we made that promise to get to 20% by '27. I feel really good about getting there. We've delivered 17% in 2024. I've committed to 18% in 2025, and we will get to the 20% by 2027. It's not the end of the story, obviously.
When we get there, then it's to keep building to the next level. We have many businesses that are already north of 20% today. We know exactly how to get there. It's going to be mostly a top line, a gross margin story. It's not a cost-cutting exercise, even though operating performance is important. This is not my number one priority when I think about the company, which is why I feel really good about delivering these strong double-digit 12%-15% earnings growth for the long run for 2025 and for the first quarter as well, leading us towards this 20% margin by 2027. Even though the top line does not need to be 5%-7% in order to deliver these 12%-15% and 20% operating margin by 2027, the 3%, 4% would be okay.
Anything that's above will help us either invest more in the business or deliver more earnings, which is a choice depending on the opportunities that we have in front of us. The way we look at Q1 right now, it's probably going to be closer to three than to four, but I feel totally fine with it as well because the team is reacting very nicely to all the market conditions that we are all living in, obviously, in the world, currently. We are just getting started. 102 years, and I'm preparing the companies are not just for 2025, obviously, but for the years to come and hopefully, for the next century, as well as a company. Let me jump a little bit more into it.
First, the macro trends are maybe not the most inspiring trends for the world, but they are helping us, obviously, keep growing as a company because we can help solve some of them or most of them as well. Thinking about people, we're going to be a third more people by 2050. We will need way more food, way more calories because people are shifting, obviously, so from non-meat to meat diets, around the world. Energy, we will need almost 50% more by 2050. That's going to change pretty quickly, as well as with artificial intelligence. I'll come back to that as well in a second, which leads us to this water stress as well. Today, the world is roughly at equilibrium where we use as much water as what nature can replenish through natural cycle of rain.
By 2030, we expect that gap to be 56%, which is not going to work, obviously, because water is not going to come from outer space. We will need to reuse and recycle water in order to be able to keep growing as humanity, as businesses, and the way we live, obviously. We have the chance as well to be the number one in most of what we do in a very fragmented market, which is a good thing. It's a good position to be, but it's important for us to compare ourselves to the very best companies out there, all the names that you're familiar with as well, and not so much to the competitors we have out there because this is not the benchmark I'm looking at. It's much more the top companies out there in the world, wherever they operate as well.
How do we deliver that value? To our customers, for the ones a bit less familiar, we bring chemistry, expertise, technology, data science to our customers to help them deliver best-in-class performance. We serve millions of customers in 40 industries. We know what best-in-class performance means and help them deliver that best-in-class performance anywhere around the world as quickly as we can. That is the promise that we make to our customers. It is really bringing all the strengths of the company anywhere around the world every day, every week, every month, whatever is the frequency that we need to be there. We will be there for our customers. We power a lot of what we do for our customers with unique innovation. Our pipeline of innovation keeps growing. For us, it is the peak annual sales in five years. That is the way we define our pipeline.
Vitality index is very strong, in the company, roughly 30%, which means 30% of our sales are coming from products that we have launched in the last five years. That's one definition. It's our definition, but I like a lot of the evolution of our pipeline and the vitality as well that it's bringing up to our business, which is so essential, obviously, for us to keep growing. When I think as well about the way we innovate for a very long time, it was more incremental innovation, successful, doing so, renovating products, programs, offering that we are providing to our customers for a very long time. We've been shifting our focus on innovation that we have half on renovation and half on breakthrough innovation, as you can see as well on that chart. Helping data centers operate without water or helping microelectronics producers, so-called fabs.
I'll come back to that as well. To produce more chips with much less water as well, that can be true in a dish room as well, in a restaurant because it's where most of the water is being used as well. As I've mentioned, pest elimination is a great business for us. Interestingly enough, we have millions of famous mousetraps around the world that we need to go and check very regularly. 95% of them are absolutely empty. It was totally useless to go there, but you don't know it in advance. We have developed devices, the very best mousetrap as well, in order to know in advance what's in there, where is it.
We can save obviously huge time, which is a good thing in terms of operational efficiency for our team, but at the same time, making sure that our customers, the best brands out there, never have or never see, as well, any activity in their stores or in their production sites. We connect not only those devices, but all the systems that we manage around the world for our customers. We have 100,000 systems remote monitored today, one of the largest clouds as well in the world with Ecolab 3D. We keep growing as well on this one.
It's not only to manage operations, to optimize operations, but with it, we know what's the performance of every site in every company, in every industry as well around the world, which is a great insight to learn from the best ones how the other ones can get better, as well at it. The way we measure as well the value we're generating for our customers is called total value delivered. It's in three pillars. It depends obviously on the industry that we're serving, but it's always first a business outcome. It can be an uptime in a data center. Second, it's the operational cost performance per hour, per data, per burger, whatever that is.
