Good morning, everyone, thanks for joining us here. For those of you I haven't met, I'm Matt Gugino, Vice President, Investor Relations here at Danaher. Thanks for joining us here in New York, as well as a special thanks for those joining us on the webcast. First on the forward-looking statements, I'm not going to read all of these, but do need to say today's presentation may include forward-looking statements and actual results may differ materially from these statements. Please refer to the slides for more information. On to the agenda, I think we have a great day for you here. First, Tom's going to come up and give his opening remarks. After that, Melissa Aquino, head of our Danaher Business System Office, is going to come up, give you an update around what we're doing with some of our DBS growth tools.
We'll have our group executives and Executive Vice Presidents then come up and give an update on their respective platforms. We'll separate those presentations into two sections, and we'll have a short Q&A session after each section. We'll take a short coffee break in the middle. That'll give you a chance to see some of the product displays that we have out in the atrium and the adjoining room. After that second presentation section, Tom will come up and give his closing remarks and some details on our 2018 guidance, followed by a closing Q&A. We'll wrap a little bit before 1:00 with the formal presentation, and we will have a light fare lunch outside in the atrium for anyone that is interested in that. With that, we'll bring up Tom.
Thank you, Matt, good morning, everyone. Let me add my thanks to all of you for being here today, as well as those on the webcast. It is a busy time of year, so we really appreciate you taking time out of that busy schedule with so much going on, to be here today. With that, I will get right at it. As you just saw Matt put up on the screen, we think we have a terrific lineup of presentations for you today, from the senior leadership of Danaher that will take you through really a series of updates on the platform, a look at how we're continuing to accelerate our growth momentum and our operating margin expansion, and how we will continue to deploy our free cash flow strategically in the interest of long-term growth and competitive advantage.
What you'll hear today in my presentation is, I'll start with a quick update on 2017, a quick look back at the performance of this year, a solid year without question, and a year that we're building momentum. Clearly, we feel good about how we are positioned right now going into 2018. We're building and evolving a stronger and better Danaher. That comes in the form of continuing to evolve the portfolio, and I'll give you a perspective on that evolution over a period of time and bring you up to date on the portfolio of today. In parallel with that, we're building and evolving the core of our culture and our competitive advantage, the Danaher Business System.
We'll take you through that at a high level in my presentation. Melissa Aquino will take you a little bit deeper, and you'll hear a series of stories about the impact of DBS throughout the course of the day. Finally, I'll touch on how well we're executing, how DBS is impacting our businesses broadly, utilizing what we call the Danaher Playbook. We'll touch on how are we deploying capital, what's our approach to strategically and diligently deploying that capital over time for the highest possible returns to shareholders. Finally, I'll touch on talent. None of what we do is possible without continuing to build an exceptional team, attracting, developing, and retaining that talent over the long term. A quick look back at 2017, even though it's not done yet.
2017 has been a year of accelerating core growth, accelerating from our first-half performance now to improved performance in the second half, really led by Life Sciences and Product ID, but with a number of good things happening across each of the platforms. Specifically, relative to the fourth quarter, we've talked to continuing to see that acceleration in the fourth quarter. We've had a good start. October was a good start to the quarter, November pretty well in line. We feel good about what we've talked about, that 3.5%-4% core growth in the fourth quarter, which represents the kind of acceleration we were looking for throughout the second half of the year. 2017 has been a year of double-digit free cash flow and double-digit adjusted EPS growth.
That's even better than what we anticipated at the beginning of the year. We expect that this year will represent the 26th consecutive year of free cash flow to net income conversion, one of the most important metrics we focus on in terms of driving quality earnings growth over the long term. 2017 has been a year of expanding margins. As we expand margins, we take a balanced approach to ensuring that we are reinvesting for the long term, reinvesting in R&D, reinvesting in sales and marketing. You see that in the metrics as you see increases in those while you see us controlling and, in many cases, taking down our G&A costs as a % of sales. Another year of consistently executing what we call the Danaher Playbook.
Finally, and certainly last but not least, our recent acquisitions, important acquisitions, significant deployment of capital acquisitions at Cepheid, at Pall, at Nobel, certainly with the addition of Phenomenex in our Life Sciences platform, all off to a terrific start. That wasn't all. We closed nine deals, roughly for about $300 million of spend this year. This year, as we said, was going to be a year of rebuilding the balance sheet. Ensuring we focus on our integrations and get those newly acquired businesses off to a great start. We couldn't be more pleased with how those businesses are performing and contributing to the accelerating performance that we've seen across the platform. Clearly building momentum as we head into 2018.
Let's take a step back for a minute and we'll talk about Danaher today. I'll give you a perspective as to the evolution of the portfolio over time and how the Danaher Business System has evolved in parallel with the evolution of the portfolio, and how the combination of the evolution of the portfolio and DBS have been the core of how we've delivered the consistent high levels of outperformance over so many years. Danaher today. Danaher today is roughly an $18 billion revenue business, and we organize the corporation into four segments and five strategic platforms. Those five platforms being Life Sciences, Diagnostics, Water Quality, Product Identification, and Dental. Those platforms are made up of roughly 20 individual autonomous operating companies.
As I'll talk about more in a few minutes, those operating companies are really unified by a common business model, characterized by global market access into highly attractive markets with tremendous secular drivers. They're characterized, each of those businesses, by significant installed bases of instrumentation that generate outstanding consumables or aftermarket revenue at high margins that, in turn, deliver a high level of stability and consistency to our revenue base. Each of these businesses continue to maintain number one or number two positions in their marketplace. When combined in the platform construct, they deliver market-level scaled competitive advantage and scaled advantage in terms of talent, in terms of access to high-growth markets, and in terms of our ability to do M&A, not to mention the option value associated with having five platforms today.
Today, Danaher, that $18 billion corporation, is a multi-industry science and technology portfolio with significant competitive advantages across each of its operating companies as well as its platforms. Danaher's business model and the portfolio has never been a static one. Those of you who followed us for a long time know that, and you know that so well. I know there's some folks in this room that actually go back with us to 1984. We usually get a question from somebody in this room who goes back to 1984. Some of you will remember. We were founded back in the mid-'80s by Mitch and Steve Rales, two tremendous investors, two key shareholders today, and members of our board of directors. The business was essentially built on the back of some wonderful, largely industrial businesses.
You see the starting point with some modest levels of revenue, 20% gross margins, very minimal consumables revenue, largely industrially equipment-oriented businesses, and very modest exposure to high-growth markets. The portfolio evolved over time. As it evolved over time, if you fast-forward roughly 15 years, we began the evolution into the science and technology portfolio that we have today. You see the growth in revenue, what you also see is the improvement in the gross margins associated with that new business model, that new portfolio. 40% gross margins, 15% consumables revenue, and 10% high-growth market exposure. That was at the point where we began to develop our position in new platforms like our Life Sciences platform and our Diagnostics platform. I was there in the early days when some of our first science and technology businesses were acquired.
Hach, for example, in 1999, followed by Radiometer, our first diagnostic business, and then Leica Microsystems entering us into our Life Sciences portfolio. Advanced then later by SCIEX and eventually by Beckman Coulter Diagnostics and Life Sciences. A wonderful progression over time, again, rotating out of more industrial businesses into higher-margin businesses, where you see now 55% gross margins and higher levels of consumables revenue, and a much higher representation in high-growth markets. I think what's really noteworthy, and we talked about this a little bit last year, is with the evolution of the portfolio and the capital deployment that's been associated with that over the last, oh, let's say five or six years or more, you're talking about $20 billion going into that rotation of the portfolio.
Danaher's portfolio today is now the youngest it's ever been, probably since about the year 2000. What that represents is a significant opportunity for both improved growth trajectory as well as margin improvement over time, and I'll touch on those opportunities in just a minute. What unifies the portfolio, again, are some of those characteristics that I just mentioned that form a common business model. Those outstanding brands with market-leading positions. The extensive installed base that drives those largely captive recurring revenue streams. Captive meaning those recurring revenues are largely attached to or in closed systems with our instrumentation base, and usually form the heart of mission-critical functions for professional end users. Our businesses today are roughly two-thirds direct sales and about one-third distribution.
That those mission-critical consumables allows us to form what we believe is clearly a very high level of customer intimacy. When you put all that together, the Danaher of today is a 55% gross margin portfolio. We're running at 20% adjusted EBITDA margins year to date, and we continue to drive that free cash flow generation that I mentioned for the 26th consecutive year. Today, we are building and enhancing a sustainable growth, earnings, and free cash flow profile in the interest of long-term shareholder value. In addition to that common business model and the attractive characteristics of that model, we also participate in highly attractive global markets. You can see the scale of the markets that we participate in, with the $ associated with each of them at the top of the slide.
What I draw your attention to is some of the characteristics of those end markets, characteristics such as regulatory requirements and workflow efficiencies and improving standards of care and environmental concerns around the world. These types of attractive secular drivers play a role across a number of our businesses. When you have those kind of secular drivers, those present opportunities for differentiation and leadership position when you align yourself with those key secular drivers. In addition to that, in many cases, they create barriers to entry, and in some cases, high barriers to entry that limit the ability for new competitors to come into a market unless they are well-aligned with those drivers.
For example, our Life Sciences business, our Diagnostics business, our Water Quality business, all driven by regulatory requirements in some respects, as well as Product ID with the growth of consumer packaged goods and food safety and pharmaceutical tracing and tracking. Workflow efficiency, critical to end users at our Life Sciences businesses, and certainly in the Dental industry, when workflow efficiency and digital dentistry is at the heart of the evolution of that market. High growth markets are an important part of virtually every one of our businesses, and one of the key dimensions of high growth markets is the improving standards of care that are represented in a number of those markets that's helping to drive our Diagnostics business, as an example. Not to mention Water Quality as well as our Life Sciences businesses.
Finally, the overriding concerns in many markets about the environment and about safety, whether that's water safety or food safety. Those benefit our Life Sciences businesses and our Applied Markets positions as well as Water Quality and Product ID. Strong secular drivers influencing a number of our platforms across the board. At the heart of driving our performance for well over the past 30 years has been the Danaher Business System. The Danaher Business System guides what we do. It defines our core values. It defines how we measure the impact of deploying those tools in the interest of a consistent and perpetual cycle of continuous improvement. That's really what DBS is all about. It's the heart of who we are and how we do what we do. It's anchored in our five core values.
Let's start with the best team wins, and I'll be talking more about talent today. We are challenged to put the best team on the field every day, and we charter that team through the second of our core values, which is customers talk, we listen. Our team is chartered with listening to customers better than competition does and looking for unmet needs in markets in the interest of driving higher levels of innovation. Once we understand the customer, it allows us to drive continuous improvement. It allows Kaizen to be essentially our way of life.
As we continue to drive improvements in the interests of customers' values of quality, delivery, cost, and innovation, we come to recognize that innovation ultimately will define our future, that much of what has driven businesses in the past are now table stakes, and that the continued evolution of products and their capabilities and our value propositions are ultimately what will define our competitive advantage, our long-term growth, and our share gains. Finally, the fifth of our core values, we compete for shareholders. Somewhat of a double entendre. We compete in our markets for your benefit. We also compete for you and your attention and your deployment of capital on the basis of our abilities to deliver the longest and highest prospects for long-term shareholder value creation. Underpinning these values and DBS is a set of tools, and you'll learn more about those tools today.
You'll learn more about the way they've impacted our businesses when you hear Melissa Aquino in a few minutes on DBS and during the course of the presentations from each of our platform leaders. Just as our portfolio has evolved, so has DBS evolved over the 30-year plus period that I've talked about. If you go back to the mid-’80s at our founding and shortly thereafter, the heart of the Danaher Business System was a set of lean tools, largely born of our insights and understanding of the Toyota Production System. The disciplined implementation of those lean tools helped us to improve quality, delivery, and cost consistently in our businesses and made us more competitive and helped us to grow. As the portfolio evolved and our challenges evolved beyond simply the ability to improve competitiveness through lean, we sought to broaden DBS with a set of growth tools.
We did that virtually in parallel with that evolution of the portfolio into more science and technology businesses, where sometimes the challenges relative to growth really can be that much more significant and where our toolset needed to be more sophisticated. So the growth tools evolved. Finally, not much more than about seven or eight years ago, we began the evolution of the DBS toolset into more leadership tools. For some of you who've been with us in the past, you've heard us talk about some of those tools in great depth. That's a recognition that we compete not only in our marketplaces for customers, but we compete for talent, and our ability to attract, retain, and develop talent is critical to our long-term future.
Finally, just two years ago, we further unified the corporation and our common business model under what we call our shared purpose. That is four simple words: helping realize life's potential. That's fundamentally what we do. It's what we do for our associates. We help them realize their potential. It's what we do for our businesses. It's what we do for newly acquired companies. It's what we do for suppliers and partners around the world. We help realize life's potential. It's fundamental, it's core to us, and it's ultimately what our products and our companies do in the interest of the betterment of the world. Let's now turn to how well we're executing our strategic priorities. How do we measure the impact of DBS? How do we think about its impact on our ability to drive growth, shareholder value, and market share gains?
