Good morning. Good morning. We have a full house. How exciting. Welcome. Welcome everybody to International Paper's Investor Day. We're thrilled to have you here. Thank you. For those that took the time and traveled to be here and for those that don't know me, my name is Jose Maria Rodriguez Meis. I'm the Investor Relations Vice President with International Paper. I've been with International Paper almost 17 years by now in a mix of finance and operations roles and I'm thrilled to be here. Before I share a little bit about the agenda, we need to see some forward looking statements and I'll be reading this. During today's event we will make forward looking statements that are subject to risks and uncertainties.
These and other factors that could cause.
Or contribute to actual results differing materially from such forward-looking statements can be found in our press releases and reports filed with the U.S. Securities and Exchange Commission. We will also present certain non-U.S. GAAP financial information. A reconciliation of those figures to U.S. GAAP financial measures is available on our website. Our website also contains a copy of today's presentations. Now looking at the agenda very quickly, Andy Silvernail, our Chairman and CEO, is going to present the vision and strategy. He's going to talk with us about the transformation. Tom Hamic, our President for North America Packaging Solutions, is going to give us an overview of North America. He's going to focus on those actions we are taking for accelerating profitable growth. He's going to have Murry Franklin and Ram Kumar joining him and they're going to showcase our 80/20 wins in the Lighthouses.
Tim Nichols, our President for EMEA, is going to share an update on EMEA, and Andy Smith and Marc Chiron and Stefano Rossi will be joining and showcasing the customer innovation culture that we have in Europe. Andy will come back to the States and will close us with TSR algorithm, and then we will end with a Q& A. I'm looking forward to all of you participating on that. Before I pass it to Andy, let me play a quick video.
International Paper's legacy is shaped by safety, ethics, and excellence. We've adapted and evolved, always staying true to our values while embracing the ever-changing needs of our customers with an unyielding drive to do what's right. Today we're charting the next chapter of our story, one driven by a clear focus and a bold vision.
Through a transformational acquisition and a relentless commitment to excellence, we are the global leader in sustainable packaging solutions that adds value to our customers and shareholders alike. By joining forces with DS Smith, we're creating unmatched capability that's uniquely positioned across North America and EMEA. Leading in innovation, sustainability, and customer focus to set new industry standards. We're navigating dynamic industry trends, seizing opportunities for above market growth while maintaining an advantaged cost position. At the heart of this strategy is a commitment to delivering superior customer experiences at every moment possible. We're using a proven 80/20 approach to drive strategic decisions, optimize our portfolio, and make disciplined capital investments which we believe will fuel long term sustainable success. We're not just keeping up with change, we're driving it forward one sustainable packaging solution at a time.
Good morning everybody. It's good to have you here.
I'm Andy Silvernail, Chairman and CEO of International Paper. When I see that video, it's hard not to be excited and frankly, a little bit nostalgic. If you come to Memphis and you walk into my office, what you'll see is a picture just as you go through the door. In that picture is this mill. That mill used to be in Bucksport, Maine, where I grew up. Small mill and actually a large mill in Bucksport, Maine. I was given this picture and it's in a frame and it has a little tag on it and it says home. I keep that picture for nostalgic reasons, but also is a really important reminder, right? It's a reminder of where I came from. I was raised by. My father was a social worker. I met my wife when we were in high school.
Her dad, she actually worked at the mill, fourth generation. She was an intern for three summers. Her dad retired from the mill. He retired as an IP employee, which is pretty cool. The mill ended up being sold and ultimately shut down in 2014. My wife's grandfather actually passed away at his desk and at that mill. He loved his work, absolutely loved his work. My wife's great grandfather worked at that mill. While I think of nostalgia, that's not why we're here today. We're here today to talk about transformation. The reason I keep that picture up on my wall is the nostalgia, but also it is facing the brutal facts of reality. We sit here at the New York Stock Exchange at a place of change. So much has happened. Think about the 25 years since International Paper bought Champion.
International, right when they bought Champion, that's when this mill came. How much has changed in the world? f billionrankly, International Paper didn't change fast enough with it. Why I came to International Paper was transformation. That is the purpose and that's what we're going to talk about today. We are going to talk about transformation, and we're going to talk about that in four different steps that I think really matter a lot. In my introduction, I'm gonna walk through these steps and then Tom and the panel are gonna talk about how we're implementing that here in North America. We will turn it over to Tim and another panel to talk about DS Smith and the exciting opportunities that we have in Europe. These are the four things that we're gonna talk about here today.
The first one is we are building on strength, right? We are building on strength where we have a foundation where we have the capability to absolutely grow with the market and as the market leader, actually transform the market of sustainable packaging. We have the capability to do that. We are the world leader in sustainable packaging solutions. Now we need to prove it that we can differentiate as that and build off that foundation. We got to pick the right places to play, the right customers, the right geographies, the right products, and we have to have an implementation method. I think that's been missing. You know, I grew up, I came out of business school and I went to Danaher Corporation.
One of the things I learned at Danaher was the power of a system, the power of actually how you bring something to bear that people can understand, how you actually change a business, how you drive change within a business. That's 80/20 for us. What 80/20 does for us is it gives you a sense of what matters most, where is value and how you're going to relentlessly drive towards value. What that does is that opens up advantages. The very, very, very important part of what you're gonna walk away from today, and I get asked this all the time, is what makes IP different, what makes us different? We're gonna talk about that throughout the day. 80/20 is the lens to that.
80/20 is the lens to how we drive a cost position, customer excellence or customer experiences, and really importantly, how you drive high relative supply position. We're gonna dig in to all those things throughout the day. The answer that you get right is in 2027, our goal is to deliver $6 billion of EBITDA and $2.5 billion of free cash flow. That's what we're driving towards. In 2025, our goal is $3.5 billion-$4 billion of EBITDA. We think we can transform this company and very importantly, not just over the next three years, and then after that, how do you have a business that can consistently deliver excellent returns to shareholders? That's the story you're going to hear today. We're building it off a great foundation. If you think about the foundation that we have.
I want to start with purpose. A lot of times in these discussions, these are kind of a pass through discussion. It is not here on the left hand side. What you see is our mission and that is around being the leader in sustainable packaging. Being the leader around sustainable packaging that has an impact to the world in terms of safety inside our facilities and within with our customers, and more importantly for our customers is driving productivity. That is what we do. We are problem solvers. I have seen that at DS Smith. It is been incredible. I have been temporarily in London for five weeks working with the team and what I see with DS Smith is an incredible, almost an insatiable appetite for servicing the customer, for solving problems. We need to behave that way everywhere in the company. That is the mission of this business.
It sits on three critical values. The first two, safety and ethics. Those have been part of the IP ecosystem for a long time. We care for our people, we take care of our people and also we do the right thing. Part of doing the right thing is transparency and accountability. That is one of the things we want to talk a lot about today, transparency and accountability and a new value for us. Something that is new to IP is excellence and that is excellence for our people. They deserve to have a great place to work. That is excellence for our customers. We need to help them win and that is excellence for you. We need to drive returns long term, excellent shareholder returns for our owners.
Along with that, you're not going to hear us talk a lot about sustainability today and we're not going to talk about it because it's woven into every single thing. It is not a separate strategy. It's not something that you put as a marketing piece that talks about your greatness in sustainability. It's about helping your customers win. As I think about what I've learned from DS Smith, as I spent really intense time with a team and with customers, they're further ahead with this, they're further ahead in understanding how what matters to the customer in terms of sustainability, the long term. If you think that 10 years from now, where are we, our customers, going to be more demanding or less demanding? They're going to be more demanding. To deliver on those demands, you got to think first in the forest.
Do you have sustainable forests, having fiber supply that is truly sustainable. Do you have that? Are you driving sustainability for your customer? I was with Mondelēz a couple of weeks ago, our largest customer in Europe, and talking to them about the importance of sustainability through their entire processes, how do we impact them? We have to be able to drive that. Finally we have to be a sustainable business, right? None of this matters if we do not matter. We have to win long term. We have to be a sustainable business for our shareholders and drive long term returns. Who is IP today? A heck of a lot different than who IP was when I walked in the door on May 1st of last year. It is pretty awesome, right? If you think about what has actually transpired over this past year.
For those of you who were around when I was named, the DS Smith acquisition had some friends show up from Brazil for a little while. As Tim would say, we have been tumbling since in a good way. What are we now? We are a business that is principally a sustainable packaging business. We are the leader in the two best markets in the world. We are the leader in the two best markets in the world where money is made in this business, $24 billion last year in sales in sustainable packaging. That is who we are. The rest of that is GCF. You know the story there. We can talk about that as much as people would like to. Really importantly, we are facing industries, right? Customers that are growing, that have positive trends.
Really importantly, and sometimes this is missed, we have no customer that is more than 5% of sales. Actually, I do not think we have a customer that is more than 3% of sales. We do not have a customer concentration issue, right? We are focused on the right markets. We are driving a winning mindset within the company. We are all about sustainable, differentiated packaging. You are going to see a strategy today that delivers excellence. In those markets that we are focused in on, I get asked this a lot. I say we are the largest player in sustainable packaging in the world. People go, but you are only in Europe and the U.S. I say, thank God, because that is the only place that money is made in this business. You can drive sustainable profitability and returns in these two markets.
We are going to stay laser sharp on North America and principally Europe. What I like about this is actually the dynamics of these two markets. There are a lot of similarities. Yes, there are some absolute differences, but the growth rates in these markets over time are about 3%-4% in both businesses. They are a little bit different of how you get there in North America. Right. You do not, it is kind of, it is, it is. People do not think of it this way. In North America, volume growth is a little bit less and pricing power is a little bit higher. In Europe, believe it or not, volume growth is a little bit better because of material substitution, because of regulation and because of consumerism and fast moving consumer goods. You see that transition in Europe.
When it all comes together, what you end up with is a market that's growing consistently at 3%-4%. Importantly, the trends that are driving the growth in this market, the believability of will this grow at kind of 1%-2% volume and another 1%-2% in price. Will that happen over time? I look at the customers and the trends that are driving it. E-c ommerce growth rates obviously are going to come down, but it's still going to be strong. I look at fresh foods, protein and fruits and vegetables. The business is growing and growing nicely. The transition away from certain materials, plastic as an example, to sustainable products, paper based products, those are all trends that are going to continue and we are going to ride those trends and we're going to drive those trends.
There are a number of charts that you're going to see throughout the day today. I think this is one of the most important ones. The reason for that is stability. It's different than I think a lot of people's perceptions are of the business that we're in. You look at that picture of the mill that you put up there. That was a coated paper business, right? Pure commodity coated paper business. We were so proud in our town that we sold Time magazine was our customer. Guess what? That didn't end very well. You want to be in businesses that have resiliency, that have growth and have stability. That's what we have. Looking at this 15 year window, the important thing is we believe these trends will continue.
By the way, if you will look back in time, these trends look the same. What you see is incredible stability actually in demand for our products. You see pricing that actually gets pushed through, through a cycle. Yes, you get some cyclicality with pricing. You're always going to get that in this business, there's no doubt about it. A little more in Europe than in the U.S., but look at those trends. We believe those will continue in Europe. Right. We've had a little bit of a bump and we'll talk about that because of the pricing that happened last year and we're starting from a lower expectation than we had earlier last year. The trends are still outstanding and you can see the volume growth there and you can see the price pass through in those markets.
We believe that we can ride this trend very successfully going forward. Let me grab onto that and talk about DS Smith. Right. There are going to be a lot of questions, I'm sure today about DS Smith. As I said, I picked up my wife and I and our little dog. We have spent the last five weeks in Europe and I've got to work with the European team. You're going to meet Marc and you're going to meet Stefano. I wanted to immerse myself in everything DS Smith, myself and Tim have been doing that and really understand what's going on. I've met with our key customers. We've gone out to the field to see our people. We're understanding kind of where the opportunities are around 80/20, and they are substantial, believe it or not.
Whatever complexity your point of view is of North America, multiply it. In Europe. Right. Twice as many physical sites on the ground, right, near customers, you know, a very similar number of mills comparatively to size. Right. It's a fragmented, distributed business. The opportunity set at DS Smith is just as good as we thought it was. Yes, we have some headwind right now with the European economy and pricing that rolled off last year. The price increase that's been put in place recently we think is going to stick, and we think at the end of the year that ends up rebounding towards basically the starting point that we thought we had. We love where we're going, we love where DS Smith is.
When you hear the panel and you hear Tim talk about it, our excitement is what it was when we bought this business or announced buying this business in April of last year. The foundation, the foundation of this business. These are four really key things that matter in this business. These are advantages that we have within the combined IP in the U.S. and in Europe. Number one, long standing strategic customer relationships. Customers like Mondelēz who we have been a sole source to for, I don't know, Stefano, how long we've been, 10 years, you know, somewhere, and we're, yeah, and we're signed up all the way for the next five years with them. Customers, you know, deep customer relationships across North America and Europe that we can leverage. Second is the scale and scope of our operations.
We are unrivaled in the scale and scope of our operations. Now that comes with some problems and some opportunities, right? The problems and the opportunities of capacity that is not productive capacity. You have seen what we have already started to do there in North America. We are going to continue to follow that playbook. We are going to match capacity with customer need. We are going to drive productivity, to drive our ability to bring incremental capacity on before we start putting a whole bunch of new capacity in the ground. Right? We have the scale and the scope in our box plants in North America and in Europe and in our mill system to get this right. We can leverage that scale. You are going to hear us talk about an advantage cost position. We are in a very, very unique place to drive an advantage cost position.
Third, innovation. You're going to hear about some innovation work that we've done in the U.S. recently, getting really close to what we call an 80s customer. In 80/20 parlance, our most important customers. You're going to hear us talk about, talk about innovation, where we are spending multiple days in group sessions with our customers of how to solve their most important problems. Thinking about construction, configuration, lightweighting, all the things that matter to our customers because they matter to their customers. That intimacy, we are growing that muscle in North America and frankly, we're going to borrow the heck out of it from DS Smith. Tom Hamic is going to be working with Tim and Stefano and Marc around driving those capabilities because they are outstanding. They are outstanding at customer intimacy. Finally the team.
I'm lucky if my team could just stand up and just say hello real quick, just wave to everybody. The executive team for IP, just if you guys would just wave your hands real quick. The small group of people, what I love about it is we have a mix of tremendous experience in the industry and people who are new, right? People like myself who are new to the industry, people like Joy who are new to the industry but not new to high performing businesses. Lance Loeffler, who's joining us, starts officially on Monday, but he wanted to be here today. So welcome Lance.
Lance joining us, formerly from Halliburton, people who have seen what great looks like in other businesses and we can bring that to the experience base, the incredible experience base that we have with people like Tom and Tim and Joe and the panels that you're going to see today. We want to bring that together. Now what is that team going to do? Right? It is opening up our eyes with the 80/20 methodology. I get asked all the time, what is 80/20? It's the simplest thing in the world, and it's the hardest thing in the world. The simplest thing in the world is 80/20 is all about understanding what matters most. In our world, where is opportunity? Where is profit? Right? Where do you find those profit pools? How do you understand where those are?
