Thanks for everyone for joining us here in New York for Danaher's 2015 Annual Investor Day. For those of you that I don't know, I'm Matt Gugino, Vice President of Investor Relations here. Also want to thank everyone that's joining us on the webcast. Forward-looking statements, I'm not going to read all of these, but I 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. Agenda for the day. We know it's a busy day for everyone, so we've condensed things a little bit this year. First, Tom's going to come up and give his opening remarks. Post that, Arnd Kaldowski, Dan Daniel, and Rainer Blair will talk about diagnostics, life sciences, and Pall. That will be followed by a short Q&A on those businesses.
We'll take a short break for lunch after that, be able to give you a chance to interact with management, as well as see some of the product displays that we have out in the foyer. Post-lunch, we'll have Jim Lico and Martin Gafinowitz come up and talk about Fortive and one of its key businesses, Transportation Technologies. We'll have a short Q&A that will follow those presentations as well. After that, Tom will do his closing remarks and his closing Q&A session. We'll get you wrapped up and out of here by 2:30 P.M., as I know there's some other obligations here later in the afternoon. Let's go ahead and get started. Bring Tom up.
Thank you, Matt, and good morning, everyone, and welcome. Thanks very much for coming. Thanks also, as Matt said, to the many who are joining us on the webcast. We have a tremendous turnout today, and we do appreciate the fact that this is a busy day. It's really a busy week for all of you. We are running a slightly shorter format today, but we'll cover a lot of ground. It's been a busy year. There's a number of things, obviously, that have been hallmarks of our progress in 2015. We'll cover those, then obviously give you our best look at how we are approaching 2016. I'll start out by giving you just a very brief update and overview on the portfolio as it sits today. You'll learn more about the portfolio and its evolution throughout 2016 during the course of the day today.
We'll also give you a current update, talk about where we sit here in mid-December, how we see 2015 wrapping up, and obviously an outlook on 2016. I think it's important to look back, take a strong look at what we said we were going to do in 2015, what were our key strategic priorities. We had three of those. We said we were going to strengthen our competitive advantage with DBS, and we'll talk to a number of examples where we've done that. We said we would invest and continue to invest, as we have over a long period of time, in high-impact, organic growth opportunities. You'll see a number of those examples today, both in my presentation as well as in the presentations that will follow.
We said we would optimize our portfolio to improve and sustain our market-leading positions with a clear eye towards ensuring long-term sustainable positions in attractive growth markets around the world. As we look back on 2015, clearly the combination of these strategic priorities have led to and will continue to provide for outstanding growth prospects as well as shareholder value creation in the years to come. We always have a few new folks in the audience, so I thought I'd just give you a brief update on the portfolio for those of you who might be a little bit less familiar. The corporation today is organized into 5 segments, the 5 segments that you see across the top of the slide here. Within those segments, they break down into platforms, and the platforms tend to share common customers.
Increasingly, we're finding synergies across the operating companies within those platforms, opportunities for operating companies to come together to create competitive advantage and better value propositions for customers. Each one of the operating companies in these platforms have, in and of themselves, unique competitive advantages. They have strong brands, they have differentiated products, they participate in attractive markets, and they're generally global in their footprint. This portfolio has evolved over a number of years. If you look back 25 years to not long after I joined Danaher, we were an $800 million company with barely over 30% gross margins and very limited exposure to the aftermarkets, let alone the high-growth markets.
Fast-forward to today, we're a corporation of over $22 billion in revenue, with gross margins over 50%, mid to high teens operating margins, over 50% aftermarket exposure, or 50% of our revenue being that of recurring revenue, finally, over 25% of our revenue in attractive high-growth markets. A tremendous evolution of the portfolio. Today, you'll hear about Fortive Corporation. Jim Lico will share with you our view of a new industrial growth company. The green boxes that you see here, the boxes in Fortive green, represent those companies that will make up that new industrial growth portfolio. The common core at Danaher, the common unifying set of business practices that brings those segments and those platforms together, is the Danaher Business System. The Danaher Business System is the source of our above-average performance. It's the source of much of our competitive advantage.
It is what sets us apart. We often say it's who we are, it's our culture, it's how we do what we do. The Danaher Business System starts with a set of core values, the core values are represented here on this slide, it all starts with our team, putting the best team on the field every day. We charge that team with one fundamental responsibility, that is listening to customers. Listening to customers, in fact, more than we talk to customers. Because by bringing the voice of the customer into Danaher, we know that we can put that voice of customer to work in driving Kaizen or continuous improvement, in manifesting that voice of customer in innovation. Innovation in new products, innovation in new business models, innovation that ultimately leads to greater value propositions and competitive advantage.
At the end of the day, by living those core values, we know that we deliver on the metrics that matter most to customers: quality, delivery, cost, and innovation. At the end of the day, by delivering on customers' values, we know that we create value for our associates as well, and for shareholders at large. Let's turn to the current update. We'll look at a bit of where we stand here in the fourth quarter, as well as our outlook for 2016. As we sit here today in mid-December, we announced this morning that we were reaffirming our fourth quarter 2015 adjusted earnings per share guidance of $1.25-$1.29.
In reaffirming that, we've looked at how a number of our businesses have been tracking throughout the quarter, and we have a number of those that are tracking fairly well along the lines of our own expectations. That being said, we do have a number of businesses, largely those more industrially exposed and in the developed markets, that have shown some order weakness in November. Given that, it is possible that our fourth quarter may come in slightly lower than the 2% that we've talked to. That being said, because of the good traction we're seeing from a margin standpoint, we do see some offsets to that weakness. In parallel with that, we've taken some incremental cost actions that we believe will set us up well for delivering here in the fourth quarter, and we've done that throughout the course of the year.
In addition to that, those additional actions will set us up well, we think, for 2016. At the same time, though, we preserved our growth investments. We believe it's important to continue to play offense in this environment. It served us well. It served us well in Europe over a long period of time when others were retrenching. We continued to invest, and we've seen the benefit of share gains. We've seen the same thing in high growth markets, despite the slowdown there. Being targeted and selective is important to us going forward. We'll talk a lot today about Pall and the formation of our new industrial growth company, Fortive Corporation. The launch of the initial transition at Pall is going extremely well. We'll give you a lot of details on that today, and you'll hear from Jim about the launch of Fortive.
We're on track for what is now a bit earlier transition than we expected originally. We're talking to the potential to launch that company in the third quarter of 2016. I'll talk a bit in more detail about the progress from a financial perspective and the cost improvements at Pall in just a bit. You also saw this morning that we put forth the guidance relative to 2016. We anticipate, and we've assumed core revenue growth in the 2%-3% range, and that will translate, given the fall through to the initiated guidance that we put forth of a range of $4.80-$4.95 of earnings per share next year. From a macro perspective, we're assuming that the low growth environment that we're in today, here in the fourth quarter, will generally persist in 2016.
Now let's turn to the three key strategic priorities that we laid out for this year and take the measure of our progress against those. The first being strengthening our competitive advantage with DBS. There are a number of examples where we've seen progress here, and I think we've seen it manifest itself in a number of different metrics. Starting with our top line. We've seen 4% core growth on a year-to-date basis, and we've done that in a fairly challenging macro environment. That's come as a function of the combination of targeted investment spends, being in attractive end markets, and having highly attractive business models in those end markets. You put those together, and that's where our outperformance and consistent share gains have come in a number of businesses.