I'll touch then also on what the role of inorganic growth is, how capital deployment and strategic deployment towards mergers and acquisitions influence the business model. Finally, as I've mentioned a couple of times, the importance of talent and how we're evolving the talent model in parallel with the evolution of the portfolio. In many respects, and we often use this term, simply put, DBS is common sense vigorously applied. The balanced approach to lean growth and leadership, the tools embedded in the business system, the five core values that I talked about really represent what many would say common sense, good business practice. Perhaps the difference is in the execution, is in whether we vigorously apply those tools and those principles, which we do. How do we measure the impact of DBS?
Well, we measure it, we believe, through the lenses of our shareholders, the lenses of our customers, and the lenses of our associates around the world. When you put lean growth and leadership together, and you deliver against those metrics through those lenses, we call that running the Danaher Playbook. What is the Danaher Playbook? Well, it's a model for value creation. It looks something like this. We focus on improving the cost structure of our businesses. That comes through quality, comes through focusing on waste, comes on improving delivery performance, and ultimately, it comes on driving the highest level of customer value propositions possible with an improved cost structure. That involves driving gross margins up and holding tight on general and administrative costs. What that allows us to do is reinvest in businesses, reinvest in R&D, reinvest in sales and marketing.
When we do that, the end result is both core growth as well as operating margin enhancement. A balanced approach to creating shareholder value, continuing to reinvest in the interest of long term, while at the same time delivering on the near term's objectives of improving our profitability. The combination of enhanced core growth and margin expansion with strong free cash flow, often which is accelerated on all fronts by deploying that free cash flow towards acquisitions, is how we equal top quartile EPS growth and compounding annual returns, the Danaher Playbook. What does all that mean, deploying that mean relative to the opportunity we have? The opportunity that I mentioned a few minutes ago about a relatively young, a relatively new portfolio, that 50% of the portfolio, roughly in revenue terms, that has been acquired into the corporation in the last six years.
Well, it means that we have a number of businesses that we've owned for some period of time, where continued execution with improvement opportunities can continue to accelerate their core growth. If you look at 2017, the group of businesses that you see here on the left-hand side, round about 3% core growth in those businesses, with opportunities for improvement in a number of those, some that are underperforming today, some that simply have had new opportunities as a function of new product innovation. Add to that our new and larger acquisitions, Pall, Nobel Biocare, Cepheid, Phenomenex, all mid-single-digit growers today in 2017. A reminder that in the case of Phenomenex and Cepheid, those only contributed a small bit to the fourth quarter. Next year we'll see a full year of those businesses.
But the combination of our improvement opportunities in businesses we've owned for some period of time, as well as the newer businesses, really combine to give us line of sight to being a mid-single-digit growth company over a long period of time. DBS is at the heart, and the growth tools are at the heart of ensuring that we continue to make that progress. If we turn to margins, again, a similar story of opportunity. If you start on the left-hand side, tremendous execution over a long period of time by core businesses that many of you know well. Our Hach water quality business. Videojet, the cornerstone of our product ID platform. Radiometer, a wonderful business and our longest tenured business in our diagnostic platform. Those businesses averaging 25% operating margins today and roughly delivering over 1,000 basis points of improvement since they were acquired.
There are opportunities for improvement, and you see some of those in relatively large-scale businesses at Beckman Coulter Diagnostics, at KaVo Kerr, that are mid-teens today, but fundamentally have no reason why they shouldn't be higher than that, namely 20% or better. Then again, add to those our newly acquired businesses, which are already roughly 20% operating margins today. Wonderful businesses, and have shown the kind of acceleration that we've seen from businesses that we acquired much earlier. In this case, already north of 600 basis points of improvement since acquisition and continuing to improve from there. Because of the combination of these improvement opportunities in the newer businesses, we've actually delivered a higher operating margin improvement year-on-year more recently than we even anticipated, roughly 75 basis points over the last three years.
We put a peg in the ground at 50-75 basis points of operating margin improvement as a good placeholder. We've outperformed in the past, but we think that's probably a good guide for what we think we can do, again, focusing on the improvement priorities as well as our newly acquired businesses. When you drive accelerating core growth and when you drive operating margin improvement, and you do that in a quality way, obviously you generate tremendous levels of free cash flow, and we have done that consistently. I mentioned that this will be our 26th consecutive year of free cash flow in excess of net income. You see the growth from 2014-2017, and we expect to continue to increment that growth as we go in to 2018.
It's not just about newly acquired businesses, some of you have heard the numbers, go back to Beckman, over $300 million of working capital improvement out of Beckman Coulter. Pall, over $100 million of working capital improvement out of Pall as well. Every one of our core businesses is accountable for improvements in working capital year-on-year as well. The combination of core growth with good operating margins and a consistency of working capital improvements really helps to deliver that superior free cash flow generation. As a benchmark, you can pick any number of peer groups to benchmark us against, in this case, you've got one of our peer groups here, where our free cash flow is clearly a differentiator. We continue to believe that this is one of the most important measures of the quality of our performance over time.
We recognize that the diligent and disciplined and strategic management and deployment of capital is essential to continuing the wonderful stewardship of the corporation's growth and profitability over time. We take an approach that's really a three-pronged approach to deploying that exceptional free cash flow. It starts with a strong bias, first of all, towards deploying it towards M&A. Obviously, we deliver a modest dividend today. Historically, we've only bought stock back in times of dislocation. The bias remains towards strategic M&A. We focus on the market first and always the market first to understand the attractiveness of the market. You've seen some of the secular growth drivers just a few minutes ago. We love fragmented markets with high barriers to entry, and we love the optionality that a broad multi-industry portfolio represents. M&A goes in cycles. Secondly, we focus on companies.
Companies in those attractive markets with leading market positions, strong brands. We love distribution businesses, but direct businesses tend to give you greater levels of customer intimacy, which tends to allow for greater levels of competitive advantage. Consistent revenue visibility comes from high levels of aftermarket and consumables. Finally, we then look at valuation. The return on invested capital, which has been a cornerstone discipline of ours for a long period of time, remains a discipline of ours. Continuing to hold true to the thresholds that we've established and making sure that we're putting that money to work exceptionally well. We will continue to selectively pursue value creation opportunities through M&A in 2018 with a stronger balance sheet and in the years beyond. To sum up the value creation model, Videojet's a great example.
Videojet represented a beachhead acquisition back, roughly in 2002, 15 years ago or so, to our Product ID platform. What you see since Videojet's acquisition, as it evolved within the Product ID platform, is an improvement, first of all, in its core growth rate. Videojet started out as a low single-digit growth business. Now it's become one of the most consistent mid-single-digit growth businesses that we have today. Mid-single digit consistently over the last eight years, while enhancing its operating margins at 100 basis points or better over the last three years, while deploying capital strategically to the tune of 14 acquisitions since 2002. When you combine core growth and operating margin improvement with those acquisitions and the accretion they represented, we've now, on a combined basis, delivered in excess of 20% return on invested capital.
Videojet deploying the Danaher Playbook, driving organic execution, adding M&A through smart capital deployment, equaling compounding returns on invested capital. Those are the shareholder metrics, core growth, operating margin enhancement, cash flow and working capital, and return on invested capital. Videojet's a good example over time. Some of our more newly acquired businesses represent equally good examples, but more recent ones. If there was one thing that was impressed upon me three years ago when I took this role, it was how important the diligent and strategic deployment of capital was to the good stewardship of the growth and profitability of the corporation over time. Nobel in 2014, a low single-digit operating margin business when acquired, now north of 20%, and you see the return on invested capital continuing to improve. Pall, off to a tremendous start. Core growth improving.
Little bit of a challenge this year, getting better, and we'll see that in the fourth quarter. Operating margins high teens, now roughly 25%. Again, the return on invested capital moving up. Finally, Cepheid. Dan Daniel will tell you more about this today. Boy, off to just a fantastic start. Consistency of performance, double-digit core growth, but you see the dramatic improvement in operating margins at the same time. Obviously, that driving a great start to what will be a long-term run of improvement in return on invested capital. All the more recent deals at or above our initial expectations. None of that would be possible without continuing to evolve the talent of the corporation as we evolve the portfolio and the tools of DBS.
If you look at our talent evolution in this historical context, you'd see that going back a decade or so, we were focused more on industrially oriented talent. We outsourced a lot of the sourcing of talent. Today, it's more about science and technology talent. It's more about internal sourcing and internal development. Organizationally, it's not just about operating companies, it's about scaled platforms that create leverage in their markets. Finally, it's about developing those leaders in a different way, not just on-the-job training, but progressive responsibilities and formalized development programs. You see some of the metrics that support the progress that we've been making, particularly the one at the bottom, where greater than 80% internal fill rate, meaning we are filling roles from within at the operating company president and above. Here are some exceptional examples of how we're building talent from within.
There's no better evidence of the evolution of the model than looking at where the talent is today and where did it come from. The fact that we now have former leaders of R&D now running operating companies at Radiometer and at Nobel. The fact that Chris Riley from Videojet is now over at Beckman Coulter Diagnostics driving growth in that business, Ganesh Ramaswami has moved from the diagnostic platform to Product ID. That our group executives and our EVPs have all grown internally within the corporation, and in many cases, across platforms. The multi-industry structure we have today, the tools of leadership within DBS, are truly a differentiator in terms of our ability to attract, develop, and retain talent on a long-term basis.
You put it all together, the tools of growth, lean, and leadership, the Danaher Playbook. You look at the results over the past three years. 200 basis points of lift in gross margins. G&A as a % of sales down 50. R&D up 50. That leads to the operating margin enhancement that you see here, and mid-teens average annual EPS growth over the period. Revenue growth, margin expansion, cash flow plus acquisitions equals the top quartile EPS growth and those compounded returns. In summary, the portfolio is evolving, and DBS is evolving along with it. They've contributed to a better and stronger Danaher, and that new portfolio today creates great option value and the runway for improvement over time.
Superior cash flow will remain a differentiator, the diligent and strategic deployment of that capital, particularly as we go into 2018, with renewed strength in our balance sheet, is an opportunity. Finally, talent and leadership will always be critical to ensuring that we deliver and sustain those results over time. With that, I will draw the opening to a close and invite Melissa Aquino up to the stage. Melissa has been with Danaher for 17 years. She currently runs the Danaher Business System office, a global team of resources around the world helping to train, develop, run Kaizens in many of our businesses. Melissa and I go way back. We worked together nearly 17 years ago in the water quality platform. She had progressive levels of responsibility throughout the corporation, as well as being a Danaher operating president before taking this role.
Melissa's going to tell you more about DBS. I gave you a high-level view. She's going to take you deeper into growth with a focus on how we drive growth through the tools of DBS in terms of innovation as well as commercialization in the interest ultimately of share gains in our market. Melissa, it's all yours.
Right. Thanks, Tom. Pleased to be here this morning to give you that deeper look into our DBS tools, particularly on the growth side. You saw this graphic in Tom's presentation, where we started off in the lean roots of DBS and have evolved to a more balanced approach of what we have today, where we have lean leadership and growth. We've been able to do this because some of the bedrock we have in our culture and our history and the legacy of Danaher are these DBS fundamentals you see to the right, and they span the tools across the board. As we think about growth, we break them into two categories that help us grow the top line.
Our innovation tools, you can see some examples in here, I'm going to give you a deeper view into that in a minute, as well as the commercial tools, which help us with our sales, marketing, and our service execution. It's interesting to think about, how do these tools evolve? What is the process by which they evolve, and how do we make sure they're keeping up with our portfolio? It really comes from two directions. If you think about the longest companies in our portfolio, you saw the Videojet example and their acceleration into mid-single digits, that Videojet is a prime place that has evolved our marketing tools for us. We had a nice suite of sales tools.
The Videojet team took that to the next level and developed what we call our transformative marketing tools, something then that we can put into DBS and take to the rest of Danaher. It also comes from another direction, innovation's a good place to talk about Cepheid, where we come into Cepheid and we add value to the top line, the bottom line. We run our DBS Playbook that Tom mentioned. We've also learned a lot from Cepheid, particularly on that front-end innovation space around where's the market headed, what's the next disease we're going to solve, and how do we match up the technology to do that? Learning from them has helped evolve our toolkit on the front end of innovation.
I want to talk about innovation, the innovation DBS tools that we have today that enable us to go from market insight, where do we want to play, and what's our right to win, all the way to the right to how are we going to take share? You might think, well, innovation, is it really a structured approach? In the case of DBS, it is. This is a structured, repeatable process that allows for us to go in and evaluate how we're building these engines in our operating companies, but also keep the creativity flowing, especially as we go out and work with customers. What we first do is go in and look at that strategic product envelope we call it, which is where is the attractive space that we want to go innovate, and what do we like about it?
We next go into our problem to portfolio kit. This allows us to go out with customers and start understanding what problems do they have that we think are valuable to solve. We start matching those up with product ideas and concepts and putting the technology with it, go back out to those customers and make sure we get it right. Once we have a roadmap of these projects that we want to execute against, we then go into our product planning group, and this is where our executives get together and start looking at the return on investment of these suite of potential projects. Are we going to resource them? How are we going to make sure we get them out on time? We rack and stack those, and we start pulling the most attractive projects off the top.