How do you align people and investment with the most important things? Really critically, how do you walk away from those things that are not assets? Customers, people? All of those things have to be assets for us. They have to be assets to win. We are here to win. We are not here to lose. We are not here to tie. We are here to win. To do that, you have to make choices. When I think about transformation, transformation is all about choices, right? Where am I going to play? We are going to talk about that more in a second. How am I going to win? Do I have the courage to make those choices and will I act? That is what 80/20 is all about. It is not difficult, but it is really, really, really hard.
Not difficult to do in concept, but it's really hard to do, to have the courage to make that happen. That's what it's all about. 80/20 in action. How does it actually work? Most of you, how many people in here have actually sat through the 80/20 101 that I did last August? A pretty decent number. If you haven't, I would suggest you do it because it walks you through the process. Again, the process isn't hard, but it's demanding. What was it, three weeks ago, Stefano? We did it together. We were in Europe. We had the 35 leaders together for a week and a deep dive. What do you do in a week? You rebuild your business from zero. Literally from zero. You start with, I have no customers, I have no assets, and I rebuild.
We do what's called a zero up. It's not zero based budgeting, to be clear. It's a zero up. What do I actually need? And it's eye opening. It is an eye opening process to realize what you really need for assets and what you really need for people to drive a successful business. You simplify the heck out of it, right? That which you do not need, you get rid of. That which you need more of, you invest in. That's the second step, segmentation. I'm gonna use an example of segmentation. Segmentation is all about saying, I have simplified and I'm gonna focus on a certain customer set, a certain geography, a certain asset set, right? You're going to hear that in the lighthouses as we go forward today about that, that kind, that focus on segmentation resources.
It's making the choices of, I'm not going to do this. I'm going to shut down the Red River Mill in Louisiana. That's a hard choice, right? I think of my hometown mill when I make a decision to shut down Red River and I'll do it again every time. The reason I'll do it again is because it is the right thing. It's the right thing because an asset, a mill, a box plant, a person, they deserve to win, and we got to put them in a position to win. We are going to make hard choices about resources to put people in a position to win. Finally, that puts you in a position to grow when you move those resources towards growth. You're going to hear Tom talk about that today. Moving resources towards growth, more salespeople, more innovation facilities closer to customers.
Like Waterloo, Iowa, that I'll talk about in a second. That's how you grow and how you win this business. With 80/20, it opens up your mind around where to play and how to win, right? Where to play, what customers, what products, what geographies? Where is the money? How do I go find where the money is? How to win? My willingness to execute. I mentioned before coming out of business school, when I went to work for Danaher, that was one of the things that really stuck out to me. The willingness to execute, right? The discipline to execute. Ideas are wonderful. All the stuff we're going to talk about today, all the stuff we've been talking about for the last year, sounds awesome. On paper, $6 billion. I'll take it. Right? We all will. Man, you got to execute to get it.
We are building that muscle within this company. Let's talk about the where to win, the disciplined formula of where to win. It's not, again, it's not difficult, right? But it's hard. What geographies am I playing in? What customers do I want to play with? With what products?
Right.
That segmentation that we're talking about, about those choices, those choices of which customers in the U.S. as an example, you know, it's a 400 billion sq ft market, right. We're about 30% of that market today. With combining IP and the DS Smith America's assets, right? Around 30%-31% of that market today. We don't want to service all 400. Right. As a matter of fact, it's about 60% of the market that we really, really love. We love the geographies where we can have high relative supply position. I'll talk about that in a little bit, right? Customers that we know how to win with, they value the capabilities that we have with the products that help them win. And it's all about thinking about applying 80/20. How do you make those choices?
How do you drive productivity, how do you drive reliability, how do you drive innovation? Ultimately, you have got to have a go to market capability. You have to be able to sell and to service the way these customers think of it. When you step back and you think about our customers for a second, they are buying something from us that literally costs pennies, right? $0.25 , something like that. It goes through their supply chain. When you open up your door and you have that box, those thousands of boxes that we all have, and you open it up and it is a box this big and it is something that big, what has happened? Failure. Failure has happened, right? Something that cost $0.25 to get to you now costs dollars or tens- of- dollars. It has failed for a human inside a distribution center.
Maybe it's failed for a robot, but it's failed because you weren't there, right? We have to be there. We have to be problem solvers for our customers. Let me talk about a great example of this. This is a small acquisition that we did last fall. We've already talked about it. When we segmented, if you follow the 80/20 process, right, simplify, simplify, segment. You segment the business. They have a $15 billion North American packaging business, but within that you have a $3 billion specialty business that actually is growing pretty quickly or relatively quickly, has a highly differentiated position in terms of supply position in the marketplace and a unique ability to serve the customer well. We had a competitor who wanted to get out of that marketplace. We had the opportunity to buy this facility in West Monroe, Louisiana.
It's right in the core of what we do, location in the protein segment, perfect fit. We had technology in other parts of the business. You make a brownfield investment in there. Total investment, Tom, in West Monroe, when it's all said and done, $60 million. We think it can produce $50 million of EBITDA in total of that total business when we bring this thing to full bear. This is a great example of how you bring 80/20 to light, right? You understand where you want to play, you understand how you want to play, you understand how you want to win, and you bring those elements together. In bringing those elements together, we have thought of this as three elements of differentiation. Really importantly, and I get asked this question all the time, like, what makes IP different?
Why are you going to win? This is why we're going to win. It is not independent. The three have to happen together. Number one, you have to have an advantage cost position. You have to have an advantage cost position. The reason for that is that strength in any market, that strength in any market, it drives profitability, it drives the cost position even lower, which allows you through any cycle in the market to invest. When you looked at those steadily growing volumes over time in both the U.S. and in Europe, one would say that your investment path ought to look pretty similar to that over time. You should look pretty similar to that. Ours has not. Ours has done this over time, which means we are chasing and then we're cutting.
We're chasing and we're cutting, which is a very ineffective way to invest in this business. If we're going to have an advantage cost position, we have to consistently invest in this business, which means we have some ground to make up right now. We have some ground to make up right now in the U.S. in particular. We need to drive that and we want to have that advantage cost position for profitability and to continue to drive investment in our business. Second, high relative supply position. What do I mean by this? We're going to talk to a panel here in a second. Two panelists from North America, one from Chicago and one from Atlanta. That's where competition happens in our business.
When you think of a sustainable packaging business and you ask where competition happens, it happens in a geographic market that is very, very important because you want to have a relatively strong position in the given markets you decide to compete in. By the way, it's the same in L.A. as it is in Rome, it's the same in Barcelona as it is in Boston. There is no difference. You want to drive that advantage over time. Cost position helps you do that. It absolutely helps you do it. The other thing that helps you do that is that customer excellence, except customer experience, opening stakes for that is on time delivering quality. Right? That's the, that's the basic table stakes is on time delivering quality, then you have to drive innovation and you've got to do it in those markets.
You're going to hear some great stories about that today. These are the three elements of competitive advantage that matter. Let's just touch on these really quickly. Controlling our controllables through advantage, cost, position. By the way, I was in a conversation here earlier before we started and we were talking about, you know, how do you win in this business long term? I think it's the same in any business, right? You control what you can control, you control your own destiny. Markets are going to have what they're going to have. The craziness that we've experienced in the last four weeks, we see it in our numbers. We absolutely see our numbers. Do I think that's going to impact it five and ten years from now?
Do I think we're going to have those curves, those lines are going to look pretty similar five and ten years from now? I do, I do think that. Right. We need to control what we can control. Controlling on the cost side, streamlining operations, getting the right footprint, getting the right mill assets in place, aligning our assets with our customer and with demand, taking out excess or uncompetitive capacity, investing intelligently back into our businesses to drive returns. These are all things we have to do consistently if we're going to have a high return business. Second, around the geographies that we're playing in. For us in North America, it is about changing the footprint around the box system, right?
We have a bunch of capacity in parts of the country, we have excess capacity and we have other parts of our business where we have not enough capacity, right? Your feet are hot, your head's cold and you're just right, you can't have that, right? We have to reconfigure that box system. Tom has been doing it and you're going to see this example of how we are doing this, how we've been doing it for the last year, to change, to reinvest in that footprint, to make it capable. To match in geographies our capability, we've got to be able to do that in our box system and we're going to continue to invest in that. Ultimately, right, you got to move resources closer to the customer. You have to move them closer to the customer.
You have to do that because ultimately what the customer is buying from us is a packaging solution. The customer is buying the old saying, right? For Black and Decker, you are not buying a drill bit, you are buying a hole, you are not buying paper, you're not even buying a corrugated box. You're buying a packaging solution because you're trying to get your stuff from here to there, right, in the right shape, right, as quickly as possible. We have to provide those solutions. We have to be the problem solvers for our customers. Again, we do that exceptionally well. In Europe, we're learning that. In North America, frankly, we're getting out of what I'll call a mill mindset in North America to a customer mindset in Europe. At DS Smith, that's where we want to move. At DS Smith, we've got that customer mindset.
We need to drive productivity and asset allocation. Right. Either way you've gotta solve problems for customers. Just a quick example that brings this all to bear. We've talked about Waterloo. You heard us announce the Waterloo investment, 4 billion sq ft facility in Iowa. Right. It's right in protein country. It's in a great location relative to a very capable mill that we have, $265 million investment in total. It has every element of competitive advantage, 20% cost advantage to basically anything in our system. Right. 20% cost advantage bringing capacity and capability and innovation to a very specific location where we have relative market position, we want to maintain and grow high relative market position. It's a critical market. We're moving capital.
A bunch of the things that we are walking away from that we've announced, we're walking away from the capital that we would have spent, we are moving that capital to things like Iowa, we're moving that capital to things like driving productivity on the mill and the box plant fleet that we want. This is what you get out of it, right? You get cost advantage, you get high relative supply position and you get great access and service to customers. Let's bring this home before we turn it over to the team. This is where we want to go in 2027, right? $26 billion-$28 billion in revenue, minus GCF. $26 billion-$28 billion in revenue minus GCF . That process is happening now. We have a lot of interest in the asset. Don't know if it will sell.
I believe it will, but we're not giving it away. I've said that many, many, many times. This is a good business. That is not a sustainable packaging business. We're going to focus on sustainable packaging. Adjusted EBITDA, $5.5 billion-$6 billion. Free cash flow, $2 billion-$2.5 billion. On time delivery, 98%+ . We've already started to move close to that now and we wanted to drive that. Quality and innovation have to follow and obviously in terms of safety, zero. This is where we want to go in 2027. We believe we have the capability to do that. What I'm hoping today is what we lay out a credible path for you. You can look at that and say, they've got a legitimate shot, they have the ambition.
What I care more about is our ability to deliver on that ambition. Can we win? Are we willing to make the transformational choices? Are we willing to face the facts? Are we willing to have the courage to win in this business? This is what we've talked about in the past. This was our initial view, if you go back to last year, our initial view of getting to $4 billion in the legacy IP business, the acquisition of DS Smith, the synergies. You can see GCF on the far right. This was the conversation that we were all having here last year. The changes are we still get to the same place, but it happens a little bit different, right? Number one, GCF out. Number two, you keep the ambition around getting to $6 billion.
You keep that ambition around getting to $6 billion, but we're going to have very much a geographic focus. Very much a geographic focus. Effectively, what's happened is the North American business, Tom as leader, has acquired the DS Smith North American business, and DS Smith North Europe has acquired the IP Europe business. That's effectively what's happened in terms of strategy. We are integrating like that in North America. We are about $1.8 billion in the packaging business, in Tom's packaging business, grow total cost out of about $1.4 billion, couple hundred million of that are synergies from the DS Smith business. What I'm really pleased to say, and what Tom will emphasize is we are really well on our way to that $1.4 billion. We have made a ton of progress. You've heard the announcements that we have out there.
We have a path forward, forward very specifically around footprint and around overhead cost of how we drive that $1.4 billion in net cost out, and then about $800 million in initiatives. Really importantly, when I say initiatives, this assumes pricing at today's levels. That's what that assumes. It assumes pricing at today's levels in North America. As you can see, we control the vast majority of own destiny around cost. We do not have giant expectations on the commercial side, obviously, I want to beat this on the commercial side. I obviously want to do that. We need to focus on the things that we can get our arms around in Europe. You have the starting point of IP Europe, you have DS Smith in 2024. You have more synergies.
There's more opportunity around the synergies and around total cost out in Europe, specific to their asset set, than we had outlined before. There's more opportunity on the other slide. I forgot to mention, you know, we came at this, we said a little over $500 million in synergies. We think there's more like $600 million-$700 million in synergies in all of DS Smith, $200 million of that in the US, some of it kind of in the corporate that will end up in both the geographies and the rest in Europe. So the synergies we're going after and then some modest market improvement. To be clear, right, the headwinds that we've faced in Europe in the advance of closing on DS Smith, if the headwinds there have all been due to that price rolling over, as you saw in that chart, that's all to do.
That pricing that has been announced and is starting to take effect, that would get us about $250 million, plus or minus that, right, Tim? About $250 million. Not huge ambitions on having to go and get higher, materially higher prices or thinking there's going to be some kind of breakout in growth. Growth, yes, we're going to get some on the commercial side, but we are going to drive our own destiny. Together we believe we can deliver on that $6 billion in EBITDA. I'm going to get into more of this at the end. I'm going to turn it over here to Tom in just a second. This is the algorithm that José was talking about. How do you think about after you reset profitability, after you reset profitability, how do you drive consistently above market total TSR?
How do you do that over time? 3%-4% revenue growth. Basically kind of at market revenue growth, a little bit of productivity that gets you about five percentage points on the bottom line. A dividend yield where you're paying kind of 40%-50%. I hate to always, I hate to call out a dividend yield because who knows, you do not know, you guys are going to make that decision for us. At about 40%-50% of free cash flow, we think that lands between 3%-4% and then plenty of free cash flow. If you're delivering $6 billion EBITDA, it's kind of $2.5 billion of free cash flow, plenty of free cash flow to make other choices that we'll talk about in some more detail later. You get to a double digit, consistent, double digit total shareholder return through a cycle.
We believe that all of this is possible, but we're going to build on the foundation that we already have. The strengths that we have in customers, the strengths that we have in scale, the strength that we have in relationships and innovation and the team that we have, the geographies, the customers, the products. We have great positions, we need to get more of those great positions and we need to deepen those relationships. 80/20 is how we work, right? There are two things that we talk about all the time within IP: safety above all else, and 80/20 is how we work. 80/20 is how we work because we are going to put people and an investment towards where money is, that we're going to drive that discipline, we're going to drive that courage, and ultimately it ends in a winning market.
The rest of today is now believability. That is what all this is, is. Do you believe in the path forward that we have laid out? I am going to turn it over to Tom now to talk about North America. Then we will have a panel to talk about the details of how it really works. You can see it on the ground. We will move over to Tim in Europe and we will do the same thing with our European panel. With that, a short video here on IP North America and then we will turn over to Tom.
International Paper's North American Packaging Solutions delivers sustainable, reliable, and innovative packaging solutions that delight our customers. Our strategic approach focuses on where to play and how to win. Powered by our virtuous cycle that drives above market profitable growth.