Those share gains have been most pronounced in the platforms that you see here, specifically in companies like Hach, like ChemTreat, Gilbarco, SCIEX, Radiometer, Fluke, Matco, Videojet, each of them, in their own right, taking share in their markets and consistently outperforming. DBS has also made major contributions to our core margin expansion while we've continued to invest. We've seen core operating margin of 75 basis points, and if you looked at that core operating margin outside of the impact that FX has had, that would look more like 100 basis points. We've seen that margin expansion fairly broadly across a number of platforms, and you see those here. As we've taken gross margins up, that has helped us fund long-term investments in R&D and in sales and marketing.
It's through those investments that we really play offense and continue to make sure that we're funding the growth in a number of different areas. Finally, free cash flow, the measure that we believe is the ultimate measure of the quality of the earnings that we deliver. This year, marking an expected 24th consecutive year of free cash flow in excess of net income. DBS continuing to drive strong performance across virtually every operating metric in the corporation. Let's look at DBS in action. No better place to look probably at the moment than Nobel, a newly acquired business, where we've come around through our first year at Nobel, and we've seen tremendous progress. Admittedly, we started at Nobel with a good team and a team on a pretty good trajectory.
They were continuing to improve their growth rates and their operating margins when we came on the scene. You see that in 2014, core sales growth up low single digits, 100 basis points of operating margin improvement. You look at 2015, we've moved that up to mid-single digits and now greater than 300 basis points of operating margin improvement. We've done that through DBS. The team has quickly embraced the tools of the Danaher Business System to take the good growth trajectory they were on and accelerate it. Transformative marketing, funnel management, both making a difference. This is also a very innovative team. They've got a tremendous track record of new product innovation, and we've seen that continue in 2015 with many of the new products that are noted here.
I think what's really exciting about what you see going on at Nobel is the investments in the digital realm of dentistry. NobelClinician, a software system and a workflow automation capability that now has celebrated its 10,000th customer in the third quarter, really is what it takes to take a practice and improve it, not only from a profitability standpoint, but ultimately, in terms of patient outcomes. It improves turnaround time and allows for better planning of protocols that ultimately will benefit a practice. We've seen the benefit of that as we've seen the growth in share gains at Nobel. Margin expansion has been a great opportunity for us at Nobel as well. DBS is really making a difference. We've seen the operating side of the business really take on the lean tools.
We're talking about really putting in what we consider to be the basics of DBS, visual management, lean operations on the shop floor, one-piece flow, the Danaher materials system, all combining to help drive greater than 10% productivity across the operating business. We've seen benefits in the areas that we typically target for additional cost reduction, such as direct material spend as well as indirect spending. Finally, great progress in working capital as well, with working capital continuing to make good progress and over 25% increase in working capital turn. DBS making a huge difference at Nobel just in the first year. It's important to recognize that our investments in high impact organic growth opportunities are not exclusively in the realm of newly acquired businesses. We have numerous examples across Danaher where growth investments are making a difference, even in some of our most mature businesses.
There are more examples than time will permit us to go through in depth today. What you see here is just a small subset of businesses, each of them outperforming in their markets, each of them taking share. In each case, you see in the italics beneath the results there, the tools of the Danaher Business System, the growth tools that are helping to make a difference. If you stand back, you might say, "Well, gee, that looks like generally an array of Danaher RemainCo businesses." There are a number of examples in Fortive as well. Matco obviously here being one of them. Jim is going to talk to you about a number of other growth opportunities that we have today. You'll hear from Martin Gafinowitz about the great opportunities that we have and how growth tools are making a difference at GVR.
Arnd Kaldowski will tell you about the tremendous consistency of growth and share gains at Radiometer through high growth market execution and product innovation. Dan Daniel will talk about the powerhouse of product innovation that is AB SCIEX. As SCIEX continues to innovate, we continue to see them put distance between themselves and their nearest competitors. I'll talk to you about a couple other examples here in our water quality platform as well as in PID, and the examples go on and on. Let's start with product identification. Our platform that has shown consistent mid-single digit core growth and good operating margin expansion year-on-year. It's really been a three-prong approach that Dan Daniel and Joakim Weidemanis, who leads that platform, have led over the last few years. It starts with investing in new product innovation.
They've been able to take new product vitality to over 50%, over 40%, excuse me, in 2015. That means 40% of the volume generated in that business on the instrumentation side are represented by products that have been introduced in the last three years. A tremendous lift in vitality and a consistent evolution of new software products coming out of Esko, and improvement in innovation at X-Rite as well. The second key prong of the strategy for growth at PID has been in service.
Videojet, in particular, has put in tremendous capabilities that really start to leverage the digital world, networking printers in such a way that we can be proactive in looking for issues in our customers' environments, getting out ahead of those, being able to respond much more quickly, that if we cannot solve a problem remotely, which often we can, we are able to put a technician in front of a customer much more quickly with the right parts and resolve a problem in one visit versus other situations where we didn't have that remote capability that might take much longer. Uptime, productivity means the world to a Videojet customer. Finally, the product identification team has done a wonderful job expanding their footprint using bolt-on M&A to expand into unique positions that really add competitive advantage to the platform.
Esko added digital asset management capabilities with MediaBeacon that helps brand owners compress cycle time from packaging design to production. The addition of Laetus, our new track and trace business, really takes advantage of the important regulatory driver that requires pharmaceutical companies to ensure strong levels of tracking and traceability of products that they put into the marketplace. A number of terrific opportunities for Videojet and the PID platform to expand their footprint over time through entries into these adjacencies. The water quality platform has run a similar but also different playbook as PID. Somewhat similar to PID, they've expanded their global capabilities, and this has happened both at Hach as well as at ChemTreat, through localized products, through consistent high teens growth in China.
At ChemTreat, through acquisition of key distribution positions and manufacturing and distribution capabilities, as well as service in Latin America, where they've now delivered double-digit growth, as you see here, for 12 consecutive quarters. New product innovation has also been critical in the water quality platform. Like at Videojet, Hach is leveraging the connected world by ensuring that our instrumentation can be connected and networked for remote diagnostics and the ability for facilities to more proactively manage and optimize water quality facilities. They've also done a tremendous job from an innovation standpoint with smart consumables.
Many of you have seen the Portable Parallel Analyzer, PPA, which is a way to take our traditional position in handheld water quality analysis and enhance that through the use of a smart consumable that improves the way a field operator can take and deliver ready results back to a central unit to really, again, optimize a facility. Finally, again, like we've seen in PID, M&A has played an important role in the water quality platform. We've enhanced our product offerings, and we've extended our global reach through selective acquisitions. In this case, looking at what Hach has done in Mexico through the acquisition of Reactivos and the expansion of our footprint in hydrology and oceanography through the acquisitions of Sutron and most recently, Lufft. Water quality, with a combination of these three dimensions of their strategic growth initiatives, have continued to outgrow the market by nearly 2X.
Finally, optimizing our portfolio. We have done this with a clear eye towards ensuring that we are sustaining our market-leading positions, that we are increasing our exposure to very strong and positive secular and regulatory drivers, that we're extending our exposure to recurring revenue, and expanding our positions in high-growth markets. We have a number of examples of major moves that we've made in the last year to optimize our portfolio. Consistent with our approach of leveraging our free cash flow for purposes of strategically important M&A moves, the acquisition of Pall and Nobel have strengthened both our life science as well as our dental platforms in meaningful ways. While doing that, we, in parallel, announced the separation of Danaher into two different independent, publicly traded companies, Danaher and Fortive, and completed the disposition of our communications business through the merger with NetScout.
