Good afternoon. Welcome to the RPM International Inc. Investor Day. We're pleased that we have 100 investors and investment professionals who have joined about 40 RPM leaders, which kicked off with a trade show-like presentation of products to focus on growth and innovation, and let those investors that took the time to come to Baltimore for the trade show portion of our Investor Day to really get a sense of our operating leaders and our focus on growth. That is the hallmark of RPM, and we will touch on it briefly in this presentation, but it was important that we had an opportunity to showcase our products and our operating leaders because the vast majority of our presentation today will be focused on our operating improvement initiatives.
This slide is Reg G, and it's important because we will be making a number of forecasts and projections over a two or three-year period, all of which are subject to all kinds of changes between now and then. We're very excited to be here and to present our 2020 MAP to Growth program. I'm going to start with a brief overview of where we've been as RPM. RPM was started by my grandfather in 1947 with his mission statement, "Hire the best people you can find, create an atmosphere to keep them, then let them do their jobs." This mission statement launched that entrepreneurial culture that has been the hallmark of our growth and success. That will remain the bedrock of RPM for decades to come.
Slide five highlights RPM's organizational chart at May 31, 2018, with $5.3 billion in revenues, organized by six groups in three reportable segments, and the key strategic drivers that have underlined our growth for the last 30 years. An entrepreneurial operating philosophy, competitive advantage of leading brands, balance between consumer and industrial markets, growth balance between internal investment and acquisitions, connections creating value across RPM companies, and sustainable shared value. For our 70 years, we have been fierce believers in pushing down as much decision-making as possible to our operating groups and operating companies. This chart highlights RPM's performance in total shareholder return from the period of 2003, when I became CEO, to 2016.
Over this time frame, we more than doubled the return of the S&P 500 and outperformed our peer group by 37%, despite paying out $1.4 billion of our cash flow and capital on a pre-tax basis to resolve an asbestos liability challenge. This strong performance resulted from the benefits of our prior reorganization in 1999 to 2001, our consistently top performance in organic growth in our industry, and a disciplined product line and bolt-on acquisition program. The last couple of years have challenged us and our industry. On this slide seven, are four particular areas that challenged our performance from 2015 through 2017. Foreign exchange headwinds, in part because RPM grew from that $1.9 billion business in 2003, 90% of which was in North America, to the $5.3 billion business it is today, with 35% of our revenues generated outside of North America.
$800 million of that asbestos cost in terms of capital and cash flow was paid out over the last three and a half years. We had two uncharacteristically poor-performing acquisitions that we've talked to investors about in Kirker and Cintia. We in our industry have been facing a deep and prolonged challenge in raw material costs and availability up to and including today. As a result of these challenges, we were engaged with our board in a dialogue to talk about not only the changes that we needed to make to address near-term challenges, but what changes we should be making to position RPM for sustained future success, with the goal of positioning our businesses and our platforms to help drive RPM to a $15 billion or $20 billion business in the coming years. With that backdrop, let me tell you where we're going.
Slide 10 are the three key elements of our 2020 MAP to Growth initiative. The first and most important is maintaining our entrepreneurial growth culture. Competitive advantage of leading brands, entrepreneurial approach to customers in the marketplace in terms of problem-solving, sales, marketing, technical service, all the hallmarks that have allowed RPM to consistently deliver one or two points of organic growth better than most of our industry peers. The second element is organizing to execute, as we reorganize, effective today, from six groups to four, and we move to centralize strategy, structure, and leadership in manufacturing, operations, procurement, IT, accounting, and administration.
The third element is driving operational efficiency and continuous improvement throughout RPM and as a continuing part of our culture. When we complete this program, we will have saved or improved our margin profile profitability and cash flow by $290 million on an annualized run rate for the fiscal year ended May 31, 2021. That's a 540 basis point improvement over the 2018 adjusted results for this past year. As you can see on slide 11, we plan to do this in 3 categories: manufacturing, procurement, and G&A, and accomplish these in 3 waves over the next two and a half years. RPM leaders following me in this presentation will be providing details in each of these categories. Slide 12 highlights our financial goals when we accomplish the MAP to Growth initiative as of May 31, 2021. Revenues will have grown past $6.2 billion.
Our gross profit will get back to a 45% or higher range, and we will have improved our adjusted EBITDA from $688 million to $1.158 billion on an annualized run rate for the fiscal year ended May 31, 2021. A combination of our cost-saving initiatives, operating improvement initiatives will also drive significant savings in working capital, as you can see on this slide, so that by May 31, 2021, we will have annualized operating cash from operations of more than $800 million. We'll provide more details on cash flow later in the presentation. Over this timeframe, we intend to generate approximately $2.2 billion of cash from operations and to deploy $2.5 billion of that, including $1.5 billion of return of capital to our shareholders through a combination of share repurchases and a continuation of our growing cash dividend.
The purpose of our 2020 MAP to Growth program to position RPM for sustained profitable growth, creating superior value for its customers, entrepreneurs, associates, and shareholders. Our vision, to transform RPM into a more connected and efficient company focused on operational excellence and continuous improvement while maintaining the strength of its entrepreneurial culture. To provide details on our operating improvement initiative and the underlying structure and the leadership that was put in place, I'd like to call Steve Knoop, head of our group restructuring, to the podium. Before I do, I'd like to give a little bit of background on Steve, who many of you don't know. Steve joined RPM in June of 1996. Prior to that, he worked at a major law firm doing M&A work, very often on RPM deals.
When he joined RPM, he was our Director of Corporate Development and then Vice President of Corporate Development and worked on every major acquisition that RPM has completed since. During the growing asbestos challenge, I became frustrated with a lack of progress after six or eight years, turned to Steve Knoop and gave him the responsibility to put together a new legal team and to think of a different way of tackling this rising liability issue. Steve and his team were the architects of the SPHC Bondex bankruptcy process that ultimately resulted in a final resolution of the asbestos liability for RPM. We not only survived that, but as you saw on that chart on total shareholder return, we thrived during that period thanks to this strategy that Steve was the architect of.
Lastly, during that time, he learned how to be an operating company leader as he not only led the legal strategy, but was responsible for the $400 million of operating company businesses that were in bankruptcy and ran them until we had our final resolution in 2015. Steve is a well-seasoned, vastly experienced RPM leader who has been at the center of most of the solutions of our biggest challenges, and I'm pleased to have him as the head of our 2020 MAP to Growth program.
Thanks, Frank. We very much appreciate the opportunity to provide details about our operational improvement initiatives that serve as the structural basis for the change underlying our 2020 MAP to Growth program. Before we address these initiatives, I thought it might be helpful to provide some context about the process we went through to get to this point. The seeds of our program were planted over the past 18 months as we've strategically realigned from six groups to four more strategically aligned operating segments: construction, performance coatings, consumer, and specialty products. These realignments allowed us to begin seeking greater efficiencies in G&A, manufacturing, and distribution, such that we have or will have close to 30 locations, 12 of which are manufacturing plants, and reduced headcount by over 500 by the end of fiscal 2019.
In the midst of these efforts, as everyone knows, we came to an agreement with Elliott Management in June of this year to structure and focus more intently on these operational improvement initiatives. We added two new Directors, John Ballbach and Kirk Andrews, who together with Bob Livingston and Tom Gross, formed an Operating Improvement Committee of the board, whose charter is to work with management to conduct a comprehensive and rigorous review of our operations and provide the board with recommendations for margin improvement. In conjunction with the formation of the Operating Improvement Committee, we engaged AlixPartners, a prominent national consulting firm, to accelerate our efforts and provide expertise, analysis, and best practices benchmarking regarding potential improvement opportunities.