We operate a network of box plants supported by a well positioned containerboard mill and recycling facility system. This combination represents unmatched scale, capability and geographic reach that set the foundation for sustained success. With a dedication to safety above all else and an 80/20 mindset, we are strategically investing in attracting markets and in customer centric capabilities. Through our talented team members, we're accelerating how we can help our customers sustainably package their tomorrow and deliver on our strategic priorities. We are making the world safer and more productive, one sustainable packaging solution at a time.
Great. Good morning everyone. I'm Tom Hamic. I'm responsible for our packaging business in North America. I've been with the company 30 years, about half of that with packaging in North America. I actually ran a box plant, so I've run a facility. I was a regional manager. I was lucky enough to run our containerboard business. I've been in strategy and most recently before this job, I was responsible for our North American converting business. I can tell you in those 15 years being in packaging, I have never been more optimistic than I am now. We are on a path to success and it's very exciting for everybody in the business. Andy talked about this, but I'm going to drill in a little bit on North America.
The most important point on this slide is the starting point and the foundation we have for success in terms of scale, in terms of capability, and in terms of reach to customers. Obviously we need to rebuild our cost position and we're on track to do that. We're optimizing our footprint, we're well on our way. We have a very clear playbook to doing that and we're very excited about where that's headed and we see that as a real driver of success. The last piece is I'm going to show you the moves we've made in terms of customer experience, tying it all together in terms of the virtuous cycle we see. On the right hand side of the slide you can see the scale, and not only scale from a North American standpoint, but scale at a regional level.
Andy hinted at this and talked about the regional share position. You can see from a geographic standpoint we are where boxes are needed and it is market by market and there is no competitor that is as well positioned as we are. You can see our segment based volume. These segments are resilient and they're growing and we see that as a big positive. We are the largest producer in North America. The critical thing that Andy talked about in terms of the lack of volatility, if you will, the stability in our market, boxes are essential for the U.S. supply chain and for the North American supply chain. Customers cannot ship. The U.S. economy cannot work without boxes. That linkage is extremely strong. That is why we see 1-1.5% demand over time in terms of low concentration.
Very similar in the U.S. and this is a very attractive market in terms of your outlook in terms of volatility at a macro level, but also at a micro level and even at a regional level. We have been very lucky to see that unit growth in terms of revenue also is driven by inflation, meaning that we are recovering inflation over time. We think about the macro trends. E-c ommerce continues to be a positive. We see that growth well above GDP and we expect that to continue. Box is a very attractive packaging for almost all of e-co mmerce in terms of the sustainability trends, plastic substitution, while it is early days in the U.S. we see that as a positive mega trend as well as recyclability of the product. The circularity of the product.
Fresh food production continues to grow in the U.S., and certainly in North America, Mexico growing a little bit faster. This is agriculture, protein, all of these things continue to be a positive tailwind and we are extremely well positioned in protein and in agriculture. Lastly, we see onshoring as a positive trend, and not just onshoring but nearshoring being a positive. As you look on the right hand side of the slide, you can see our capabilities are well positioned in these segments. Really, as we think about moving forward with customers, we're really in the front of the pack. I'm going to talk a little bit about the segments, a little more detail. Two things important in E-Commerce. One is for the biggest players, it's scale.
It's just pure size that you have to have the ability to supply them across the U.S. You have to have the surety of supply regionally. For smaller mid size e-c ommerce players, what is really critical is box size. To Andy's point, the box that this is shipped in ought to be pretty close to the size of the clicker and helping customers. We've been able to do that for the last several years. We've automated that process and we've brought value to those customers. In terms of protein and agriculture, also very strong value proposition. I'll hit one point. We have more than 3,500 mechanical packaging solutions. These are machines we put in a customer location, we put in a field that set the boxes up.
You think about the labor leverage of knowing you're going to have a box when you have a product ready to be packed out. More important than that, we maintain them. We have this vast network of products, people who know how to do that. Our customers are not required to go out and fix a problem with a mechanical packaging machine. They're not required to shut their line down. That scale and leverage is a tremendous value to customers that really make them very sticky to IP and drives value over time in terms of processed food and beverage. We have a very strong position as you saw on my first chart. Here it really is surety of supply. That's the biggest driver. You cannot let a customer shut a line down.
It comes back to not a national scale, it comes back to a regional scale. It is how can you ensure them that you have the capability in that market even if something goes wrong at one plant, that you have the ability to recover. The second piece that is really important is these pack-out rooms over time, like the rest of the economy, are short on labor. You go into a pack-out room, there are very few people packing out product. That box has to go through the automated process. That is why we are so focused on quality. Because if you have a box that jams up this automated equipment, you are shutting the pack-out line down and they do not have the people to come fix it. That was 30 years ago.
We are really focused on that quality measure and driving that throughput through our customers' plants. Lastly, our knowledge in the retail channel, enhanced by the DS Smith integration here in North America, gives us a really strong position when we think about the retail channel in general and then display and the more specialty parts of retail in particular. That knowledge lets us help our customers in that channel take labor out of the process by being already set up, ready for sale, and most importantly driving more revenue, which is huge relative to the cost of the packaging solution. Andy talked about 80/20, and one of the questions I would have is for a company as conservative as IP has been, in fact, if we are honest with ourselves, slow moving, what drives that change, that level of commercial, of cultural transformation?
It has been 80/ 20 and it is like turning the lights on in terms of our ability to execute and move the business forward. You think about simplifying. We took the matrix structure out of our business. We were a highly centralized company in terms of functions and that yielded a huge overhead cost to the advantage. I can tell you you would do it without taking the cost out if that was the choice. It has freed us up so much to focus on the customer, not to negotiate within the company, but to really be laser focused on those hard decisions that Andy talked about and not having to have a debate about where we are going to allocate resources, but let the customer decide. In large part that is why we have repositioned.
We're talking about a packaging business as opposed to a containerboard business and a converting business. It's really working back from the customer and being very, very diligent about how you apply those resources then segmenting, segmenting the complexity you have left. We're going to talk about lighthouses in the panel, but I'll give you a quick overview. There are regions of the country and we think about those in many cases as sub regions. Think about this as four or five box plants that operate as a business and supply a similar customer base. We have gone into a and Chicago and said, here's how you operate with the 80/20 mindset. It started out as a pilot and now we have changed the name to Lighthouse.
Obviously that's used in a lot of places in industry, but this really is the rest of our company looking back at Atlanta and Chicago and saying this is the way we're going to operate. The exciting thing is we've already rolled that out to 24 more plants and by the end of the year we will be above 60 plants that will be on track to be lighthouses. We're going to talk about what are really, really incredible results across that virtuous cycle. Whether it's cost, whether it's customer experience, or whether it's our ability to be effective in a relationship region, those are all tied together and very positive.
We thought a lot about how do you apply the resources that Andy talked about in a focused way and that includes compensation and incentives in the company and it also includes the capital that you drive to the business. I'm going to talk a little bit more about that when I get to footprint. The last piece is growth. This is a huge opportunity for us, but we have turned the corner in terms of customer experience. We are not where we're going to be in the future, but we have dramatically shifted the dialogue with our customers across North America. We talk about this virtuous cycle. Obviously we're gonna start with low cost position. That's absolutely critical. I'm gonna talk a lot about this question of what happens in a region and why that's so important.
It just drives naturally through to the customer experience. I'll start with boxes because that's closest to the customer. At the end of the day, we're gonna have fewer bigger box plants. You know, it's not even subtle. It's a very clear component of a box business that really challenges you to push in this direction. An under-scaled, low volume box plant has the same talent running it as a large scale, fully capable box plant. It requires roughly the same base capital and most importantly, it requires almost exactly the same fixed cost region by region. As you think about getting that footprint right, the multiplier effect of the resources you have to apply is incredible. The secondary is the extremely positive cost impact. The key is the focus and getting better and better at the facilities you still have running.
Very tough decisions, very painful for those of us who've been around a while, but absolutely necessary. That drives greater consistency and capability because the asset is stronger, the people see that, and your retention goes up. This virtuous cycle also happens at the plant level. We see this as a really strong driver of getting to the right cost position. I can tell you in Atlanta and Chicago, early views of lighthouses in those two sub regions, we've taken out $20 million of fixed cost and we have improved productivity by around 20%. We are going to talk about the details in a few minutes. It is a very strong driver of our capability and then you can enhance that with further capital as you go forward. This is not a one time you're finished.
This is a continuous process of reevaluating what's most important and reevaluating how you drive resources to the exact spot where you can create value and you make that play in the mill system. We have the largest mill system in North America, America. This lighthouse concept. We're in early days, but we've replicated that into the mill system. As Andy mentioned, we made the difficult decision to close the Red River mill. That's almost $200 million a year of savings. We expect that evaluation to continue. We are going to get our footprint at the level where the most value is created. The most focus on our customers is the most important driver of that. What works back from the box system will dictate the capacity we need and we will drive the productivity in the existing base further.
I thought I'd just take a minute and talk about, okay, what practically happens in a lighthouse and why does it matter? On the left hand side of the chart you can see this is a four plant region. This would be within 200 miles-250 miles. Think about metro Atlanta. You've got four box plants. Historically those box plants were, they would work together very closely, but they were on their own. They would go out and find their own customers. They would have relationships. They might even each have a sales manager. What we're really thinking about is how do you run that as a business and how do you optimize the capability of that business? We start with thinking about 80/20.
The top two boxes in the middle, quad one and quad two, would be your 80s. Quad one would be differentiated. Those would be your 80s, so your largest customers and the most simple of the mix. Those tend to be long running products that run across your best assets. Quad two are products that those top customers buy, but they're more complicated. You want to service them, but you want to figure out how to do that in the most productive way. Quad three, smaller customers, sometimes local, regional, but those are relatively large running items, so relatively low complexity. Quad four, small customers, high complexity. Here you've got a decision to make. The really critical item is you make that decision. To Andy's point earlier, with customers you've been with for 20 years, sometimes those decisions are difficult.
It's not that you push that volume out. There are a myriad of ways, you just have to address the complexity, multiple ways of doing that in terms of run length, in terms of warehousing, in terms of customer expectation. Frankly, at the end of the day, there is a portion of that quad four business that is just not fit for what you're trying to do. We put all that out, we segment the complexity and we move to the right hand side. Super plant, your best capitalized asset, where you really want to drive capital and throughput. That's where you put your quad one and quad three business for the most part. We have what are called hybrid plants. This would be the rest of your business.
You feed the super plant optimally, you want to run as much through that as it effectively as you can with the highest quality and the highest on time delivery. You segment to the hybrid plants, what's left and they get really good. Often they'll have different incentives, different staffing. That's a learning we have over time. Really driving to make sure they're as good as they can get at what's left of the business that you need to run quad two and some quad three and maybe even a small amount of quad four. The really key point that's not on this chart is that you can't do this if you have one or two box plants in a metro area or a region. You have to have the regional scale and we are uniquely positioned to take advantage of this.
No other competitor is even close, region by region, to having this leverage, this ability to drive cost out. In this case we show a closure. We have markets where we do not think we need a closure. We are effectively sold out over time. This same process then gives you, with the same fixed cost base, a huge lever to grow the base by optimizing and getting the customer experience. Right. We are going to talk about that in detail in a few minutes. This is the example of Atlanta. Almost $10 million of fixed costs taken out. We looked at the Atlanta metro areas. You can see in the call out box. We closed the Cleveland, Tennessee plant. Difficult decision that had been with the company for a long time, but really at a point where you could have reinvested, but it would have been a terrible decision.
It might have made you feel better in the short term, but it would be a bad decision for the rest of the plants. We segmented the operations. We're going to talk about that in a few minutes. We took the cost out and then the productivity of the metro area is up by a little more than 20%. We are very excited about the results. Frankly, it's early days. It does point out the ability to validate that this strategy works, that we have the ability to execute it without impacting customers, which is absolutely critical. We see this as scalable. I take that as the most important point, that we have the playbook, that scalability may end up in a closure and cost takeout. In many cases it will. In addition, you have the ability to grow in markets.
As I showed on the previous chart, this footprint is generating somewhere between $400 million and $500 million in value that I'll talk about in the bridge and then on the mill side, $500 million- $600 million. We really see a path to this being a game changer in terms of our cost position. Customer experience, you can see if you go back two or three years, we were in the high 80s in terms of on time delivery. We've moved over the last year from 92% to 95%. In reality, the last two months, we're above 95%. We're already achieving a level that's very attractive for our customers. We've added resources. Andy talked about moving resources to where it's important. From a commercial standpoint, we've reinvested in those relationships.
The number at the bottom is our net promoter score change from 22, up 94%. I think this is the most important, important number on the chart because it's one thing for us to say we're getting better in terms of the customer experience. It's another for the customer to tell you that that's the most important measure, obviously. We are going to continue to track our on time delivery, but we're consistently going back and asking customers at this macro survey level but also on an individual level. One of the keys is, I'll make a very obvious statement. If you are not delivering on time and your quality is mediocre, you cannot go to a customer and say I'd like a seat at the table to talk about value. They are not interested. What they're interested in knowing is where are my boxes?
We have turned the corner in terms of having the ability to have those conversations because we're doing the basics very well and we're getting better. We went to one of our 80/20s. It was a three day process based on jobs to be done. Huge investment ahead of time because we wanted to show the customer we were serious about understanding their pain points. In real time every day sending prototypes in, based on the feedback from the day, the next day the prototypes would show up. We had something tangible to talk to the customer about. It was a dramatic success and again a success that is scalable across our system. We picked up the opportunity for about 10-12% more business in terms of revenue.
Most importantly, and you can see the quote at the bottom, it validated to the customer. This is a different IP in terms of experience. We're hearing that again and again and again as people. We've moved the needle enough in terms of customer experience that they see it. I think not only so great on the growth side, absolutely important, but also making our business so sticky and us so valuable is the key driver here. We talked about the positive feedback loop and I always think about when we talk about initiatives it's often hard to say what spot do they go in. I think that's because they're so self-reinforcing that you can tell you're on the right path because they all fit together.
Whether that's scale, 80/20 mindset I've talked about as being a game changer, or really going into customers and understanding how we create value and then delivering on that. Obviously, Andy covered this in two parts. I want to focus a little bit on North America. You've got the shift with integrating DS Smith. You see on the first bar we're very confident in the cost takeout. We feel very good about the synergies of $200 million with DS Smith, very impressed with their talent that we're bringing on, best in class box plants, and a lot of innovation that really was held back because they didn't have scale. Our ability to scale that across the system is going to really generate some value in terms of synergies. I laid out a path for the $1.2 billion left of cost takeout.
As Andy said, we have the playbook. This is now about execution, investing capital, and this kind of positive feedback to getting to the right cost structure, both in the box system and in the mill system. The commercial targets, while they are aggressive, they're doable, these are not. We have to have some above market growth. We have to generate 14 new customers a year. We know how to do this. I would break it into two pieces. The initiatives getting paid for value, which we've shown over the last couple of years, we can do. As Andy said, this really is. We call it market. This is the containerboard price increase that's already been announced playing out through our system. We're not relying on market price as a tailwind.