These transactions, obviously, transformational in the way it continued to position Danaher as a science and technology-oriented business with improved growth positions, enhanced our margin capabilities with strong recurring revenue, and continued to position us for long-term value creation. As if that wasn't enough, we announced 11 additional acquisitions for nearly $1 billion of additional spend. That really continues our long-standing approach of bolt-on acquisitions and creating high return capabilities, high returns for platforms that are well established throughout the portfolio. A big year, a lot accomplished, but plenty more to do. We're off to a great start at Pall. We're thrilled that the transaction was completed earlier. We did it in what is arguably a unique time from a financing perspective. Generationally low rates.
We financed this transaction in the most favorable environment that we could have imagined as we envisioned the transaction earlier this year. We're off to a good start from a team perspective. We start with a very good team at Pall, a wonderful team of leaders, who were well on their way to putting many of the principles and tools of the Danaher Business System in place in their own way. We've supplemented that team with 12 senior leaders from Danaher that we believe are now taking that progress that the Pall team had so well begun, and taking that to a whole new level. Finally, from a cost perspective, we now expect about $100 million of cost savings in 2016. You'll remember we talked to $300 million in cost savings with about $60 million of that coming each year.
We've gotten off to a good start here in 2015 to begin with. We anticipate about $0.07 of adjusted EPS accretion in 2015, plus the $0.40 that we talked to in 2016. The team's off to a very good start. You're going to hear more about the progress at Pall here shortly from Dan Daniel and from Rainer. We'll be happy to take any questions on that as we come to the Q&A. Danaher go forward. Post-separation, Danaher will be a business of north of $16 billion in revenue, continuing with gross margins north of 50% and strong operating margins and cash flow to net income ratios akin to the good performance north of 100% that you've seen from us over such a long period of time.
The business characteristics will continue to be what bolsters this strong performance over time. Market-leading positions, outstanding brands in markets with strong secular growth drivers, resilient business models that leverage a strong install base for significant aftermarket exposure, that free cash flow that we believe will continue to support our bias for continued inorganic growth through M&A. One of the defining characteristics of Danaher going forward is the anchor point that is represented by the 60% recurring revenue that will be represented in the balance of sale of the business going forward. That balance of sale with that 60% recurring revenue supports a strong gross margin and operating margin position. Interesting, if we look at the opportunities beyond that, they're still significant.
If you consider the fact that half the portfolio is represented by Beckman Coulter, Pall, and Dental, all of which have incremental runway for margin improvement, we feel very comfortable that we can continue to expand margins over the next number of years. The Danaher of the future represents both significant organic and inorganic growth opportunities, as well as margin runway, again, for years to come. In summary, it's been an exciting year. We've gotten a lot done, it's just the beginning. Still plenty of work to do across a number of the initiatives that have just gotten started. It's an exciting year, we couldn't be more pleased with how well the team is executing in what is clearly a very challenging environment. DBS remains our core. It remains fundamental to setting us apart competitively.
It will continue to help drive core growth through leveraging the growth tools of DBS, as well as through margin expansion and the impact that DBS can have across those metrics. We believe that the addition of Pall, not to mention Nobel, as well as separation, the formation of Fortive, our new industrial growth company, really sets the portfolio up for exceptional performance in the years ahead. With that, I'm now going to bring up Arnd Kaldowski. Arnd is our group executive responsible for our diagnostic platform. Arnd and I first started working together in our days together at Leica Microsystems and Leica Biosystems. Arnd later became the president, as he is today, of Beckman Coulter Diagnostics, and now with responsibility for the entirety of the diagnostic platform.
Arnd has a lot of good things to tell you about how the platform's progressing, and most importantly, the progress at Beckman Diagnostics. Arnd?
Tom, thank you very much. Good morning, everybody. It's my pleasure to share with you the results and the progress of the diagnostics platform in 2015. Two focus areas I have for the next 15 minutes or so. First, I want to talk about the highlights in 2015, with a particular deeper dive into Radiometer and Leica Biosystems, which both had a great year. I want to focus on Beckman Coulter and update over the last four years since the acquisition in 2011 to share the results over four years, but also the playbook we have deployed. I know some of you were with us in California in the summer.
We had a chance to go even deeper on the Beckman Coulter update, we want to make sure that the ones who didn't have a chance to join us have an opportunity to see that playbook and where we stand four years in. First, let me orient everybody on the diagnostics platform here. It's comprised of three operating companies. We're serving almost a $30 billion market, growth of mid-single digit with three leading positions. The one Beckman Coulter Diagnostics is really focused on the core lab. That's the central facility in a hospital and a reference lab where you're running high volume blood testing in efficient automated solutions. Radiometer, which serves the critical care environment, which is critical parameters mainly in decentralized positions within the hospital, blood gases, cardiac markers. With Leica Biosystems, which serves the anatomical pathology.
All of the tissue diagnostics gets done in the anatomical pathology. We have a leading position there. If you look at their business model here, great 80% with regard to the consumable and services business. Geographic coverage, well-balanced around the world, nice position in the high growth markets with 34% and participating in the underlying growth there. Really excited about where we stand as a platform, but also the runway we have from here in this market from an organic and an inorganic perspective. 2015 highlights. Beckman continues to improve the revenue side as well as the operational performance. The second year in a row at mid-single digit core growth, winning share in three of the segments we're serving by now, and then a tremendous margin expansion over the last four years with above 500 basis points while we continue to invest more in the growth side.
Great years for Radiometer and Leica Biosystems in 2015, both gaining share and at the same time significantly expanding the operating margin. I'll get into a little bit more detail on the next page. All three operating companies with a pretty similar growth playbook here, investing into innovation, investing into high-growth market coverage and doing that far more significantly than our top-line growth. Really taking the productivity we can generate out of the margin side and the gross margin side to put at play from a growth perspective. For the ones who had a chance to look outside, we have a great entrance with a new product into the molecular diagnostics market. The ones who didn't have a chance, it may be worthwhile to take a look and see more detail on that.
We've entered in the middle of this year, the molecular market, which is a multibillion market growing at around 10%. We started and launched the product Veris in Europe, a fully automated random access device. Lots of runway here. It will take a while because you need to build the menu and you also need to get the different geographies from a regulatory perspective into place and build your install base. Really a tremendous opportunity in the long run for the company. Last but not least, we've done two significant size acquisitions in 2014. We acquired the Microscan business, that's the microbiology business, which came from Siemens, and Devicor vacuum-assisted breast biopsy into Leica Biosystems. Both of them with a very good start. They are on plan or ahead of plan.
In particular, Devicor's growth performance this year was a very positive at double-digit growth while the business had, for many years, a low single-digit growth profile. Really strengthening the portfolio we have. Going a little deeper on Radiometer, as you heard Tom say, very consistent growth performance outperforming the market. Five years in a row now at high single-digit. One of the main drivers of that, a product called AQT, a point-of-care cardiac device, which allows to do critical cardiac tests closer to the bedside in the emergency department, in the intensive care unit. We've seen more than 20% core growth, and that's a continuation of the good growth we've seen over the years.
Radiometer, well known within Danaher to some degree to you, I think from all we shared so far, really about their focus on building more access to the market given that we have a strong product portfolio. Continued investments into high-growth markets, more feet on the street, more markets where we went direct, but equally taking a second look on a lower performance we had in the U.S., a significant restructuring, many changes on the management team in 2014 and now starting to see the fruits of that changes and running at mid-single-digit while historically we were low single-digits of that in North America. Really refining the global sales organization as we go to drive growth. Third point, HemoCue acquisition two years ago, more flat to low single-digits when we acquired it.