It was also important that we engage every functional area of the company, from manufacturing, procurement, IT, finance, tax, and legal, in an RPM Steering Committee to make sure that our process was comprehensive with no stone left unturned. We drove our functional and consulting resources down and through our operating groups. This intensive six-week diagnostic process began in mid-July and culminated in an RPM report with conclusions and recommendations delivered to the Operating Improvement Committee at the end of August. This diagnostic evaluation focused on significant opportunities for improvement in manufacturing, procurement, inventory management, administrative efficiencies, and working capital. This chart expresses the diagnostic review that confirmed that our operations and our management and administrative footprint had become too complex and inefficient. We have 155 plants, 67 of which operate on one shift. We have 218 warehouses which followed suit naturally from this manufacturing footprint.
We had 104 accounting locations handling 163 auditable entities and 354 legal entities, with 75 separate ERP systems supporting these discrete entities. At the same time, we had 5,140 suppliers dispersed across the entire enterprise. We, together with our consulting partners, saw tremendous opportunity from this data. To get at these opportunities and to achieve the greatest benefit in the shortest amount of time, we realized that changes would be necessary. As I noted, we have already realigned our businesses into four operating segments that serve common end markets, have compatible manufacturing processes, and can drive efficiencies in management and administration. This is step one. Step two is a more profound change, where we are taking a broader strategic perspective and becoming center-led in manufacturing and operations, procurement and supply chain, information technology, and accounting and finance.
You will hear exactly what those strategic changes mean in the presentations to come from my colleagues. Taking a more strategic perspective in these areas at the corporate level required us to align resources to that new reality. As Frank mentioned, I've transitioned from President of the Specialty Products Group to full-time leader of group restructuring and have been ably replaced at SPG by John McLoughlin, an RPM veteran who you met this morning. Gordie Hyde, who you'll hear from later, has been elevated to RPM's VP of Operations, focused on driving manufacturing efficiencies. Gordie has been SPG's Vice President of Operations and has over 30 years of experience in the paints and coatings industry. Tim Kinzer has also been elevated to VP of Operations with an emphasis on building a center-led procurement organization.
Tim was the VP of Operations at DAP and has extensive experience in building materials manufacturing and supply chain logistics. Lonny DiRusso has recently been promoted to Chief Information Officer and has been the VP of IT at RPM for over 15 years. In that time, Lonny has led over 50 ERP conversions and integrations for RPM. Joe Tullo, RPM's Director of Internal Audit, will be working with me and Rusty Gordon to seek a more efficient organizational design of RPM's finance and accounting function. Before running internal audit, Joe coordinated our SOX compliance organization-wide and has a keen understanding of our organizational capabilities and our needs in this area. Finally, what's really important is that we've enhanced our resources at the group level to help drive these strategic initiatives and make sure that they cascade throughout the entire organization.
With these resources in place, we've already started implementing the detailed projects that build up to our comprehensive program. Each project has dedicated teams attached to it, a timeframe for implementation, and savings goals. We have a robust savings tracker that is coordinated across functions and across business units to ensure that the benefits are showing up to the bottom line. We have regular interface with the operating improvement committee to ensure they remain involved in the details and the direction of the program. We've made extraordinary progress since mid-July and anticipate continued momentum as we get fully operational, such that we can meet and exceed the targets set forth herein. We have the right team and the organizational enthusiasm to tackle this work. With that, I'd like to introduce Gordy Hyde to discuss in greater detail our manufacturing strategy.
Thanks, Steve, good afternoon to all of you. I appreciate the opportunity to talk to you about our manufacturing strategy as we work to accelerate manufacturing improvement in order to support profitable growth throughout RPM. I'd like to set the stage talking about RPM manufacturing today, or as it was, we've already started to make improvements, and in order to explain where we're going. We continue to be highly decentralized and have for many years had our operations cluttered into six groups, which as you've heard, have been consolidated now into four. These groups have their manufacturing organized by individual business units for manufacturing capacity, capital allocation, and manufacturing strategy. In this decentralized structure, we're able to realize the need for margin improvement and have planned the closure of 12 plants and their associated warehouses early this year, which we are presently on track to implement.
However, we recognize this is not enough to return us to the leadership position in both growth and margin and that we had a need to do more to return ourselves to that leadership position in margin improvement. As Steve told you about, we entered into a rapid assessment in the summer as we moved from six operating groups to four. In that change, we found that while we deliver high-value products and services, that we do that with brute force manufacturing. The results of brute force operations are high inventories, inefficiencies, and those types of things to go forward. These are findings that obviously scream for a new strategy, not some incremental change.
This new strategy, which we call center-led, is intended to support our entrepreneurial culture that delivers high value in the marketplace while focusing on the organization of our facility assets, consolidating our operations into fewer and efficient plants. Where we have historically focused on facilities in support of a single business, where appropriate, we'll deploy our assets across RPM operations and groups. Asset allocation is in the same context as the plant consolidations, manufacturing human capital, and investment capital. We'll implement this strategy with a collaborative team led by myself that consists of Tim Kinser, RPM's Vice President of Operations, responsible for procurement, that you will hear from shortly, RPM's Vice President of EH&S, and the four group vice presidents of operation.
This group will operate as a team, guiding the implementation of $75 million of manufacturing improvements, which we are targeting for the MAP 2020 growth initiative, as well as helping lead the RPM strategy of allocating human and investment capital in support of effective RPM manufacturing. Essentially, the group will guide the development of the RPM manufacturing system, MS-168, which is the establishment of plant management processes across all RPM facilities, where we will employ tiered-based and data-driven operational reporting, monitoring, and improvement. This tiered-based reporting system of standard versus actual establishes a cadence of hour-by-hour reporting on the shop floor to shift-by-shift reporting to the plant manager who reports out to upper management on a weekly and monthly basis. This cadence of constantly monitoring and addressing performance forms the core of the new RPM manufacturing system, MS-168.
The standards against which we'll measure our performance will be safety, quality, productivity, and service, and the system will be recognizable to anyone who walks our plant floors. Operators and supervisors and team leaders will be able to talk with facts about the safety, quality, and production performance, and this performance will be visually displayed so the corrective action can be taken whenever a gap occurs between performance and standard. Similarly, operators will know their three leading causes of operational equipment effectiveness and yield loss because they are working on improvement hourly and throughout each shift in order to create ever-improving standards and establish a culture and a regular cadence of continuous operational improvement. So what this program is a program focused on waste elimination, efficiency, and margin enhancement. It's fact-based and data-driven for continuous improvement, and it establishes standards on which performance is based and improvement is measured.
What it isn't is some cookie-cutter, check-the-box program. It's not a program focused on some elegant tools that consultants love to sell you or a program divorced from business performance. We'll implement this strategy utilizing three tactics between now and the end of 2020. The first is attacking zero-based yield and operational equipment effectiveness, OEE. Implementation of a program of zero-based yield in each of our plants will have us address less than world-class process losses that we see across RPM facilities. By addressing quality of incoming raw materials, variation in our processes, and all points of loss, including yield losses hidden in bills of materials and inventory cycle counts, will deliver $14 million of margin improvement. Similarly, addressing overall equipment effectiveness, we will improve uptime maintenance, we'll improve maintenance practices, and general equipment operation to deliver another $13 million in margin performance.
Besides delivering this $27 million of margin performance, this work will be the catalyst for establishing the RPM Manufacturing System. It is this new manufacturing system, MS-168, that will prepare our plants to operate more effectively across RPM businesses, developing a culture that executes effectively rather than firefighting. Establishing this ability to execute, driving lower costs and higher quality will allow us, in parallel, to optimize the utilization of our assets. We'll be moving manufacturing from inefficient small plants to larger plants that effectively implemented the good management processes that we are putting in place within the RPM Manufacturing System. Assets will be optimized in three ways. First, plants already targeted for closure will be completed.