You can take an individual project then, we use our NPD, our new product development project management toolkit. This is where we leverage the basics of visual management. We put it up on the wall. We can see where a project is headed, make sure the cross-functional resources are deployed so that we can get that out on time and with quality. When the product's ready to go to market, we have our launch excellence toolkit. This plugs right into the commercial tools, which I'm going to talk about here in a minute, that allow us to make sure that we are creating the demand, getting that project out with quality and hit the return on the investment we expected. Again, it's a replicable process that does allow for some creativity in there.
Here's a great example from Hach, you're going to hear more from Lance later about this particular product, I want to talk about one of the tools we used. Within that project execution box I just mentioned, we have a tool we call Speed Design Review. Essentially what this is, it gives us rapid cycles with customers, sprints we call them. We will go out and talk to customers and say, "What is the unmet need that we can fulfill for you?" In this case, we're starting to see customers purchase some of our Hach drinking water analyzers into the dialysis market to test for chlorine. We went out to understand that. We bring it back to our labs, we start innovating against it. We leverage a concept called obeya, which in Japanese means big room.
This is where we break down the walls, literally cross-functionally. We put the scientists of different disciplines together, we start coming up with prototypes and innovating against that customer idea. We're not sure we get it right initially, we go back out to the customers, we talk to them again, and we iterate those prototypes with them. In this case, for the Hach example, there were 15 product design sprints and loops that we did with the customer that unlocked for us a $50 million adjacency. This is going on all across Danaher. This is just one example, but I wanted to give you a peek inside of how it works. We have multiple projects running, leveraging the DBS tools for innovation at any one time. I'm going to go into our commercial tool set.
Very similar to innovation, we start on the left we look at the market. How does it work? How should we be going to market? What are the channel strategies that we want to deploy? We have two pieces that we look at next, this is our transformative marketing kit and our sales standard work tools. I talked about Videojet earlier, this is the transformative marketing tool set, was evolved at Videojet and now is deployed broadly across Danaher. What that means is we start with market visibility. Can we even see all the potential customers and spaces out there, how do we know? Then a disciplined process to make sure that we see that, then go into the customer's buying journey. How do they want to buy from us? How are we nurturing those leads and winning that opportunity?
We end up with high-quality leads at the end of that transformative marketing engine that plug right into our sales engine, our sales standard work, we start looking at sales productivity. Do we have the folks deployed to the right territories? How many customers are they calling on? How do we know that that is the correct way to deploy them? We have a funnel, leveraging one of our basics of visual management. Can we see the funnel? How are the opportunities progressing through it? This is a comprehensive, integrated system between sales and marketing, and it's built on that bedrock I mentioned, those foundations of daily management, standard work that Danaher is known for, that we've applied for over 20 years now.
To give you an example at Pall, where we have worked on this, Rainer will give you a deeper dive on it later. We went into Pall. It's interesting when you go into an acquisition for the first time, because you start asking the salespeople, you start asking the marketing people, "Well, how many customers do you have? Are you seeing all the customers?" The answer is usually, "Well, yeah. We know all the customers out there. We see them. We know who we're calling on. We're doing pretty well." Once we start applying our visibility tool, their eyes kind of light up and say, "Well, maybe there's more out there. Maybe the space is bigger than I imagined." What we found at Pall when we went in is they did not have that complete market visibility. We could unlock that potential for them.
They also did not have digital marketing capabilities. Once we could help them see the market, how do we come in there with some digital marketing tools that allow us to touch those customers the way they want to be along their buying journey, and then convert those into leads, and then have a nurturing process around that? We came in and we started with both transformative marketing visibility, went into some lead handling standard work, and then finally making sure that they had robust funnel management coming out the other side. What this allows us to do, if you look to the right, is you have this almost a predictable engine, if you will, of how much have we increased visibility by 50%. What does that do? It drives leads 6.5x.
We get double the opportunities out of those leads, and then a win rate that has increased 15%. This has been a repeatable recipe that we have used at Pall. In summary, I hope I gave you a flavor that DBS is our culture, it is our competitive advantage. We have a rich history, and now we're applying that more broadly to the growth toolkit. It's not just lean, but those lean principles and what we've learned have allowed us to evolve DBS to match our portfolio. It's about growth and leadership and lean, a very balanced approach. You're going to be hearing some great examples today from our platform leaders where DBS has allowed them to win this year, and it will continue to help them win in the future, and hopefully deliver long-term growth to all of you. Thank you.
Thanks, Melissa. Thank you very much, Melissa. Hopefully, you got a sense of where DBS now is having a greater impact from a tool perspective on our businesses, and how it, as a tool set, can continue to contribute to the accelerating growth over time. Again, as Melissa just mentioned, you'll hear more about that during the course of the platform presentations. To get us started in the platform presentations, Rainer Blair is going to come up immediately following a video that's about to play that will introduce you to the life science platform. Rainer is our Executive Vice President in charge of our life science businesses, and I think you'll find it interesting to get an update on our Pall business as well as the balance of the portfolio.
Thanks Tom, good morning to all of you. Every time I see that video, and it's been many times, I can't help but get really pumped up, and I hope that that is the same for you. I look forward to sharing with you today some of the things we've been up to here in the life science platform over the last year, as well as set up where we're going in 2018. Before I jump into some of the details, perhaps just a quick overview of the platform itself. With our global leading brands and our high-performance solutions, we drive for share gain in roughly a $40 billion addressable market worldwide. We expect to achieve $5.7 billion of revenue this year, with 25% EBITDA margins.
From a revenue mix perspective, you can see our bias for that razor blade business model with a very high consumables to equipment ratio. When we think about the diversification of our portfolio, we're very pleased with the way we're positioned there, both from a geographic as well as an end market perspective, with the high growth market as well as the biopharma exposures being particularly noteworthy. The Danaher Business System and Playbook is alive and well, and it's helped us in 2017 to deliver some nice results as well. By the end of the year here, we expect to exceed 150 basis points of operating margin expansion. If you look at Pall since the acquisition, we look to be exceeding about 600 basis points of operating margin there, and we're accelerating core growth across the platform.
In fact, we'll be delivering mid-single digits here for the platform for the year 2017. At the same time, we've created some nice value with some recent acquisitions. Phenomenex was mentioned. More recently, we've acquired IDBS, one of our first plays in the informatics and software area in the life science platform, strengthening our hand in biologic workflows. We feel pretty good where we sit here in 2017 and the momentum that we're building for 2018. How do we win in life sciences? Our winning formula is really based on four pillars. The first is we index our portfolio, our organic, as well as our inorganic investments to high growth markets, both from a geographic as well as an end market perspective. I'll talk to you about that in a little more detail here in just a couple of minutes.
From an innovation perspective, we focus on proprietary high-performance solutions that require a high degree of customer intimacy and stickiness in that relationship for greater defensibility as well as pricing leverage. When we think about our service business, we really see that as an aftermarket channel to help our customers succeed, as well as deploy a portfolio of differentiated service products as well as informing our innovation funnel. In fact, this is much more than a break-fix approach. When we think about our commercial teams, these are really highly qualified subject matter experts that are fighting in targeted application segments for share gain. This is much more than selling boxes. This is a lot about helping scientists advance their research.
Getting back to this topic of high growth markets and how we think about secular growth drivers, you see across the top here the various verticals, and down the side, our operating companies and the way they're appropriately exposed here. If you think about biologics and applied markets as an example, fully 40% of our portfolio in biologics, these are highly efficacious drugs. They are just at the beginning of their penetration in the marketplace, and of course, the pipeline there is still growing. Really a nice growth driver there. If we think of the applied markets, growing populations are pressuring the food supply as well as the environment. Governments are starting to increase the number of compounds that you have to test for, as well as the frequency in order to ensure both compliance and sustainability, a great growth driver for us.
If we think about industrial markets, here we're very selective, focusing on applications which will provide us a long-term play. I might mention in this context, semiconductors, which are very much buffeted by the current IoT trend, providing us a nice tailwind here as well. In research and academic markets, these tend to be anemic at times because of constrained government or public budgets. Here we focus on so-called translational research that we expect that will transfer over time into the pharma or applied markets. Lastly, in the clinical markets, we're looking to marry our high performance solutions with those applications where we can create significant clinical value for the physicians. If we just have a look here, I won't go through all of these examples, but just a couple examples and statistics on some of these secular growth drivers.
Biologics, once again, another greater than 20% increase in the number of biologic entities in the pipeline. We're just at the beginning of new therapy classes such as cell and gene therapy, which will continue to buffet this area. If we think about high growth markets, China and India in particular are transitioning from a decade-and-a-half-long investment cycle in basic research to applied research. We fully expect that to continue here over the next years. Lastly, I talked about microelectronics. Today's vehicles, 300 sensors, tomorrow's vehicles, up to 600 sensors. I think we're all experiencing the sensoring up of both our personal and professional lives. You can imagine the kind of tailwind that provides. We feel really good about the way we've positioned this portfolio to straddle these secular growth drivers for the long term and provide us the appropriate growth tailwinds.
Let's switch gears and talk about innovation and how we try to create competitive advantage there. The operating company, SCIEX, just launched the Topaz System and Vitamin D Assay. During the break or lunch, you can see that outside in the foyer. In this particular case, we're first to market with a real solution that creates clinical value. This FDA approval is the first of its kind as well, creating a nice set of entry barriers. For instance, here, clinicians can now bring this vitamin D test into the hospital, feel secure in its FDA approval, and this test creates a base load in order for them to be able to pay for this new capital investment in their hospital, while at the same time adding additional lab-developed tests in their clinic. What does this do for them?
Well, the first thing it does is it reduces the number of costly send-outs to other testing centers. The other thing it does is it reduces the time to measurement and the time to diagnosis. All very important things. Going forward, we're going to continue to invest in menu expansion for this particular solution, particularly there, where we're seeing mass spectrometry providing material clinical value versus other testing modalities. Let's switch gears and have a look at Beckman Coulter Life Sciences. Once again, the Danaher Playbook working for us. During the acquisition of Beckman Coulter Life Sciences, this particular business was flat. Today, we're growing solidly in the mid-single digits for three years in a row. What are we doing?
We're certainly removing waste and costs on the one hand, but we're also shortening, simplifying processes, then reinvesting in sales and marketing and R&D, employing some of those tools that Melissa spoke to you about: Speed Design Review, shortening cycle times and innovation, helping us accelerate our own innovation cadence. The results here speak for themselves, 20 products launched in the last three years. This compares to three products launched in the three years prior to the acquisition. I might just mention here, this Biomek i-Series Automated Workstation, this is a fluid handling station with very user-friendly software used in high-throughput labs. Then we have the CytoFLEX LX. This is a high-end flow cytometer used by scientists to answer some of the most difficult questions in cell biology.
Both of these solutions launched this year and are best in their class and significantly accretive to both our core growth as well as our operating margin expansion. Just another great example of the application of the Danaher Playbook here at Beckman Life Sciences. I'd alluded to the importance of service to us, here's another example with SCIEX. Once again, customers speak, we listen, with that end in mind, really our service is an aftermarket business that helps our customers succeed. We look to differentiate here from asset managers as well as break-fix service providers by providing proactive subject matter expertise that not only keeps these instruments running at the highest levels of utilization, but we also help these scientists get the answers they're looking for to advance their research.
In that fashion, the service business is not only a high-value, high-margin, recurring revenue stream for us, but it gives us customer intimacy, it gives us that stickiness that we're looking for, and it also informs us of the pain points in those labs in order to inform our innovation cycle once again. The results speak for themselves. You see here 500 basis points of improved contract capture rate supporting what is now five years in a row of high single-digit plus core growth and share gain for SCIEX. Here, a quick update on our Pall acquisition. We couldn't be more-- All good? We couldn't be more pleased with where we sit at Pall, and the adoption, particularly the speed and application of the Danaher Business System and our Playbook there. I think some of these results speak for themselves.
If you look at the meaningful improvements both in quality and delivery, over 2,000 basis points of on-time delivery improvement is pretty significant. From a commercial perspective, we're really pleased with the progress we're making with our commercial initiatives, which are gaining traction and improving our go-to-market capabilities. Melissa pointed some of those out to you just a couple of minutes ago. From an innovation perspective, we've really concentrated our project portfolio to build some additional leverage, pulled in the Danaher Business System, and applied our tools there to improve and shorten our innovation cycle times, resulting in a 50% increase in the number of products launched versus the prior period. As we think about this year from a growth perspective, we've seen orders growing well since the second quarter on, but it's been a little bit choppy from the market perspective.
With the two hurricanes and the earthquake, by the fourth quarter here, we'll be solidly into the mid-single digits again with Pall and feeling good about the momentum that we're building there into 2018. I know some of you are paying attention to our cost target there. I'd had some questions during the break. You may recall we increased our cost target from $300 million to $350 million over five years. We've clocked in at $200 million here after two years, and we feel really good about where we sit in relation to achieving that target. Danaher Business System and the playbook alive and well at Pall, and we couldn't be more pleased with where we sit there and the momentum that we're building.
If we back out of the operating companies once more and think about the platform overall, how do we apply the Danaher Playbook there? Right here, you see that we've deployed $19 billion of capital on over 25 acquisitions since 2005, building out the platform. This is essentially a combination of larger acquisitions with smaller bolt-ons. Throughout this process, we're playing out the Danaher Playbook as well as applying the tools, simplifying processes, accelerating processes, reducing costs, and gaining the flexibility to reinvest organically in those businesses to expand both the core growth as well as the operating margins. When you combine that with our ability to successfully execute on acquisitions, you get some outsized results.