Now with the addition of HemoCue to Radiometer, taking advantage of the opportunities outside of the U.S. and really starting to see good progress in developing markets, high growth markets where particular governments are driving the hemoglobin testing, which is 80% of the HemoCue business to the primary care and HemoCue has the right product for that. Moving on to the Leica Biosystems side. Continued strong growth here, mid-single digits or higher over the last five years. Particular driver for that is our strong performance in what's called advanced staining. We're in double digit in the advanced staining space, two times the market and faster than any of our competitors. Continue to drive that opportunity for us here over the years. Significant new products. Lots of investment in new product development over the years at Leica Biosystems. Don't want to go into too much detail.
This is not all the products we launched this year on the Leica side. Particular focus on digital pathology, on the research side, as well as on the clinical side with new scanners, which we have launched, and the new generation primary stainer which we brought out, which allows customers to have workflow efficiency improvements, turnaround improvements, and better results. Spoke about the Devicor acquisition and its performance. Below that is a great adoption of DBS, not just on the lean side, but also on the growth side. Both sides are adding to the P&L there already, while we're just a year in the acquisition. I think lots more to come here. Let me move on to the deeper dive on the Beckman Coulter update. It's important to take a step back and look at 2011 and take a look on what Beckman was.
An iconic brand in diagnostics. We celebrated this year, the 80th year of Beckman in the world as a company. Lots of good market positions, particular in North America and China, really no growth at that point of time, losing share. A long laundry list of challenges, starting off with regulatory challenges we had, many quality issues from delivery, service, product quality, dissatisfied customers. At that point of time in the U.S., we had a retention rate which was below 60%, meaning more than 40% of the customers at a renewal changed the vendor to somebody else. That doesn't really help you drive your business from a growth perspective. A target-rich environment.
It was very important to get the priorities right, not trying to do everything at the same time, really drive focus on the vital few to rebuild the company, to rebuild the trust of the customers, drive the customer experience. On the back of that, really going after being a growth engine, driving productivity, being able to elevate the game here. From a financial perspective, if you look on the right-hand side, the consequence of all the challenges I was sharing was a flat growth, a low margin position, low operating margin, company had also started to invest less into go-to market. We were behind the competition with regard to high growth markets and very little on the R&D side really having an empty roadmap at hand. Fixing the quality first, fixing the regulatory challenges first, then driving productivity.
You can see that we exceeded our expectations at the acquisition by $100 million in what we were able to save in the company, spend some of that towards the investment side and really driving R&D, driving feet on the street here as a playbook and moving the growth side up to the mid-single digit at this point of time. In addition, we were able to do 3 bolt-on acquisitions by now. All of them are in line with expectations or ahead. We acquired Iris Diagnostics in Urinalysis. We acquired our software provider with Normand and now the microbiology business. In the sum, this added already 10% of revenue to the Beckman P&L and all three are going well. Really at the beginning of the next phase in my eyes, more organic runway, continued opportunity to improve margins, but at the same time, thinking about bolt-on acquisitions.
A couple of highlights from the playbook. I talked about first priority being quality remediation, customer satisfaction. None of the issues we had had a magical solution to it. All of it required first to recognize the issue, then bring the right cross-functional teams, the right capacity behind it, use the right senior leadership to help the team break through the issues, and then deploy problem-solving, daily management, as well as really consistency in driving to an endpoint and improving the situation. You can see here on the regulatory side, we had 3 warning letters. We had troponin off the market, a critical cardiac marker. It took us 2 years to get the remediation done, the troponin back. That was fundamental in order to, particularly in the U.S., start to grow the installed base. Customer support, on-time delivery, many stock-outs, many people left us because of that.
We're now in an above 95% on-time delivery, and that's the level customers expect and are happy with. Product quality, we went on the journey to work on our reliability and improve the instruments we have. We reduced the number of failures in year number 1 across the product portfolio by more than 50%. From a technical service delivery, really improving the processes in the field, driving accountability allowed us to move from the bottom quartile in an external research on service performance in IVD to being on number 1 and 2 positions in a different criteria. Really important to build that fundament when the customer is leaving you, and we accomplished that pretty early on here on the journey. Moving on to driving growth, building a growth engine. You can see the performance here on the right-hand side from flat to mid-single digit.
3 main pillars for that. Strengthening the commercial coverage in high growth markets and really investing there into more feet on the street, doing that in a focused effort. Not all countries the same, but really picking the countries where the opportunity was the biggest, but also where we had the right management on the ground. We continue to see nice growth in the high growth markets this year at a double-digit rate. Building global R&D capabilities, A, moving people from remediation to new product development. In addition to that, adding more R&D people to just be able to drive a broader roadmap. Started to tap into India and China from a development center perspective for software and reagents, which we started 1 and a half years ago.
In 2014, we started to see revenue contribution from new product, picking up now in 2015 with more than 150 basis points to the top line, and more to come if you look on the funnel and the roadmap here. Last point, DBS and the commercial execution funnel management, transformative marketing, important tools, particularly the funnel management, to really act on each opportunity on the retention side and the competitive side, in the right manner, fast, and as a team on the ground. We've seen the retention rates go from below 60 to above 80%. We also have seen that over the last four years, we have won more than twice as much competitive business in committed contracts in 2015 than we did in 2011. Really building a curve of installed base which will serve us going forward.
To fund that investment on the growth side, really driving the productivity, at the same time, the margin lift, simplified the organization to increase accountability, took a significant right-sizing of the organization early on in 2012, drove DBS and manufacturing on the indirect spend side, achieved $150 million savings there. Structural cost reductions, again, around $150 million, closing many rooftops around the world. All of that creating ammunition for the margin expansion as well as for the growth side. Working capital, no magic bullet, just daily management, accountability, and setting the expectations right allowed us to go from 4.5 to almost 7 turns. Translates into $300 million working capital. You would argue that the first two acquisitions we did, we just paid out of that working capital increase.
Last point I want to make, probably the most important one, is really getting the right team at the start into the company, then build the talent funnel as you go over the years in order to be able to do more organic initiatives and do more inorganic initiatives. Tom, who was leading Beckman at the beginning, did a tremendous job with the team to really build a great team on the grid at the beginning. Some of the people came from the Beckman side. Some of them were on lower levels, we had to find them where they were hidden. Some of the people came from the Danaher side, particularly in the areas where we needed strong DBS experience. Then we had to do two external hires, where neither Beckman nor Danaher had the right people.
You can see here on the sales and the medical affairs side. On the back of that, with them driving the improvements then building a stronger talent machine, highlights here. Increasing the internal fills. We've built three times more leaders in the funnel, which really sets us up to do more going forward. While in the first two years we were a net importer of talent from Danaher, we became a net exporter in the last two years, we could contribute very strong leadership to the Pall integration. Aida helped with the positions which were open, secondarily, to move some of the learning out of the Beckman acquisition into the Pall team. Really a more healthy organization ready to drive more growth. In summary, a solid year of the diagnostics platform. Continued share gains Radiometer and Leica Biosystems in many years.
The two acquisitions we did off to a good start. Beckman, an outstanding story. Great achievements. Early innings. More to come here as you can see from my talk. Thank you.
Thanks, Arnd. Thank you, Arnd. The core values of Danaher. Start with the best team. Put that team on the field. Charge them with listening and understanding, what do we need to do for customers? Look those issues straight in the eye and focus on Kaizen and continuous improvement. Drive improvement in quality, delivery, and cost, and use those benefits to fund innovation. At the end of the day, create value. A model that's worked. It's worked at Radiometer, worked at Leica Biosystems. Now you see it in action at Beckman Coulter. A playbook that we're running now at Pall. Before we get to that, Dan Daniel's going to share with you an overview of our life science platform. Dan's an Executive Vice President with Danaher. You've seen him oversee a number of businesses over the years.