We're dealing with the reality of the market as it is and as we understand it, to get to the $4 billion. I talked about building on the Advantage foundation, and it really is. It's an Advantage Foundation. Our customers, even if they had a plan to, could not replicate. We are already positioned in a way that is so advantaged. It really, as long as we execute and we will, it is an unbeatable path forward, reestablishing cost leadership. I talked about that. That's very important in the box system. It's even more important in the mill system as we change the game there and think about what are the economics that actually drive customer value from a mill standpoint all the way through to the customer. I talked about optimizing footprint, very clear plan. Our ability to do it without impacting the customer is really critical.
We will continue to enhance that customer experience as we move forward. We are going to take a minute and have a couple of my colleagues come up from the packaging business and talk about the Lighthouses.
It.
Thank you. Hey, Murry. Good to see you. Good morning, Rob. Good morning.
Good morning.
You guys have a seat.
Excuse me.
Thank you.
Thank you.
I talked a good bit about the Lighthouses. Murry and Ram are the two leaders from those clusters of box plants. I am really excited to have them here to talk about what really happens, you know, who does the hard work as we implement this. Very exciting. Maybe you guys introduce yourself.
Murry.
Absolutely.
Good morning. My name is Murry Franklin. I'm currently our Region General Manager in our Upper Midwest region. I actually live in Chicago. I've been with IP for 24 years. I'm a third generation IP employee. Similar to Andy's story, my grandfather worked at a mill that actually closed in Bastrop, Louisiana. It is close to my heart.
My name is Ram Kumar. I'm the Complex General Manager in Atlanta, and I've been with the company 28 years.
Great. Thank you guys for taking the time to do this. I know you're busy running box plants, so maybe we start with Murry just talking about generally what we've seen from an operational standpoint, what early days look like in this process.
Yeah, absolutely. I think I would start by just saying thanks, Andy and Tom, for the trust that you guys put in us to execute on the lighthouses in Chicago and Atlanta. It's been an exciting time for us. I know we're thrilled to be here to tell the story. I think most importantly, Ram and I are proud of the accomplishments of our teams in both Chicago and Atlanta. To understand the scope of the accomplishment, we have to recognize that applying 80/20 to our business has truly been a cultural transformation. When you think about how we applied it, we go back to some of the key tenets that Andy talked about. The first steps were to simplify and segment our business. Metaphorically speaking, that was separating our pumpkins from.
From our tomatoes or for box plant guys, in simple terms, that was really our complicated items from our simple items, our long runs from our short runs, our complex print from our simple print. What that does in our box plants is it actually lowers the changeovers and reduces complexity in our system. Ultimately it lifts the system when you do that. When we think through how, how we approached that, it was very methodical in nature, very data oriented. Use the data to tell the story. In Atlanta and Chicago, we have had great results so far. I'll tell you, in Chicago, we actually shifted 21% of our total volume within a five plant system. That led us to a place where we could rationalize from five plants to four plants. In doing that, we were able to lower our fixed costs.
Like Tom said, it was a $12 million fixed cost reduction in Chicago. Actually, more importantly, what it did is it allowed us to increase our overserved metrics of quality and delivery to our customers because we really eliminated an operationally challenged facility.
In Atlanta's case, we had similar results. We repositioned 19% of our volume between super and hybrid plants. We also did have a rationalization where we went from five facilities to four facilities and had a $9 million cost improvement as well.
Yeah. That courage to rationalize really allowed us to have a more focused capital deployment strategy so that we could truly put our money where it mattered most and really make those movements on the quality and the service side that was most important. So far the results have been really positive. You mentioned a 20% uplift. I think in our case in Chicago, we're at an 18% uplift, total throughput, in Ram's case, 26%. It has been a great start so far. I would say that the process for us of selecting that super and hybrid plant model and really following the 80/20 principles and focusing on the critical few is what made the greatest impact.
That's great. That's great. You talked about focus capital, Murry. We talk about that a lot. Andy talked about really focusing resources where it matters. I don't know. Ram, you have any thoughts on the capital?
Yeah, from a capital standpoint, you know, we really looked at reliability and quality and how we overserve our 80s. From a reliability standpoint, what we did is we installed a preventative maintenance monitoring system that uses cloud based technology with AI. Within the first 30 days of installation we were able to see five reliability events where we were able to address real time with no impact to the customer and save 16 hours of unplanned downtime. I believe, Murry, you had similar results as well.
Yeah, we also did. In our first 30 days we had five unplanned downtime events we avoided for 12 hours. Similar. I can tell you we've got some very excited maintenance managers in our facilities.
Yeah. From a quality standpoint, what we did is we installed the bolt on system that utilizes cameras for glue application, gap check, and print check to over serve our 80s. This was really instrumental in one of our facilities. As an example, we saw a 27% reduction in incident rate and a 35% reduction in defective parts per million.
That's great. You know, for all of us, a long way to go. This cultural transformation to think about the strategy and you guys talking about the customer experience, but not only that, but acting on it in the plant with more resources has really been a game changer for us. You think about that and you think about our better focus on customers. What are you hearing from your customers?
It's a great question. The customer experience has been top of mind for us throughout the entire time. The feedback or the response so far has been one of excitement, but then also a little bit of skepticism. Skepticism that we could actually deliver on what we're going to actually do. I would say that what 80/20 has done is it's created a cooperative effort of customer centricity throughout our business because we really honed in on the critical few, which customers were the most important and how do we service those customers best. That's really what's helped us make the greatest impact. One of the stories I tell you out of Chicago is a process that we actually call our get to perfect customer. It's a process that we've utilized.
We actually picked a really important local customer for us, a large ingredients company in the Midwest with whom we've had a 25 year relationship. Quite honestly, since COVID we've had some opportunities to get better. We had a very honest and transparent contract conversation with them last fall and we learned that our position was shrinking. We had created a few opportunities from a service and a quality standpoint. We actually applied the root cause countermeasure techniques that have been taught to us through this process to really understand what were the three pain points where we had disappointed them the most. It started, number one, with the relationship. We had lost the relationship we needed to have. Obviously, the quality and service metrics were not where they needed to be.
The last thing I would say was the communication of our value, right? How do we package up the value that we're bringing to them and make them realize that value? That is where we really dug in. The first thing we did, we applied the simplify and the resource steps of 80/20 and really rebuilt our account management teams. That was an area we lacked that top to bottom, comprehensive coverage. We just did not have it in the place we needed to have it. We additionally instituted single points of contact. This customer happens to buy from 11 different IP manufacturing facilities and in Chicago, six alone. When you think about their contact with us and their view of us, there were a lot of different people that had their hands in the pot. Creating that simplification made a big difference.
That was definitely a step. We looked internally. What could we do different within our box plants? It started with our daily management meetings and created that laser focus on how we move the needle in terms of throughput and in terms of quality and reliability. A robust conversation. Every day we put this customer front of mind in all of our facilities. We use some really simple tactics. Plant wise, we've given a lot of them. When you really focus in on educating your hourly employees about a customer and their value, what they value and then what we value in them, it makes a big difference. Gosh, we've done things as simple as giving out the customer's product. When the employee on the production floor actually feels what that customer does, it makes such a big difference.
Those are some of the big areas we focus on with this customer. I would tell you, so far we've seen positive improvements. The relationship has definitely strengthened. It's tangible. We've actually won some business back in new locations. We're excited about that. We've actually made a shift there. We feel like we can scale this out. It's really about building those robust teams, focusing on what's important, applying the tools and ultimately putting our best resources on our biggest customers.
That's great.
That's terrific. You pointed out the daily management meeting, which really is the heart of what we're doing and we're going to. I talked about Lighthouse as a big part of that is this daily management meeting. It's something we're now applying in the mills and have seen a huge lever in terms of engagement and understanding with it. It really is about measuring are you winning that day?
Right?
You win that day and you put a few of those together, all of a sudden you've won a month. It is really exciting to see that level of execution, which is differentiated for us. It really has changed the way we approach the game and how we change the focus. You talked about going out on the floor and handing out products to employees. What are they seeing? What are employees seeing from this experience?
The employee experience, Tom, has really been very positive. To give you an idea, I mean, they finally understand the super and hybrid plant operating models where the super plants really focus on longer runs, being more efficient to increase throughput. You have hybrid plant employees that are really focusing on high frequency of changeovers to increase throughput. Simple metrics like that, with addition, with safety above all else, quality and on time delivery in full has really created a positive environment in our box plants. I see that in my walkthroughs within our facilities and what this has really done is opened up some capacity and we have more potential customers coming in for plant tours. That has really created a buzz and excitement with our plant floor team members, which has been really great to see. That's great.
It's really, in my opinion, really building a high performance culture in our box plants.
That's great. Lots of change but it sounds like your employees are really embracing it and I think it's because we're putting wins on the board. Is that?
Yeah, I agree.
I agree, definitely. We should add that it's seven weeks since DS Smith and the cross pollination opportunities that exist are phenomenal both on the customer experience side and then on the operational side too. They have some world class facilities that we're already learning from.
Right, thank you guys for all the work and I know it's been a challenge and a good pace, but also thank you for coming to share it with us. For me, the most exciting thing about this, and I mentioned it earlier, is it's scalable. These guys did the hard work. We called them pilots until we were successful and then we called them lighthouses. Now that they're lighthouses, a lot of the work is done. They should get thank you letters from all of their colleagues because we are going to roll this out and by the end of the year we'll be at 60% of our box plants, of our core box plants in North America.
They're going to have the same positive results and we're going to see the same levers and it ties back to that cost model that I talked about, but also to the customer experience. Thank you guys. Really good.
Thank you.
Thank you.
We're gonna take now a 10 minutes.
Break and so we shall be back at 10:30. Thank you.
Thank you.
Should we take these off stage?
Glitter in the sky, glitter in my eyes. If you're feeling like you need a little bit of company. You met me at the perfect time. You want me, I want you, baby. My sugar bowl, I got you moonlight, you're my starlight. I need you. I'm one of the greatest. Ain't no debating on. I'm still levitated, I'm heavily medicated. Ironic I gave him love and they end up hating on me. She told me she loved me and she been waiting, been fighting hard for your love. I'm running thin on my patience. Needing someone to hug. Even took it back to the basics. You see what you got me out here doing might have threw me off but can't nobody stop the movement. Let's go. Left foot, right foot. Levitating pop stars, dua.
Leaping with the baby I had to lace my shoes for all the blessings I was chasing. If I ever slip I fall into a better situation, so catch up, go put some cheese on it. Get out and get your bread up. They always leaving you far but you run together. Weight of the world on my shoulders. I kept my head up. Now baby stand up. Cause girl you, you want me? I want you baby. My sugar boo, I'm way. Yeah yeah yeah yeah yeah. I got you moonlight, you're my starlight. I need you all night. Come on, dance with me. I never take you. Moonlight, you're my starlight. I need you all night. Come on, dance for me. Fly away with me tonight. You can fly away with me tonight. Baby let me take you on a way with me tonight.
Even if I was into a car.
Yeah, yeah. I got you. Moonlight, you're my starlight. I need you cool all night. Come on, dance with me. You can fly away with me tonight. You can fly away with me tonight. Baby, let me take you over right. You can fly away with me tonight. You can fly away from me tonight. Baby, let me take you over right. I got you on my, I need you all night. Come on. I had a dream we were sipping.
Whiskey need highest floor the bowy and.
I was high enough.
Somewhere along the lines we stopped seeing eye to eye.
You were staying up out all night and I had enough. No, I don't want to know where.
You been and where you going.
I know I won't be home.
You will be on your own.
Who's going to walk you through this.
Dark side of the morning?
Who's going to rock you when the sun won't let you sleep? Who's waking up to drop your heart when you see. I had a dream we were about to say.
Seventeen summer nights in the Libertines never growing up.
I'll take with me the polaroids and the memories. You know I'm going to leave behind the wor. Walking through the dark side of the morning. Who's going to rock you when the.
Sun won't let you sleep?
Who's waking get up to drive you home when you're drunk all alone. Who's going to walk you through the dark side of the morning? It ain't me. No no, it ain't me. Walking through the door. Sam. It. And don't be crying. Your folks might understand you by and by. Just move on up toward your destination. Though you may find from time to time complication. Bite your lip and take a trip. Though there may be wet road ahead and you cannot slip. Just move on up. More peace you can find into these people a beautiful people where there's only one kind. So hush not child and don't cry. Your folks might understand you by and by move on up and keep on wishing. Remember your dream is your own skin so keep on pushing.
Take nothing less than the suffering best. Do not obey but you can pass.
The test.
Just move on up to a greater day with just a little faith. If you put your mind to it, you can surely do it. Sa. Ocean. Love, love is at the.
Why is your bedroom so cold?
Through the way on your side is my tiny floor I respect so.
There'S.
Still less of you every wild.
Love the.
So good.
Apart again, love.
Okay, that's painful to go through.
We're gonna get back. Wendy, if you can close the door there. We're gonna get back. Start with the video.
Thank you.
Operating as DS Smith, an International Paper company, our newly combined sustainable packaging business in Europe, Middle East and Africa is laser focused on unlocking significant above market growth in an attractive region. Our expanded footprint strengthens our position in high growth geographies and end markets. As a combined company, we are seizing value opportunities as Europe, Middle East and Africa consumer trends continue to shift towards sustainable plastic alternatives, lighter e- commerce options and innovative shelf ready packaging. By combining industry leading, sustainable innovation, customer experience, excellence and solution selling with an 80/20 focus, we are bringing together the best elements of both companies to create the most innovative and reliable service in the industry. By streamlining complexity and reinvesting resources, we're focused on what matters most to our customers. Delivering added value through innovation, customer experience and sustainable offerings.
With a dedicated safety first mindset, we're committed to delivering results for our team, our customers and our shareholders. Driving value creation and enhancing our global leadership position. We are making the world safer and more productive, one sustainable packaging solution at a time.
Great. Good morning. Thank you for being here. It's really good to look out and see some familiar faces. For those of you that I haven't had a chance to meet, I'm Tim Nichols and I joined International Paper in 1999 actually through an acquisition. Since then I've had roles in finance, I've had roles in business planning and also business leadership. I'm really excited to be here today. It's early days in DS Smith, but to share with you the things that we've done in a few short weeks, we're off to a good start and really what we're doing to bring two organizations together to create one really powerful business and I couldn't be more encouraged. There are two phrases that we've been using as we bring these two organizations together.
The first one is stronger together and we mean that and the second is the best of both. That is really an intention. That is how we are talking to people about working and people are responding. You go into team meetings and you see people sitting there and interacting and you cannot tell where they came from, whether they came from International Paper or they came from DS Smith. A lot of work so far early in this process and I think an exciting story to talk about. Now, Andy mentioned we are getting off to a little bit slower start with the soft market than anticipated. We have got a lower starting point, but all the opportunity is still there in DS Smith. I have been really impressed by some of the things that I have learned. One of the things is capability.
This is an organization that has a tremendous talent pool and they do a lot of things. With that capability can sometimes come complexity and also higher cost structure. We do have a cost opportunity. Part of that we'll get after with the synergies. There's a lot of work, a lot of planning that has gone on around implementing the synergy capture. I'll talk about that in a few moments. It'll also come through an 80/20 lens. Applying 80/20 to help us optimize the level of complexity and focus that complexity on the segmented customer base that we choose to serve. 80/20 is not just about cost, though. Ultimately, as Andy said, it's really about growth. We take 80/20 and we combine it with the deep customer experience and customer partnerships that DS Smith has.