At the same time, we'll be studying all our North American plant systems where we have a single plant, shift plant, whose manufacturing can be accommodated in larger, more efficient plants that are bracing our new manufacturing strategy and execution. Similarly, we'll be creating a European manufacturing footprint in conjunction with G&A consolidations that more efficiently services the businesses' needs in that part of the world. In wave 2, we will implement the consolidations identified in wave 1, and we then continue the consolidations in wave 3 based on learnings in wave 2. By the end of our 2020 MAP to Growth initiative, we have closed 31 plants and associated warehouses, delivering $48 million in margin improvement. Finally, I include inventory reduction as a third tactic in our implementation of the new RPM manufacturing strategy and its associated system. Inventory is the number 1 waste of failing inefficient manufacturing.
Thus, as we improve the execution of a reduced manufacturing footprint, we will see changes in production planning and control that will improve inventory turns. In addition, as we optimize our manufacturing footprint, we have plants that effectively manufacture in small batches. These plants, in an asset base that now serves all RPM, will be utilized to relieve plants designed to manufacture large batches of the burden and complication of small batch processes trying to be performed in a large batch environment. With low moving SKUs removed from the complexity of our large manufacturing plants, high volume SKUs can be manufactured to turn significantly more often. Thus, as you will hear when we discuss working capital, we'll first reduce inventory in the consumer group by $50 million, and then spread that across the enterprise, reducing inventory by $146 million by December 2020.
Finally, I'd like to take a moment to summarize. Our new center-led manufacturing strategy will implement a new RPM Manufacturing System that more effectively executes and creates, and actually demands, plant environments of continuous improvement. This new system will drive three nine-month waves where we will identify and implement incrementally $32 million, $27 million, and $16 million of margin improvement that will result in a $75 million margin improvement in fiscal year 2022 versus fiscal year 2018. Significantly hard work that has to be completed by all our operational associates, we have a plan and a goal that we believe will be accomplished. Now, I'd like to turn the podium over to my operational counterpart, Tim Kinzer, who will explain to you that it is not only on the plant floor where RPM will be fixing their operations. Tim?
Thank you, Gordy, and good afternoon. I'm going to discuss the opportunities that we have identified in the procurement area and the structure changes that are being implemented to position us to achieve our savings target. To understand the changes that are being implemented, it's important to first explain our current procurement structure, which is best defined as decentralized with collaboration. Although no formal reporting structure is in place in procurement, for years there has been a collaborative approach to RPM procurement. This collaboration was enhanced greatly last year with the implementation of the business intelligence system, which has allowed visibility across our operating companies to the others' purchasing data. It is our plan to build upon the collaborative culture that exists with a center-led structure. In this structure, we will have a team of RPM corporate associates that will lead the procurement strategy for RPM.
Operating group purchasing personnel will have dotted line reporting to the RPM procurement team. This will allow greater leverage, supplier consolidation, controls, and consistency in our practices and policies. In September and October, we finalized the structure and executed the hiring process for the team. We worked closely with AlixPartners to analyze opportunities and assess the category priorities. This month, we onboarded the team members, held kickoff meetings, and have been formulating the category strategies. I will be leading this team and will have six strategic sourcing managers, three in chemicals, one in packaging, one in logistics, and one in indirect. The strategic sourcing managers will be responsible for developing a strategy for their categories, collaborating with the operating group teams, strengthening strategic supplier relationships, maintaining master material lists, and controlling the addition of new materials, driving value engineering activities, and maximizing insourcing.
This is a significant change to how we have approached procurement at RPM, and it will provide a great opportunity for us to leverage our purchases for improved margin and working capital. In the past, operating groups could choose whether or not to participate in an RPM agreement. Going forward, we will require full participation and compliance with the agreements that are reached by the RPM team. To drive the activities and compliance through the operating groups, I will be chairing a procurement executive committee that will be comprised of a senior leader from each of the operating groups. This committee will provide guidance to the procurement team and act as advocates to ensure that the strategy is implemented. We will also have two subcommittees that will provide oversight to the value engineering and insourcing, as these two areas are critical to achieve our targeted savings.
We've evaluated the categories of materials and quantified the addressable spend in each of the areas. We then assessed the opportunities based on a review of our current practices and benchmarking data. In addition to the opportunities identified during the assessment, there were a number of procurement projects that were already in progress. These in-flight projects include distribution consolidation and direct sourcing of materials. As we have done with the manufacturing improvements, the savings projects have been broken down into three waves. We are projecting that the total procurement savings will contribute $145 million to our 2020 MAP to Growth plan. Wave one is primarily in-flight projects and high-priority projects. Wave two and three are a combination of savings projects and commodity cycle recovery and total $60 million and $65 million respectively.
We are off to a great start with the procurement team. I'm very excited to have the opportunity to lead the transformation of the RPM procurement model. I will now turn it back to Steve.
We're not just attacking the manufacturing and procurement opportunities that we just heard about. From an administrative perspective, our move to four operating groups has helped simplify our management structures and has provided administrative efficiencies already. As I noted earlier, these efforts have resulted in plans for significant headcount reductions, as well as better strategic alignment and coordination among similarly situated businesses. Further material administrative synergies are planned as we undertake our efforts at becoming center-led in many aspects of IT, finance, and our legal functions. In our remaining time, we'd like to share the efforts we are making in those areas. We'll start with IT and Lonny R. DiRusso, RPM's Vice President and Chief Information Officer.
Thank you, Steve. I'm here to talk about the corporate-driven, center-led IT strategy and how it will support the MAP 2020 efforts going forward. The overall mission of this strategy is to centralize, consolidate, and standardize on our systems, technologies, and business processes within our operating segments and across the entire organization. The diamond-shaped graphic depicts the two components of this strategy. I'll talk to each over the next few slides. First, let me provide an overview of the IT Executive Oversight Committee, which I chair, and who consists of our operating segment and corporate IT executives. This committee will drive the execution of this strategy. Their responsibilities include overseeing their respective operating segment integration efforts, along with chairing our IT centers of excellence areas.
This committee has existed for many years, but the objectives have elevated from a knowledge-sharing platform to a committee that will now set and enforce IT policy throughout the organization. As it pertains to our operating segment-level component of the strategy, we will expedite our integration efforts, centralizing the entire organization onto one of our four existing platforms, which includes ERP and other ancillary IT systems. Some of you may ask, why centralize on four instead of one? We answered this question early on in this process. We concluded that centralizing on our existing platforms allows us to complete our integration efforts quicker, will be less risky and disruptive to our operations, and will be less costly, and will allow us to get at our projected benefits faster because the majority of our largest entities already reside on one of these existing ERP systems.
Two, each operating segment has very strong IT staffs with many years of experience supporting these ERP systems. Three, the operating segment integration efforts will run concurrently, allowing us to complete these migrations quicker. Lastly, as we integrate each operation, we will continuously collapse and centralize support services, thus reducing expenses by eliminating redundancies. The dots on this map show where our operations are geographically concentrated. It's within these geographic regions we have identified additional opportunities to create other back-office support service centers, not only in IT, but in accounting as well. As you look at this slide, each operating segment will execute their integration efforts in a similar manner and expect to achieve the same types of benefits as well. One, by developing a global template based on common processes and leveraging standard features.