He's picked up our life science platform. Rainer Blair is going to join him in just a few minutes. You've seen Rainer in action as well. Rainer has been the architect of the great performance at SCIEX. He took on responsibility for the life science platform, and now is overseeing the largest acquisition in our history, Pall Corporation, and doing a wonderful job. Dan's going to get us started, and Rainer's going to join him in a moment. Dan?
Thank you, Tom. Thanks to all of you for joining us here today. I know it's a busy time of year with lots of end-of-the-year activities. We appreciate your presence. The last few years, I've had the pleasure of updating you on our Product Identification platform and how we're growing organically and gaining share. We've added some capabilities to those businesses this year. Very good year in 2015 for product ID. Today, I have the pleasure of talking about our life sciences portfolio and, of course, Pall. I'll start with life sciences. This year, we celebrated our 10th year anniversary of Leica joining Danaher. The other three companies joined Danaher approximately in the last five years. It's a tremendous portfolio of very strong brands. A very attractive and evolving and growing life science research market.
Today, we have about $2.5 billion of revenues through these four businesses. Operating margin in the mid to high teens with very clear runway going forward in the future to improve margins. Part of that has come from a growing portion of the business coming from consumables and service and recurring revenues, and we look to continue to grow that. Certainly, the capabilities are significant. They matter a lot across the broad variety of life science markets, whether that be government, clinical research, and some industrial sectors as well. It's a very strong portfolio that's gotten even better with a significant amount of life science business from Pall. We're excited about the future. Certainly, 2015 has been a very good year for these businesses.
We've had mid-single-digit growth across the portfolio. From an operating basis, we've improved margins 100 basis points. Obviously faced some FX headwinds from that. SCIEX has certainly been leading the way and has been doing that for the last 2 years. I'll spend a little more time on SCIEX here in a minute. Beckman Coulter Life Sciences has had a very good 2015 as well in terms of growth and margin expansion, partly driven by a launch of a very significant new flow cytometer product called CytoFLEX. Product was developed in China, creates a new market entry position in the flow cytometer market. In addition, the Beckman Coulter team has realigned their sales force, more clarity, more direct impact on their end markets, and has had mid to high single-digit growth in 2015. We're very pleased with that.
Part of the development beyond just good DBS growth processes in the life science portfolio has been revving up the innovation engine. Certainly, a number of development over the last 3 years. It takes some time to develop these new products. I mentioned Beckman Coulter Life Sciences, SCIEX I'll get into in a minute. In addition, in our cellular imaging business, in both Molecular Devices and Leica Microsystems, we've launched products in 2015 that take our capabilities to the next level. In the lower right, you see the new Leica surgical microscope, both with some new software, but even more importantly, improved ergonomics, which has had some very strong early traction in the surgical market, and Molecular Devices. ImageXpress Confocal takes their cellular imaging capabilities to the next level as well.
While Pall will continue as a single operating company, certainly has a number of strengths and capabilities in life sciences. What does that addition mean to our portfolio at Danaher? First, our leadership position in cellular imaging, both with Leica and Beckman Coulter Life Sciences across flow cytometry, centrifugation, sample preparation, certainly gives us a leadership and strong position in cellular imaging. Protein analysis with SCIEX and mass spectrometers, certainly a very strong and growing position for us as well. With Pall's life science business in biopharma gives us a leadership position in the discovery, development, and production of biopharma. There's not a lot of organizations that have those kind of capabilities, and we found in early conversations with significant customers that those are all capabilities that matter a lot. We're very, very pleased with the addition of those capabilities to our life science portfolio.
SCIEX has been a very, very good business for us over the last few years. It's a business where mass spectrometry matters a lot in today's world. It's a business where it's a growth-oriented team that has adopted DBS growth processes very well. Most noteworthy, funnel management, demand generation, leveraging some of the learnings that we had at Videojet has really helped SCIEX gain share. Very important as well has been the product development activities in the business. When we acquired the business in 2009, there were some significant portfolio gaps, and the product development team has done a tremendous job over the years closing those. Just last month, we launched the new X500R, which is a unique benchtop product with expanded capabilities targeting the high-growth routine testing of food safety, environmental, and forensics.
We're very excited about this product, has early traction, and it's a scalable model that will allow us to quickly innovate and add to it over time. SCIEX has been a tremendous growth story, and we look to see that continue in the future as well. Let's turn to Pall for a few minutes. In short, we are thrilled to have Pall part of the Danaher portfolio. It's an outstanding company, and with DBS, can make it even better. We're just past 100 days in. The opportunity list is growing. The performance of the business is solid. I think most importantly, the team is embracing DBS very quickly and very strongly. It's a team that's had some exposure to DBS-type processes in the past few years on the operating side.
It's also a team that recognizes the opportunity for even higher levels of performance with good, solid DBS process, not just in operations, but in innovation and growth as well. We are really excited about the start at Pall. Just to refresh your memory, it's a business with just under $3 billion in revenues, split fairly evenly between life sciences and diverse industrial markets. Obviously, the core of the life science segment is the biopharma business. Rainer Blair will spend some time on that here in a few minutes. A diverse portfolio across other medical filtration applications, food and beverage, and the diverse end markets across industrial as well. The business model is very attractive, very high recurring revenue streams and service, and selling a system, but then having an ongoing revenue stream from filters and media and separation devices.
It's an attractive business model serving the diverse end markets, high growth in the life science side, and the recurring revenue model serves well on the industrial market, where things are a little softer here in the last few quarters than they've been in the last couple of years. Again, it's a market we've known well. We've studied it hard. Pall's a company that we followed very closely over the years, and our expectation and our opportunity list is only growing. It's a very strong technical team, and that matters because the business model, it takes a long time sometimes to develop these applications and these systems. Once you win it, as long as you perform, like we do with good DBS process, the revenue comes for a long period of time.
We see the life science portion of the portfolio growing mid to high single digits, the industrial a little bit less than that, but it's a very good balance across a wide variety of end markets. Again, DBS, there's some clear cost work to do. Rainer will update you on that. Equally important, though, is the growth opportunity over time. Tools that have really driven improvement in organic growth at Danaher over the last few years, like funnel management, demand generation, some of the product development techniques, are pretty early stages of implementation at Pall. We're equally excited about the growth potential as we are about some of the near-term cost opportunities. Thomas shared with you early in his remarks that we believe we're going to generate $100 million of cost improvement in 2016 above the $60 million we had told you previously. It's a business. The team is hungry.
We've injected some Danaher leadership in to complement a very strong Pall team, and we're very confident we can take an outstanding business and make it even better. Plenty of working capital opportunities, just like Arnd Kaldowski shared with you over the last few years at Beckman Coulter, across all three areas of working capital and some early traction there. Although we're very focused on effective transition into Danaher today, we clearly see significant runway to deploy capital through M&A over time. We're very focused on getting the business positioned well here, taking cost out and improving the growth prospects. Again, we are thrilled to have Pall as part of the portfolio. We're off to a terrific start. With that, I'd like to invite Rainer Blair to come up and share with you some more details.
Rainer's been a terrific growth leader for Danaher now for over five years, entered the door through Videojet, helped the SCIEX team do some of the results we shared with you, and since August has been the president of Pall in addition to his group executive duties here at Danaher. I'll come back after Rainer, and we'll take questions collectively on Pall as well as with Arnd Kaldowski. Rainer?
Thank you, Dan. Good morning, everybody. I'd like to update you on our progress at Pall. I'll start with the biopharma growth opportunity. After that, I'll go ahead and touch upon some of our nearer term priorities that we're focusing on to drive results. Biopharma. It's a over $4 billion market growing at low double digits. For the purposes of our conversation today, we're talking about the inputs to the discovery, development, and more specifically, the production of biologics. Biologics are drugs that are produced by living organisms versus by synthetic means. Already seven out of 10 top-selling drugs are biologics. Some of them you may know, Humira, Remicade, Rituxan. Those three together alone gross $20 billion of revenue per year for our customers.