Third is the environmental impact in water, energy, waste, especially that you can see on our website because it's in real time, that we know those numbers and we make sure that we always have the alignment with the customer, that what we've saved is really aligned between the two parties and we agree where do we want to go. We get to share out of that value that we are delivering to our customers in value pricing, which is why pricing is a strong part of our top line proposition as a company. If you take one example, and I'll share a few with you, in a lodging property, which is a hotel, obviously in normal language, we start with the dish machine, in a restaurant. We move to the laundry room.
We touch the housekeeping, the AC, the water management, the pest elimination, the food safety program. We do the audit for guest satisfaction, for brand compliance and so on. That is the way we grow within one property. The next step is to do it around the world. We called it Circle the Customers, Circle the Globe in the past. We call it the One Ecolab proposition today, which is basically providing all services of our company to the main brands of the world out there, not just in one location like that hotel I just mentioned, but in every location around the world to help them get all their properties reach the performance of the best operating one that they have around the world, which is helping us as well drive penetration. We serve a $152 billion market.
$55 billion is within customers that we already serve today. We can multiply by four the size of the company by having our current customer use all our services and deliver the best in class performance while doing so, as well. At the same time, we're running great businesses that keep getting better, but we also are in the business of building new businesses. We've done that for a long time. I mentioned pest elimination, a great franchise that we started 20 years ago. We went into water in 2011. We've built a few other businesses as well that I'd like to share with you in a second, like Global High-Tech. That's data centers and fabs.
It's life sciences, the pharma industry, and especially in bioscience and Ecolab Digital, which is an interesting proposition that we've done for a very long time for our customers for free and progressively making it the tech way, which ultimately so you pay, for the value that you get. I'd like to start with Global High-Tech. If you take a little bit or, zoomed out a view here, we will need 1,000 new data centers in the next three to five years. It's moving very quick. At the same time, 70 fabs, microelectronics producing plants, as well in the next five years. One fab requires as much water as the drinking needs of 17 million people. One. The second largest in the world has 33 and seven under construction right now. You can imagine the challenge that that's generating as well.
Fabs and data centers in the next five years will require the power of the whole of India and the drinking needs equivalent of the United States. That is all on top of all the numbers I showed before. That is the equivalent of 50 new nuclear plants in the next five years. Just to put that in perspective, that is a really hard one. We will not be able to build that quick. The best way is to improve the performance from a water and energy perspective, both for fabs and for data centers. For us, it is leading obviously in a very big, market opportunity. If I think about the data centers, we have been shifting our technology. 95% of data centers today are basically our big holes, with computers in it that are air- conditioned. That is the way you cool the computers.
That's shifting now progressively towards this direct-to-chip technology, which is basically bringing a cold liquid on top of the thousands of millions of chips that you have in the data center. This is a total different technology. We are the leading expert in cooling technology. We're the leading expert in fluid management, and we know how to manage those operations. It's newest technology. We're helping the tech companies develop the new solutions and put tech in place as well in the newest data centers around the world. It is pretty important for them because of what I mentioned before. When you use less water, well you can produce more data. When you use less water, it means you need less energy as well. You can reuse that energy in order to power even more the data center as well. For those companies, this is essential.
It's a small part of their spend. It's a huge impact on what they're trying to accomplish, which is processing more data, obviously. In microelectronics, the so-called fabs, really interesting challenge here I shared with you. How much water is required to power those fabs? We're shifting completely the way we're managing water in those fabs where all the water that's been used, it's a whole water process, the production of a microprocessor because you need to cut the silicon cylinder, you need to polish it, you need to print it, and there's a bunch of steps as well in between. It's all done in water, with water, and water needs to be ultra pure. Today, all the water is going through the process, ending up in a wastewater plant and then ending up in a river.
Silicon is a heavy metal, which is a little bit problematic. You have a quantity issue, you have a quality issue. What we're doing for the fabs is basically reusing and recycling water at every step of the process so that wastewater becomes something of the past and not something of the future. We have 25 people in Pyeongtaek, for instance, in Korea helping do exactly that as we speak in order to make sure that they can produce more in ways that are using less water, especially shifting gears on life sciences. We started that business in 2017 by bringing our capabilities in food and beverage and in healthcare, making sure that we could help the pharma company produce safer drugs, more qualitative drugs at a lower total cost.
