I think we're going to get started on Platform. Today we have Rakesh Sachdev, who's the CEO, as well as Ben Gliklich, who's the EVP of Strategy and Operations. With that, I will hand it over quickly to Rakesh.
Thanks.
Thank you.
Good morning. I think some of you may have had the opportunity to hear us yesterday when we had our Investor Day. We spent close to about five hours. I'm going to just give you a little snippet about the story of Platform. As you know, I've been the CEO now for about eight months. It's been really an interesting journey for me. It's really given me the opportunity to get to know this business, our customers. I'm really more encouraged now in terms of what we have built, what we have. Clearly, there's work to be done, and I think we have a great plan going forward in terms of what we want to achieve in the years to come. We have been very busy over the last few years building the company. We made a number of acquisitions.
We now, I think, believe have the scale and the capability and the people and the processes to take the businesses that we have created under the Platform name to be very successful. With that, again, there is nothing that we are saying today that we have not already said, so this is just to safe harbor . I'll point that out. I'm just starting off with a GAAP slide because there's so much that has changed at Platform. If you look at, this shows starting in 2012, when we made our first acquisition, which was MacDermid. Since then, we have gone through five other acquisitions since 2012. Sorry, that was in 2013 that we acquired. You can see the predecessor and the successor companies.
I'll just point out in 2015, on a GAAP basis, the sales of the company were about $2.5 billion, and we made an EBITDA of a little shy of $570 million. But if you really look on a non-GAAP basis, on a pro forma or a comparable basis, had we owned these businesses from the first day of 2015, we would have had sales of about $3.6 billion, and our EBITDA would have been about a little north of $740 million or about 21% of sales. Again, we have become a fairly significant company with significant sales and profits and also significant cash flow conversion. Here's the slide I was saying. We are 3.6 on a pro forma basis. We have about 8,500 employees globally. We are a very global company. Over 70% of our revenues and sales are generated from outside the U.S.
We have two significant businesses. One is focused on the agricultural segment. It's our agricultural chemicals solutions business. It's about half the size of our business in sales. The other is Performance Solutions, which is really specialty chemicals that we take into the industrial markets, automotive, and the electronic space. We also have some exposure to oil and gas and also the packaging industry. Slightly different characteristics in terms of the geographic makeup. You would expect, the ag business is pretty large in the Americas, especially in Latin America, because those are big ag markets. Our Performance Solutions business, which has a fairly significant exposure to electronics, is quite significant in Asia, you would expect. Just a little deeper dive into what we have created now in the Performance Solutions business. We have five global businesses within Performance Solutions.
Since we made the acquisition of Alent, which is the latest acquisition that we made of size late last year, we have rebranded the company into several brands. We've got MacDermid Enthone, and we use that name to go into the industrial market. So we have an Industrial Solutions business, a global business. This is where we provide specialty chemicals for industries such as automotive. We provide corrosion resistance products, decorative products. We're doing plating on plastics for cars and trucks. We have an Electronics business where we do a lot of surface chemistry work. We're helping electronic subsystem and system manufacturers produce, whether it's PC boards, help them with pick and place on components. We have an Assembly business, which is essentially metallization. We're helping electronic companies improve conductivity in the electronic systems.
We've got two smaller businesses, Graphics, where we sell flexible plates and media for the printing of packaging. We also have a small business, which actually has been a very good business for us in the offshore deep sea drilling rigs, where we provide temperature and pressure resistant specialty fluids for that industry. I've already talked about our geographic footprint. You can see 40% of our business is derived from Asia. About 30% each from Europe and North America. You can look at the breakup of our five different businesses. Clearly, the Electronics business is our largest business, and the Offshore business is the smaller piece. The ag business is also about the same size as the Performance business. We have a very broad range of products and brands that we take globally.
When it comes to crop protection chemicals, we are in biosolutions. We do the conventional products like herbicides and fungicides and insecticides, but we also enter biosolutions. We are one of the leading players in the globe for providing natural products, and we are also into seed treatment. If you look at the kinds of crops that we sell into, we are a specialty crop company more than we are just a raw crop company. Unlike the big guys who sell predominantly into raw crops, we have a very significant business that we take into specialty crops, such as fruits and vegetables and nuts and other kinds of crops. If you look at, again, geographically, as I said, Latin America is about one-third of our business in ag. In fact, little over 60% of our ag business goes into the developing or the emerging markets.