There are already well over 900 biologic drugs in the regulatory approval pipeline, and that represents about 40% of the total pipeline. Why is that important? Well, it gives you a feel for the innovation potential that is in the pipeline on the one hand, the efficacy of these drugs for the patients, and needless to say, based on the examples I gave, the economic incentive in order to continue developing here. Some fantastic fundamentals here in this market. Additionally, there are innovation vectors here which we've just begun to explore. If you think about the genomic revolution and the ability to edit genes to express proteins in such a way that you can actually define the biologic via the cell that you've created. All kinds of innovation opportunity and really early days in a long-term growth cycle here.
At the same time, it's an incredibly attractive market, well over 80% recurring revenue, high gross margins. Why is that? If we just take a quick glance at the top right of the screen, you see a schematic of a biopharmaceutical process there, and you can see that filtration is a part of just about every single step of the process. Filtration and separation is a key enabler to the entire manufacture of these biologics. In addition, there are high entry barriers here. Once you get one of those cells to actually behave the way you want it to do and produce the targeted biologic. It's time to quickly lock down that process and go for regulatory approval. Once you have that, the cost of change is prohibitive.
Think you might want to change the process or change the filters, that's actually quite cost prohibitive on the one hand, and it creates safety concerns for the regulator as well. From that perspective, this is a very sticky business, and you tend to supply once spec'd in, if you will, for practically the life of that particular drug. At the same time, we've got some new growth vectors occurring. There's starting to be a risk around contamination, cross-contamination between batches, if you will, or between lines in the same manufacturing facility. This has given rise to single-use technologies. Rather than steam cleaning these stainless steel production lines, we're now starting to see the lines either lined with single-use technologies or entire portions, containers, and vessels switched out with single-use containers that you essentially use one time for one batch and then discard.
Pall's very well positioned in that business as well, not only with outstanding intellectual property, but with a nice-sized business that's growing well over 20% per year. We feel very good about that. Over the years here, we've been investing significantly, both organically as well as inorganically, in strengthening our product portfolio. Again, if you look at the schematic and you see the little color-coded squares there, it shows you that we're essentially represented in every step of the process. At Pall, the biopharma business, as Dan just showed you, represents over a third of the business. It's our largest business, it's our fastest-growing business, and it's also our most profitable business. We will continue to invest in it to ensure that we continue our shared growth story going forward.
If we switch gears real quick and we talk about how we're implementing DBS at Pall, well, certainly we can thank our colleagues at Beckman Coulter because we're absolutely leveraging the playbook from the Beckman Coulter integration and also the learnings out of that integration. With that, certainly we're implementing those Danaher tools, those DBS tools, and I'll be talking about those in more detail in just a second. We're also creating a critical mass of culture as important to be able to sustain those results going forward. We've trained over 400 senior leaders at Pall already in the Danaher Business System, and they're actually champions now of that Danaher Business System, while simultaneously training over 70% of the associate population at Pall in the first 100 days.
We're really building a critical mass there, not just in implementing the tools, but also through the culture, being able to sustain that. At the same time, we're building the best team, combining the great talent that we've retained. We've retained in excess of 90% of the level 2 and 3 leaders at Pall, along with some selected, tried and true top talent from Danaher to really give ourselves the ability for a knockout punch, not only in the market, but also in implementing DBS. Those folks are further supported by a team of over 50 talented associates from other Danaher operating companies that are helping facilitate the implementation of DBS throughout Pall. How are we doing? Well, I tell you, I couldn't be more pleased by the engagement of the Pall associates with DBS, the adoption, and perhaps most importantly, the application of DBS.
You can see well over 50 Kaizen events already running in the first 100 days. I think those quotes there, which are truly representative of what's going on on the right of your screen, speak volumes. Lots of excitement there and lots of momentum building. Tom spoke about it. Customers talk, we listen. We're focusing on on-time delivery. Why is that? Well, it turns out in the filtration industry, you've got relatively complex supply chains, and as such, on-time delivery is in fact a challenge. We see a short-term opportunity here to have a material positive impact for our customers and improve that customer satisfaction, but also to build a competitive advantage for share gain. Again, Beckman Coulter serves as a great example. The Pall starting point is essentially the same as was the case with Beckman Coulter.
The numbers apply almost directly, and of course, we plan on driving it just as hard and fast as our colleagues at Beckman did. We've already identified the seven plants which contribute most to the on-time delivery challenge, and we've driven more than 25 Kaizens in those plants already to improve our performance. You can see an example here on the bottom right, you see the before and after of our second-largest plant in Puerto Rico, and I think that speaks for itself. If you look at the numbers on the chart there that speak to the productivity improvement that we've achieved in those particular production cells, you can see they're well over 50%. How does productivity then connect to on-time delivery? Well, with that improved productivity, we have more capacity.
With more capacity, we shorten our lead times and are able to hit those customer request dates on the orders, and at the same time, significantly reduce our unit costs. As we bring Pall into the Danaher fold, of course, we're looking to accelerate growth and improve earnings. On the growth side, we're using our tried and true Danaher Business System growth tools, and transformative marketing is just an example. It was mentioned a couple of times today. There, we're improving the visibility in the marketplace. We're seeing more customers and we're seeing more deals, and we drive those deals through our funnel management system to reduce the cycle time of those deals and improve our win rate to drive growth.
If you're a baseball fan, the way to think about this is essentially, you end up having more at-bats at the plate, and at the same time, you're improving your batting average. You end up on base more often and you have more runs. It's exactly the way these processes work. At the same time, we're trying to accelerate the introduction of our new products, and there's some examples out front. We're using visual project management, and as stated here, speed design review. For instance, during the break, I encourage you to go see Coralon. Coralon is a new filtration technology for hydraulic fluids and oils, which increases the life of the filter by a factor of 15, and it reduces the filtration cost for our end user by 20%. Or the acoustic wave separation technology that you'll see outside, which separates cells without touching them.
Cells, when you start touching them with paddles or other types of filters, they don't produce as much of the biologic drug as you want to. If you're able to separate them without touching them, you get higher yields. That's what's going on outside, and that's just another way of showing how these DBS tools work. On the cost side, we're looking essentially at 2 categories. The first is we want to improve our gross margins, and the way we do that is we get after the cost of goods sold. I've already given you an example of how we do that with lean conversions to drive productivity, but we're also simplifying our supply chain to significantly reduce freight costs as well as scrap. You would expect us to leverage our larger overall Danaher buy to improve the economics around our direct and indirect material costs.
Lastly, if you think about SG&A and other structural costs, of course, we're very focused on those. Public company costs are out of the way essentially already, and we're reducing our indirect spend both through leverage and also improved spending discipline. Lastly, also in our administrative processes, we're running the DBS playbook to simplify those processes and again, reduce levels of organization to drive forward. As we stand here today and we think about that $300 million cost challenge, the hypothesis that we did for the deal, I think we can readily confirm that those $300 million are feasible, and at the same time, as Tom already mentioned, those $100 million we look to deliver in 2016. With that, thank you very much. Dan, back to you.
Great, Rainer. You just stay right here. Arnd, I'd ask you to come up as well. Hopefully you see why we're so excited about Pall. Again, a great early start, very good business performance, and an outstanding team that's really ready and eager to leverage DBS to make an outstanding company even better. Plenty of growth and margin runway across Pall. Down the road, plenty of opportunity to deploy capital as well. Much as there is across our life science portfolio. I think the sustainable track record there gives us great confidence in the future of these set of businesses. With that, Matt, I think we'll open it up to the floor here. Cliff, you went up quick there. Megan's going backwards.