I think when we look at these mid-single digits here for the last five years in core growth, 1,000 basis points of operating margin improvement over the last five years, those really show the playbook in action and also really prove and underwrite the hypothesis that the Danaher Business System works in and for the life sciences. In summary, we've got some outstanding global brands here that are really built on best-in-class technologies. Our teams are really focused on those very attractive markets that are buffeted and supported by those secular growth drivers that we spoke of. The Danaher Business System and the tools not only allow us to have terrific margin performance, but to reinvest in the business to strengthen both our commercial as well as our product innovation.
Of course, we feel great about where we're sitting with Pall currently and the momentum that we're building there and look forward to continued acceleration. In conclusion, we want to continue with this balanced approach to deliver long-term sustainable value to shareholders. Thank you.
Rainer, thank you very much. I think that small pause that was caused, that gasp, I think it was actually the few members of the audience, they found the result breathtaking, I think was what happened there. I even found it breathtaking a bit at the moment when you reminded me that we'd spent $19 billion over the last 12 years. 25 acquisitions, and it was a great portfolio as we were building on the back of Leica and SCIEX and Molecular Devices and Beckman Coulter Life Sciences. Boy, with the addition of Pall, because of the fundamentally great business it is, plus the performance improvement and the addition of great consumable business like Phenomenex, we've gone from having a really good portfolio to a really fantastic portfolio, again, with opportunities for improvement from there. Now we're going to turn to the dental platform.
As you know, we've talked about the dental platform as a platform that we're approaching and have for the last couple of years as if it were a newly acquired business. Amir Aghdaei is going to come up here and talk to you about that, and he's done a fantastic job leading us through really an incredible transformation of a number of the components of that business. He's going to share quite a bit about that with you following this introductory video.
It's a pleasure and honor to be here. Let me start by reorienting you, telling you a little bit about the dental platform. $2.8 billion business in a $20 billion market. Currently, 20% adjusted EBITDA margin. Our business is a combination of specialty consumable, about half of the business, traditional consumable, another 20%, and about 30% equipment. Think about it in that format, about 70% recurring, 30% standard equipment. We're changing the portfolio. We're getting more and more in the high-growth market, and we have a 50/50 format, 50% direct, 50% indirect. Let me tell you this transition and transformation that we have been going through over the last two years. We started by looking at the platform as a new acquisition. We started integrating a lot of the back offices, improving performance, freeing up fund for investment, and start looking at early innovation ideas.
We're beginning to see the outcome of that work. Two years through this process, we're glad to communicate 100 basis points of a margin improvement. We have increased the R&D investment by almost 10% in the last two years. We've doubled the size of our software engineers in the last two years, and we're beginning to see the outcome of that in some of our specialty businesses. Nobel, we talked about. Ormco, in the same format, and a double-digit growth in a high-growth market. I say we are at the middle of this journey. There is plenty of upside potential in here. By staying the course, by executing, you're going to see us continue to perform as we move forward. What are the underlying macro drivers that makes us feel good about this platform? Patience.
You're seeing the high growth market continue to become a major driver in here. If you look at it, the amount of investment or spend per capita, U.S. is 30 times higher than in China. Aging population, a lot more attention to aesthetics. You look at the dentists, they are shifting toward more of a workflow approach. The reason for it is efficiency, clinical outcome, reducing cost, and continue to give better care. A business, looking at a business when DSOs are looking at this industry. Big corporation coming in, buying a lot of the dental offices, and trying to create a business out of it to give better care to a larger population. Outcome of that is they are applying some of the basic principles of a continuous improvement into the dental offices. Introducing the IT, the procurement.
Other pieces that we haven't seen in this space decade ago is becoming reality now. Outcome of that is, there is a significant upside potential. The macro drivers, as I said, are there for us to really take advantage of it and transform this industry over time. Only less than 50% of the dentists today are using this integrated workflow. Less than 5% penetration in the implant, those that they need it and those that they get it, due to cost, the skills, and the time that it takes to really make that a reality. We talked about treating this platform as a new acquisition. In order to make that a reality, we have created a three-pillar approach. Number one is about integration and simplification.
The Danaher Playbook that you're going to be hearing over and over from us, in this space, about probably about 10 years later than what we should have done. We are going through the simplification, consolidation. We are freeing up funds, and we're using that fund for innovation and growth in order to create sustainable competitive advantage, and then start looking at how do we position ourself to win in this market to have a leading position. This is the playbook that we have been following in the last two years. I'm going to give you a status update of where we are in each one of those pillars. We had over 10 operating companies, 10 president, 10 CFOs, only two years ago. We have brought it together to four fundamental focus areas.
We have reduced the footprint of our manufacturing sales offices, some of the entities that we have been managing, by 30% over the last two years. There is plenty more room to go in here. We are trying to be thoughtful, make sure that we operate in a format that we create value for our customers and for our partners. Outcome of all of that has been over 100 basis points of a margin improvement, and our G&A has reduced by almost 50%. These are what we call the basics of DBS in action that is going to help us to continue to improve our margin and our core growth. As I said, there is plenty of room in here for us to continue this playbook. Freeing up this fund has allowed us to start putting investment back into the business.
Over 10%, over 100 basis points of a margin R&D improvement, adding R&D resources. Over 10% adding more feet on the street, the salespeople across the platform. This is much more pronounced when you look at Nobel itself. Three years since acquisition, 800 basis points of a margin improvement. 20% more R&D is spent, 15% more feet on the street in Nobel in the last two years alone. Outcome of that is a whole lot of new product introduction that will create that differentiation that we have been looking for. Nobel, before acquisition, flat, low single digit. We are seeing a mid-single digit growth in a sustainable format, investment that we have layered in the last two or three years is beginning to pay off, and we're going to continue to play that Playbook moving forward. Another example of this is around high growth market.
In China, to give you a little bit of a feel, in 2012, we had $35 million business. This year, we'll have $150 million business. We have increased the size of our presence in China by 50% in the last two years. We have R&D resources made in China for China. We have service organization now built to take care of our customer locally, a manufacturing capability that allows us to really respond to demand of that market very quickly. What we call a one-stop solution, having the entire dental platform under one umbrella so we can go in and solve problems as they need it and go after opportunities. We are operating in more than 50 cities, we are present now, and we are partnering with many of our partners in order to continue to expand that over time.
Two examples of what the distribution of fund from that pillar 1 has allowed us to do in the last couple of years, as I said, we're going to continue to play that DBS Playbook in order to create funds so we can invest in the growth areas. What does this long-term view look like? How do we create competitive advantage, sustainable differentiation? Today, we are point solution providers. We sell equipment, we sell consumable software and digital capabilities. In the future, the intention of going to a dentist is around diagnostics, planning, and execution. The idea here is to create that workflow, integrated workflow, make it seamless, make it easy to reduce costs, to improve efficiency, and to give you better clinical outcome.
When we talk about the digital workflow, digital dentistry, these are the components that we are building in order to make this grand vision a reality in a sustainable format and across the board. What makes us think that we can do this? We have the largest number of installed base in imaging in the world. These give us a sensor, an entry point that we can do the diagnostics. Building the software capabilities with the acquisition of Nobel has allowed us to start building this integration infrastructure. Over what dentists spend today, over 90% of what they spend in their offices, we are able to address by the capabilities that we have today. The start of a process, we have a long way to go here, but the key message is about continuity and execution. We're beginning to learn how to do that.
We're getting better at doing it, and in spite of a lot of the challenges that we have seen in 2017, we're really optimistic about what the future is going to look like here for Dental as a platform inside Danaher. As I mentioned at the beginning, DBS is fundamental, reintroducing DBS into this platform, playing the Danaher Playbook. We have done it in some places, plenty of opportunities that we can continue to expand. We are making good progress. Our goal is to get to 20% operating margin, continue that play of innovation, execution, and growth through commercial activities. We have seen good momentum in a high-growth market in our specialty consumable, and we are applying the same playbook now to our equipment and our traditional consumable.
Our intention is to create long-term value, and I feel really good about where we are after two years of that journey. With that, I want to invite Melissa and Rainer and answer any question that you may have for us.
Cliff Ransom, Ransom Research. First of all, Rainer, that was my interruption, I apologize. There are a lot of people in this room who got their knickers in a twist about the size of Pall and the price paid. Those numbers should put them all to rest. That's a polite way of putting it. Melissa, can you give us an example where you've used what I'll call DBS thinking to improve DBS thinking?
DBS thinking to improve DBS thinking?
Yeah.
Is that it?
Yeah.
I think that's what's happened in our evolution that I was trying to articulate, where we have that bedrock of the foundation of the fundamentals. Those fundamentals permeate how we think about DBS, and it continues to evolve. Daily management, visual management. We have system thinkers who've embraced DBS, we think of it in terms of systems, and that can apply broadly, whether it's commercial or innovation.
What's the latest change in the way the DBS office works as conditioned by DBS thinking?
The latest way we work. We always say that DBS is common sense vigorously applied. We're really looking carefully at my team and where we're going to deploy them against the biggest opportunities. We've always done that well, I think we're taking it up a notch, making sure that we're deployed against the biggest opportunities.
Two questions for Rainer on life sciences. First, for Pall, fourth quarter life sciences, you talked about mid-single-digit growth. I think the longer-term guidance had been mid to high single-digit growth for that business. Can you maybe talk about what you think could get Pall life sciences to high single-digit growth? Then can you just talk a little bit about what you're seeing in the pharma channel? Obviously, there's been a lot of talk of inventory de-stocking, and where are we in that cycle on the pharma side? Thanks.
Sure. Thanks, Tycho. Good to see you again. Starting off with Pall, I think our guide has been really mid-single digits for the company overall, and if we look at the life science business, there we would've guided here over the long term, probably high single digits, driven certainly by the biopharma business. I think the way we see the end markets there is really life sciences mid to high singles, and I would say industrial low to mid singles rounding us out there for Pall overall in the mid singles. As it relates to the biopharma market, in fact, there was a bit of an inventory adjustment here that we saw throughout the year, as well as some other just market choppiness. Our early indicators are, when we're looking at orders and our funnels, is that that's starting to normalize.
We're starting to see the order rates pick up again and give us some nice traction here as we think about the next coming quarters on the one hand. On the other hand, we do think it's probably going to take the course of 2018 to work its way through the system entirely and get back to those normal growth rates. See some stabilization for sure, but probably take the course of 2018 to get back to normal.
Thank you. A combo question for Amir, Melissa, maybe Tom wants to join in too. I'm curious to hear more about when you say you had to reintroduce DBS to the dental business, because I don't recall a situation where this has happened before, and it suggests that DBS wasn't either installed or embraced the first time. What went wrong? Has there been any discernible market share loss during this two-year period?
Two key pieces. One, we normally build our platform around marquee brands, such as Videojet and Hach. We did not have that marquee brand in dental. We bought a series of acquisition, and we didn't do as good a job integrating that. That was one part of the equation. The second part is about leadership. Wherever we have seen continuity is where we have had leadership embracing and bringing DBS into the platform, executing it, stay the course, have a long-term perspective, while continue to execute in the short term. We have now, I'm glad to say that in the last two and a half years, we have reinstituted that, we have a great leadership on the ground in all of our businesses, and we're going to continue to execute moving forward.
We have brands that they have stayed the test of time, and we're closing the gap as quickly as possible. A lot of the investment that we are making is resulting in new innovation, five new imaging, new product introduction next year, 25 in Nobel, in Ormco. We are closing the gap and creating a leadership position very quickly.
I want to add to that DBS is alive and well at Nobel. We're seeing it work very well there. The results are showing, and we're taking some of those lessons learned into the rest of dental, deploying there.
Just a follow-up on market share changes in the past few years, especially on the consumable side.
The consumable, it's been a choppy year in 2017, as you all know, but it has stabilized. The gap between inventory and sell-out is in a much better place. In the last couple of quarters, we are seeing a good momentum. We are introducing a whole lot of new product category. Traditional consumable traditionally is low single-digit growth, in a custom or very customized consumable, which is our bracket and wire implant, we are seeing mid-single digit growth, as well as in a better performance in some of the geographies.
I don't think you answered the question. Just giving you a hard time. Did you gain share or lose share? That's not my question.
In consumable, we have maintained share.
Okay.
Our goal is to continue to grow as the business grows.
That's fine. This is for Melissa. I'm just trying to picture how DBS integrates with modern technology, and when I think about all these software packages are out there for project flow. Does it integrate? Do you utilize these new tools?
We do, but, honestly, back to the DBS fundamentals of can you see it? Daily management, visual management is really powerful. We use it where it makes sense, and we're very thoughtful around making sure that the fundamentals are alive and well in our operating companies.
Okay. Just as a follow-up, when Tom talked about how this is the youngest Danaher there's ever been, there's an awful lot of new employees. How do you teach and train, whether it's logistically or otherwise, and culturally integrate this many people in-
Yeah
relatively short amount of time?