By utilizing internal resources to manage each migration using outside global partners to expedite the process. Lastly, by involving management within each entity to govern the process. Ultimately driving efficiency, productivity, and improving the visibility and operational performance across their operating segment. Lastly, regarding our corporate-wide component of this strategy, we have formed centers of excellence teams who will also identify further opportunities to centralize, consolidate, and standardize across the entire organization. Again, these teams are chaired by the IT Executive Oversight Committee and includes other IT leaders from our operations to fill out the teams. Each team is formed, charters have been developed, and immediate areas of focus have been identified. These teams are stoked and feel there's plenty of hidden opportunities we can get at, which will provide additional cost reduction opportunities across the organization. Thank you, and I now hand the presentation off to Rusty Gordon.
I'm Rusty Gordon, RPM's Chief Financial Officer, and I'm going to talk to you today about our efforts to reduce SG&A expense. I'd like to start by talking about the picture on the left side of this slide. Our margin acceleration plan really starts with the customer. There's certain areas, when you step back a minute and think about RPM's history, where our structure has served us extremely well. Our operating companies are very nimble, close to the customers, and our customers really appreciate the great local sales support, tech service, focused marketing that they receive from our operating companies. On the other hand, there are certain activities that our customers don't see, that they really don't care too much about, such as where we process payroll or where we accomplish general ledger accounting.
There are certain activities that are invisible almost to the customer, those are areas that we can target for streamlining for more efficiency. This next slide shows a byproduct of RPM's tremendous growth. As Frank mentioned, when he became CEO, 10% of our sales were outside North America. Today, it's closer to 35%. As we've grown, whether through acquisition or internationally, we have developed a complicated organization structure. As you can see here, we have 104 accounting locations, 633 personnel involved with this function, and these accounting locations really blanket Europe, the U.S., the U.K. In fact, there's so many dots over the U.K., you can't even see it on the map. Asia Pacific, I'd point out as well, is only 2% of RPM sales, and it's almost 20% of the accounting locations.
I mentioned earlier that there's certain areas where RPM's structure has been a challenge, and one of those challenges has come through the way of increased regulation. Increased regulation and Sarbanes-Oxley has not been kind to a decentralized holding company such as RPM, in that we have a number of small business units with small office staffs, and they are often overwhelmed with the segregation of duties required under SOX. There's good news. There's an opportunity to reduce complexity and have better controls at lower cost, and those are not mutually exclusive. We can have our cake and eat it, too. We can have better controls and lower cost by breaking down the walls between our business units and better leveraging our capabilities in accounting.
We're going to work in partnership with Lonny in IT, who's going to be paving the way with consolidating ERP systems, and that'll allow us to consolidate accounting locations as well. I want to be clear here, we're not talking about centralizing accounting and finance at RPM headquarters. When we discuss center-led, what we're talking about is enlisting our four group CFOs with myself in a council that's going to optimize our finance organization, leverage our best practices, and set policy and direction. Our goal here is to help our four groups in their effort towards better controls and lower cost. I'm not sure we'll get down to four accounting locations for our four groups, but I'm very sure that we're going to do a lot better than 104 locations. Speaking of center-led, we've already accomplished this in our legal function at the end of FY 2018.
We centralized litigation management at corporate with one new hire. We did the same in Europe with an existing RPM attorney. This has allowed us to have a more consistent and strategic approach to managing our risk. It's also more efficient. We've been able to reduce the number of operating group general counsels from five to three and eliminate four administrative positions along the way as well. We're going to do the same thing in our compliance function, where we're hiring two personnel at corporate headquarters. This will alleviate the need for our operating companies to hire compliance personnel. In our legal department, we're also making investments in technology to improve our efficiency and effectiveness. We have invested in a litigation management system that's going to audit invoices, track our spending versus budget, and keep updates on our status of litigation.
We've invested in a contract management system to routinize the generation of contracts required by our operating companies and standardize those agreements, such as distributor agreements or commission agreements. Down the road in the future, we're looking at using artificial intelligence to automate a lot of our compliance and audit tasks. We can use bots, for example, to search through our contracts and financial data for certain red flags that require further action. Another step we're taking is we're reducing the number of outside law firms that we use. By consolidating the number of firms, we can better leverage our spending. We can also negotiate better rates and reduce the learning curve since we'll have the same lawyers working repeatedly with RPM companies. To summarize SG&A, we're looking at savings of $70 million. Wave one, we've already kicked off.
We already disclosed some restructuring and RIF activity in our consumer segment in the fourth quarter of FY 2018. In the first quarter of this year, we had similar activity in our industrial and specialty segment. Wave 2 here shows that we're starting to consolidate the number of accounting locations. That really accelerates in wave 3 as we collapse ERP systems, and that allows us to consolidate more administration. To summarize, as RPM has grown and our four groups have grown, we've reached the point where we have the scale to really improve efficiency. As I stated, our margin acceleration plan really starts with the customer. We're going to do what matters most to our customers, and those things that don't matter are areas that we're going to do as efficiently as we can. You saw some new faces today. We have some new personnel to help us get this accomplished.
The good news, we should also talk about RPM's growth. This is going to help RPM's growth in that we're going to have better platforms to integrate bolt-on acquisitions, and we can certainly integrate bigger acquisitions when we get this project accomplished. We're going to have good ERP systems, good controls, and we can leverage those in the future so that our top-line growth can fall through to the bottom line. The last point I'll emphasize here is that this is more than a project. This is significant cultural change. This will be going on after December of 2020 as well. I'm going to shift gears a bit and now talk about the cash we plan to generate over the next three years and what we plan to do with the cash. First of all, I'd like to talk about working capital improvements.
We've targeted a reduction of $230 million of improvement in working capital. We've always been higher than our peer group on this metric, and this reduction would get us down to some of our peers' level. As Gordy mentioned earlier, two-thirds of this will come from inventory, the rest from extending payable terms. Tim is going to lead this on the procurement side in terms of extending payable terms, and as Gordy mentioned, on the operational side, we're going to improve efficiency and reduce inventory as well. In terms of capital allocation, the first priority I should mention is as we look at how we allocate capital, the number one priority is what we call protect the house. It's to protect our investment-grade rating. That's very important to RPM because we want to continue to do acquisitions year in, year out, in good economic cycles and bad.
We need to have that access to the capital markets that an investment-grade rating provides. We're going to make sure we protect that and protect those metrics before we get to the other ways of allocating capital. One part of this pie I'd like to direct you to is the orange portion, share repurchase. That has not been significant for RPM for a lot of years. Over that time, there's been a big slice of this pie called asbestos, and I'm pleased to report that we made our last payment to the asbestos trust in May. That's in the past, and now that's been replaced by share repurchase. Dividends are also a part of this. We've raised our dividend 45 straight years, provide the predictable return for our shareholders. We'd like that to continue. Then M&A spending as well. We're going to continue to do acquisitions.
We just did a look back over the last five years with our board and saw that our acquisitions yield an internal rate of return of close to 20%, so that's really good, and we'll keep that going. This slide really shows the amazing impact that we can have by simultaneously improving working capital and improving margins. Our operating cash flow more than doubles from 2018 to 2021, and for those interested, the tax reflected here reflects about a 25% effective tax rate. Over the three years, as Frank mentioned, we'll generate over $2 billion of cash, $1 billion going towards share repurchase. We made a big step towards that $1 billion yesterday when we redeemed our convertible notes for mostly cash. As a result of that, we were able to remove 3.3 million shares from our diluted EPS calculation, and also do so without increasing debt levels.
We've also done open market repurchases of a little over $80 million this year, so we're well on our way towards the $1 billion of share repurchase. Also, this chart shows a continuation of M&A and dividends, and the biggest portion, again, is repurchase. If you look at the $1 billion of EBIT that Frank showed earlier, our stock price today looks like a good investment, we will keep that up. That's all I have, and I'll turn it back to Steve.