Thanks for the question. Just want to clarify. On the Pall accretion, the $0.07 that you got in 2015, that was covered by restructuring, so the net benefits to earnings was minimal. Then the $0.40, is that net of restructuring, or is that an extra structuring number for next year?
There's a little restructuring in that. Dan, I don't know if your microphone's on and you want to address that.
The $0.40 is after restructuring. That assumes we're going to assume additional costs, and that's to position us for 2017 and beyond, and that's included in the $0.40.
Okay, just a follow-on question. There's a little bit of noise about disruption in the blood test, in vitro market, with Theranos. I know that doesn't really impact you guys that much, how do you think about the threat of disruption or the potential for disruption in diagnostics?
I think if I look at the business we are in and really serving the hospital market, there will be continued significant need for the type of tests we're providing in a high volume environment and an automation environment. I think you also see that there is some of the test volumes moving more towards the patient, somewhere at the point of care physician office lab, and that's where you see a lot of those innovations happening. Very important side of the house, the vast majority of our business is on the hospital side, in that regard, we're not that impacted at this point in time.
You guys mentioned a little bit of weakness in Pall Industrial. Could you maybe provide some sense of magnitude around that? How it's kind of progressing in October, November, what you're assuming for the Pall Industrial business in 2016 any particular pressure points in that portfolio?
I think the softening we've seen in Pall Industrial business is very similar to what we've seen in our own industrial businesses I'm sure you've seen in the broader market. One of the things that benefits Pall's Industrial business is the recurring revenue model, that dampens that a little bit. We fundamentally believe Pall is a mid to high single-digit growth business that puts the Life Sciences side at sort of a high single-digit growth. Normally probably a low single-digit growth on the industrial side. Probably a little bit more pressure on that in the most recent quarter. Again, it's this recurring revenue model that sort of dampens Pall's Industrial business from what you see in maybe a more OEM-oriented type of business. Rainer, would you add anything to that?
No, I think that's fine, Dan. Thanks.
It's negative right now? Next year, will it grow next year?
It'll grow. It's generally more flat.
Okay.
I'm not sure we're making a call yet for next year, it's a flattish type environment.
Thanks for looking out for me, Dan. Cliff Ransom. Go back in history a little bit here. I don't know how many acquisitions Danaher's made, it's probably 1,000. Has there ever been a company that was as far along as Pall, even as short along as Pall was, that you've ever acquired before? There are some of your colleagues who say Radiometer, I'd be curious if anybody significant has ever had even the head start, 1.5 years or 2 years, that Pall had.
In short, probably not. We've acquired, obviously, some outstanding businesses, I don't think I've personally seen any that have a start around lean and DBS. The Pall associates have heard both Rainer and I share that's a big part of why we have such enthusiasm here at Pall. Again, it's two years. You know better than anybody, it's two decades to really get good. It's been mostly on the operational side. The associates recognize the opportunity. They're hungry for more, that just really gives us a tremendous accelerator. Then, with some focused growth initiatives, the power of the innovation and some of the good go-to-market and selling processes in DBS, just tremendous runway there.
Thank you.
Thanks. Thanks a lot, Dan. Just the cost synergies around Pall, the $300 million number when originally put out, I think, was a bit of a debate amongst the investment community in terms of its achievability. When you sort of break apart the 300, as you just did, into 150 and 150, first of all, that's all cost. Is any of the cost on the material side linked to growth assumptions in the industrial growth of the growth of the industrial side of that business, so increased spend for suppliers linked to growth that in turn drives synergies? Secondly, well, let me start with that.
Our cost model is based on detailed analysis of every SKU that we buy, whether it's industrial or whether it's on the biopharma side. We go through every single one of the commodities purchased, based on that, there are some growth assumptions. As you would expect, the growth assumptions on the industrial side are more reasonable over the cycle, and those on the biopharma side would then be higher.
Do those embed any kind of steep inflection on the industrial side?
Say again?
A steep positive inflection on the industrial side?
I think we just kept that simple with some conservative assumptions in the low single-digit area.
Okay. Then the $60 million-$100 million improvement or acceleration-
Yes
in achievement this year, are those mostly public company costs, or were they other areas that you were already starting? What pulls forward in the way you were thinking about it and achieving it?
Well, I would say that the majority are not public company costs out of those $100 million. We fully expect the great majority of those cost savings to roll through and forward.
What was it that accelerated?
What was it?
Yeah.
Several actions that we've taken, both on the direct material side and indirect material side, as well as some headcount reductions.
Okay.
Three things, Steve. Obviously, the public company cost is pretty quick, pretty identifiable. Supply chain has a lot, no, there's not significant excessive growth assumptions based in those sort of modest growth assumptions across both businesses. Headcount. It's not just extra headcount laying around. It's about simplifying the business structure, leveraging some of the infrastructure across Danaher, especially in some of the high-growth markets, and it's really that third point, the simplification of the structure in the business over time, that gives us confidence for the runway. I think what you've heard from Arnd and Tom about Beckman Coulter over the last four years, you're going to see a very similar progression of those opportunities here at Pall.
I guess one more right here. Just to pick up on that, Dan, I'm right here. Sorry.
Hey, Jeff.
How's it going? Jeffrey Sprague. Should we conclude or even begin to think that there's upside to the $300 because you have this running start, would be kind of the first question.
Jeff, 100 days is a lot shorter than five years. We're confident in the $300 million over five years. We're very encouraged by the start.
just a more big picture, thinking about how you're running Pall. I guess you might perhaps split Pall in two and put industrial over environmental or something. I imagine there was probably some thought around that. Can you just kind of weigh the pros and cons of that and how you do operate Pall going forward, and maybe even allude to kind of the tuck-in deals that you might see for that asset over time?
Pall is one large company with two parts, but underneath those two parts, there's a number of business units. I think the team had embarked on structuring the business very similar to how we think about things. As far as future splitting it up and so forth, we really aren't down that path. It's a business that clearly has two different parts to it, but underneath there is a different set of business units that each have their growth potential. I think maintaining Pall as an operating company in Danaher is clearly in our mindset.
I would fully agree with that. Also from a priorities perspective, we have so many other topics and low-hanging fruit that we can get after to create value that that likely isn't something that we're focused on right now.
Okay.
All right, over here. Thanks. Just two sort of questions on the overall spending environment relative to these businesses. The first on NIH funding. It looks like last night was a good night here at Congress. They passed what looks to be the biggest increase in NIH funding in over a decade for next year. With that kind of a backdrop, I'm curious how you guys think about attacking that opportunity, how meaningful you think it could be to the core life science in the academic world.
Let me just grab that one for a second, because I think it's the activities overnight, I think, are broader even than the NIH question, so maybe I could just take that and extend it a bit. I think NIH is a part of the equation. By the way, we'd love to take some credit for that, being at 2200 Pennsylvania Avenue, 20 blocks from the White House. We're just fortunate to see some of that progress going on. I think there are three pieces to think about in terms of the news this morning. One is the NIH funding. I think that's clearly a net positive for anybody who's in the life science world today. We'll see how, though, that grant funding moves.
Obviously, we've got some work to do later on this week to see this all pass. That's net a positive on the life science side. I think the second piece of it is, the word is that we may see a two-year reprieve on the med device tax. If we see that two-year reprieve, obviously that's a net lift. It's modest for us. It's bigger for others. It's meaning it's millions of dollars in any case. If we get that reprieve, which sounds like 2016 and 2017, that would be a plus on the operating margin side to diagnostics. I think the third piece is what may happen in terms of the tax credits relative to capital investments. I think the implication there is more on the dental side. We've seen that in the past.