I think we've done this really well, in particular, both Pall and Cepheid, where when we go into an acquisition, we have a point of view of where DBS is going to give us leverage, both on the top and the bottom line. We make sure when we go in, that we pull the right DBS tools in that allow us to do that and communicate that to the associates, so that they're not overwhelmed with so many DBS pieces, but it's thoughtfully pulled in. Oftentimes it's solving a problem that they've had for many years. We try to connect the dots to win their hearts and minds out the gate.
Maybe I can just add to that. If we take the example of Pall here, you're talking about in excess of 10,000 people and the challenge of change management, how do you introduce DBS? That's a critical part of our integration plan. This is something that we think about in due diligence. As we then close, we move forward there in a very organized fashion to introduce Danaher Business System fundamentals on the one hand, then we have what we call executive champion orientation. That's where we get the leadership in to understand how do you lead with DBS. Then that is reinforced with experiential learning. In the first year, Pall did in excess of 300 Kaizens where people are improving the processes on the critical few objectives that we've set for that year.
Through that practical experience and application, coupled with the conceptual understanding, we really drive forward the message as well as the change management aspect.
Go Derek.
Hey. Great. Thanks. Derek de Bruin from Bank of America. A couple of questions on productivity and innovation. I appreciate the color on the new products introductions from Beckman and Pall, but can you discuss the overall biz, I guess how much of your organic revenue growth is coming from new products launched over the last couple of years, and what's embedded in your 2018 guidance? I have a specific follow-up on new product introductions in dental.
If I understand the question correctly, the impact of the new product introduction has been a phase approach. We started in Nobel Biocare. We got 25 of them introduced in the last three years. It's impacting the business. We are seeing the growth of those. The investment that we have layered in in the last two or three years is beginning to pay off. You're going to see a cadence of a new product introduction happening in a continuous format. We started in IDS, every quarter, every six months, we are bringing new product categories into the market.
I was actually asking about the overall Danaher business, about what's embedded into the organic revenue growth guidance of the company for new products overall, how do you look at just the new product. How much have new products been driving overall organic revenue growth in the-
Derek, when we've looked at that, obviously, there's a level of imprecision because.
Yeah
You can treat cannibalization in a variety of different ways.
Yeah.
We try to be relatively disciplined in terms of what's truly incremental versus simply a level of vitality, but not necessarily driving incremental growth. We try to be disciplined in that regard. I think it's probably fair to say that, on an annual basis over the last couple of years, we've seen probably about a point of our core growth-
Yeah
in total come from new products. I think what you're hearing and what you'll hear today and you'll hear more of later on in the follow-up presentations, is a focus on using the tools that we talked about earlier, that Melissa teed up around driving innovation more effectively. Some of the investment that Amir and Rainer have just touched on, that the others will touch on, to lay a foundation for seeing that increment of growth be more like 200 basis points or better, rather than the point or so that I think we've probably seen so far. Knowing that there's a level of imprecision in those calculations all along.
Great. Thanks.
It's fair.
That's what I wanted.
In a year.
Last one. Erin, yeah.
Oh, sorry. This is Erin Wright, Credit Suisse. Just kind of where you stand now in sort of your M&A pipeline or areas of focus, and maybe this is for Melissa, where can you best apply DBS, and where does DBS not apply, and what areas kind of is best suited for it? Thanks.
Maybe I'll start with that one. First of all, as you can imagine, our M&A funnels are very active. This is daily work for us on the one hand. We would start with the proposition that perhaps almost in every business, the Danaher Business System applies. Of course, one, we're driven by strategy and the secular drivers that Tom spoke about. We look at those markets in a deep way to ensure that we like the assets and market space, then, of course, we look at valuation. At the same time, with that assessment, we look at the, let's call it the degree of applicability of the Danaher Business System in any specific asset. That's absolutely something we look at, and in some cases, there might be higher applicability, and in other cases, less so.
It all starts with strategy and whether we like the market, the asset, as a part of our diligence, we assess what kind of impact we can have.
Thank you.
Thank you team, Rainer, Melissa, Amir, appreciate those questions and your responses. That last question and also coming back, I think, to Scott's question around technology-related businesses and the impact of DBS, and I think maybe perhaps implied in that question was also a sense of how does it apply in not only higher technology, but software. I think when we get in and talk to Joakim later on after the break, you see businesses where workflow is really driven by software and where we've applied DBS to businesses that are much more software-driven than some of our other more equipment and install-based oriented businesses.
If there's one thing you've seen from Danaher over time relative to DBS, if you go back to that evolution of the portfolio that began as fundamentally industrial, as it's evolved into more science and technology-oriented businesses, to Rainer's point, those markets, those companies, have come to be known as equally viable candidates for DBS impact in terms of lean, in terms of growth tools, and in terms of leadership. Within the markets in which we participate and in that evolution of the science and technology portfolio, we see the continued applicability of DBS in a variety of different ways, and in a sense, that gives us great optimism that our continuous deployment of capital into these markets can in fact be capital that will ultimately be the beneficiary of the impact of DBS in driving higher core growth and margin expansion.
We feel very good about the impact of DBS as we continue to grow the corporation. With that, we are going to go to break. As we do, I would ask you to take a couple of minutes as you circulate around and look for a couple things. First of all, we'll have product displays out in the break area. Please, I'd urge you to stop by, visit with some of our associates who are manning the product displays, get a sense of some of the new products and some of the innovations that are coming out of each of our businesses. In addition to that, as some of you will recall over the last couple of years, we have dispensed with the new umbrella or tote bag that we know many of you have.
I know, you're disappointed, Scott, because you lost the ones we gave you a few years ago. Instead, we've taken those funds and we've allocated those funds to a number of charities. Actually, each charity that you'll see a poster for next to the product displays is aligned with a charity that is supported by one of our operating companies. We're pleased to make those donations on your behalf and on our behalf, and also on the behalf of each of our operating companies. Enjoy the break. I would ask you to try to be back in your seats here at 25 after the hour. We will start promptly at 11:30, and at that time, Joakim Weidemanis from our Product ID platform will be taking the stage immediately following a brief introductory video to the Product ID platform. We'll see you after the break
Ladies and gentlemen, we are about to begin. Please take your seats. We are about to begin.
Hello, everybody. I'm here to talk to you about what I think is the most exciting platform in Danaher. Hopefully, you'll agree with me after this short presentation. You see and you experience what we do every day, and you already have today, whether you knew it or not. I see there's some ice cream on this slide here. It's probably a little cold for that, but maybe this is a little more heartwarming. These are some of our customers, the consumer goods companies of the world, their suppliers, and people who help them bring new great products to market to us as consumers. I'm going to tell you a little bit about what it is we do to help them in their world. A little short introduction here. First of all, we are a razor/razor blade business, just like the other platforms here in Danaher.
Completely global business. We serve all the global consumer goods brands, as well as the very fragmented food and beverage industry that you find in virtually every country around the world. You can see from our vertical mix there that really about half of our sales is to the consumer goods companies themselves, a quarter to their suppliers, and then we have a quarter of various industrial businesses as well. Great mix, great diversification in our revenues. 2017 is another great year for us, another year of mid-single-digit growth, another year of solid margin expansion. Maybe what was a little different for us this year is that the rate of product innovation increased in most of our businesses. I'll come back to, later in the presentation here, to talk to you about why we're so excited about some of those recent product launches here.
DBS has for many years, not just in Videojet, but many of our other businesses, really helped us both accelerate our growth as well as our rate of margin improvement so that we can continue to invest in this great platform, which, of course, we plow into things like those innovations, but also to add to the platform organically. I'll talk to you a little bit about the most recent additions here. This platform, then, what is it really we do then for these customers that I talked about? Think about the Oreo package that I showed you there. Sometime 12 months ago, somebody in that consumer goods company was thinking about some new product concept or a new flavor or a new packaging format for those cookies. Did you know, by the way, that those Oreo cookies come in about 100 different SKUs? Not languages, but SKUs.
Flavors, packaging sizes, things like that. Sometime 12 months ago, somebody started thinking about that. 12 months later, things start hitting the shelf. Really, our game is to help the consumer goods companies and their suppliers and people they collaborate with to take that 12 months down to something much shorter, let's say shorter than six months. In essence, that's what we do. This platform was built starting on the right-hand side of this slide with Videojet, and Videojet prints the best before dates, for example, on your consumer goods. You read what we print every day.
Over the years then, we added things on the left-hand side, and now we're really adding solutions, technologies, more software-based technologies, where we work with the brands, the designers, the marketing people of these brands to help them, for example, define what colors, Pantone, they should be using for their products. We help them actually design the packaging in the software solutions of Esko. We help them and their suppliers figure out how to make these things in an easy and cost-effective way through the color solutions of X-Rite, making sure they could get to the right color in the manufacturing right away, as well as the various tools we provide through Esko to facilitate the manufacturing. If you really think about it, what we're doing is we are automating manual steps.
We're enabling departments inside consumer goods companies to collaborate using our automated tools, which many times are software-based, so we're really digitizing workflows. In addition, we're helping those consumer goods companies work with their suppliers using these various automated and digital tools. If you think about it too, the domain expertise that we have built in this platform through these great teams that you see here on this slide is really a unique position and situation that we have in our market that we're continuing to leverage more and more in our newest innovations here. Let's talk a little bit about the market environment and what kind of drivers we face here. First of all, like I said, this Oreo package, who would've known that there are 100 SKUs behind such a cookie? That phenomenon, there wasn't 100 a couple of years ago.
It's really the age of consumerism, right? All of these consumer goods companies are adding flavors, and they're experimenting with different package sizes. That's driving SKU proliferation, adding complexity to their world and their supply chain. Of course, if you're a global company, like the company that manufactures Oreo or Coke, as you have in this example here, you obviously have designed your package, the product many times is the package, to be attractive, and you want it to look Coca-Cola red has to be Coca-Cola red exactly everywhere in the world, right? Not so easy to do when you have suppliers in hundreds of countries and you're manufacturing your products in so many different places. That adds complexity, too.
Furthermore, when we look at the regulations that impact our food and beverage customers as well as our pharma customers, there has been, over the most recent years, an increased number of regulations that require changes to the packaging design. Whether that's like we're experiencing here in the U.S. right now, that you have to change a little bit what you declare in the ingredient box on every product, or what's happening across the world, pharmaceutical companies are required to introduce the ability to track and trace their products during their supply chain before it gets to us as a consumer. Those regulations have been tightening up, that actually plays in our favor here as well.
What our customers have known for years is, of course, that even though you might think as a consumer that you always buy the same brand when you go to the grocery store, various studies actually suggest that about 50% of our decisions are not made before we get to the store. They're made there at the point of purchase. Obviously, the package is a marketing vehicle for our customers, and that's why they pay so close attention to it and are always looking for ways to tweak and make it more attractive to us as consumers. A lot of drivers here that affect our customers, and basically, if I summarize it, they all add up to the need for making more frequent packaging changes, and they need some sort of help tools to be able to handle that complexity.
If you think about our strategy then and how it relates to those secular drivers, obviously, we've defined our strategy to help our customers harness those complex things that I talked about, but also help them compete. Because at the end of the day, one of the competitive vectors for them is to get new products to market quicker than their competitors. The kinds of tools that I described that we have in that overview of the value chain really helps them harness that complexity that those drivers represent, and it helps them get these products faster to market through the automation, allowing people to collaborate through the digitization, and also through the various solutions that we provide that allow them to run their operations more predictably. I'll come back to a few examples like that.
Our advantage isn't just built on the technologies that we have, but it's obviously based on this very deep domain-specific knowledge and being able to understand the whole chain versus just one piece of the chain. Let's talk a little bit about the things we do to drive the growth and the performance of our platform. I'm going to use a couple of Videojet examples here, and you should know that I've been about seven years with Danaher, and I was the president of Videojet for almost five of those years. I've been part of some of the things we'll talk about here. We play in a very fragmented market, and just in the U.S. alone, there are about 60,000 factories that could be using Videojet-like products.
They only buy about every five years, and maybe the person who bought last time no longer works for that company. A typical buying behavior is to look at what kind of printer do they have today, the brand, and then maybe they'll repurchase the same brand. Now, if you're trying to grow a business like Videojet, somehow you have to figure out how to win new customers, right? But with what I just described there, even though you have the industry's largest sales force of 70 or so salespeople, it's like searching for a needle in a haystack. That's where marketing comes in.
Over the years, we've developed a marketing approach that's become part of DBS today, Melissa talked about that allows us to not only go find where all these customers are and keep our databases up to date, but also apply various techniques through digital marketing or by having phone-based marketing to go and try and catch these customers when they're in the purchasing cycle, which is only about 60 days. We've made really good progress here over the last couple of years. You can see some of the numbers here. You should think about this as adding about 1 to 2 points of growth per year in the equipment part of our business. What I'm really pleased about that the team is doing right now is we're really evolving our approach here based on our domain expertise and no longer marketing products.
We used to market printers. Today, our marketing is geared towards the quality manager of the dairy plant. All of our marketing speaks the quality manager dairy plant language, not just the printer language. You can see through our marketing how that is actually helping us drive more leads and better conversion rates. That's how marketing adds growth. Service in our business, too, is important. Our customers own our printers for up to 10 years. The labor force that they have in their plants, sometimes not very high skilled. The maintenance teams that they have in their plants are under pressure. They're trying to reduce costs. Gradually, they are looking for their vendors to provide more support to them during the life cycle of the product.