That gives us a really strong platform to build on. If we just take a look, a snapshot, if you will, at the business in 2024, $9 billion in sales, $1.2 billion in adjusted EBITDA. Look at the map. Look at the geographic coverage and the density. As Tom said, that's going to be really important as we deploy 80/20. We have a lot to work with there. We also have some incredible positions in segments in the market around processed food and beverage, e- commerce, and also fresh food. We have a good market to work with as well. It's in a low point at the moment, but hopefully beginning to recover. It will recover over time. We've seen steady growth, 1.5-2%.
We've also seen that price keep pace with the level of growth at a 1.5-2% annual rate of increase. DS Smith is very well positioned in the segments that are growing the fastest. Food and beverage, e-commerce, and also fresh food where sustainable packaging solutions are very important and being close to the customer is very important. In fact, more than 80% of the customer exposure, the volume exposure that DS Smith has is to fast moving consumer goods companies. That's very important in the European market. The market is also large, growing 3-4%. It's got some very important trends underpinning that growth. Plastic substitution is real in Europe.
It's starting here in the U.S. but it's been in Europe for a long time and it's driven by laws and regulations and customers and consumers are looking for more environmentally friendly solutions and fiber based packaging is ready to step in and provide those. Retail ready or shelf ready packaging is also a very important trend and it really does two things. The first thing it does for the customer is it provides an attractive, highly visible packaging solution that goes easily on a shelf and highlights their product. The second thing that it does is provide the retailer with a very easy and efficient way of restocking shelves. If you walk through supermarkets in Europe, you're going to see a lot of packaging, colorful packaging products in some cases displayed on store shelves.
Third, e-c ommerce, not as pervasive in Europe as it is in the U.S. at this point, but growing and will continue to take share of retail sales over time. That is really driving lightweight, high performance packaging materials. How do we win? It is back to the size, the scale, the density. It is also the packaging solutions and the innovation. You will hear more about that when we bring the panel up. Ultimately it is going to be about how we deploy 80/20, focusing on the right customers with the right asset base to match it. There we go. This slide is really important. This is a key strength of DS Smith and it is their value proposition. It does a few things. It helps the customer generate higher levels of sales for their product.
It also provides them with really significant reliability, service responsiveness, and quality. The numbers that I've seen in DS Smith have been a very pleasant surprise. We heard a lot about what DS Smith did for the customer. Once you're in the organization and you can see it firsthand, it's pretty impressive. The other thing that it does is lower their cost. Not the cost of the box, but the cost through the value chain, the end-to-end cost that they incur. As Tom mentioned and Andy mentioned, this is a real stream that we think can be shared with International Paper. On the flip side, North America's got some things that they can share with us on the operating side and the fact that they're ahead of us on 80/20 deployment. You see some of the bullets here.
Getting incentive systems right, thinking about the types of customers that you want and how that integrates into your manufacturing facilities. Also product segmentation, the super plants that Tom talked about, how you combine the right products to fit into those manufacturing operations takes a little bit of know how. There are many things that the business in North America have already worked through and the opportunity here is to exchange these between regions, bring the customer side to North America, bring the operational and the 80/20 side to Europe. Back to the virtuous cycle. Tom talked about it, Andy talked about it. It is the same in Europe as it is here in North America. The baseline, the starting point is different though. We have to improve our cost position and again we will do that through the synergies and through 80/20.
There's a big opportunity there and we're already working on that. We do start from two positions of strength though. One, in terms of supply position in key markets, the really big markets that matter, and also this customer experience and the exceptional service and also partnership that DS Smith provides to customers. Let's look at cost first. The good news is we've got a very well maintained asset barrier, heavily invested in in box plants and in the mill system. There's also been some recent investments that will help us jumpstart how we deploy 80/20. On the overhead side, we're going to have to right size it. There are things that we will just need to take out of the structure, but there will be some things that will move from one place to another and reallocate so that we place resources where value can be driven.
In terms of the scale, one example here, bringing the scale of the two organizations together to leverage on the procurement side from a sourcing standpoint. Those investments that I mentioned earlier, they've been on the box plant side and on the mill side. I'm going to start with converting because this is really important, is important to how we deploy 80/20. It's important for the 80s, the 80s customers that we want to serve. Tom talked about super plants. These are two greenfield examples of what will turn into super plants for the DS Smith combined business. They bring scale, they bring cost advantages.
In the case of Castelfranco, which I've been to, it also brings some unique capabilities around digital innovation hubs where you have the digital capability to work virtually remotely with customers, live on packaging concepts and designs and just speed to market new product innovations. The team there is a great team, the management team, deploying lean manufacturing process practices, focusing on priorities, action plans, daily management and then accountability and with the customer at the top of the focus. It applies to the mills too. We'll talk about those next. This focus on the customer is not just the sales and marketing exercise. It is all the way through the value chain within DS Smith. Here are two examples of what super plants will look like.
In Europe, there's also been brownfield plant investments in new converting lines, building scale and capability in existing facilities. All of these will look to transform into super plants to serve the 80s on the mill side, again, starting with customer need, what the customer wants. We're trying to invest in things that we sell, not sell the things that we make. That's really important for our customers. We're investing in scale again, which drives cost efficiencies, incremental capacity in some cases, also product types, high performance, lightweight materials that the market is looking for. The mill at the top. The Lucca mill in Italy, I had a chance to visit that as well. This new paper machine will add about 300,000 tons of incremental capacity to the market.
It will give us a lightweight capability that we currently do not have today and is exactly in the range of basis weight that our customers want. The Rouen mill in France, we took an opportunity, or DS Smith took the opportunity to invest in replacing a coal fired boiler and replacing it with biomass. That took about 100,000 tons of CO2 emissions out. It also qualified for green energy subsidies to support the investment and again helping customers with sustainable packaging solutions. Both on the plant side and the mill side, we have a way to jumpstart 80/20. We also have an example, not only in North America, but in EMEA, of 80/20 working in the IP legacy business.
Last fall in a small region in France, they deployed 80/20 and you see the results on the right drove volume by over 20% to target customers. Improved reliability and responsiveness drove down waste and increased productivity. All the things that we want to do. We know it works in North America, we have an example of it working in Europe. Now we're about deploying it rapidly across the entire business. What does that look like? Andy referenced it about three weeks ago. Marc, Stefano and I, with more than 30 of our other colleagues, we were in London for training and for actually beginning the analysis. We spent the week looking at the potential for earnings growth and additional cash flow generation between now and 2027. Came up with a rough blueprint, a lot of confidence that this would work.
The team felt confident about it. Now you progress to this week. We're working with the U.K. team this week, standing up the team to have a very detailed look at the U.K. market and what they have, segmenting customers, thinking about manufacturing assets and thinking about overhead structure that's required to support the customers that we want. In early April, we'll bring in the next 100+ leaders from across the business. We'll provide training to them and then we'll start doing the detailed work. We're gonna stand up two more market areas to begin the deployment of 80/20 in their market regions. There'll be a very quick cadence after that of training and standing up the capability to deploy. Now, you might be sitting there thinking, okay, but how has this been accepted in Europe?
That has been one of the most pleasant surprises for me because this represents, as Tom talked about, there is a lot of change. It totally changes how you think about what you need to do. Andy said it is not difficult, but it is hard. I was a little bit concerned about what the reaction would be. I can tell you that the people that we had in the training embraced it wholeheartedly. I think it highlights two things about the DS Smith culture that are very, very important, especially as it relates to 80/20. The first thing is they are problem solvers, they want to make things better. The number two thing is they have a bias for action. Once they see something and they see the power of it, they are ready to move.
I think we're off to a great start and we're going to move as fast as we possibly can. Where do we start? We're going to start in the markets that matter the most. These are the big markets in Europe and we have sizable positions. The team in the U.K. this week is starting to understand how to segment customers and how to think about capability. It's going to come to the next two markets in April and we will roll this out across all of those markets. Then there are additional markets that are smaller but still important and we'll start spreading it across those geographies and markets as well. The real strength of DS Smith is the customer experience. This is something that we heard about pre- close, but we couldn't share much. Right? You're not allowed to.
Since we've been able to close the deal and actually see some of this firsthand, it's even better than I thought. Net Promoter Scores from customer surveys are significantly higher than what we saw two years ago, a year ago in North America, and significantly higher than our competitive peers in Europe. In fact, the team can tell you over the past six years, DS Smith has more than doubled their Net Promoter Score with customers. You don't do that accidentally. You do that with a very deliberate approach and working across wide parts of your organization. I don't want to steal the panel's thunder because Stefano and Marc will be able to talk more about customer experience and also innovation when they come up in a few minutes. How do we bring all of this together and turn it into earnings and cash?
We're starting from the lower point that we talked about, but all the opportunity is still there, every last bit of it. On the cost side, we'll take out $500 million cost net, including the impact of inflation. We'll start by focusing on synergies and rapid capture on that. We had before the close more than 150 people working on synergies deployed across 20 different teams. There are very detailed plans for what people need to go and execute on. We're starting that right now. It'll no doubt be shaded by 80/20 and shaped by 80/20 as we roll out the deployments. On the commercial side, we have about $300 million of improvement. $200 million of that is from the price increase that is currently being implemented, and then $100 million in terms of additional initiatives and growing in the key customers.
You look out to 2027 and a range of EBITDA between $1.8 billion and $2 billion. I'm very confident in that. We've got the right people in the right places. We've got the plans that we need to execute, and we've got a lot of this under our control. I'm very confident about this target. Wrapping it up, yes, we're in a market weak point, but we will recover. We know we've got costs to go get. We know 80/20 will help that, and we know 80/20 will enhance the already superior level of customer service and experience that DS Smith delivers. I know you want to hear firsthand from the team about what they provide. If you would welcome Stefano Rossi and Marc Chiron, two of my teammates, up to the stage. We'll talk more about customer experience, innovation, and how 80/20 shapes it.
Great.
Stefano. Yeah. Good to see you. Hey Marc, they're bringing your chair.
Thank you very much.
Great.
Welcome. Maybe just quick introduction. Stefano. Marc, if you would just share a little bit about your backgrounds.
Thank you. First of all, thank you for having me here. It's a great honor. I certainly would like to say that on behalf of all the colleagues of DS Smith, which are very pleased to join forces with IP to create this incredible new adventure. Stefano. Stefano Rossi run the packaging business in EMEA for the merged DS Smith IP business. I'm four decades in the business, always in the same company, even if technically we have changed a few ownership. The journey actually is here to continue. I am particularly pleased to be here today.
Thank you.
Thank you. Stefano. Marc.
Yeah, good morning everybody. Very happy to be there as well. Marc Chiron. I'm leading our sales, marketing and innovation community in packaging EMEA. I'm in the business for 17 years. So much younger than Stefano in the industry. But I had before that nearly 20 years in the other side of the fence working in the FMCG world actually in sales and marketing roles as well.
That's great. A little bit about customer experience. Stefano, maybe you could share some thoughts about customer experience and about the relationships you build and then how 80/20 might play into that.
Thank you for the question. Everything starts with the relation with the customer, obviously. Now if you ask me, how do we develop relationship to the point of partnership with the customer? It's a kind of, is a journey. It's a relentless journey of many years. The philosophy of DS Smith has always been boiled down to three ingredients. Three pillars I will call it, plus one secret ingredient. Let's call it ingredient. The three key pillars are very simple. One is get the basic right. That has been the mantra for us all the time. Get the basic right. Make sure really that your basics are world class level. If you don't think that you can be at the world class level, you are not ambitious enough and you cannot really play the game at the full speed. The basics are very simple.
It is safety in our operations because actually it's not only an ethical matter, but it's also a reputational matter. It certainly is quality and service of every single supply that you deliver to your customer. The second pillar, extremely important, is whatever you promise to the customer deserve, absolutely deserve to be structured in a well, comprehensive value proposition. The value proposition has always been very clear. For us, it is about helping our customer to sell more of their products, to reduce their cost of operating the business, to make sure that they manage the risk through their value supply chain, and also to create more circular solutions for our customers that have been absolutely important. The third pillar, which I will say is equally important, is preparation, preparation, preparation.
That means that actually when you have a value proposition, no matter how good it is, it has to be articulated well to the customers. It has to actually speak the very same language. That is why we spend lots of time in training our people and also in making sure that we know very well the insight of the industry, that we know the macro trends, we know the customer practices and ultimately we have an innovation agenda which has to be second to none in the industry. That is actually absolutely important. If I can give you the secret ingredient, I am sure I will not make you fall from your chair. It is absolutely about common sense and it is about listening and it is about listening to what the customers have to tell us.
It is about active listening, it is about honest listening, not only to hear what is convenient for us, but it is about exactly what is the pain point of the customer, so that we can absolutely deliver not only solutions, but create opportunities. This is absolutely what I would like to say is the basics to create the customer relationship that can lead to partnership.
Do you want to tell us a little bit about Mondelēz?
It's one that stays very close to my heart because actually we signed a contract with Mondelēz the first time that we went exclusive in 2014, when I just got the opportunity to run the packaging business for DS Smith back then. I don't need to introduce you to Mondelēz, I guess, because it's one of the largest and most successful confectionery companies in the world. We have quite a deep and broad relationship with Mondelēz because we started really decades ago when we served some of their important brands, particularly Cadbury in the U.K., and we arrived in 2014 to sign the exclusive contract with them.
Back then, in 2014, signing exclusive contract in this industry was quite unusual to a certain extent, is not even very advanced today for many other companies, but for us it was an important step and I do believe that probably many competitors thought that they actually bet on the possibility that this partnership would have not worked, but on the very contrary, has worked very well. We have worked extremely well together with Mondelēz and this has been all about reliability, quality, service. Again, basics, right. Is about really delivering to them the right solutions to prosper the business over the last 10 years. And this is actually has brought to the possibility to sign again and again in 2024 the renewal of the contract that actually will lead to 2029. But it's more than that.
This has led also to some trust in the business and that has made possible to be approached or to be actually in contact with many other, what we can call it, 80s customers, those big customers, in order to find the possibility to sign similar agreement or in any case to increase the share of wallet, which is ultimately what is extremely important in the business. You can see yourself it is a massive scale. We deliver more than 1 billion packaging solutions per year to them. We manage actually for them in 100 countries. The point of sale solutions, to be precise, 97 countries.
You know, with the renewed approach of IP that you have just until now, and actually this opportunity to merge together forces, I honestly think that we should think on companies like Mondelēz and many other IT customers well beyond Europe and actually think about larger geographies and different type of customers. Let me give you the last things on this one before I leave it to you, Tim and Marc. If you ask me this one thing that you should take with you and what we are really investing a lot of time mentally to make work this type of relationship is absolutely avoid complacency. Because when you sign a contract, it's not about security. When you sign a contract, it's about responsibility. Then you become the challenger and the reference.
You have to make sure that in the organization you have the right mindset to go through an event like this, which is extremely important.