Between Latin America, Africa, and Asia, we have over 60% of our sales. Probably good for me to just say a few words about the ag industry, because the ag industry is consolidating, as we all know. Especially the big discovery companies or the science-based companies have been collaborating largely because the cost of developing new molecules has been increasing, not unlike the pharmaceutical industry. You have many companies who are trying to get together and get more efficient in the discovery process. How does Arysta or our ag business fit into that landscape? We have a very interesting position. In fact, if anything, we might get strengthened in this consolidating landscape. If you look at the 3 types of companies that exist in the ag crop protection space, one is, of course, as I said, the one in the middle. That's the discovery-focused companies.
They're the ones who spend a lot of money in developing new molecules, which, by the way, is getting tougher and more expensive. They're also fairly asset heavy because they do a lot of the manufacturing of the active ingredients themselves and then do the marketing and distribution. You have the generic companies who have been going after the discovery companies, but they're basically essentially manufacturers of products, they are very asset heavy. In our case, we are asset light, so we don't do a lot of manufacturing of active ingredients. We source a lot of active ingredients. We have access to innovation and technology and science through partnerships. This is where I think we have done extremely well in developing collaborations around the globe with both big companies as well as small, innovative companies.
It's whether it's the GM makers in Japan or the bigger companies like the big ag companies, I think we have very successfully partnered with the value proposition that we can help them monetize some of the work that they do in developing active ingredients in the niche crop markets where they don't necessarily plan or don't think it's big enough for them to plan. I think it really works well in a partnership mode. Now we have two, I think, fairly self-sufficient standing businesses in the ag and the performance space. If you look at the role that we play at corporate, we want to keep the corporate functions lean. We are a public company. We have public company requirements. We've got to make sure there's proper governance of our businesses and that we are helping in making decisions around capital allocations and long-term capital investments.
That's the role we play in the corporate functions. Clearly, the day-to-day running of the businesses is done by the management teams of the operating units. Of course, we have a shared responsibility in defining and getting aligned with the strategy and execution of these businesses, as well as considering shared services where it makes sense for the operating units and making sure that we have risk mitigation plans as a company. Our objectives are pretty clear. Our thesis at Platform has always been to find businesses and manage businesses and grow them better than anybody else can, that businesses that are asset light. Most of the businesses we have acquired don't invest huge amounts in bricks and mortar. They're also very customer centric.
That is very important for us, that the businesses that we acquire are leading businesses with customers, that they're customer intimate, because long term, really the way you differentiate yourselves is being close and closest to the customer. That's one of the characteristics and objectives that's helping us developing leading positions. I would say the other thing is we want to find businesses that have the ability for us to grow organically faster than the end markets. We talked a lot about that yesterday. Obviously, we don't have the time this morning, One of the things that we have as part of our strategic planning process is both on the ag side as well as the Performance Solutions side, is to focus on faster-growing subsegments, doing more cross-selling, finding new products that help us grow faster. I would encourage you to get the material.
I'm sure that's available on our website. As we said yesterday our plan and goal is to grow faster than the end market. Finally, we want to do that, make sure we maintain a healthy and flexible balance sheet. As a result of a lot of the acquisitions we've made, we have a high leverage today, We are committed as a company to using the cash that we generate in other ways to de-lever the company. That's another one of the goals. This is also at a high level. If I had to summarize what we talked about in terms of the strategies for the Performance Solutions business in the three buckets, how are we thinking about organic growth of the top line? How are we thinking about enhancing margins? How are we driving higher returns on invested capital and cash flow?
You can see that in the Performance business, we have some differences from the ag business. On the Performance business, we are becoming integral to the whole supply chain. Our points of touch with our customers is, I think, probably the most in the industry. We are helping them on many, many fronts. If you're looking at an OEM that manufactures cars or an OEM that manufactures mobility devices like Apple or Samsung, the kinds of things that we are now able to do with the businesses that we have acquired is very, very significant. We typically are using now what we call as a two-pronged selling strategy. We have a push-pull strategy in both businesses. We are pushing through, whether it's the applicators who use our products, We are pulling through the OEMs who are our final customers.