We embraced this years ago, productized our service offerings, and have been able to drive solid double-digit growth here for quite a while now. More recently, we have added to, we can call it the Internet of Things. We've started to connect our printers to the internet so we can monitor them remotely. More recently, we launched a product which is being displayed out here, which has about 100 sensors embedded in the printer so that we can start doing predictive diagnostics. This is a first in our industry, and we have several thousand printers already installed that are connected and are adding thousands every quarter, ramping very quickly. We by now not only have the industry's largest field service force, but we also have the largest install base of connected printers.
The two combined obviously allow us to offer our customers response times and various kinds of service contracts that are difficult to compete with if you don't have those two advantages that we have here. Service with the growth that we're driving here is adding about a point of growth to Videojet annually. Finally, innovation. Great year for us here. I know a few of you have participated in some of the larger shows that we go to, so you've seen a little bit more of the customer response. Very, very positive. Start on the Videojet side.
Not only did we launch this new printer that has the 100 sensors in it with the embedded predictive analytics, but we also launched a new printer that has a camera embedded inside the printer, which allows the customer to inspect the prints, which many times they want to do for various reasons, traceability reasons and so on. Embedding the camera eliminates the need to buy separate cameras, and they can get a much better total cost of ownership that way. In the X-Rite world, X-Rite traditionally is a color player, so we are able to not just measure color, but help our customers render what color, if they choose a certain color, what might it look like on different packaging formats and so on, which are usually paper or plastic-based. About a year ago, we launched a completely new technology that we call the Appearance product line.
Really what that does is it's a scanner that can scan different kinds of materials, different kinds of textures, and digitize that so that you can use it in various kinds of CAD, computer-aided design systems. The benefit of that is, for example, if you're designing sports shoes, is that you use so many different kinds of materials, and you get those materials from many different countries around the world. By being able to scan in those faraway places, digitize it, you can do all of your designs and rendering digitally, saving tons of time because you don't have to go to the physical world when you're doing your designs. Obviously, right before you go to production, you have to decide which variants you're going to release for production. Many times, they will make hundreds of different variants of these shoes.
They might choose 20 to go to production with. Now, if you can do all of that digitally, you can imagine the time savings and the cost savings, and actually, you can do more experimentation with different materials and colors and so on. Early innings on this product line here, but some really, really good feedback from customers. Finally, on this slide, our most recent acquisition is a company called AVT. This is a software-based inspection company, and they serve the customers that manufacture the packaging materials. They do full inline inspection for all sorts of different attributes of the packaging.
This acquisition was great for us because not on its own is that a growth industry, but with the capabilities we have in Esko, in the design of the packaging as well as preparing the various things you need to prepare before you launch the printing, the manufacturing of the packaging materials. Then with the capability that we have in X-Rite to inspect for color, we really have a one plus one plus one equals more than three situation. With the addition of AVT, we're able to offer these people who manufacture packaging materials a holistic solution from setting up manufacturing to inspecting, as well as providing data to their brand owner customers, which in the end, allow them to get more out of the factories that they already have today. Great acquisition for us. We're very, very excited about that.
If I move to wrapping up here, Tom showed this slide, some of it earlier in the presentation. I'd like to emphasize something a little differently here. With what I've just talked, with what we've done in marketing and sales, and on the service side, on the innovation side, we've been able to accelerate the growth of Videojet here over the last six, seven years. We've been able to consistently outperform the market, as you see here. In applying a DBS kind of mindset to these different areas that I've spoken to you about, we've been able to, in some ways, decode how you can plan and predictably execute on growth. Growth isn't a mystery anymore.
That mid-single-digit growth track record that we've had here for the last couple of years, we're very excited about and confident that we're going to be able to maintain here going forward. Obviously, we'll continue the solid margin expansion here as well. In summary, I think we should all be very excited about the differentiated product offering that we've been able to build and the domain expertise that's come with that work. We continue to apply DBS, not just in the growth areas, but also on the margin side. We're really running the Danaher Playbook here, and we're also contributing, like Melissa said earlier today, to chapters in the Danaher Playbook, just like any Danaher company is expected to do. Videojet's done a really nice job here over the last couple of years.
Look forward to seeing you here next year again, and hopefully, I'll be able to share with you a similar story. Thank you for your attention today.
Thanks, Joakim. Videojet, the Product ID Platform, has had a fantastic run of years here in 2017, no exception. As I think you can tell from that presentation, that platform is extraordinarily well set up to continue to outperform its peer group in the years ahead. That's really about executing the tools of DBS, ensuring that those tools are directed at product innovation and extraordinary commercialization of that product innovation, and supporting that business with a level of customer intimacy that comes from the exceptional service that they provide, along with now the technological innovations that allow that service to be delivered that much more cost effectively, that much more rapidly, and in a way that truly drives extraordinary customer satisfaction. A great run. Now let's turn to water.
Another example of running the Danaher Playbook, a tremendous track record of utilizing the tools of DBS, deploying capital effectively and expanding the platform, and compounding returns over a long period of time. With that, after this brief introductory video, our Group Executive over the Water Quality Platform, Lance Reisman, will come up and share with you the details.
Good morning. I'm here to present the Water Quality Platform, where we both measure and treat water. I'll spend some time talking about the water cycle, where we participate. I'll also talk about the secular growth drivers, and how we're taking our insight from both of these elements to drive competitive advantage, to drive growth, and drive share gain, both from an organic and an inorganic perspective. First, a little bit about the portfolio. You see the brands that drive a majority of the $2.2 billion revenue, and that is a relative high share of a very fragmented $15 billion market. You're very profitable. This is EAS. Water is similar. Number of factors driving that profitability, the two key ones are tied to DBS. The first is years of DBS and Lean, taking out cost, being more efficient. The second is growth.
We've really been able to differentiate our product and our services, thereby driving premium pricing in the market. Few more details about the platform. Again, another high consumable mix. As Tom mentioned earlier, we like that. That brings a lot of touch points with our customers, frequency of touch point intimacy, so we can learn more about their needs and deliver on those needs. Geographically, we're heavy on North America. It's driven by ChemTreat and Trojan. If you looked at Hach, which is our largest opco, you'd see a more evenly dispersed geography. End markets, majority of our business is focused on the industrial and muni. We're very strong, have a great heritage there. We're also expanding in the environmental space. Touch on a few highlights in 2017, where we continue to gain share in Water Quality. ChemTreat and Trojan continue to execute well with mid-single digit growth.
Solid performance in Hach in the core industrial and municipal markets. As I mentioned, we use DBS to drive growth. A couple examples here from Trojan. It was already leadership in project wins, but we've expanded that by 750 basis points. We've done that through innovative new products, specifically our Sigma product, as well as commercial execution, funnel management, digital marketing. Melissa mentioned the CM130. This is the first FDA-approved product for chlorine monitoring systems in dialysis. Again, DBS growth tools helped us identify this adjacent space, incremental growth opportunity. It also helped us accelerate product development so we can meet customers' demands very quickly. We continue with our acquisitions. We've had 10 over the last four years. We've had two since May. They're listed here, AppliTek. This is a perfect example of a bolt-on for us.
Online analyzers fills some gaps in our lines from a company that developed some leadership product but do not have the commercial capability to grow the business. They don't have the brand equity, they don't have the feet on the street, they don't have the digital marketing. We'll take these products, and we'll expand them rapidly, globally. Enviscience is our distributor in Thailand as we continue to drive our direct strategy. This is another distributor acquisition. Again, here we get to direct, we get the intimacy with our customers, we get to lay in our DBS programs, our commercial excellence. This business was actually growing quite nicely in Thailand, but since May, we've accelerated growth by 4x. Let's talk about where we play. If you look at the water cycle, we look at stored, treated, and used water.
If you look at the top blue bar, you see our companies that do measuring, that's quantity and quality. Bottom blue bar is the companies that do treatment. In stored water, we measure quality and quantity. These are oceans, rivers, lakes. These are source water that go into drinking water in a municipality that we treat and we measure. That water goes to industrial and consumer usage, where we also treat and measure, back through the system in the wastewater, where we treat and measure, and then back out to stored water. How do we win? Brand leadership. Understanding this water cycle, winning within each segment, but also the cross-connecting points is critical. We have that knowledge. We have the application knowledge. We help customers meet their goals, regulatory and process efficiency. We've built that brand leadership over many decades. The trust is there.
In addition, we continue to product innovate and drive commercial execution, and I'll touch on that shortly. We continue to drive our winning levers in the differentiated channel, where we have over 1,000 direct sales and service people, as well as technical support, and then also a global digital capability that is world-class. Let's look at these strong secular growth drivers. I think we're all familiar with sustainability and scarcity, and this is all about more efficient use of water and reuse. I'll talk about how we're driving business through there. Regulatory requirements. There's a data point here about the U.S. specific to nutrients, showing some growth. Regulatory is growing globally. More regulations, tighter regulations. This is good for the environment, and when it's good for the environment, it's good for our business. High-growth markets.
You may be aware that there are some challenges with water in high-growth markets, from both the drinking water, but also wastewater. In the current five-year plan for China, 220 million people will be connected to wastewater that today direct discharge into stored water. This is great for the environment and again, great for our business. The Internet of Things, data. Data analytics obviously is in water as well. We're looking for how to take data and make it operational. What do you do with that data to drive efficiencies? We think we are well-positioned for the long term with these secular drivers. How we do that is through strategic focus. We look at these secular drivers. We go out, we talk to our customers, do deep voice-of-customer, very intimate, lot of touch points with our customers to really truly understand their needs.
We drive that into our strategic plan and our strategic focus and execution. One of our key strategic focus is accelerating new products and truly differentiated products. We've talked about the chlorine monitoring system, first FDA approved for monitoring chlorine in dialysis. This is a regulation. We're taking advantage of a regulation trend. Claros, this is about data. This is a water intelligence system where we're taking data, making operational insights to allow our customers to better hit regulations and to better meet their process efficiency needs. This is outside. I recommend you spend a little time with everything we have going there from data instrument and process management. Trojan, talked about reuse trend. They've been playing in the reuse market for a number of years, but Flex is a new product that's out this year. This has a 70% reduction in the footprint.
Trojan is able to do that because they are leadership with lamp technology, making their lamps more efficient, therefore a lower footprint, smaller footprint. Why is that important? Because in wastewater facilities that are already built out, space is limited. Customers would like to avoid millions of dollars of new construction and movement of assets. This will fit in most wastewater facilities of any size. ChemTreat, CT Vista. This is to help customers optimize their water treatment. This is a software program. Again, we're talking about efficient use of water. We're talking efficient use of energy. That's what this program does for our customers. Talking about commercial execution, leveraging it at the platform level. What we've done in digital marketing, we had a world-class system at Hach. They spent over $5 million on digital assets.
What we've done is we've built a team at the platform level. It's enabled us to hire strong talent, digital expertise, and as well expand the number of talents we have focused in this area. They've been able to take this $5 million asset, which optimizes search engine optimization, e-commerce, and for $50,000, they can now roll all those capabilities to the other opcos. Tremendous leverage has moved in our digital strategy two to three years. From a strategic key account perspective, in our strategies, we looked at if a strategic account touched more than one of our opcos and was being very proactive with their water strategy, such as reuse, such as tighter regulations than was even on the books today, we brought our resources together across opcos so we can walk hand-in-hand with these strategic accounts and help them solve their water strategy moving forward.
Finally, high-growth markets. Hach is the biggest opco, as I've mentioned. They have the most resources in the high-growth markets. We've been able to leverage their leadership team, also their back office, finance, HR, et cetera, to allow all the other opcos to focus their investments on customer-facing resources. As you can see, all three of these have driven great results, 40% up in digital since 2014. High-growth market's up 40% over the last five years. We've been talking about organic, talked a little bit about inorganic. I want to take a little historical walk with our ChemTreat business. ChemTreat now has been with us for 10 years. I was actually part of that due diligence team. They've always been a strong growth engine. They've got 50 years of consecutive revenue growth.
Danaher, when we do acquisitions, we do have a playbook, but we also have flexibility, recognizing what's working, don't touch it, what's not working, help out. They've been a great growth engine before we bought them, also after. We've grown them from $200 million to $500 million. We brought them into the high-growth markets, right now Latin America, primarily. Now 20% of the business, it was 0 when we bought ChemTreat. Their revenue in Latin America is 5X since 2013. Commercially, as I mentioned, they were very good commercially. We were smart enough not to touch their commercial model. We were able to enhance it a little bit with DBS to help them grow, as well as take some cost out of the business as we've improved the profitability significantly.
Over the years, we've outperformed the market by over 2X. In closing, we have a strong position in highly attractive end markets, where we continue to gain share and continue to build differentiation. We're winning in markets through product innovation, commercial excellence, as I've talked, leveraging DBS, and I think we're opening up even wider differentiation than in the past. Despite being the oldest platform now at Danaher, we continue to grow and invest organically and inorganically to expand our market opportunities and expand and accelerate our growth. Thank you.