Yeah, that is so true, Marc. Innovation. Maybe you could share a few thoughts about some of the interesting packaging solutions that you've provided.
With pleasure. It's really close to my heart as well. Actually, we totally revisit our strategic innovation program five years ago with the ambition to develop a pipeline of innovative solution and services new for us that will be able to scale across multiple customers, multiple geographies, but within the focus segments that we've identified. There's two major steps for us to be able to do that. The first one, I'm back to the ingredients, the secret ingredients of Stefano. We need to make sure that we listen to our customers. We spend a lot of time collecting insight from the customers, from the retailers, from the consumers. Actually, I ask the team to be in the heads and to be in the shoes of our customers to really understand what are the crucial pain points they have in their business.
Then comes the second step of the process. That is our homework. That is what we need to do to solve their problem. To do that, we leverage our unique network of customer innovation hubs and the fantastic expertise of our designers located in the countries. We need to make sure that we stay really close to the different specificities of the different countries. That is in principle how we articulate the strategic innovation agenda. Maybe two examples with two products. Round Wrap that you have here on screen. Actually, here the ambition was to help the key players in the beer and cider category because we realized that this category became really competitive, really cluttered because of the rise of a lot of local brands challenging the main players.
The mainstream brands had no other choice than to come with a different packaging proposition to stand out on shelf and to differentiate. For us it was doing the effort because you see that the growth pool is $700 million just with the key players on one segment. To illustrate what Stefano says related to our value proposition, actually Round Wrap brings to life the value proposition. We help our customers to sell more because they stand out better on shelf. It's not me saying that, that's consumer research which backs up that. There's a clear preference to buy Round Wrap versus the standard packaging on- shelf. We help our customers to reduce their carbon footprint. You know that in Europe sustainability and the net- zero is really, really high on the customer agenda.
We reduce the carbon emission by 20% with Round Wrap because we have lighter weight material that we use. Finally, we help as well our customers to manage their risk and especially the risk of damages in their supply chain to the retailers. Because with the rounded corner, actually there's no crutching on the corner and we have a better pallet stability with our solution. No unnecessary cost for them with their customers. The product is on shelf for a few months. We launched that with Carlsberg in Poland. As we speak, we are in discussion, negotiation, trials with other big brand manufacturers. The second example may be still in the beverage industry with Lift Up. Here the ambition was to replace the plastic shrink wrap that we use normally to bundle the large bottle in carbonated drinks.
I'm sure you've seen a lot of solutions for smaller formats and for the cans with varying degrees of success, to be fair. The large format bottles was pretty to be really difficult to shift to a paper-based solution. Again, we spent time, effort, more than three years to get there because it was it. The size of the prize is $300 million for us as an opportunity. We bring to life our value proposition for customers. We help them to grow their sales. They stand out on shelf because we increase the branding space for them to communicate. Thanks to the handle and the paper bundle, we reduce the carbon footprint by up to 42% versus the plastic shrink wrap. We help them as well to reduce their cost in their operations because there's less energy consumption in their plants.
The product is on shelf in various markets in Europe and we are moving from the carbonated drinks to soft drinks to water and we are extending the family of Lift Up to smaller format and different bundling units. We are really proud of this one because we achieved that in one of the most demanding service supply chains in the consumer goods, honestly.
Yeah, that's great. Marc, Stefano, thank you both. I think you see the passion and you see the examples of the customer experience, the customer relationship and the innovative products and using that as a very strong platform to leverage 80/20 is going to be the opportunity. Great. Thank you both.
Thank you. Thank you.
Nice job, sir.
Excellent. Nice job.
You know, the nice part about having the panelists come up is you get to see it in real life. Right. What Murry and Ram talked about is we're seeing 80/20 take hold in North America and demonstrating that we can do this in the box plant environment, we can do it in the mill environment. We can do it as we think about redirecting resources again to what matters most. We're seeing that there and then in Europe with Marc and Stefano. To build off that strength of the customer, to build off the strength of the customer, to get the cost base right. Then to continue that virtuous cycle of investment and growth is very important.
I'm going to wrap up here just for a few minutes and then myself and Tim and Tom will come up and just take a seat and we'll take questions. Let's bring this home. This is the graph you've seen a number of times today in different formats, different configurations. What I hope you've seen today is confidence in our belief in a roadmap to get to $6 billion of EBITDA. It's a little bit different path in North America. It's really heavy on the cost side initially. Right. We've got to get the cost out in terms of getting the box plant system right. Reconfiguring to bigger, better box plants, closer to the customer, driving that intimacy, getting the cost advantage that we've talked about. That engine is moving.
Right.
We've already announced a lot of changes. We'll continue to see a rhythm of those changes to get our footprint right on the box side and on the mill side and very importantly on the overhead side also. Right. As we drive that cost advantage, we can reinvest back into the business on the initiative side.
Right.
We're not banking on a big rebound. Right. Effectively what we are considering in this case, this case to $6 billion, is a relatively slow, decent U.S. economy and a slight rebound in Europe starting towards the end of this year. A lot of craziness going on. I'll talk about kind of a little bit what we're seeing here in the world, but those are the base assumptions, which means most of the things that we're talking about in North America and the things that we're talking about in Europe with DS Smith are self help. Right. We control our own destiny. In the European side, yes, there's more cost to be taken out, but we're just starting the 80/20 journey. We've identified the synergies that we've been working on throughout last year into the beginning of this year.
Now that we have our hands fully on and we can look at the data, the combined data, and we have the team as transparent and engaged as we've been talking about, we have the opportunity to drive even more advantages. In total, $4 billion in North America, $2 billion in Europe, and this looks like the kind of business that we signed up for, that we want to grow across our scale and scope for this year. This year is a transformational year, there is no doubt about it. Right. We are looking at about $27 billion in- sales, $3.5 billion-$4 billion in EBITDA. We have a lot of work to do.
Right.
We know where we're going on the GCF side. We've talked about the specific initiatives in North America and in Europe, and there's a lot of work to get this engine turning. Obviously, it started, it's moving now, and we see the acceleration happening over- time. 2025 is going to be a transformational year. Importantly, we have to invest. Right? We have to invest aggressively in this company. All the things that you have seen today rely on our ability to reinvest back into the business. What does this mean? Cash flows this year are going to be redeployed aggressively back into the business. About a- billion dollar in total that we've got to put back into the business this year, about $500,000,000 in restructuring.
We've got some headwinds just in terms of how compensation flows when that timing flows in the year. We've got some big capital projects that are happening in North America. We talked about Waterloo, the other projects that we're driving to reconfigure the box system. We've got some major investments that have been announced and we're driving to in Europe that are ongoing and we'll finish at about, you know, this time next year, middle of 2026. For a few years we've got a bolus, but in particular right now we've got to spend, we have to invest to drive the improvements that we're talking about. A lot of that is hitting as we talk. When we see the first quarter, right, you're going to see a lot of investment in the first quarter numbers.
I'm excited about that because that is meaning we're doing what we said we're going to do. We're driving to do the things we said we're going to do around investment, around cost reduction, around reallocation of resources to drive the innovation and drive the customer intimacy. As we look out to 2027, what's exciting is what we've modeled, right, is a relatively modest economic environment, very little in terms of incremental price. As Tom said, what's baked in right now for North America, a little bit of rebound that we've seen announced into the market in Europe.
Outside of that, no expectations, about 6.5% of sales going into capital that will allow us to stay on top of our game and to maintain that leadership position that we have to go rebuild over the next couple of years, right, we'll be fully funded in terms of investing, we'll be driving productivity, we'll be driving that customer excellence in time. We've got the balance sheet to do it, right? We're in a really good spot. We're in a really good spot in terms of our overall debt structure, our access to capital as you move to the out year. Basically our metrics are effectively flat here. As we go into 2025, plenty of liquidity, and as you go into 2027 and beyond, we start to produce a lot of cash, right?
We start to produce a lot of cash that we can invest back into the business and what's important in that is that's what drives the algorithm that I introduced earlier. There is one thing to make the step up between now and 2027, that's one thing. That is, look, we are going to move hard, we're going to move aggressively to do that. The question becomes is then what do you have after that? Are you a one trick pony or can you drive value over time? We can drive value over time. It has three pieces to it, right? Number one, you got to drive the top line, right? So you got to drive the top line. We're not expecting giant wins in terms of taking tons of market share.
I want to get to moving with the market and I'd like to take some share over time, but the relatively modest expectations. Second, you got to use that 40%-50% of free cash flow as a dividend that you can rely on. Right? So we understand how the algorithm comes together driving EBIT growth of about 5% over time through a cycle. Somewhere in that 3%-4% dividend yield is what we'd expect that to land. And then you're investing the rest of the free cash flow back into the opportunities to drive either organic growth, buy your stock back, buy other businesses. We think through that we can deliver double digit returns over a cycle, compounded over a cycle. Just touch a little bit about how those pieces come together. The first part, around growth and around EBIT.
Again, not huge expectations over time in terms of how to move the P&L 3%-4% revenue growth, 5% EBIT growth. It's about, number one, driving the 80/20 mindset in terms of where to play so which customers, which geographies, which products. You've heard a lot about that today in terms of that choice at data driven, going to where the money is. And we have to do it through the virtuous cycle. Right? Those three elements of cost, a relative market position and of customer excellence, those are the three elements that allow us to get there. And then you move over to dividend yield. We've talked a lot about that. Expect 30%, sorry, 40%-50% of free cash flow to go to the dividend over time. That's an important thing like that, that will move right with kind of what happens to the stock price.
We're not managing to yield, we're managing to that 40%-50% of free cash flow. And then very importantly, that incremental cash. What we do with the incremental cash, once we get past this investment cycle is going to be very important. You know, back when I became CEO of IDEX, I became CEO in 2011. In the fall of 2012, we laid out a very similar framework capital deployment framework or a growth or TSR algorithm for framework. And the idea behind it was to make sure that we had transparency about what you expect and what we expect and how we're going to invest. I think the first two parts make a ton of sense around top line growth, bottom line growth and dividend, where I think we can create an awful lot of extra value over time is how we deploy this incremental cash.
What you can expect from us is that we are going to be incredibly disciplined. We're going to think about spending that cash just like we would anything else. We want, if we can put it back into our business at higher rates of return, we will put it back into our business at higher rates of return. If we have maximized that right in this assumption. The assumption here is that we're going to maximize that. If we maximize that and we're sitting on incremental free cash flow, we're going to buy back our stock and we're going to buy other companies. You should think about that discipline exactly the same. We are going to invest in ourselves or buy other companies because we can create value. You saw what we did with West Monroe.
We expect that we'll have other opportunities like that over time. Right. So not giant acquisitions, but good sized stuff. We're going to continue to acquire as it makes sense. As it comes to buying back stock, I want you to expect a very, very simple thing. We are going to think of it like you do. We are going to think about buying back our own stock just like you do. What is the intrinsic value of the company?
Company.
We're going to do the same kind of math that you would do. Obviously we have our own assumptions of what makes that up. We're going to have a margin of safety in terms of when we'll invest and when we get discounts from intrinsic value as that discount grows and it happens right in the markets. We've seen it over the last month. The volatility that you see, you get those breaks from intrinsic value. We will invest more aggressively. We will buy back our stock more aggressively. You can look at my track record of how we've done that over time. We will set that in our strategic plan. We have one of our boards of directors here today. Anton Vincent has joined us. So Anton, we've talked about this in our board meetings. We are going to be ready to go.
We're going to have a target and we're going to know when we want to invest. Very importantly, that also means we will build cash at times, but it also means we will build cash at times. We are going to be countercyclical and counterintuitive than what people have expected over time. We are going to do that to drive value over time with our free cash flow. Look, we have a disciplined approach to how we're going to create value. Let's invest fully in our businesses organically, let's buy back shares when it makes sense and let's invest in other businesses when the opportunities arise. If we do that, we can drive consistent double digit returns through recycle. We're going to take that first step up between now and 2027 and then this is the playbook you should expect to see from us over time.
And this is where we're going. Right, so you've seen the roadmap, you've seen the algorithm that first step up to 2027, which is around $26 billion-$28 billion in revenue, $5.5 billion-$6 billion in EBITDA, excellent free cash flow, terrific service to our customers and making sure our people are safe. We think we have an incredibly exciting roadmap here going forward. So what I'd like to do now is invite Tim and Tom to come up. We're going to open it up for questions. Everything is open to anything you guys would like to chat about. So guys, come on up and let's jump in. I' ll keep that.
Presenters , take a seat. Logistics. We have the best IR team hands.
Down in the country that will be passing the mics.
Josh. That is his birthday by the way. Happy birthday, Josh, and Michelle will be, and hopefully we can answer a lot of questions. Raise your hand, please say your name and your company, and we'll try to do one question, one follow-up per person so that we can take many. Also, we'll be looking at the questions online if there are not enough in the room.
Thanks,Michele . Morning, everybody. George Staphos from BofA Securities. Thanks for the presentation guys and the details
You talked about a lot of exciting.
Things that you're doing with 80/20 that are giving the table stakes to stabilize the business in North America and you seem confident about doing that. You talked about how you are now innovating differently than you had been, which is obviously very, very important in terms of generating value going forward.
Can you talk to some degree about.
How you're innovating and your ability to create value for customers is different than the rest of your peer set. You know, what do you think you do now and will do in the future better than a very, very good collection of peers in the market trying to do the same thing? And then my second question as a.
Follow on much shorter term, you've touched on it. You know, you're not immune.
I think I forget what the phrasing was. But we've seen the volatility in the last four weeks. Can you talk a little bit about just what demand trends you're seeing across the key businesses, recognizing it's in your guidance already. Thank you guys.
So let me touch on the first one and then I'm going to turn to these guys to touch a little bit deeper on the specifics in the markets on innovation and then I'll come back and I'll touch on the volatility in the marketplace place. So a few things and let's, let's separate North America and Europe because we're in different places around innovation. And let me talk about Europe first and DS Smith and then turn to Tom here and talk about North America. So the first time that I went to visit the Smith team was shortly after I joined the company. So we'd announced the deal. I went over and I went to one of the places we call an impact center. So it's an innovation center center.
And what you saw there in the conversation was DS Smith is incredibly good at talking through the value chain with customers. So they're not talking to procurement, they're talking all the way through to marketing and brand marketing. And they're understanding. I think Marc, if I remember the presentation you gave, it's like 11 or 12 people within the one business that we were talking about that we're having, we're having conversations with and so. And why that matters. Right. Tom mentioned this and Tim mentioned this. But the concept of being problem solvers, to be a problem solver you have to look at it from multiple angles. And what a procurement person has as a KPI and what the brand person has, what the category leader has can be very different.
And if you're just grabbing onto one or the other, you're going to have a hard time winning. And it's the synthesis that really matters. Cause what they're really looking for is total cost through their system and the ability for them to drive sales with their customer. It's that combined attributes of that we are really good. We do that at our innovation centers. We do that with customers. When I sat down with two major customers, I guess it was last week, it seems like forever ago. Tim, it was amazing to hear that them talk about it. Right. So when they talk about the intimacy, when they talk about the listening, one customer particular, I asked him, I said, what do we do really well. So when we had that breakfast and they said, you listen.