As we've noted previously, our plan is detailed, comprehensive, and implementation teams have been identified to achieve this $290 million in savings. That is in manufacturing, procurement, and the G&A area. We're knee-deep in Wave 1. We expect to have in place $83 million of improvement in fiscal 2019 that will benefit 2020. Wave 2 continues our progress throughout fiscal 2020, focused most intently on the benefits coming from our efforts in the procurement area. Finally, Wave 3 is the culmination of our 2020 MAP to Growth program. What I like to believe is that Wave 3 embeds the notion of continuous improvement and solidifies our efforts around these areas of strategic change. I think as you heard from the team, that there's a great commitment and excitement to get after it, and we're on it and ready to go. Frank?
I'd like to conclude with this financial table. This financial table highlights the annualized run rate we expect to be at May 31, 2021, and it was also a process that we went through with our board as a top-down check on our MAP to Growth initiatives and goals. As you heard today, this program has truly been built from the bottom up by these different areas that generated the savings that we will be getting over the next two and a half years. With our board, from a top-down perspective, we looked at the revenue growth, a CAGR here of 5.6%, and felt that that was reasonable in light of the 6.7% compounded annual growth rate that we've experienced over the last 20 years.
We looked at a compounded annual growth rate of gross margins, which are improving from 41.7% to 45.4%, and felt that in light of the improvements that we've identified and the benefits that we would expect to receive from a commodity cycle margin recovery, that this too seemed to be reasonable in light of our program. We finally looked at the SG&A as a % of sales, while it continues to grow to support sales, marketing, customer service, product innovation, it will be growing at a much more modest 3.7% pace, the rest is simply math. That math allows our EBIT to grow from $563 million of adjusted EBIT at May 31, 2018, to over $1 billion on an annualized run rate for the fiscal year ending May 31, 2021. A comment on the EPS range here of $4.90 to $5.30.
Given our forecast, we believe that we'll likely be at the lower end of that range on an adjusted basis for the fiscal year-end May 31, 2021. On an annualized run rate, we should be operating at the higher end of that range, which will obviously be realized in the following fiscal years and should be enhanced by continuing growth of the RPM companies. In conclusion, we're excited. This has been a very intense, very focused program across all of RPM. As you've heard, it does incorporate some cultural change, particularly in our manufacturing and operations area and back end. We are committed to maintaining that entrepreneurial approach to the market that has been the hallmark of RPM's growth and success.
When we achieve our vision for RPM to be a more connected and efficient company focused on operational excellence and continuous improvement while maintaining the strength of its entrepreneurial culture, we will truly be tough to beat. I thank you for your attention today, we're going to take just a minute to gather our leaders up here on the stage, after which we'll be happy to answer your questions. Thank you. I think so. Good. Right up front.
Thank you. Thank you. Ben Sanders with Morgan Stanley. I'd be interested to start off with, you just mentioned the impact that could be at the bottom end of the EPS range for fiscal 2021. You don't have a range for EBITDA 2021. What's the connectivity there? Also within that, what are you assuming in terms of raw material prices, raw material costs, foreign exchange? Two things that obviously had a big influence on results over the last several years.
We have assumed that foreign exchange would be stable over this time frame. All of the run rates there, except for revenues and that EPS range at May 31 are annualized run rates. That $1 billion of EBIT is the annualized run rate that we would be expecting to be operating at, not the actual results that we're forecasting for that year. That's because we will continue to be executing the third wave of our MAP to Growth program up through December 31, 2020, so for the first seven months of our 2021 fiscal year. On the raw material front, you saw those three waves. I think it's safe to say that we expect that the process improvement that Tim Kinzer is leading will drive somewhere in the neighborhood of $80 million of procurement savings.
That last notion in Wave 3 of $65 million is our best guess at what the benefits of a raw material commodity cycle recovery would be. Obviously, that number is going to be higher or lower based on how raw materials react as this commodity cycle, which has been long and deep, winds down, which at some point it will.
That's from today's baseline?
Yes.
$60 oil?
Yes. It's from the baseline that we're experiencing today. Yes, sir.
Thank you, Cliff Ransom. First of all, I'm very familiar with Alex. I think he has very strong people. I'll start over. It's Cliff Ransom. I know Alex well. I always get a little nervous when people keep citing cost savings and headcount reductions when you're talking about continuous improvement. Do you have anything that'll make me feel better about that?
I think the right person to answer that is Gordy Hyde, who's leading our manufacturing efforts. Gordy?
Yes. I tried to make it as clear as possible that it's not just all cost reduction and improvements, is that it is a change in the way we manage our plants from establishing standards and performing against those standards on a daily basis. Being able to understand the difference and the gaps between those standards and improving them, and delivering that all the way across our plant management processes. Yes, there's going to be some reductions because we have an awful lot of capacity that we don't need, and we're going to consolidate that. The bottom line, the big thing is this manufacturing system is going to create a cadence of continuous improvement. With the resources we have, we're going to do a whole lot more as we grow.
I would just add that up until this year, we did not have any RPM-wide manufacturing metrics or measurements to measure performance. Those are being established across all our sites today, and that'll make a huge difference. Yes, sir.
Thank you. Ghansham Panjabi at Baird. Thanks again for hosting us. On the working capital reduction, which seems pretty ambitious at $230 million, can you give us some of the buckets associated with that, including SKU rationalization, if that is part of the bucket? Second, the 3% organic growth you've targeted through fiscal year 2021, is that net of all the SKU rationalization?
Could you repeat the second part of that question?
The 3% organic growth, is that net of the SKU rationalization? Thank you.
Sure. As it relates to SKU rationalization, we don't plan anything out of what is ordinary that our businesses would do on a regular basis in terms of the core of products that you've seen, for instance, this morning. What we have been looking at and are executing is the shutdown of some small operations, typically overseas, seeds that were planted in developing countries that after three or four years are not bearing the profitability that we want to see. The reduction in revenues over this timeframe, which could be as much as $60 million-$80 million, is going to be generated more by product line or foreign locations that may be closed or rationalized. As it relates to the buckets, again, I think Gordy Hyde and Tim Kinzer would be best positioned to answer questions about working capital. Gordy?
In terms of the inventory, once again, it's a change in our process and the way we're going about manufacturing. Instead of having a business focused on their own business and low turning SKUs and high volumes, we're able to use all of our assets across. We can use small batch plants and large batch plants, and when we get those large batch plants that have those large volume SKUs, we're just going to turn them more often because they're not going to have to be planning to break into a run because they've got a small batch to run that's going to be run in another facility. In terms of the breakdown, that's how we're getting to that $146 million worth of inventory reduction.
Frank.
Yes, hi. Frank Mitsch, Fermium Research. RPM has been known, I guess, as an acquirer of choice, a preferred party to go to when an executive is looking to sell his family-owned business or what have you. Part of it was you would bring them on board and let them continue to run the company as is. Now you're going to more of a centralized strategy. Do you have any concerns as to your ability to continue the impressive track record of acquisitions like Rusty mentioned, the 20% IRRs? How do you think about that? I guess the flip side of that, as you look at your portfolio today and you've done this review, are you thinking about any possible divestitures?
The first part of the question related to acquisitions. I think we've had a good track record of completing acquisitions that we integrate and still retain the entrepreneur. Rust-Oleum has done that as well as anyone at RPM. I was at the Rust-Oleum sales meeting in June, and the son and grandson of Miracle Sealants were there. They're going to be product managers of that category and that business and that product line, even though those businesses' back-end activities will be integrated into Rust-Oleum. We acquired a company in Minnesota called Citadel, which is the basis for the RockSolid product line. Patrick Ilfrey, the inventor and the owner-operator, is still with Rust-Oleum, driving growth in their floor coatings, even though, once again, that's been integrated.