Thank you, Lance. Lance and the water quality team have done a tremendous job continuing to drive share gains across what is a really broad market. If you think about the water cycle that Lance described, there's a tremendous number of opportunities in that water cycle, from the natural resource through facilities, muni, and industrial, to continue to expand our footprint, both organically and inorganically. You know, there are a lot of similarities, in a way, to the business model between what you heard from Joakim in PID and what you just heard from Lance. Both strong installed bases of instrumentation anchored by incredible brand strength, both of which combine then to pull through a high level of captive consumables. A tremendous business model that's really contributed to the consistency of their share growth in their markets, as well as operating margins over a long period of time.
In both cases now, adding technology to that installed base of instrumentation and consumables. In the case of PID, leveraging the Internet of Things for purposes of higher levels of customer intimacy around service that I mentioned, but in the case of water quality, leveraging technology for greater ability to drive process optimization in those water facilities, and therefore greater efficiency and cost management. Tremendous uses of technology that we think will drive future growth in both of those businesses, in addition to the fundamentals of the business model that are already working today. Now we're going to turn to diagnostics, another fantastic platform. In just a minute after this introductory video, Dan Daniel is going to join you and share some details about the diagnostic businesses.
For those of you that have that music burned in your brain, you'll be pleased to know this is the last of the platform presentations. Last but certainly not least, great to see many of you again. I've certainly had the wonderful opportunity to lead many of the platforms at Danaher over 11 years. To begin this year, Tom asked me to help Amir with our progression and our evolution in our dental platform, as well as take over direct leadership for the diagnostics platform. This is a platform of wonderful businesses, and we have a team that's motivated and working very hard to help this group of businesses realize its full growth potential. We have four very strong operating companies with strong market presence, with revenue now nearly $6 billion, strong earnings, and significant market runway.
These are businesses that all have the Danaher business model we like, with a high-end technology instrument that's supported by a recurring revenue consumable stream. They have global reach and breadth, a global footprint, and strong service organizations to help our customers with their daily challenges. Whether it's Radiometer, which has been in our portfolio for 13 years, and many of you have tracked the progress and followed the wonderful examples of DBS in that business. Leica Biosystems, which came out of our 2005 acquisition of Leica, and a couple of years later became a spinoff of a small business that's now a significant business of scale and size for Danaher. Beckman Coulter, which has been part of our portfolio for six years, or Cepheid, now 13 months a part of Danaher.
These are all businesses that even today have significant growth potential to leverage DBS with both product innovation, technology innovation, as well as improved commercial execution. We're looking forward to continuing that journey in diagnostics. 2017 has been a year of progress. Obviously, one of our highlights was the transition of Cepheid to becoming a Danaher company. It's been a tremendous first year. We're thrilled with the team, their adoption of DBS, the market runway, the technology they bring to the market, and it's been a wonderful story of continuing our double-digit growth in Cepheid, of which they have a long, rich history. Applying DBS for rapid improvement in the margin profile of the business, now taking that into be a double-digit profitability business with plenty of runway ahead. I'll spend some more time on Cepheid in a few minutes.
All of these businesses over the last few years, as we've shared with you at this conference, have been working hard to build the innovation pipeline in their business. 2017 is a year when we're beginning to see the fruits of that labor. Both Leica Biosystems and Radiometer have both launched products, instruments, and menu in 2017 that are helping improve the core growth of the business throughout the course of the year. This is also a platform that's very well-positioned in high-growth markets. Diagnostics has over $2 billion of revenue in high-growth markets around the world, led by Beckman. Beckman has a very strong presence in all the significant high-growth markets around the world and is increasingly taking our presence more direct for long-term share gain in those markets. Cepheid is a business in China, started very small.
One of the first decisions we made in 2017 was to double down on the feet on the street in China. It's paying fine dividends with very strong growth and significant long-term runway in China. 2017, again, a year of progress, one where now innovation pipeline begins to bear fruit and where we're beginning to see the results of our efforts to improve commercial execution for long-term share gain and winning in the diagnostics markets. I think we all know the diagnostics market is attractive for the long term. We think there's a number of things that are going to help continue to drive that over the next few years.
First, on the patient side, where the personal, predictive, preventive care continues to grow and opportunities in ways we could have only dreamed about a few years ago for an aging population that's going to continue to need care and diagnostic treatment. On the customer side, tremendous advancements in technology, of which molecular diagnostics is certainly one of the most significant, still in the very early games of adoption of that technology. Also, on the customer side, it's a challenge for most, if not all of our customers to attract and retain skilled lab workers in their business. That's where our solutions for automation, simple user interface are significant opportunities going forward and a big part of our innovation pipeline. Again, high-growth markets, where markets like China are still working hard, investing heavily to expand care throughout their market.
It's a unique opportunity for us to leverage our Danaher footprint, our scale, and most importantly, our people, to drive continued growth in China and the rest of our high-growth markets. We think we're in a great market, strong brands and businesses, and positioned well to improve our growth going forward. I actually believe one of the strengths I've seen in my first year here in diagnostics is the breadth of our offering. Obviously, we play significantly in all of the core labs in a hospital. We have significant presence in point of care with Radiometer and also Cepheid. Again, as molecular applications grow, Cepheid has tremendous growth runway ahead. All of these businesses and our teams and our application specialists spend a lot of time working with customers, trying to help them improve their workflow efficiency.
Certainly very important in what is continuing to be a cost-pressured environment. Whether it's our automation systems in Beckman, advanced application of software to connect our instruments and provide data to our lab customers to help improve the efficiency of their workflows, leveraging our global distribution, our service networks, these are all things that we try to do well in each of those businesses to help strengthen and improve our position. A handful of situations that are growing very strongly, certainly in Leica Biosystems, with our next generation and launch of BOND stainers advanced staining equipment, helps drive the fastest turnaround time in the marketplace today. At Beckman, with our strong instruments in chemistry and IA, together with our automation, help provide the highest throughput in the marketplace today.
One of the many great strengths of Cepheid certainly is their menu development capability to provide the broadest menu in the marketplace today. That menu capability is a very important set of skills and people that we plan to leverage further going forward across our diagnostics businesses. So we love the breadth and where we play across these businesses. As I said, we are thrilled with our start at Cepheid. I think just like Paul, the first year has exceeded our expectations, and our expectations were high. Warren Koopman and the team have embraced DBS. Melissa Aquino and her DBS office team have spent a lot of time in Sunnyvale and places around the world training and educating and demonstrating examples of how DBS can apply across all of their business.
Of course, in Cepheid, maintaining and improving that double-digit growth rate is at the top of the list. We've had a strong year in doing that, but obviously, our DBS tools help us improve margins significantly, where we've grown gross margin 500 basis points in that business in the first year. Our lean applications have also helped us significantly improve on-time delivery. In lean, it's helped us with our supply chain performance. It's helped us with our labor productivity. It certainly help us with capacity utilization, which is an important aspect for a business as fast-growing as Cepheid, and it's driven significant benefits for customers. So we've been thrilled with the operational aspect, and we think there's plenty of runway ahead in this area. Like all of our acquisitions, we spend the first few months eventually working towards what we call 100-day strategic plan.
That's to check our diligence information. How does it compare now to then? It's also to evaluate the growth opportunities in a business and make sure we're funding those highest growth opportunities, maybe putting a couple on the back burner for a period of time. There are a number of those in Cepheid, and we've invested in 2017 in China, as I said, building out our sales team to support smaller hospitals around the world and expanding their presence in point of care and physician office labs. In addition, the team has been wonderful embracing fundamental DBS growth tools such as funnel management, demand generation, like you heard about at Videojet, and a number of tools to help improve the organic growth execution of the business around the world. Innovation has been one of the keys to success for Cepheid over the years.
They have a wonderful team, some specific skills around menu and enzymes and assays, and some processes that maybe were a little loose that they've embraced from Danaher. Those in product development have been instrumental in making sure we can accelerate the development time. We're very focused on protecting that super strong culture of innovation at Cepheid for long-term growth. We are thrilled with Cepheid. We know it's a great market. We knew that before. It's a wonderful team. There's no surprise in that. We have been thrilled with their adoption of DBS, and I'm confident this is one of those businesses, like Fluke, like SCIEX, like Videojet, that's going to make Danaher a better organization over the years, and we're thrilled about that as well. I talked about product innovation and commercial execution.
Those are really the two buckets of things that are going to help us reach that mid-single-digit growth rate here in the future. Over the last two or three years, all three of the businesses that have been part of the portfolio have spent substantial time, effort, and energy in relaunching and rejuvenating the product pipeline, whether that be at Beckman with our chemistry analyzers, beginning to launch new hematology analyzers, our Access 2 benchtop IA analyzers, and software solutions such as DxONE, which helps labs manage information flow, taking that into the cloud, connecting instruments to, again, deal with improved efficiency, but also manage some of the cost pressures that they face in their market. LBS has accelerated growth through launch of stainers and tissue processors such as the HistoCore PELORIS 3, which launched in September.
The marketplace has been thrilled with the rejuvenation of that product line and its driving growth in LBS as it accelerates throughout the course of the year. Radiometer's been an innovation machine for years. The future is as much about menu and solutions with assays as it is with instruments. 2017 is a year when we began to come to market with more assays, including high-sensitivity troponin in Europe for Beckman, vitamin D, women's health, Radiometer, and Cepheid with Xpert Xpress Flu and the October FDA approval of the Xpert Xpress Strep A assay. Again, Cepheid is a wonderful group of folks with technologies and capabilities that we can and will leverage across the platform. We're going to continue to see the fruits of the innovation pipeline in 2018 and beyond.
Also like any business, and probably more impactful in the near term in some of our businesses, is improved commercial execution. You've heard about the DBS growth tools and the Danaher Playbook. They apply in diagnostics just as much as any other business. In this market that's consolidating, our efforts around targeting and strategic account management is certainly an initiative that's gaining traction. DBS applies as well in our clinical trial capabilities, where our workflow management, our process improvement and continuous improvement, even in clinical trial execution, has helped us significantly expand the number of clinical trials that we pass through in the marketplace. High growth markets will continue to be an important part of the growth opportunity in diagnostics. We're positioned very well. Overall, this is a portfolio with 70%-75% of its business direct.
We're increasing that in important markets like China, the Middle East, and Latin America. As you hear in other businesses as well, we're investing in localization, have established a localized R&D center in China to help build more products designed for China in China. Those will continue to be important growth drivers in the future. It's been a year of progress in 2017. It's wonderful to have Cepheid part of the portfolio. I think we're ahead of where we thought we might be this time last year. We're thrilled to be there, but even more important, the runway ahead is significant. The DBS application in both innovation and commercial execution are going to continue to help take our diagnostics portfolio and help it reach its full growth potential in Danaher. Thank you for your attention.
With that, I'd like to invite Joakim and Lance back up and we'll take your questions.
Hi, this is Tim Evans with Wells Fargo. Maybe just one for Dan. Over here. Are you willing to tell us the growth rate at Cepheid for emerging markets versus developed markets?
I don't think that's something we've split out, high growth markets has been a bit higher than developed markets and all up, certainly the double-digit growth rate is what we expect to continue to be able to deliver.
Okay, then just with the discontinuation of Veris, can you talk a little bit about the product development roadmap for Cepheid in the instrument category where you might be looking at something that's higher throughput appropriate for core lab?
Sure. Well, like any acquisitions, one of the first things we do is look at the R&D pipeline. In a business like Cepheid, there's a very full funnel of assays. We spend a lot of time and attention on that. We've talked about the Omni development. That's a development that continues. We expect to bring that to market sometime in mid 2018. The ability with the GeneXpert and Infinity to expand that is how we're addressing the high throughput piece. Cepheid is an assay business. That cartridge is what really drives it, and we think we're going to have a nice balance between GeneXpert, Omni, and the Infinity, which allows us to increase the throughput across the businesses.
Great, thanks. Dan Leonard here from Deutsche Bank. A question for Dan again. Dan, can you give us an update on how you're thinking about the impact of PAMA across your diagnostics customer base? Thank you.
Sure. We believe the impact is probably minimal for us going forward over the next few years. In fact, in 2018, it's probably negligible. As a reminder, our business is about 60% outside of North America. Much of our business is in the core lab that's not impacted by PAMA. We think it's a small amount of our business. I look at it as just additional cost pressure that's been existing in this market for a decade, frankly, in other markets as well. Our automation, our software, our workflow work that we do with our customers, the fact that we've got an organization of folks who are available to go train customers with DBS and help them improve the overall throughput and their cost position, those are the things we do that we think can mitigate that nominal impact of PAMA over the next few years.
Yes, thank you. Lance, got a couple water questions for you. The first one, you showcased the water quality brands. You had highlighted Hach, Trojan, and ChemTreat, Pall was not one of the brands. It did show up later, this is not the first time you all have not showcased Pall. If you go to big water trade shows, Pall gets equal billing and its own booth, and it's a recognized leader in UF and nanofiltration. Just curious why it doesn't get more air time in showcasing. I know it's got the big biotech side of it, which is really important and is a big profit driver, it's still a key player on the water quality side. Then just as a second question separately, could you talk about the opportunity in environmental?
It's an important area, when you address that, who's your primary customer in those applications? Thanks.