That's, by the way, the same thing we do on the ag side, where we push through our distributor partners, and we pull the products to the end farmers who are our end customers. On the margin enhancing, I think this is a business that has done incredibly well. If you were to look at the progression on what we have achieved over the last four or five years in terms of gross margin, irrespective of the fact that we've had some slowdowns in the last five years, our gross margin has gone up every year over year, either 50 basis points or 100 basis points. The teams here have done just a fabulous job of growing our margins, and we're going to continue doing that. We have a lot more opportunities. We are clearly extracting efficiencies through the synergies.
Beyond that, also, I think we're doing several things. In the ag business, as I said, our plan for organic growth above market is through what we have done is we have re-segmented the whole ag space, into what we call as the primary focus markets. Again, if you were to go and look at what we presented yesterday, I think we talk about the different segments that we're going to be focused on. Collaboration is going to continue to be an important source of access to new technology. But we do a lot of formulations ourselves. We can protect the intellectual property based on the products that we are developing and taking into different parts of the world. Frankly, if you look at the performance of our ag business this year, it really has been quite impressive.
Given the fact that most ag companies have reported significant declines in revenues, we have actually, on the contrary, been showing sales growth. In fact, last quarter, outside of North America, all our businesses grew double digits. I think we are cautiously optimistic in terms of because of the exposure we have where we have it and what we're doing, that this is still a growth business despite the fact that the overall ag market has a cloud over its head. We discussed this yesterday in terms of, so as you boil down, what does this mean for Platform as we think about the next several years? This is keeping acquisitions on the side.
If you just look at organically, we said we are putting plans in place to grow our top line about mid-single digits, perhaps a little faster in ag than performance, but close to mid-single digits. I think with the operating leverage that we are likely to get on the SG&A side and the things that we are working on our supply chain, we feel pretty confident that we can expand our margins and result in our earnings growth that is twice as much as our sales growth. We are looking at earnings growth on average every year in the high single digits and top-line growth in the mid-single digits. I think we're going to maintain a pretty strong discipline on working capital and capital expenditures.
When you roll all that out and do the math, in terms of the cash that we can generate, and pay down debt, we think we can get to an operating or a leverage of debt to EBITDA of four and a half in less than 3 years. In a nutshell, that's our financial plan or financial goals over the coming few years. Everything that we do in the company sort of falls in these five buckets. We are aligning our goals and objectives of all the individuals and executives in terms of achieving financial targets. We want to be very customer-intimate in this business. Obviously, expanding our products and services is going to be key if we want to grow above markets, operational excellence for expanding margins.
The whole enterprise development, which is developing processes, people, because without the right people on the bus, we're not going to get to where we want to get to. I'm not going to cover a lot of these words, but I think I've said those over the course of the last few minutes. It all begins with us delivering to our commitments in 2016. We are on track to achieving the synergies. We said $150 million of synergies from the acquisitions we made. In fact, I think we are perhaps a little ahead. As I said, growing our top line in the mid-single digits and growing EBITDA at twice the rate. Customer intimacy, again, we are really driving a sea change in the business with our sales and marketing folks as to how they go about working with our customers.
We now have global account management teams that we didn't have before, because we have so much that we are doing with our global customers. We clearly have a bigger seat at the table, we're going to take advantage of that and winning even more business with our customers. We already talked about some of the products and services. Yesterday, we talked a lot about the kinds of technologies that we're going to get into. I think we have some exciting opportunities, whether it's in advanced electronics or the next generation of silicon wafer packaging on the performance side, some new formulations that we are going to be launching on the ag side to address some of the issues being faced in the marketplace. I think it's really exciting.
I think Diego, who runs our ag business, talked about a pipeline of products that we have that over the next few years is going to give us about an opportunity of $700 million of sales. We've got a lot on our plate. We obviously want to make sure we prioritize and focus deliver those. On the operational excellence, again, we have a huge opportunity. We have a fairly variable cost base in the company. We buy a lot of things that we sell. We don't manufacture. In the case of ag, we don't manufacture active ingredients. Our total buy is about $1.8 billion a year for a company that has revenues of $3.6. We are acquiring from suppliers $1.8 billion. This is a huge opportunity for us in terms of getting more efficient through these suppliers, developing new suppliers.