And I know that doesn't sound like, you know, any kind of rocket science, but the actual listening, and Stefano mentioned this of listening, of hearing and then of implementing those things, they do that incredibly well. And that takes time and it takes resource to do that. So I feel really good about where we are with DS Smith around that you saw some of the innovations in North America. I think this is a new muscle, Tom, and that one customer that you talked about maybe, maybe go a little deeper about what that experience was and what they got out of it and what we get out of it.
Right. That's great. And I think you're right that the looking through the entire supply chain is something we can learn from DS Smith. The other thing that I noticed when I visited one of their facilities and their design centers was it's repeatable. It's not that they write a new book every time. Obviously it's customized for the customer, but it's a process where they're really thinking about value and you can replicate it. It's kind of the scalability of what we're doing with 80/ 20. But the customer we. To get to your point, the customer we engaged with, we use the jobs to be done methodology. And what you find with that is that what is most important is preparation, that you are coming into the meeting not to start the meeting there, but you have prepared your understanding, you've engaged with them.
Most importantly, it really is interesting, the comment about listening is we have a tendency when we're not humble enough in this process, the customer gets out half a sentence of a pain point. We have a solution for that. Let me show you the. Which is not the right answer. So the muscle we're building is not just listening, but listening through the entire conversation so that you really think through what's a solution, because it's to make a big difference for the customer. Marie. It's not going to be trimming the edge of the box. It's going to be redesigning in their supply chain to drive sales. I think that's the muscle we're focused on.
And I think what I got out of it, and we actually showed the example that Tom talked About earlier, we showed our board at our last board meeting and had the folks who are involved in it. Tom, how many folks total between our people and the consumer packaged goods company were together
mid-20s?
Yes. So over three days, right. These, these iterative sessions of insight, pain points, rapid innovation, literally shipping overnight prototypes to then work through that. And once you come out of it on a $90 million business, $10 million of opportunity was outlined. That's what you got to do different. A big difference between where we are with DS Smith and where we need to be in North America is resources. We have not resourced this area the way we need to.
And so as we go through 80/ 20 and we remove resources from parts of our business and we reallocate them, you're going to see more people moving to this part of the business in North America. So in terms of the volatility that we've seen, you know, we're all living with the day to day news and you know, the good and the bad part of it is we see it real time, right? Because if you think about how our customers respond, our customers are often responding real time to their expectations, expectation of consumer demand. And so as the, as the craziness started here a month or so ago, we saw it, right? We, we saw some softness happen in the order book.
You know, what I would say is, if you recall in the last quarterly call, I said you would see us kind of move through this U shaped curve, right? So I said that the third and the fourth quarter of last year we believed were the bottom. As we anniversary some of the volume that we couldn't come to terms with on cut customers, we start to move up that curve. That is happening. So it's absolutely happening. The difference between our expectation coming into the quarter and where we actually are is we expected the market to be up modestly in North America in the quarter. I think it's going to be flattish. That's, that's my guess. Our gap to that will be what we expected. We have not lost any ground, so I feel good about that.
We have certainly seen in the last two or three weeks, we have, we have some internal measures that are good proxies for how the market is moving. We have seen that soften. So I don't know if you guys saw the consumer confidence data that came out today was pretty weak. We're seeing that, you know, we're seeing that in Europe, the expectation, if you went back three or four or five months, the expectation was that Europe would start to improve in the first half of this year, we pretty much believe that's going to be the second half of the year. And I think very modest improvements. That's, that's my belief. The, the wild card there is will the price increase that has recently been announced, will it stick and how long will it take to flow through?
So a difference between the European market and the U.S. Market is you get there's a tighter connection to a change in containerboard price and how price hits the market in North America. And it takes longer in Europe on both sides. Right. So as a price increase goes in, it takes longer to get to the box pricing. So as paper prices move, takes longer to get to box pricing and it's slower to give up. And you hold on to every marketing. That's when we hold on to every penny as long as you can. Right. So the question is, will that, will that hold? And, and our perspective is we're not going to be a slave to the market no matter what. Right. We need to execute. And if I'm in your shoes, what am I looking for?
I'm asking in North America, where are we our gap to market? Are we closing that gap to market? And if you remember, by the end of this year, our goal was to get to that. We've closed that gap to market. Right. And that's still our expectation. There's no reason it hasn't. Are we taking the costs out in a rhythm? Are you seeing on a regular basis, Are you seeing the actions that Tom walked through in North America to take that cost out? Those to me are the things, if I'm you, I'm looking at in Europe, you know, this question of the noise of the market, both volume and price, I think there is. If I'm in your shoes, I'm looking at that market piece because it is important of how we line against it. Right. It's not going to change what we do, frankly. Right.
We're going to move as fast as we can with 80/20 and with the synergies, that's really important. You know, the European market is much more fragmented, much less integrated. And so you get more volatility on both sides of the equation. Right. On the inputs and on the box side, we want to start limiting some of that volatility. We want to integrate more. We want to be more integrated through our system like we are in North America. That means there's more changes to be done relative to the assets. We also have more what I'll call kind of lone wolf box plants. Right. As you look at some of the countries. If you look at the map that Tim put up there, we have more places where a complex like Tom talked about is more difficult to do.
Those locations have to stand economically on their own. Then in complexes like Barcelona, the example that you used where we had saw a 20% increase in sales productivity, you can have that same complex strategy. In both cases, you got to control your own destiny. Did I miss anything? You guys from the markets and stuff. We get that. Okay, thank you.
Yes. Lars Kjellberg from Stifel, thanks again for, you know, the great outlook and trying to, you know, explain to us what you're doing.
I just want to step back a bit.
I mean, if what we've seen in.
2024 was a lot of what seems.
Painful actions taken and you can kind.
Of see your margin differentials to your.
Peers have actually widened quite appreciably as.
You lost box volumes and less efficiencies in your system.
Can you explain to us why was.
This pain necessary, as opposed to trying to create the value and then get paid for that value, as opposed to.
We'Re not going to deal with you.
So that's my first question.
The second one, you know, the cost advantage situation that IP had in the.
Past, of course have, which you explained.
When the first time spoke to us.
Have massively been eroded and you've underspent meaningfully.
If I compare with your best in.
Class peers, they've actually spent more than you currently proposing.
So my question is really what makes you confident in your six and a.
Half percent relative to revenue, which is about 100 basis points point short of.
The best in class have spent that.
You'Re actually able to close the gap.
Yeah. Yeah. Thank you. So there's a lot in that, those, those two questions, I'm make sure I get those and guys jump in. Certainly, you know, on the first part, I think what you're really talking about is that go to market strategy and the choices around value and volume. Right. So in there and, and Tom, I don't want to put words in your mouth but, but Tom launched that about two years ago ago when he came into running the packaging business. And if I look back in time and as I've talked to people, that was a really tough choice to make because it was in a difficult market where you could make the argument don't do it now. Right, don't do it now. Keep playing the classic game of chase volume.
And the decision was made and it was an incredibly courageous decision, especially at that moment in time. And the reason it was necessary and I'm so thrilled that the team actually launched that and started tackling that because it gave us a head start of what we needed to do, is we were the ones causing problems. We were fundamentally the players causing problems. We're the market leader and we found ourselves chasing volume. And so we were the bad actors in there. So we didn't have discipline, which means that we were actually going to the marketplace and underselling ourselves. That's fundamentally what we were doing. We were underselling the value that we brought to the marketplace. And it has been a painful process, and it's been a painful process to say we're going to get paid for it.
And for those of you who have been involved in large scale negotiations, these are not necessarily easy discussions because this isn't a one year thing. This is a two old year decade series of behaviors that we have allowed. And so bringing that discipline and being paid for the value that you create, while it was painful, if you look at it economically, it was the right choice. It was absolutely the right choice. Now you can't continue that game indefinitely. Right. That, that you've got to get to the right place. The good part is, is in the work that we're doing, we're seeing opportunities come back. So we are seeing opportunities come back very specifically where we have large customers, the folks that we call our 80s who.
We're getting another look at who two years ago we didn't have the ability to serve them the way they need to be served and they didn't want to pay us for the value that we were creating. We're now starting to see that. So I believe that that's going to rectify itself. And we're seeing that in the economics. On the cost side, I want to make sure. What was the second part of the question? I want to make sure I get it right. Right. What was the second piece?
Yeah, so, so there's two parts of it you've underspent as you.
Oh, right.
Okay.
Now you're going to close the gap.
But you're spending less than your peers have.
Yeah.
So.
So I, I break that into two pieces. The first one on, on the spending. Right. So what we're going to do here, you know, over the next couple years is we're going to close some major gaps. And, and if you actually look at the spending, spending that we'll do in the next few years, I think it's important, it's really important to slice that. And what I mean by that is Right. How what we've done historically is we spread our capital allocation about a billion dollars a year across a much larger asset base. That asset base with GCF going out and very importantly with things that we're closing, we are going to free up capital. So we're going to move that capital over to the strategic assets that we find very important and we're going to increase our spending in total.
So when you actually look on a like for like basis, you're talking about 20, 30, even 40% increases in capital spending on those strategic assets, that's going to be very, very, very important. To your point about long term, is 6.5% enough? We've done a ton of work around it. Our own experience base. Do we think we need to spend 7, 8, 9, 10% of sales on capital? I don't think so. I can't speak to our competitors and why they choose to do it, how they do it. We have really good competitors. I respect the heck out of them and but we when you look at that in terms of of industry average historical averages, the ability to have world class assets that six and a half makes a lot of sense.
Thank you.
Hey Phil Ng, you guys filling from Jefferies. Appreciate all the great insights.
Europe I think is a market that we are all less familiar with. I think the team talked about the commercial efforts and listening to customers on dsmith was pretty powerful. But the opportunity going forward, I think you guys highlighted on the cost side of things kind of help us unpack where the big opportunities. How will the business look going forward from a footprint standpoint. Box plants, mills. And you talked about M and A and deploying capital going forward. Right. Are you going to consolidate this market? And just the last piece on Europe. I know a lot of questions we're all hopeful
may have to come back. Phil,
European economy could be a little better. We just came, I just came back marketing from Europe. I think there's a view that post Ukraine, Russia, war, stimulus money. How's that an opportunity for you guys going forward?
So a lot to unpack on Europe.
Tim, you want to once you tackle the cost structure piece and I'll try to tackle the other two.
Okay, that sounds good. Yeah. So on the cost structure piece, as I mentioned in the remarks we started this work months ago. So combined teams, DS Smith representation, international paper representation and over 150 people, 20+ teams looking at a lot of different synergy opportunities. So the big buckets are to going, going to be overhead, they're going to be procurement and then it will be how we realign the manufacturing base as we deploy 80/ 20. There's some other things on the operational side, both in the mills and in the box plants, but it'll be adjusted for the decisions that we make around 80/20 deployment. So I think we've got a jump start on it. I think there's actually going to be more opportunity, but it's going to take time to unpack it. But we'll get off to a quick start on that.
Phil. I think if you look at what we started last year in North America, so we started 80/20 deployment in the middle of June last year and we went about it in the same way. We had a really intense initial session, that zero up process that we talked about. And I can't overemphasize how important a zero up is, right? Because when you're trying to shrink, I call it shrink the amoeba, right? The blob of cost that you have in your, in your business. And I apologize, that sounds, that's not very elegant. But you know, it's people, it's spending, it's assets. When you try to get better, what most organizations do, and this has been my experience, is they just try to shrink it a little bit, right? And they kind of we're going to do a 5% headcount reduction.
We've all been through these things in our lives, right? And effectively what you're telling your people is work harder, right? And that doesn't work very long, right? You've got to get a lot better. And the only way to do that is to reconfigure actually how you're working. So when you do a zero up as an example, and the work that we did a few weeks ago, and you're asking yourself, you start off with 50% of your business and you're like, how many box plants do we need where? How many mills do we need where? Right? And you get out of the taking away and you get into what you are investing in, it brings a lot of clarity. And then as you're rebuilding that business, ultimately you're trying to rebuild to somewhere between 90% and 95% of your revenue, right?
Because the complexity sits in that quad four that Tom so eloquently talked about. You got to go after that complexity that's got to come out. So all the things that we started a few weeks ago and we'll drive, we'll move really quickly. A huge benefit to where we are today from where we were last year is there was one person last year who had this vocabulary and they had this experience, and that was me. Now we have literally thousands of people who have been through some kind of training, who have done what Murry and Ram have talked about that we can now deploy at the same time, the incredible work that Stefano has done and that Marc have done. We can take that experience and we can bring that back into.
Into the U.S. So on the second question, which is about kind of, I'm just going to call it geopolitical insanity.
Right.
You know, look, I am not in the business of predicting that kind of stuff at all. You know, what I can say is that a negotiated piece is a very positive thing for us. It's when, if you think about something happening that stops the conflict from the threat of expanding and brings some confidence level, that would be a very good thing. It's a very good thing on the energy side. Right. And it's a good thing in terms of the economy. And if you actually look at the P&L of DS Smith right now, what's happened in the last nine months, right. Is inflation has continued and the market has gotten softer. Even really in the U.K. is really is kind of little tiny stagflation in the U.K. Right. That is. That's happening there.
So if that finds a way to calm down, we would expect that both sides of that equation get better for us. I think, Phil, there's one more that I missed.
Okay, great. We had one over here. Thank you.
In the gray. Thank you.
I'm Anthea from Six Street.
Thank you so much for the outlook. I have two questions a little bit more specific of that $400 million of initiative in the commercial bucket.
Can you talk about how much of.
That is already done versus things you have to implement going forward and talk concretely about what initiatives really mean for you and for the customers. The other one is on the cost side of that $500 million-$600 million of cost outs. How much of that is in addition to what you've already done with your plant closures so far? Yep. Talk a little bit about the incremental cost savings going forward with plant closures versus operational efficiencies to get to that $500 million-$600 million.
So just to clarify, you're talking about specifically in North America, what Tom talked about, correct? That $400 million you want to take. Sure.
Yeah. So in terms of the commercial initiatives, about half of that as Andy mentioned, is the Containerboard increase. That plays out largely contractually across the next six to nine months. We're not forecasting the price, but we're just saying if it plays out like it normally does, that's the half- of- it.
You get some this year and some next year.
Get some next year. So you'll see the, that flow through over the next, completely over the next 12 months probably. So we feel pretty good about that. We feel like it's sustainable in the sense that it's, you're very close to mid cycle pricing or balanced pricing. Then the second piece is initiatives. I would, I would categorize that as really three things. It's, there's still some customers where we're. Because of contracts. There's some timing, but our pricing versus our value is off. That's fairly modest. We have a playbook for how to do that. I don't perceive there's volume at risk like we had before and there's some inside baseball reasons for that, but I don't see this as a volume play. There's some value selling. That's an opportunity there.
We've implemented a tremendous amount of effort in that kind of large regional customer area through, we've implemented Salesforce, we've improved our pipelines. And so there's a selling of value region by region. That's a big portion of that. The last piece is we've gotten a lot smarter about contracts and thinking about how we with our customers, how we cover inflation. And so that, you know, at the end of the day, people talk about this price or that price, but you really want both parties to feel like it's a fair deal. The customer doesn't want us at the end of the contract underwater relative to inflation. And so getting smarter about that is probably the last 15% of that equation. I think your second question was related to how much is behind us and how much is in front of us.