Pall is an interesting question, though. We put our largest brands up from a revenue perspective. We do see opportunity with Pall, we have had a good year in bookings with Pall. We share your optimism and the power of that brand in water, forgetting about life sciences. From an environmental business, the environmental space has been a little slow this year. There's been some projects are there. They're not getting processed. We do World Bank, United Nations, municipalities, a lot of these programs have not progressed through. We haven't lost any major projects, just projects have been slow. We're starting to see some increase here in the back half of the year, improvement over the first half of the year.
Thanks. It's nice to see the on-time delivery up at Cepheid, having covered that company for a long time. That was a problem that was there. Just looking at the Cepheid, you talked about pruning some of the portfolio and pruning some of the R&D projects that were ongoing. They had a lot of stuff that was going on in the genomics area. Can you sort of talk about where some of those products are and sort of like the overall desire to move more into the genetic testing business overall for the diagnostics business, given that that's an area where you've seen better reimbursement relative to some of the infectious disease areas and some of their stuff?
Well, Cepheid, 13 months ago, had a very long list of projects that were active. All were valid. All were significant opportunities. As I said, one of the things we do early on in acquisitions is slow some down, speed some up, invest some. Certainly in one of their core capabilities around infectious disease, that's an area where we've invested to speed up. Some of the other opportunities, such as oncology, are still very good and important long-term opportunities. We're continuing to explore and expand those as well, but we want to be sure we get some of the products that are a little bit further along in the pipeline, can help us continue to build the growth capabilities up to the front of the line, and that's what we've been doing.
Certainly on the instrument side, Omni's important project, the Honeycomb Multiplexing, something that's one of those that we slowed down. Again, it's something that has full potential going forward as well.
Just a quick follow-up. How long before you can get Beckman Coulter to a 20+% operating margin? Thanks.
Did you say Beckman Coulter? We're pretty close today. I think with a little improvement growth and some of our improved work on our footprint and continued high market growth, certainly, it's something in the next couple of years, we see ourselves in that zone. Not too far away today.
Question on your BNP business. I'm not sure how much you're willing to comment, but can you just talk a little bit about how that business has done? Obviously, there's been talk of your appetite to maybe potentially purchase the assets from Alere that went to Quidel. Curious as to if that's the case, what the attraction there would be. That market doesn't really grow, and there have been some pretty big numbers there on what you potentially might pay to acquire that.
Tycho, I certainly wouldn't comment on any potential M&A activity. That's an important part of our business for our customers. It's one that we've had a long-standing supply relationship that's continued with the new owner of the business. We'll do whatever we have to do to continue that. It's a very important test that we have a strong right to play in. We'll continue to do everything we can to support our customers in that area.
Thanks, guys.
Thanks. Let's try to wrap up. Then we'll take some additional Q&A after just a couple of slides. The key messages from today, the key things we hope you heard and that you'll take away today is clarity around the performance that we've delivered, obviously, in 2017. Solid performance, most importantly, momentum building as we go into 2018. Accelerating core growth, solid operating margins, the ability to continue to increment those margins over time. The newly acquired businesses continuing to perform exceptionally well. Double-digit EPS growth this year, double-digit growth in free cash flow.
When you put all that together and we look back on 2017 and we say, "Hey, a year where we continued to deliver as we had planned, but clearly a difference in terms of what we're seeing in the second half versus the first, and in such a way, gives us great optimism that we'll continue to drive improved performance as we go into 2018." You should have also heard that we're going to continue to invest and invest strategically by putting our free cash flow to work with a strong bias towards M&A. That activity, in terms of building our platforms, both organically and inorganically, will largely be directed into markets and businesses where those strong secular drivers that we talked about will continue to provide opportunities across the board.
We'll continue to look for businesses with strong installed bases of instrumentation, but most importantly, where customer intimacy is strong as a function of that recurring revenue stream, of the mission-critical consumables that we provide, and where our relationship with customers through service and direct support really adds tremendous value. Finally, you've heard about the evolution of the portfolio, but more importantly, you've heard about the evolution of DBS. Hopefully, you've come to understand that DBS is certainly a lot more than lean. It's really about growth and it's about leadership.
As the portfolio has evolved, so have the tools of the Danaher Business System, that this multi-industry science and technology portfolio today continues to benefit broadly and deeply from the evolution of our growth tools, and that those growth tools are clearly directed at driving higher levels of innovation and more effective levels of commercialization, all in the interest of accelerating our market share gains. A balanced approach we believe to delivering long-term value to shareholders. You all saw the press release from this morning, you've seen the guidance that we put out. What's embedded in that guidance is a core revenue growth estimation of 3.5%-4%, consistent with our view of continuing to accelerate core growth as we move into the year. Implied in that guidance is roughly about a 35% fall-through.
We continue to balance our reinvestment in the businesses in the interest of R&D and sales and marketing to continue to drive innovation and commercialization, with also dropping through solid operating margin expansion. Cepheid and Phenomenex will be part of the improvement in the core growth as we go into 2018. They are now part of the core and a fraction of that here in the fourth quarter. There are a number of different levers in addition to those more newly acquired businesses where we expect some improvement this year. If I had to pick a couple, I'd probably point to Pall for one. You heard from Rainer about the improvements that we're seeing there, about the continued progress using the growth tools of DBS, about some of the challenges that we had during the course of the year relative to the market.
I think we'll see some better performance there. A little bit of the softness that Lance talked about relative to Water Quality, we expect to get past that, and I think just to name two of what I think are a number of levers that will continue to improve during the course of the year will contribute to that accelerating core growth. From an FX perspective, today we pegged the EUR at roughly 118. That translates into a bit of a tailwind, about $200 million in revenue and about $0.04 to adjusted EPS. The tax rate, obviously, taxes have been quite topical of late. It looks like we're making some progress, at least down the street in Washington. From our perspective, we plugged in a tax rate of 21%. That's pretty consistent with 2017.
Plus or minus any final adjustments that come through, we wouldn't expect the tax bill as it exists right now to have much impact on that one way or the other. We put some numbers in there relative to seasonality, and that's really just in the interest of helping you with your models. You put those pieces together, and that leads us to the guide for 2018, which is adjusted EPS guidance. Nearly 10% EPS guidance at the high end of $4.25-$4.35. As we look forward, one final look back. A look back over the last five years, where we have delivered low teens adjusted EPS growth compounded from 2014 through 2018.
Embedded in that, obviously, is a period from 2014 through 2016 and the impact in 2017 of nearly $20 billion of capital deployment and bringing in $5 billion of newly acquired businesses. Obviously, those continuing to have real impact on our ability to drive earnings growth through the tools of DBS that you've learned about today. 2017, obviously a year where we focused on ensuring that those businesses were successfully integrated into Danaher, that the DBS culture and the impact of lean growth and leadership were being felt in those businesses, and you saw the returns through the course of the day-to-day. 2017 was also a year of reloading the balance sheet. We enter 2018 with a whole new level of firepower relative to deploying capital, and we will continue to deploy that capital again, as I've mentioned, with a strong bias towards M&A.
We're excited about going into 2018 with some accelerating momentum, with a tremendous balance sheet, and an extraordinary team, many of whom you've met today, who are leading a tremendous number of platforms of businesses throughout Danaher. With that, we have a few minutes left before we wrap, and we'll go to some Q&A. Hey, Scott.
Thanks, Tom. Impressive day as usual. You talked a lot about the evolution of DBS over time, what I was curious to hear from you is how has your executive compensation changed over time as you've added on the different toolkit to DBS?
Well, our executive compensation has always, for as long as I can remember, and that's coming up on 28 years, has always had embedded in it a performance review that anchored that incentive compensation that had DBS kind of at the center of it. Did you embody the core values? Do you understand the tools? Do you put those tools to work? Can you point to the results in your businesses as a function of implementing DBS? I always felt that our compensation system, certainly our incentive system, had at its core a performance review that reflected whether or not you were leading with DBS. We actually describe that term today, leading with DBS, as one of our leadership anchors. Turning to the metrics then that represent that performance, our leadership team, those that run our businesses, are measured on core growth, operating margin expansion, and working capital turns.
Working capital as a function of a proxy, if you will, for helping to drive free cash flow. It's the performance of those three metrics on a combined basis, along with the personal demonstrated values and tools that I mentioned earlier, that combine to feed the compensation system that we have today.
Okay. As a follow-up, just as you think about one of the things that has changed, I think, from the last 20 years is valuations on M&A have continuously gone higher and higher in the marketplace overall and deal deals for sure as well. How do you think about the reinvestment cycle, if you will? It's almost like every two years you're reloaded again. How do you think about being opportunistic versus waiting for pullbacks, things like that, versus the pressure you feel just to continuously redeploy capital?
Well, one way to come back at that, Scott, is to say we're not market timers. We don't sit back and wait for cycles to run their course. We've been very consistent over the last three decades at using the model that I showed earlier about consistently looking for markets that we find attractive, consistently looking and cultivating companies within those markets, and then approaching those companies appropriately, and then with the right opportunity and the right valuation, taking advantage of those. If you look back over history, we've done that in times when valuations were seemingly at a point where people thought maybe that wasn't the best time to do that deal. By the same token, we've done that at times when valuations were actually quite low, and frankly, everyone was kind of going to the sidelines, and we went all in.
It comes from a consistent view on markets and companies and valuations that allows us to take advantage of those when they become available. By being consistent in that model, by never changing our view of the importance of return on invested capital, without regard to where interest rates are at a given time, I think that's served us pretty well. It's really been all about consistency of our philosophy about deploying capital, I think. Hey, Cliff.
Cliff Ransom. You're making me rethink my recent rampage on metrics, because I've been driving to the fact that I'm struck by the fact that most of the value is produced in the Gemba, but you have no metrics for safety or employee engagement at the level of presentation here. Can you help me understand what I'm missing?
Sure. You're right, we didn't put those up on the board. Safety is the number one metric in certainly every manufacturing plant, if not every facility in the world today. When we talk about metrics at an operational level, we talk about them in this order and always in this order: safety, quality, delivery, and cost, and always in that order. In fact, when we survey our associates, coming back to your second question about associate engagement, which we do measure and we have measured consistently over the last several years. We do the survey each year. We've seen significant year-over-year improvement for the last four years running. One of the highest ratings we get within the employee satisfaction survey is actually on safety.
we do put those measures in front of ourselves quite frequently, and we recognize that doing right in terms of a safe working environment and associate engagement is fundamental to one of the associate metrics that I did put up on the board, which is retention, or the inverse of turnover, if you will.
Tim Evans with Wells Fargo. Amir's presentation left us with the impression that Dental, you're making progress toward accelerating growth here, when we looked at your high-level summary of the organic growth driver accelerations, Dental was sort of conspicuously absent. Why is that?
I certainly didn't make anything conspicuously absent, I hope, given the breadth of the portfolio and the fact that we have expectations for improvement across a number of different levers, and businesses that hopefully I made reference to in a fairly general way. This has been a challenging year for the Dental industry at large, and certainly for the overall market in terms of sellout, which has been fairly tepid, not to mention some of the shifts in manufacturing and distribution alliances. There's still some settling out to do of those dynamics, particularly as it relates to these manufacturer distributor exclusives having changed hands, and these alliances shifting a bit. I would expect as we go into 2018, that particularly on the more traditional equipment side of the house, we could continue to see some softness as inventories shake themselves out and those distribution alliances settle.
I think we'll see some stabilization on the consumable side, and I think we'll still continue to see good, solid, mid-single digit core growth from our specialty consumables businesses like Nobel and like Ormco, which are also terrific margin businesses as well, and almost exclusively consumables. I think there's a bit of a balance there with some early weakness in the first half of the year, perhaps on the more traditional equipment side, and then some continued solid performance on specialty consumables. Hey, Tycho.
Hey, Tom, maybe just a follow-up on the M&A discussion earlier. Curious if you're having to cast a wider net. There's a view that a lot of the higher quality assets have been picked off in tools and diagnostics.
Yeah
including by yourself. We've seen some of your peers get into drug manufacturing. I'm just curious.
Yeah
about the odds that you would maybe look at new verticals or other different areas.
Yeah. Certainly, as time goes on, we've seen each of the markets in which we participate consolidate. I'm not sure I'd even set one of the five platforms aside as someplace where we haven't seen consolidation, and that does have an impact. The answer is yes, we do, in fact, then cast a wider net. It doesn't tend to be necessarily a net that would have us going too far afield from the broadly defined market segment that we're talking about, whether that's Life Sciences, Diagnostics, Dental, PID, or Water. I guess the examples I'd point to is if you look, just a couple of quick ones, if you look at what Joakim's done in PID as an example.
When you start with Videojet and all you think about is coding and marking, you're not immediately thinking about brand owners and digital packaging design and the overall workflow back to brand owners. Casting a wider net starts to look like what we've built in PID. It certainly starts to look like that when you look at what Lance has done in water, going to treatment as opposed to just analytics. Yes, we do consistently, when I talk about market evaluations, we cast a pretty wide net in terms of how we define those markets in the interest of making sure we're seeing the best opportunities, even though they might start to look like not exactly like what you bought the last time. Certainly, valuation and consolidation combine to make that really an imperative if you want to continue to put the free cash flow to work.
Matt's giving me the high sign. Thank you all very much for being here today. We really appreciate it. It's a busy time. On behalf of everybody at Danaher, we wish you the very happiest, safest, and most joyful holiday season. Merry Christmas. Thanks.