We've added as well to it Purolite , in 2021, which is an ultra- filtration technology, resin-based, protein-based, in order to purify biotech products in order to make sure that they are at the highest level of quality produced in the highest sterile environment, in a clean room as well. Very similar to what we do in food and beverage plants or in hospitals as well, but brought together, for a very different industry. Really happy that we did it, in 2017, that we kept investing as well over the year. It's an industry that has gone through a transition after the pandemic, but now it's getting much better again. It's a large market, a growth market in a place where there are very few players and we are very well positioned to capture that growth, going forward.
In a pharma plant, we, as mentioned, make sure that the clean rooms are very sterile, that the environment is as clean as it can be, that the product that's being produced is also as safe as it can be as well. It's always the same spirit where we start with one application, we add a lot of applications around it. It's a penetration game and ultimately making sure that the overall promise is being delivered. Last but not least, Ecolab Digital, for 30 years, we've been using connected chemistry, which we invented in 1991. We've been doing that for customers for free, forever. That has changed a few years back. That's why I've decided as well that after this first quarter, investors will see what's the revenue that we're generating out of Ecolab Digital and what's Ecolab Digital.
It's hardware devices like your phone. If you think about something closer to you, it's software subscription and it's consumption. And it's a few hundred million today growing very nicely at a very high margin, as you can imagine, because there's no raw materials, obviously in that. A very promising story to bring us, to a close. Two things. First, we've always focused on helping customers reduce impact on people and on nature. That's how we've become as well a sustainability leader in what we do, how we operate our own organization. Most importantly, what we do for our customers, which is a thousand or a million times more impactful than what we do in our own operation, as a company.
The commitments that we've made externally as well, what we do for customers, one to take one example, I made a commitment in 2015 that we will help save enough water for the drinking needs of a billion people. We are perfectly on track to get there. By 2030, that leads to energy savings as well. It leads to a lot of other things as well that we are tracking on a very regular basis. Our report is coming out, Growth and Impact Report, I think in June, which you will see. How we've been progressing as well in 2024, which has been a very good story because that's the way we help our customers do better, make more money, and for us, obviously, do even better.
Last but not least, I like a lot, our financial position, like J.P. Morgan would be saying. We have a fortress balance sheet. I'm not going to steal that name, but I feel pretty good, about it because we have a great business with great margins. We have great cash flow generation between 90% and 100% of cash flow conversion, as well, which is something we've been doing for many, many years. Our balance sheet, we have a 1.7 leverage ratio in 2024. In a very strong place, to weather whatever is coming at us. Most importantly, to invest in the businesses that have promising growth ahead of them or to do acquisitions as we've done a lot, as well over time. Obviously the question on capital allocation, we've been very boring steady, on, and we want to stay like that.
What our priorities are, it's always going to be dividend in line with earnings. It's always going to be second investing in the business. Last but not least, buyback, when there is something left. It's been the case for a very long time. The last 10 years, we return close to $11 billion to shareholders, half in buyback, half in dividends. That's going to continue. That's been the case in the best years. That's been the case in the most challenging year as well that we might have gone through. At the end, I feel really good about where the company is, where we're going. We have a great promise for customers that need it more than ever. Great opportunities, very good market position as well. We have the means of our ambitions, both in capabilities and in financial resources.
We have the best team in the industry as well that's going to deliver no matter what for our customers and for our shareholders on a quarter-by-quarter basis, as we've done as well in the past. Welcome, comments or questions.
Okay. Thanks very much, Christophe. Maybe the place to start is, you're confident over your longer term margin goals. You know, at the beginning of the presentation, you said, you know, we, we, we can hit these. It says 5-7% sales growth, but we can do this even if the sales growth is a little bit less. Does your confidence come from greater pricing visibility as you look at Ecolab's businesses going forward? Where does that confidence come from in your pricing if that's the case?
Great, great question, Jeff. It's the important question, obviously here.
The first element is the fact that we've been delivering very nice margin growth over the past few years because I can talk about all the plans that we're going to execute in the years to come. Okay, we're still going to talk about what's on paper, and it's a bit of an argument, of opinions. The past few years, we've had a very good development of our margins. The path for the next few years is going to be the same drivers. The first one, yes, is going to be partly the top line. The value price is an important one because it goes straight to the bottom line, as we know as well. When we talk about price, for us, it's a share of the improvement in the performance of our customers, that we're making as well.
This is something that is very sticky. As you know, pricing has never gone negative in our company. In the worst of times, it always went up, which is a good indication as well, like 30 years back. It's a long story. It's also all our new businesses, the one I mentioned in my presentation being high tech, life science, digital, all higher margins than the average of the company. Even the existing businesses, like institutional, institutional is at 22% today. It's way higher than that in North America. It's lower than that outside North America. We are progressing very nicely outside North America towards the performance of North America. It's never going to be exactly the same because we do not have the same critical mass as in a large country in here. That's another example. Last but not least, it's innovation.