If you think about the box plant network, I mentioned that the fixed cost load is, I think we used about $10 million, but it's probably closer to $12 million. I would think about that as a piece. We have closed seven box plants. The other thing that's not very well understood until you really look at the data and certainly outside of the business is the variable cost difference between your best running box plants and maybe your average to slightly below average box plants. That difference is as big as the fixed cost gap. You're talking about roughly $10 million a year in operating efficiencies when you do this work that I talked about in terms of optimizing. That number will differ area by area. You've got two components.
You've got fewer mouths to feed and fewer in the footprint and then probably another 30% feed, 25%- 30% of that value is just based on efficiency. And then in many cases you're going to have a supply chain add on. So I would think of those in those buckets. What's behind us of the seven, what's in front of us? Think half footprint and half efficiency because you're left with more efficient box plants. And then there's a piece at the end that's just. You naturally get better with a certain. From a supply chain standpoint.
You know, I'd like to, to grab onto that commercial question and connect it to what Lars. The question that Lars had asked before is when you go back two years to when we started the go to market strategy and looking at the trade offs of value and volume, we were starting from a place of weakness, right? We had on time delivery that was in the 80s, 80% for our network. In the places that have been really hot during COVID which was most everywhere, you had some really upset customers at the same time that that was happening. We underinvested in the box system. So we had a less capable box system.
And if you look at net promoter scores, go back to 2022 and I'm thinking about the data we looked at, we were last of the major competitors, we were in last place in net promoter score, third party verified, we have now moved to first. That is a huge difference. So as Tom mentioned before, the internal metrics that we have matched with third party verified metrics around customer service, it's a different place to be in as we think about winning business over time. So the standing that we have commercially to make, the changes that we're talking about is really different than it was three years ago.
Thanks.
We have one up here afterwards.
Hi, Michael Roxland . Thanks for all the details.
Appreciate the color and the insights.
Just two questions.
First one on the portfolio.
Obviously you closed the Orange Texas mill in January of 2024. You announced the closure of Red River.
Both were virgin mills.
Wondering thoughts around Virginia Virgin versus recycled.
Do you think recycled mills are better.
Positioned and if so, why?
And then secondly, can you help us.
Understand how the EBITDA that you generated, let's say in 2024, $2 billion going up to $6 billion, what the equivalent return on invested capital improvement is from.
2024 to 2027, okay.
There's a lot in there. You guys are really good at asking these complex questions. So if I miss it, Mike, just. We'll come back at that. So on the portfolio side, the virgin versus recycled, in terms of choices of assets that are strategic or not strategic, there obviously is some interplay there that you have to think about. But the more important thing is where are you in competitiveness? So I mentioned earlier kind of points of competition, and I think of points of competition in our, in our world at kind of three places. And in fact, they're actually interconnected. So for our 80s customers, those are mostly national accounts, customers in North America or key accounts in Europe. These are big customers who are touching you across regions. That's one point of competition.
And they're likely to buy from anywhere from two to 50 box plants that they're going to get supplied from. I mean, these are complex relationships. So there's a point of competition there. There's a point of competition then is the capability of a complex. So if you think about what Ram and Murry walked you through, right, they're responsible for areas with multiple box plants. Competition happens around Chicago, right? So that's a point of competition. And then your ability to drive a mill. And what we're focused in on is how do you be, how do you drive the best competitive state you can be in, in. And so when you think about closing an asset of some kind, it means it's because it can't compete, right? It fundamentally is not going to compete.
And if you look at the mills that we have announced closure, one of the biggest things you're looking at is where they are in a cost curve that's very, very important. But also how much capital is going to be required to drive those businesses. So, you know, we have all of the work that we've done specifically in North America will replicate in Europe. You know, we're looking at hundreds of millions of dollars of capital that we now will not have to spend. Right. That we were going to have to spend. You know, they were. These are capital calls that were coming and you either. I want to spend them on places that I can win, right. If I got to put capital into third and fourth quartile assets, you're in trouble, right? You are not going to win over time.
I would rather exit those assets and reinvest back in. The reality is, is you're not going to build a virgin mill in the United States, right? That's, that's not going to. Or in continental Europe. It's, it's that's, that's just not going to happen. And so there is going to be a push and pull around having input fiber. Right. How is that going to happen? So on the recycling side, you know, a lot of people talk about recycling plants as being more competitive. The reality is, is they're newer. Right. And so the big variable is going to be energy in oc, right? Those are going to be the big variables that come in.
And so when you're running a recycled system, which we principally are in Europe, you're going to have more volatility, you're going to have more volatility in energy, you're going to have more volatility in occ. So there are going to be times when you have an awesome competitive cost position and then there are going to be times when you're not very happy. Right. It's going to kind of happen back and forth. My goal is for us to focus in on assets and people, people and customers that we have an advantage. Right. So as we think about asset bases, we think about whether Europe, as we're, as we're going through this work, or North America with the work we've laid out, it's about getting in a position to ultimately win. Now, I know I missed something, Mike, Of the new capital coming in.
So that's a, that's a great question. So, so you're thinking about kind of incremental roic, and I don't think it's a pure view, Mike, of we're going to spend X amount of capital. So we're going to spend $6 billion of capital over the next three years and then dot, dot, dot, the return on investment X, because the reality is the choices that we're making, we're taking really low ROIC business out, whether it's going through box plants or going through mills in some cases actually cash, negative. Right. Are coming out of the system. And so your pool that's left has a higher return and it already does. Right. And then you've got higher ROIC return business like the Waterloo plant. Tom, what's expected? Mid 20s.
Right.
Somewhere in there, you know, kind of a mid-20s return on capital. And so, you know, net net. I'd have to go back and do the math. But at the metrics that we're talking about, with the capital that we're going to spend, spend with the asset base that we're going to have, thinking about the ins and the outs, you're kind of in the 13%, 14%, 15% ROIC in total. Somewhere in there, I Think that's what the math would tell you. Please go ahead.
Thompson, Hill City. Understanding IP is not overly relying on industry pricing in your outlook, but history says industry utilization is important to price.
Sure.
Customers, can you just speak to what IP's current utilization is today and understanding productivity as a continuous process. When you think about the targets, what's your capacity and utilization at those type of levels?
Yeah. So are you talking specifically about mills or are you thinking about box plants also?
Specifically mills.
Mills. Okay. Tom, you want to talk in North America?
Yeah, so sure. Not, not to get into specific operating rates, but I would maybe tie back to the go to market rate, go to market work and think about the fact that in, in our current view, we would have been much faster to take costs out. So the way I would think about it is you have a certain signal from your box plants and you're driving back and saying, okay, what mill capacity do I need? And that is determining the operating rate. And so, you know, we expect that historically operating rates in North America probably been around 93%, 94%. And I would expect those to continue. I mean, just the economics of the business would push you back in that direction. I think we've been behind the curve. Obviously we closed Red river, tough decision. But in reality we, we did need the volume.
And so it's, I would think more about what's flowing back through the box plants and then how do you tie that out? And keeping extra capacity is just keeping extra cost. And I think what's really exciting is we don't have very much in here about the productivity of the existing mills that if you do what Andy said, underfunding a mill by 10% does not cost you 10%. It is staggering the cost through our system. So I think that's probably the biggest upside we have here is thinking about a fixed cost structure that has far more tons coming out of it because we're investing in these best assets. To answer your specific question, I think these operating rates are going to ebb and flow, but they're going to. They're going to tend to be just like the long -, 20 or 30 year trend.
And I think importantly, right. It's when we think operating rates historically we've kind of thought about all volume. And the reality is, is there's this really attractive volume and there is not. Right. Obviously EDT is easy, right? EDT is a, is a net negative. Right. As that comes out of the system, ROIC dramatically improves. The second chunk that's not particularly attractive is what I would call Low value export, right. I want to run my assets and so I run my assets but I have to have someplace to put the paper and so it ends up in a relatively low value also. It's not cash negative, but it might be cost of capital- negative. Right? That is not business that you want.
And I was having a conversation, we kicked off this morning about this in particular, when you think about that, what that says is I'm going to keep my, my poor cost position. I'm going to keep those things open, right? I'm going to keep that capacity open that I lose money on. I lose money for basically what I call building a church for Easter Sunday. Right? And we don't, we don't need to celebrate Easter Sunday in this business like that. We don't need that. We do not need edt. We do not need low or negative value export business. I want to have an integrated business. An integrated business takes volatility out, it takes cost way down, it drives returns up and you control your own destiny. We are mostly integrated in North America. Will be higher. We'll keep to, will continue to move those integration rates.
In Europe it's a little more challenging. Right. There's the. I think it's fair to say guys, that the chessboard, there's a lot of pieces on the chessboard. But in Europe we're going to continue to move towards integration also, right? We want to continue to move there. The question around acquisitions, around how we might consolidate the market. We will absolutely work to do that selectively around the three strategies that we talked about. Where we can drive best cost position, where we can drive high relative supply position and where we can drive customer excellence.
We had one.
Thank you for giving me the last question. Then it's Charlie Muir- Sands from BNP Paribas Exame. Just as a follow up to your comment about wanting higher levels of integration in Europe. And in a way you're sort of over integrated, you know, as in your short board.
So is that, you know, do you see that as a negative?
Because I think previous TS Smith management.
Actually saw that as a kind of.
Somewhat as a virtue given the oversupply of board into the market.
And what, what's the thinking there? And then sort of secondly just on the synergies, you've obviously increased the, the figure. Could you elaborate on where that's coming from? And integration transatlantic of board was one element.
So does tariffs throw that into some jeopardy?
Yeah, thank you.
Let me, I'll tackle some of it and then I'll toss to you. So as we think about the integration question. It is not as simple as are you long or short board? Right. It is, are you long or short the right board? That's a very important thing. So as an example, we sell. What is it, what percent of our paper are we selling to the open market in Europe?
Almost 50%.
About half of it. Right. So we're making half the paper that we make. We don't consume ourselves, which is important for a number of reasons. Number one, it very likely has a lot of the same dynamics that I just walked through. If you have a third or fourth quartile mill that is selling paper into the open market to keep the doors open, that's not a great equation. Right. You either have to be competitive or you have to get out one of the two. And so we're going to focus on being competitive and we're going to focus on investing on assets that we can. So if we're consuming half of it, half of our paper, and we're buying another half. Right. What I want to do is I want to continue to move towards a more integrated approach.
I think we'll probably always be short paper in Europe. It's a matter of how much in which kinds. So do not expect us to move like radically to integrate and buy a bunch of paper mills. No, please don't take that away. We're going to be really smart about how we think about asset matching overall with our business. You want to talk about synergies and where we're seeing it.
Yeah. On the synergy side. So more overhead will come out, higher procurement. And then on the operations side, there'll be operational improvements. And then through some of the 80/ 20 work, there'll be cost savings related to those as well. The one thing that's not, it didn't get a lot of play in the $514 millionHnumber that we published earlier. That was a sensitized number. And we're just beginning to doing the real work is on the revenue side. And I think you heard Stefano and Marc talk about customer on their side. There's customers that we have in Europe that the U.S. doesn't have. There's customers here that we don't have. And so the work's already begun. Marc has been meeting with Tom's Head of National Accounts, Ron Wise, and the teams are starting to come together.
And so that will be an opportunity over the next one to two years.
Thank you guys. And thank you, everybody. So just a few closing remarks. Before I get into the specifics here, I want to say a few thank yous. So first I want to thank our panelists. It's great to talk about these things at a high level. What I find exciting is when you see it real, right? When you see actually how it happens, how it's happening in Atlanta, how it's happening in Chicago, and the fact that you guys can validate whether, you know, we're full of it or whether it's real. And so that's awesome. And then for Marc and Stefano, right, we're a new family coming together and it's been such a pleasure to work with you guys. It's been such a joy to spend time in Europe and work with them.
To see people who are transparent, who are problem solvers, who absolutely want to win and we want to be on the same team together. That's fantastic. So thank you guys all and also thank you to, to the team to put on this event. These things are not easy to do, right? These things are not easy to do. They take a lot of time, they take a lot of effort, but you also get a lot out of it. You get a lot out of it in terms of focus. You get a lot out of it in terms of alignment. And the team led by Jose did a great job. And also to Mark Nellessen , Mark, he's moved into the role, helping Tom with finance. Mark's been the face to this community for a long time. So I want to say thank you to Mark. Great job.
I'll miss you, but you've put us in very capable hands. So thank you, Mark. So, some closing comments. I open this up with nostalgia and I hope what I did was I punctured that very quickly. We are clear eyed about what we have to do here. None of us kid ourselves that what we're tackling is easy. But this team has signed up for a transformation. And it's a transformation of a business that matters. This business matters. We matter to the world. We help commerce move right. We do make the world safer and more productive. In terms of what we do. We have 65,000 people who work for International Paper, 65,000 people around the world. Multiply that by what, three or four?
For the direct families who touch our business, multiply that by hundreds of thousands of suppliers and customers and literally we touch billions of people, you know, or billions of touches through the year with our packaging. This is a business that matters and we're doing it the right way. We're doing it the right way. We are doing it with a view of long term sustainability. It's what our customers want. It's what their customers want. Right. We're doing it with the values of safety, ethics and excellence.
Right.
We're building the world leader in sustainable packaging. This is a packaging company, Right. This is not the commodity paper company of my childhood.
Right.
We are transforming this into a leader in sustainable packaging. We're going after growth, but we're going after profitable growth. And we're doing that with the discipline of 80/20, the discipline of thinking about where is money made in this process business and it starts it where you decide to play regionally. Money is made in this business in North America and principally in Europe. That's where money is made in this business. Then you have to sub segment down to very specific geographies that you've decided you want to win. And mostly around major metro areas and those customers that really matter, the Mondelēz of the world that really matter. We want to grow with those customers and we want to win more customers like that them. But to do that, we have to control our own destiny. We have to control our own destiny.
And that means we have to be a leader in cost. It means we have to have the courage to put the resources around Chicago, to put the resources around Atlanta, to put the resources around Barcelona. Right? We have to do that to win. And when it's all said and done, we have to be problem solvers. We have to be problem solvers. We have to help our customers win. We do those three things and we will be very successful.
Right?
The numbers up here, these aren't easy. I don't kid myself in any way of the challenge ahead of us. And by the way, it's really bumpy right now, right? And we're going to see that. We're absolutely going to see that. I expect for the first quarter, what you're going to see is you're going to see a really nice performance in North America. I expect that's what we're going to see. We're seeing some weakening here as we go through the quarter. But you'll see we're doing what we said we were going to do. That's the bottom line in Europe. It's going to be bumpy. Right where we just finished an acquisition. We're seeing that compression of margin. That's going to happen. That's a fact.
But what we've laid out here for you, hopefully what you saw today is a credible path forward to build a truly great enterprise. And I am thrilled to lead this organization. I'm thrilled to work with this team. It's an absolute privilege to help transform International Paper. So thank you. Thank you very much. Take care.