We've had good success in that. We intend to continue to maintain the brands that we're buying and maintain the sales forces and the distribution and the innovation that comes with it. If there are opportunities to integrate production and/or integrate back office, like the few examples I gave, we'll do those, and I think we'll still have a significant edge over many of our industry competitors in how we handle acquisitions and the reputation that we have. On divestitures, we do not have plans for any divestitures at this point in time. That's something that we look at with our board on a regular basis. In the back.
I'm Charlie Rose with Cruiser Capital. I'd like to understand a bit about how Elliott, how their involvement here has gone on, how their board influence. I had the pleasure of meeting you, Frank, in Boston about a couple of months ago, where you actually intimated that you need to take a fresh look at how the company would function going forward. I'd like to understand the process you've gone through, a bit about how you see that process. You've obviously drank the Kool-Aid, and I like the Kool-Aid, but you're telling a fabulous story. I'd like to understand how they and you form a relationship and how that relationship will continue in a constructive way. More importantly, how does the company metrics get influenced in a recessionary environment?
Sure. The core question was related to our engagement with Elliott Management. They first contacted us at the end of January. I thought of who would be a good wingman, if you will, to partner with our dialogue with Elliott, and immediately thought of Steve Knoop for some of the reasons I mentioned earlier. To say that our early meetings were easy and light would be incorrect.
Sure.
They were very challenging to us. I think they quickly realized that we were on this path already. I think we both managed the process such that it relatively quickly went from a challenging process to a very constructive process. I'll give you one example. We had, before Elliott introduced themselves to us, already marched down the path of engaging a major consulting firm to do a soup to nuts analysis. We had our third meeting with them, we highlighted who that firm was with Elliott. We signed an NDA and shared with them some of the early stages of the operating improvement initiatives that we had been working on.
When we expressed that this was the consulting arm of a Big Four accounting firm, Elliott suggested that they didn't have very good experience with the consulting arms of the Big Four accounting firms, that they were expensive and very high level, and they had a way of continuing their engagement. We asked who they liked, and they said they liked AlixPartners. Indirectly, we connected with AlixPartners, and they came and gave us a presentation. To an earlier question, they very quickly appeared to be more roll up your sleeves, get in your plants with senior people kind of folks that in contrast, connected with pretty quickly. Interestingly enough, we engaged Alix before we announced our settlement with Elliott. It was a good suggestion, and we were moving in that direction anyways.
It would probably take a couple of beers and a few hours to talk about the whole dialogue, I will tell you, contrary to questions we've had or things that people perceive, our engagement, with Elliott, including the addition of the two directors that we have, has been very constructive and very helpful. I think Steve Knoop jumped to the enthusiasm side of this before I did. This has been a great process for us, and it's highlighted a couple of things about our business that have been very helpful and will pay off beyond this 2020 MAP to Growth period.
Do they own stock?
I don't know how much stock they own. I know that at the date of our settlement agreement, as part of one of the addendums, they highlighted their specific ownership at that time, and it was 3.1%, I believe, mostly through various derivative contracts. What amount of stock they own today, I do not know.
Can you just come back to the other question about the metrics of the company in a recession?
Historically, RPM is managed fairly well through recessions. We've had two down years in revenues in our history. I would expect us to manage fairly well in recessions. As we've seen over the last couple of years, a risk factor in RPM today that did not exist 10 years or 20 years ago is our exposure to foreign exchange. We've got really good leaders and really strong businesses in places like Turkey and places like Brazil and places like South Africa. Relatively small, but really well run, continuing to grow business in Argentina. All those places have been clobbered from a currency perspective, aside from larger currencies. That's a risk that exists today and will continue to exist that we need to communicate more on and figure out how to manage better. Yes, sir.
I follow your logic on the value of retaining prior owners and driving innovation. How do you incentivize all your employees to drive productivity? A question for you, Gordy. How do you incorporate benchmarking in these metrics that you're setting goals for the manufacturing plants?
I guess I can answer the first question. Let Gordy answer the question about benchmarks. I think the entrepreneurial culture that we have and the structure that we have, particularly on sales and marketing and how you meet and compete in the marketplace, has been very attractive to entrepreneurs and self-starters. There aren't layers of sales and marketing people. Nobody's got to wait for a decision to come from the corporate headquarters. We have attracted and internally grown people that like that.
John McLaughlin, who Steve Knoop mentioned, who was at DAP for a while and is now the group president of our Specialty Products Group, at one point in a presentation internally talking about himself, he was prior at USG, he was at a big cosmetic company, and he said that one of the things he found unique about RPM is it's the only place he's been where people that have real ambition don't aspire and conspire to get to the corporate headquarters. In fact, everybody wants to stay away from the corporate headquarters. That culture's been developed over 30 years, and it's a very healthy culture, and we intend to continue that. On the manufacturing metrics, I think Gordy's in a better position to talk about that.
Well, that's one place where AlixPartners has been very helpful. Obviously, they've been in lots and lots of different places, so can bring a lot of help along the benchmarking. RPM, why it's the best home for entrepreneurs, it's also a good place where people in our industry find that this is a better place to work and a lot more challenging and a lot more exciting. We bring in people from our competitors who bring with them some knowledge on metrics that exist in the industry and allows us to help us set that benchmarking.
Kevin.
Kevin McCarthy, Vertical Research Partners. Two questions. Frank, I was wondering if you could comment on the total cash cost required to achieve the $290 million in savings that you target across manufacturing, procurement, and SG&A, and how that will flow through your financials. Second, recognizing that we're a few days from the end of your fiscal quarter, just wondering if you could comment on the demand trends that you're seeing across the business over the last few months.
I think Steve could address both of those.
We're expecting between $125 million and I think $130 million of cash costs, depending on how things shake out over the course of the period. In terms of the current business, things are still somewhat difficult in the top line. Raw materials are still a headwind for us. I think that what Frank has said in the past is coming true, which is sequentially, we're starting to improve, and we'll start to see some of that improvement. Low single-digit growth for the quarter, I would say.
Yes, sir. Mike.
Hey, Frank. Mike Sison, KeyBanc. Two quick questions. When you think about you have 155 plants, you're choosing plants to shut down. I was wondering if you could give us a little bit of a feel of how you're choosing them. Do you know the returns on capital by each plant? Are there certain hurdle rates for plants that survive? Then, Frank, in terms of a kind of a macro question, you went from six segments to four. A lot of companies are kind of going completely the other way. You've seen companies split businesses into three, two. Maybe just spend a little bit of time on why these four segments make sense together and what are the synergies between the four that make these four segments create more value together than separate.
I'll answer the question about segments and then turn it over to Steve and Gordy on terms of selection of plants and how we think about that. In the four segments, I think they're a natural fit. We have run a very decentralized structure for a long time. Part of the success we had from 2003 to 2016 was the restructuring we did earlier when we reorganized from 40 independent reporting groups to the six group structure that we had through this past year. That allowed us to line up companies that serve common markets and common customers and get at some of that manufacturing and administration efficiency. It was done entirely at the group level. It had not been driven on an RPM-wide basis. The four groups we have today make sense to us.
Paul Hoogenboom is leading a construction products group, quite sizable, they're very common products, very common markets. The best in class in construction products globally today is Sika. We got some room to make up there in terms of products, in terms of innovation, and in terms of brands. We go head to head with them and compete and win in almost every major market. We're not as efficient on the back end. It needed a better coordination in terms of how we allocate capital and how we think about competing regionally. Now we've taken Euclid Chemical and Tremco Roofing and Tremco Sealants and Flowcrete and a number of other construction products company and put them under the leadership of a real proven leader, everybody's excited about it.