Innovation, there is zero, but like zero innovation that we bring on the market that's below the gross margin average of the business that we're in as well at the same time. Last but not least, there's the One Ecolab cost performance, which is not my first priority. In terms of operating performance, we've said SG&A are going to improve 20 basis points a year, net of investment as well. This is not first, this is last. That's the way we've delivered it in the past few years. That's the way we're going to deliver it in the next few years.
Mm-hmm. When you think about your major businesses, the institutional business has very high margin. You know, the industrial business is good too, though not as high. Why is that? Why is the institutional business more profitable than the industrial business?
Over time, are the larger opportunities in institutional because of its pricing characteristics?
Those two end markets, and it's groups of end markets, obviously, as you know. In industrial, what we call water today, it's a lot of different end markets. It can be primary metals or power generation, like data centers and fabs. They don't have the same margins, as we know, and the same on the institutional and specialty side as well, at the same time. Very different end markets, for sure. The two stories are pretty different, as mentioned before. INS, you said it, in North America is north of 22%, which is the average. For INS, globally, we started in Europe at zero 10 years ago, and now it's close to the company's average as well.
We have demonstrated that we can get to north of 20% in institutional and specialty. In industrial, it is much more of a One Ecolab approach here, which is really helping customers get this best-in-class performance that I shared before, helping enterprises to get all their units to the best performing one. That requires a much higher penetration of what we do for them at a much lower cost because we are anyway adding services to help them get better performance. In institutional, we have a higher penetration of our solution than what we have in Industrial. The fact that volumes are going to go up is going to help them improve their margin performance, but there will always be a slight difference between INS businesses and water i ndustrial businesses.
The P&L looks very different, as well in terms of gross margin and service that we need to provide.
Mm-hmm. So when you, when you're confident that you'll hit your 20% margin, 20% margin target, what you're, what you're thinking is with the kind of pricing capabilities we have and some volume growth, we can do it.
Yes. Yes. Right. It's not the end of the story. It's not that 20% that we're going to stop, we're going to cruise and I'm going to end up on a beach. That's not my plan. I'm not a beach guy to begin with, but it's going to think, how do we get the company to 23-25% and beyond? We have businesses that are close to 30% already today. We know how to get there. That's the beauty of our model.
It's not to do things we've never done. It's to learn from other businesses, from other industries, from other geographies, how to improve, as well across the world and across businesses, which is a pretty cool thing. We say in the company, there's always the best idea, the best solution within the company somewhere in one business, somewhere around the world. We always need to know where is it and then scale it around the world.
Mm-hmm. I think Ecolab says that its raw material inflation in 2025 will be up low single digits. But you know, if you look at phosphate prices, they're not really moving up. Caustic soda has come down quite a lot. Chlorine, you know, has, you know, sort of moved a little bit lower. Polyethylene's not moving. And you're a big company.
I would imagine that you have people that can be clever about how they optimize their raw material purchases. Do you think you can do better and keep the raw material inflation better than a low single digit growth or, or, you know, you're stuck?
Absolutely. I have been pretty clear, as well on that. I expect that the market is going to be low single. Our impact, what we call delivered product cost, or our true P&L impact after all the activities done by our procurement team, our supply chain teams, all our smart people, as you call them, will be a positive story. It will turn into a slight tailwind. The market itself is more a slight headwind. You add to the improvement within the company and it turns into a slight tailwind.
Maybe a last question.
When it comes to the data centers, are you agnostic as to which cooling technologies they use? That is, is Ecolab vulnerable to particular cooling technologies being developed or can you work with the technologies that are on the market?
We have been developing those technologies with the tech companies, with the process designers, not to name them, starting with a name, because they know that they will need ways to keep those microprocessors cool in order to use more power to process more data. For us, it's not a water approach, it's a cooling approach. We have been developing those new technologies. As mentioned before, the direct-to-chip technology is something that's very early in its development. It's not a proven technology, it's a used technology where we learn a lot as well.
With the operators, and we have great capabilities to help not just on the direct-to-chip, but also on the CDU, the coolant distribution unit, which is very closed technology that what we use in water, 3D, for cleaning in place in food and beverage plants is the same technology that we can leverage there to really monitor how is the fluid doing, what are the risks of corrosion, what are the risks of scaling, what are the risks of fouling, what are the risks of leak, as well. We can monitor that, no one else can. The last step, which is the cooling of the coolant, on top of the building. Agnostic, yes, but an active actor of developing those technologies for data centers.
The fact that we early on that journey is a very good story because we can position ourselves exactly where the train is going. I feel really good about the future of that business.
Okay. Thank you for your presentation, Christophe.
Thank you so much.
Good to see you.
Always a pleasure.
Thank you, everyone.
Thank you very much.