I think this is going to be something that's going to be exciting for us going forward. We have a few other things that we're working on, especially if you look at from a tax standpoint, I think we have opportunities to reduce our cash taxes. Today, we probably are not the most efficient in the way we are structured. We end up paying more cash taxes than we should because we make a lot of profit in countries outside the U.S., so we are in a tax paying situation there. We have a lot of expenses in the U.S. where we don't pay taxes, but we can't offset the two because the way we are structured today. We are already working on ways to changing that.
Finally, on the enterprise development, again, there's a lot of work going on in IT and helping the operating units. One thing I would say is that I think in the last year or so, we have probably over-invested in the corporate function because we made all these acquisitions. We want to make sure we have the right control systems, the ability to close our books, get all that done. We didn't have enough manpower, so we had to rely on outside companies to help us, including things like the audit function. I think that's all gone well, but now we have an opportunity. Instead of hiring people on the outside and paying them three times as much as we pay an internal person, I think that's going to change, and we're going to start seeing a more efficient and leaner corporate structure starting next year.
Again, when we think about the value creation for us, I mean, that's the name of the game. We have to continue to deliver on our commitments on the earnings growth. We think that we can improve our cash flow position quite dramatically with some of the things that we are doing and de-lever the balance sheet. That is one of the clear objectives that we have. Eventually, we want to keep considering strategic M&A opportunities. That's how Platform was created. That's our DNA. We're taking a pause for a while. We don't think we need to do any transformational acquisition right now. We have some great businesses we have to execute in the near term. As we also de-lever the company, there'll be other opportunities that will surface. With that, I think that was my last slide, and I will open it up for Q&A.
I don't know how much time we have, but I'm sure have some time.
About 10 minutes. I guess I'll just kick it off here. Your team's obviously been successful in achieving its original synergy estimates for previous acquisitions as well as your ongoing acquisitions. You hit on a few kind of newer themes here on how to not only achieve on those and get a better run rate, but also procurement, taxes, et cetera. Can you just further elaborate on some of those initiatives, potential timing, and how that could potentially fit into your cash flow and de-leveraging effort?
One of the questions we get is we are identifying a lot more things, so are we raising the synergy number? What I would say is we identified $150 million of synergies when we bought these companies, and that's what we are delivering on. Having said that, as a company, we want to make continuous improvement, right? We are trying to develop and have a continuous improvement culture. We're going to see things like savings from supply chain. We're going to see other savings, like reduction in corporate costs. These are not part of the $150 million of synergies. In fact, those are what we will recognize to meeting our longer-term goals of margin expansion. We said we're going to expand our margin 400 basis points. It's really going to come on the heels of some of those actions.
At some point, synergies become continuous improvement. Yeah.
I was reading your slide deck yesterday, Rakesh. How much absolute level of debt is there today? I saw you're doing a preferred issuance or something. Can you just go through how big is that going to be? If I read it correctly, $600 million.
Yeah. We never said we're doing a preferred issuance. I mean, our absolute level of debt is about, well, net of cash, I think it's about $5.1 or $5.2.
Okay. $5.2.
Yeah.
I read that you were doing a.
Well, I think we've had a note to pay a balance on the acquisition of Arysta. We bought a company last year.
Right.
We had $600 million that we had structured as a preferred note to the private equity company that we had bought.
Sure.
We have some options. We've had the option of paying that until April of next year. We actually negotiated a new option, if we choose, to pay it by the end of this year if we wanted to, and get a fairly substantial discount. I think the discount is about $90 million on the $600 million. I think we have some great options, and we're going to decide how we want to meet those obligations. I think what we achieved through the negotiations, and this most recent option that we outlined yesterday is if we decide we can act on it's a very significant saving to our.
That $600 million is part of the $5.2 billion, is that what it is?
If I can elaborate on the structure.
That's on top of the $5.2.
All this has been.
If I can elaborate on the structure of the Series B preferred note, it's $600 million of economic value structured as 22.2 million shares, which are included in our fully diluted shares outstanding, and then a make whole, which is a cash payment equal to the difference of the value of that 22.2 million shares and $600 million. It's about a $400 million cash payment as of today. What we've restructured is a $460 million cash payment with 5.5 million shares to be issued, okay? At our option, if we so choose, until December. That is a cash payment that is not currently contemplated in the debt balance as we just disclosed. It is a variable amount as well, and it's considered preferred stock because as the stock appreciates, that cash payment declines.