I think the same thing's true in our consumer products group. You've got exceptional brands, great powerhouse at Rust-Oleum, a great business at DAP, good sub-brands in Zinsser and all the other categories there. While we would intend to keep the sales forces and the technical service and the customer service and all the marketing independent and focused, the opportunities to coordinate the back end amongst those groups beyond where they are today are significant, and we intend to do that. Same is true in each of the other categories or groups, except for our Specialty Products Group, which is really an interesting collection of entrepreneurial businesses that aren't as well-connected as the consumer construction products or performance coatings groups are. Interestingly enough, one other reason we're going to this, and we hope we have the leeway regulatory-wise to get there in 18 months, is another Steve Knoop story.
As we were dealing with our board more than a year ago about what changes would we have to make, one of the "Aha!" Steve had as one of our six group presidents was, "I'm not only a group president, I'm your only segment president. Me and my team listen to your investor calls, I think, a little more intently, and my CFO can provide guidance on what to write in the MD&As to Rusty and his team, because I'm running a segment, and my people know we're a segment.
When investors ask questions about the Specialty Products Group, which is his segment, "I think we're better aligned." Part of what we're doing is moving not only from six groups to four, but we hope by the end of this process, probably likely sometime around December 31, 2020, we will change our reporting from three segments to four, and we will be much better aligned in terms of how we're led, how we're structured, and the visibility and transparency that our investors will see. That's also a significant piece of why we're moving in that direction. On how we're choosing what plants and what assets, I think Steve and Gordy are better people to answer that.
I'll talk about it from the 10,000-foot level, and then Gordy can chime in. We think about it in two separate ways, which is we think about it from common manufacturing processes and technologies in terms of combinations, and then we also think about it from a geographic perspective. That's really our guiding principle, and obviously, the plants that have greater room for growth with less investment. We are really kind of evaluating that in terms of plant efficiency and frankly, the investment it's going to take to bring a plant up to the next level. I'll let Gordy kind of talk about it maybe at the next level down, but that's the evaluation process we're going through right now.
I guess the only thing I would add to that is it's also back to this focus on the customer that we want to be able to maintain. It's delivering the lowest cost. While we have high-value products, we also want to deliver the lowest possible cost to those customers. While we add a lot of businesses that have very high-value products, they can get away with that for a while until they start to mature. We need to take a look at those common processes and take those products and put them in plants where we can deliver the customer at a lower cost to manufacture and also deliver effectively and have that product available to them. An awful lot of focus on where our customers are, what their demands are, and how do we get those products to them most effectively.
Yes, in the back. John?
Yeah. John McNulty, BMO Capital Markets. Look, Frank, certainly by the presentation, it seems like there are a lot of opportunities with the taking the divisions down to less silos or having a less siloed approach, and it certainly seems like the opportunities are there on the cost side. Do you see any on the revenue side as well when you think about the breaking down the silos a little bit and having the divisions work a little bit more for the total corporate good?
The answer is yes. We see tremendous opportunities there. I think you saw today with Ronnie Holman and the wood finishes group and what they're doing on behalf of Rust-Oleum, not just in terms of production, but in terms of color development and having a product that they can take it to the market and be really competitive. The acquisition that we just did with Nudura for the insulated concrete forms with Dryvit is a powerhouse in terms of combining those opportunities. Breaking down those silos, work between Tremco and Dryvit is commencing. Our goal is that the groups that these companies are in shouldn't be a limiting factor in terms of what they can do for each other. I think that that cultural change is in the infancy, and we're already starting to see the benefits of it.
I think that that's a real powerful thing.
One other example, we've talked about the tremendous growth in the roof restoration coatings that Tremco's developed. Proprietary products, they've gone in about 5 or 6 years from single millions to $100 million. Ed Voorhees, President and CEO of Rust-Oleum, and his team, Paul Hoogenboom, and J.K. Milliken, who are here at Tremco Roofing, and their team are cooperating on bringing that technology into some of the customer base of Rust-Oleum. What's interesting is, traditionally, we've shared technology on a cooperative basis such that a Tremco technology would go to market in a Rust-Oleum can. That's happening. Rust-Oleum's also introducing Tremco to some of their customers to sell the Tremco brand into channels Tremco can't get to on its own. I would expect more of that to happen in the coming years, and it's exciting when it happens.
When it happens and we celebrate it leads to more cooperation. Again, that's the good part of our culture on the front-end side that I see continuing to enhance our ability on the revenue side. Yes.
Thank you. A quick question on the earnings per share forecast. That does not include share buybacks, right? Just wanted to make sure.
That does include share buybacks.
That does include share buybacks?
It does include share buybacks. When you look at the compounded annual growth rate of EBIT of about 21.5%, it's on the slide, the earnings per share would be in the low to slightly better, slightly worse. The principal reason for that is fiscal 2018, I think we had an 18% or 20% tax rate, we're assuming a 26% or 27% tax rate for fiscal 2021. We have, as of today, including the redemption of the convertible bond and 1.3 million shares in the open market, already repurchased or eliminated on a fully diluted basis, about 4.6 million shares, we'll continue that.
The second question I had was on CapEx. Doesn't look like your run rates are coming down in spite of so much plan consolidation that you're doing. Why aren't you getting higher returns on your capital spend?
Gordy, do you want to answer that question? The question's on CapEx run rate over the next three years.
That's a hard question to answer. Basically, we're looking at our CapEx spending to be pretty much the same as it is now. We're going to have less facilities, less roofs, less things to maintain. We're also starting to consolidate manufacturing into other facilities. As we spend on equipment or infrastructure so that we can move and close one facility, which keeps us from having to spend CapEx, our CapEx run rate is pretty much going to be the same through this 2020 MAP to Growth initiative.
I think we'll have a better answer to that on a go-forward basis, as we better develop the manufacturing footprint that we're moving to. Yes, Jeff?
Jeffrey Zekauskas at J.P. Morgan. Just two brief questions first. How much is the IT spending to, or the IT outlays to bring you down to four platforms? Second, of the wave one cost reduction for this year of $83 million run rate, how much will you realize in 2019? Lastly, is management's compensation now tied to these targets?
Go ahead. We'll answer the IT question. Go ahead.
The cost of the IT conversions and migrations over the next three years is at a run rate of about $40 million-$50 million, it's included in the total capital assessment of $420 million. It's already inclusive of that.
It's included in there.
Okay. Yeah.
On the compensation piece, the answer is yes. I think we've done a pretty good job, would certainly love to get your feedback, of tying compensation to performance. My compensation reflects that over the last two years, and not terribly happy about it. We have an equity compensation piece that covers about the 30 top leaders of RPM. That and a couple elements of what's been an ongoing, what we call PERS, performance earn restricted stock piece, for the first time for a broader group of people will be tied to the consolidate, not just these targets, but the consolidated results of RPM. Traditionally, a group president was paid based upon the performance of that group, including their participation in our equity programs.
We have tied a significantly larger number of RPM leaders, including operating leaders, equity compensation to these RPM consolidated targets, not just to their individual group or operating company targets, and we think that's appropriate, particularly in the face of the program that we're undertaking.
And then the-
Rose.
Yeah, the third piece was, what's the achieved cost synergies you expect this year versus the $83 million run rate?
I didn't hear the question. Could you repeat the question, Jeff?
In your slide deck, you say this year you're going to knock out, on a run rate basis, $83 million in costs.
Yeah.
how much will you actually achieve this year?
What would be achieved in fiscal 2019? You want to tackle that, Steve?
Sure.
Yeah, roughly.
What's that?
Roughly.
Yeah. Roughly about, call it, $25 million or $30 million this year, mostly in the third and fourth quarters.
Okay. Thank you.
Yep. Rosemarie?