Basically, the way I should look at your cap structure is $5.2 billion of debt plus the $600 million or $400 million, if you want to be, of the preferred.
At today's share price.
At today's share price, correct.
Yeah.
At today's share price.
Yeah
relative to the $750 of LTM EBITDA.
So-
Is that sort of the right way to look at it?
When we think about our denominator for the purpose of calculating a debt multiple-
Right
We look at our LTM EBITDA, and we have the benefit of synergies we're going to realize. That $750 is more like $850.
Okay. If I look at $5.2 plus $400, let's say it's $5.5 billion, just to be simple.
Divided by $850.
Divided by $850.
Yeah.
That's sort of the right place where you want-
Yeah, that's about right.
As we articulated yesterday.
If 400 is all. Yeah, go ahead.
As we articulated yesterday, importantly, we believe that the right leverage ratio for this business over the long term is four and a half times.
I understand that.
We've made a firm commitment that we'll be there in three years.
How much annual free cash do you generate? About $100? More than that?
We've not been giving exact numbers, but we give you all the tools.
I haven't done the numbers.
Very low CapEx. Rakesh talked about trying to improve the taxes, working capital is a modest use of cash this year. CapEx is $100 million before taxes of between $100 million and $125 million. Interest is about $340 million. Then there is some cash costs related to achieving the synergies. You do the math.
If you take $850, less those expenses, roughly about $200 million-$300 million .
$850 is $750 plus.
The synergies.
The synergies, right.
Which we get. Yeah.
Probably a few.
There's also organic growth, right? If you run the numbers, we should be north of 850 here. If you look at a business that's doing $900 million of EBITDA, there's $100 million of capital. Today we pay about $100 million-$125 million in taxes. Hopefully, that's going to come down.
Basically, what you're looking at, Rakesh.
Sure
is more than $1 billion of EBITDA two years from now on roughly $4 billion-$4.5 billion of debt, something like that.
That's one way to look at it. It's really both the factors, raising EBITDA and reducing debt. Yeah, exactly.
That's all.
Yeah. That's the right math, yeah.
Thank you.
Yeah.
Just going back to the preferred for a moment, and the opportunity you guys announced yesterday. Can you talk a little bit around how you guys are able to, or just the conversation negotiating, how you guys were able to capture what appears to be a fairly significant discount for something that's due fairly near term?
Well, I can't get into all the mechanics. I can say that we had some very interesting discussions. As the other party sees the value of getting paid this year versus waiting until next year, there's some value for them. We had some issues on the table that we wanted to resolve with them, and I think we had a fairly amicable discussion, and came to a point which we thought would be outstanding for our shareholders, and they think it's probably pretty good for them. I think that's how we got to it.
How do you plan to finance or make that $400?
That's obviously we have cash on hand. Some of it may not be in the right places. We're obviously generating more cash. There are some things we are doing in our working capital. We're going to look at our markets, our capital markets. It's a whole host of things that we'll be looking at. Yeah. Of course, we have revolver too.
Thank you.
You're welcome.
I think I'll wrap it up with just one final question. Obviously, there's a significant focus on capital structure, and obviously a lot of the acquisitions you've made and where you've been successful in making synergies. You've been at the helm for now a decent amount of time. Can you just comment on the kind of the two to three things you think investors, whether it was yesterday, I'm sure you clarified a few things, are missing about the Platform story? It seems like the balance sheet and the de-leveraging is kind of just being worked through right now in the process.
Yeah. I think perhaps the balance sheet story had somewhat overshadowed what we really have in the businesses. It was great yesterday to have an opportunity to deliver our story with the help of the entire management team, because I think truly we do have some exciting businesses. That's when I feel good that I think people are beginning to really understand what we have. It is not just a smattering of businesses. These are well thought through businesses that complement each other. I think the other thing is that we now have, I feel very good about, is the whole management team structure. We've had the fortune of picking some really good people because as we made acquisitions, we got some great people, and we had to choose the leadership. It's not just at my report level, but at the next level.
I think we've got some great leadership. Between good businesses and great leadership that I feel pretty good about, I think they're the most important things. I think we have a great opportunity to succeed in this company. Of course, we're going to continue to focus on de-levering the balance sheet, and hopefully, get to a point where that quits being the only thing that people talk to us about. Yeah.
It's a great color. Thank you very much.
Thank you.