Thank you. Rosemarie Morbelli with Gabelli. When I look at the numbers and your projections, and just stopping at the EBITDA level, all of this is calculated assuming you are going to make acquisitions and grow the top line at 5.6%. Let's pretend for a second that you are not going to make any acquisitions and top line will be 3%. Can you still achieve that 560 basis points improvement in the EBITDA margin if you don't have the top line and the accretive acquisitions, which you usually do?
Two things on that. In the model, we modeled in the acquisitions at $605 million, at a 40% gross margin and at a common EBIT margin. It actually served to bring down the gross margins, and we just modeled them in on a steady state basis without getting too cute. Secondly, I can tell you definitively that not we or anybody else can achieve the margin enhancement that we're targeting here if you don't keep your top line. You cannot cut costs fast enough to chase a declining revenue base, and there's a lot of examples of that in the marketplace today. We're very confident in those revenue targets. As I said, our compounded annual growth rate over the last 20 years has been 6.7%.
I know you'll see this year and next year some enhancement to what we consider organic growth through price, which has not been a critical element prior to the last year in our organic growth. Executing on our competing and winning in the marketplace with our companies and our products and continuing to pursue good acquisitions like Nudura is critical to our achieving these results. The cost savings will be there, the margin enhancement requires that we maintain or grow the top line. Yes, sir.
Hi, Michael Harrison with Seaport Global. Wanted to ask you a little bit about visibility and your current level of visibility on your business versus what you expect in the future. I would think with all of these ERP systems, all of these different P&Ls you're dealing with, that in a lot of cases right now, you're the last to know when something's going wrong. Do you expect that when all this is said and done, that you're able to manage the business more effectively on a go-forward basis?
I think we will be able to manage the business more effectively. I don't think we have a visibility problem in terms of what is happening in our business. We don't have very good visibility out beyond three or four months in terms of what's happening in the marketplace. Hopefully, as we get a little streamlined, that will improve. In some of our businesses, we do operate on a backlog, so they do have good visibility as to what's coming over the next six or nine months. In many of our businesses, we do not. I don't think it's a control issue. Rusty Gordon referenced this. It's the regulatory environment that's not kind to a decentralized structure. You've got too many accountants addressing SOX controls in small operations, and it's not productive.
We've got a good visibility, we have a good control environment, it's too costly. I think we can both streamline, be more efficient, spend less money, and in the process, have an even better control environment from that perspective. Yes, sir.
Thank you. Cliff Ransom. One of the things that happens in the creation of a continuous improvement culture is the behavior characteristics of the leadership has to change. Have you come across any major challenges to how you manage this business and as you look forward, how you will manage this business?
I think with cultural change, that's certainly true. I guess the best way I can answer that and then have Steve tackle that as well. There are some longstanding RPM leaders that a year ago people might assume would be up here who are not, because they were impediments to the change that needed to be made. We have made a number of changes of leaders of some of our businesses, most recently in Europe. We made a senior leadership change in our corporate office. We accelerated a leadership change at Rust-Oleum. All those were necessary because we had great leaders that could step in those roles. In many instances, the people they replaced were impediments to change we needed to make.
What I'm kind of getting at is, have you changed, any of you, made material changes in how you go about each day under the process of continuous improvement?
The question is, have we made changes about how we go about each day? We're making significant changes that are process-driven on the plant floor everywhere. I suppose it's the equivalent of Gordy showing up with his friends from AlixPartners and saying, "Hi, I'm from corporate, and I'm here to help," which has not been normally part of our culture, but in our manufacturing culture, it's true. Steve Knoop has developed a different rhythm that works for him. I'll let him address that in terms of how he manages our operating leadership and manages the process of this reorganization. Steve?
Well, it's been a big change. I mean, the fact of the matter is, we've got the people up here who have risen to a new role and a more strategic role and thinking about that. I think what we didn't really get into was at our operating groups, too, we've been elevating these resources to focus on these systemic changes. Whether it's in the Construction Products Group or consumer, we've elevated resources there to focus on this on a daily basis. The rhythm of working on these issues with our operating groups is embedded in our daily life now. Whether it's monthly or weekly reviews, I mean, the changes in the strategy and the issues of this program are in the forefront, and the things that we have to overcome.
The fact of the matter is, I've been really happy with the attitude and the cultural change that's happening at our organizations. I think that that was one of our major concerns about this type of program. It's been embraced, and Gordy can explain. At the shop floor, I think that we've seen that people want to get better, and they understand that there's a lot of challenges out there in the world, and they see this as an opportunity to maintain the aspects of our culture that are really, really positive and yet become world-class in other areas that we have otherwise said we weren't really touching. I think that it's a real opportunity for us. Gordy?
Yeah. I think as you get on our plant floor, you get with plant managers, and they've been waiting for this. They have embracing this opportunity. It's supported from the top down now. They see it across RPM. For the first time, we are going across the groups, across the businesses, and we're communicating from one plant to the other plant best practices, benchmarks, and those types of things. People are embracing that. People like to improve. It's exciting for them.
John?
John Roberts, UBS. I think it was mentioned you had a 20% IRR on recent acquisitions. I assume that excludes Kirker and Cintia. Maybe you could break that down. Your small ones I'm perceiving much do better than your big ones, but you say you want to do more big ones in the future?
The question relates to acquisitions. Our board asked us to go, as we've looked at capital allocation in face of this and comparing internal investment with cherry purchases in our acquisition program, to do a 5-year look back. We did, but we also did a reassessment because we'd spent plenty of time looking at Kirker and Cintia for the board. They didn't ask for it in that 5-year look back because it turned out that Kirker and Cintia had been done 6 years ago. We didn't dodge that. Here's the outcome of that. The IRRs that Rusty talked about over that 5-year period on these small and medium-sized deals on a collective basis is 18.8%. We're good at it. It's a really important part of our growth, and we're good at getting product lines that our companies can accelerate the growth on even more.
That becomes part of our organic growth. There were two takeaways from that where we've not been very successful. Again, these are Kirker and Cintia aside. Number 1, this is Kirker, and the other one that's not been very successful for us, and we're working on it from an operating perspective, may end up being a key manufacturing point for us is SPS. Okay? What do Kirker and SPS have in common? This is my fault. They were both high margin. They were both unique. Neither of them had a brand. They were private label producers. It broke every rule that we've been talking about since my father started doing acquisitions. Rule number 1 is don't talk yourself into non-branded private label producers because they happen to have high margins for a particular reason.
The other rule or lesson that we learned is the small ones that haven't succeeded have tended to be very small, far away locations that are freestanding. If we do an acquisition in Norway and it's $5 million or $6 million and it's a great strategic fit, but the operating company isn't paying much attention to it, tends not to do very well. We've had a handful of those. The lessons from that review with our board is our small bolt-on product line acquisition and where it's appropriate, having a family business choose RPM is working great. Those are unlevered IRRs. I would tell you that we're doing as well as most of the private equity firms who compete in that space.
We ought to stick to our rules that we tell people for 40 years, and we broke them twice in the last six years, and we paid the price. We can't fritter away capital in small chunks by buying small freestanding locations that are far away that people don't pay attention to. That appears to be the last of our questions. I want to just conclude by thanking everybody for being here. It's awesome that we had 100 investors and investment professionals come. Most of you are here for our trade show demonstrations with our companies, and we greatly appreciate your interest in RPM. We particularly appreciate your investment in RPM. I also want to thank all the RPM leaders that showed up to man the trade show. We had a fun dinner last night.
Quite candidly, these are the people that drive our growth, drive innovation in our industries, and make RPM what it is today. We are all excited about this. When we combine that entrepreneurial approach of RPM with a world-class back end from a competitive standpoint, we're going to kill everybody. We can't wait to get there. Thank you very much for being here, and thanks for your investment in RPM.