We'll see what the timing looks like. That could be a boost to dentistry at large and would be a net tailwind for us on the dental side. Those would be the three parts I'd say would be pluses.
Thanks. I didn't mean to open the Pandora's box quite that wide. I appreciate all that.
No worries.
Maybe just to follow up quickly on the biopharma side, Rainer, to your points on that market. It's been, as far as I can tell, the best year again in a decade this year for the spend in bioprocessing. Every company in your kind of wheelhouse around Pall has done incredibly well. Historically, that industry had a little bit of a boom-bust kind of growth rate to it. The secular trend, obviously very healthy. How do you think about the sustainability of the growth rate that we're seeing and the demand for these products in filtration into next year? Do you worry a little bit about the comps, or do you feel good about kind of where the demand picture looks?
No, I think we feel pretty strong about next year in that regard. Certainly, it's been a great year in the biopharma industry, but we see that sustained right now for the foreseeable future. When we look at the number of plants being built that are ready for startup and so forth, the pre-orders that are out there and happening, not to mention the 900-plus biologics in the pipeline, we really see this picking up. Then you have that extra turbocharge out of the SUT substitution happening. We see that continuing for quite some time.
In addition, outside of the developed markets, you're seeing tremendous investment in biologics and biopharma, announcements from Samsung in Korea and other parts of Asia. Looks like there's plenty of runway there.
That's good.
Just a question over here. On this idea of applying the Beckman playbook to Pall, they seem like very different situations, right? Beckman, part of the attraction for all of us was Beckman was incredibly messed up at the time and seemed really juicy, okay, you got all these synergies. In the case of Pall, the % synergies are even higher to sort of some of Cliff's point, you're sort of much further ahead there. How do we get our brain around how that playbook is actually very different in these two situations, one where you can maybe hit the ground running and one where part of the attraction was how far behind they were?
Well, I think Rainer used the baseball analogy earlier, Shannon, and I'd say Beckman was just really throwing out the first pitch. Pall's sort of in the third inning, and it's a team that understands conceptually what sort of the cost and lean side means. It's about where do we focus, where do we prioritize, and we move pretty quickly. In addition to that, on the growth side, they really have not started funnel management, and that's a tool and a process that's had significant results for us. Demand generation is next on the list, and some of the things are working at Videojet and SCIEX. I think it's that equal focus here early on. Fast traction on the cost, launching into growth, those two things are probably quite a bit different than five years ago at Beckman. Plenty of runway. We good?
Okay.
Okay. Thank you very much.
Thank you.
Thanks, gentlemen. You can see why we continue to be very enthusiastic about the acquisition of Pall and the transition track that we're on, particularly given the great progress that we've seen at Beckman Coulter and across each one of our diagnostic and life science businesses. That really brings us to a break. As you have seen in past years, we will again this year have a number of product displays in the reception area just off to my right. As you enjoy a few snacks and a beverage, please feel free to stop at each one of those product displays and get a sense of the exciting new things that are going on across a number of the businesses.
One of the things you'll note that's a little bit different this year is you'll see a series of placards, each one of those placards next to each one of the product displays. Each one of those placards represents a charitable contribution that will be made by this conference to each one of those charities, and they are varied, and they support various good works around the world. We know that most of you have all the umbrellas and bags and fleeces that you could possibly want, probably with Danaher logos on them as well. We've chosen this year to put the money to work that we would've normally put to, I'm sure, those welcome gifts, to those charitable donations that have been suggested by each one of the Danaher operating companies.
You might recognize that to each one of the teams as you see those placards, and please enjoy the break. We'd love to have everybody back in their chairs at 1:05. At 1:05, you'll be welcomed back by Jim Lico. Jim, I'm excited to say, will be the new Chief Executive Officer of Fortive. Nothing gave me greater pleasure than the thought and the eventual announcement that Jim would take that role. When you're back in your chairs at 1:05, Jim will be with us, and he'll take you through an introduction for the first time of Fortive Corporation. We'll see you then.
I've been around the world many times over. I've never had anyone like you. Someone to take my heart and hold it. Someone to love me and stay true. The unconditional love you give me. Made the way lay clear to see that I need you. I've been around the world many times over. Never had anyone like you. Someone to take my heart and hold it. Someone to love me and stay true. The unconditional love you give me. You've made it clear to see that I need you. I've been around the world many times over. Never had anyone like you. Someone to take my heart and hold it. Someone to love me and stay true. The unconditional love you give me. You've made it clear to see that I need you. Oh. Oh. Oh. I need you. Oh. Oh. I need you. Oh. Oh. Oh.
I need you. Oh. Oh.
Ladies and gentlemen, we're going to start in approximately two minutes and 31 seconds. Please take your seats. Two minutes and 31 seconds.
Great beginnings don't always start from scratch. They can happen well into a company's journey, where its wealth of resources and experiences unlock an opportunity to create something extraordinary. Meet Fortive, born of Danaher, but with a future uniquely its own. We are strong with a foundation of success built over 30 years. We are fueled by a talented, collaborative team who enjoy unlimited learning opportunities and growth. We thrive in a world demanding rigor, speed, and agility to solve critical challenges. We are passionate about continuous improvement and finding a better way for ourselves and our customers. Fortive. We are an extraordinary company for the people who create, implement, and accelerate progress.
Good afternoon. In my 20 years at Danaher, it's the first time I've done this presentation with a video. Hopefully it got you up a little bit with our event outside, and now we'll talk a little bit about Fortive. As Tom mentioned, I'm Jim Lico, and I have the opportunity here, along with Martin Gafinowitz, to give you a little bit of the Fortive story here pretty quickly. This will probably be the last slide on the name, but I think one of really two things that are really important about the name as we thought about it. One is we really wanted a name that resonated with where we've come from, our heritage, and the strength of Danaher, the strength of the company and the associates, 22,000 associates around the world, 22,000 associates who are DBS practitioners.
We wanted a word that started with that was really Fort. The second part of that is something that really talked about the future, really give you propelling us with growth and with a great future unto its own, that's really where we came up with the word. Then finally, the continuous improvement, the symbol on the right really gives you a sense of green being growth and continuous improvement with the circle. Hopefully you like the name. The most important thing for us is that it resonates with our associates, that gives them a sense of purpose. I think we've had a great launch with that, and hopefully over time with the Fortive story, you'll like the name, but more importantly, you'll like the company as well. I'm going to cover a couple of things today.
I'm going to give you a sense of who Fortive really is and what 2015 is like, give you a sense of our strategic priorities going forward, and then we'll bring out Martin to talk a little bit about one of our businesses. You've had an opportunity at this point to see the Form 10, you know that the financial structure of the company is very strong. A little over $6 billion in revenue, good gross margins and a good operating margin profile, as well as very strong free cash flow. I'll get to the revenue breakdown and the segment breakdown in a minute, and one of the things you see here from a geographic perspective is that this is more of a North American portfolio than Danaher is today.
Our high-growth market percentage is lower than Danaher's, and it's a higher North American content, that really gives us an opportunity to globalize the business over time and really give us some additional growth that we get from some of those markets over the long term. As Tom mentioned, I'll have the opportunity to be the CEO when we go out next year. I've been with Danaher for almost 20 years. It will be 20 years by the time we do that. I think we've got Chuck's here today with us, our CFO, as well as a number of our team members who are coming from Danaher, who understand DBS, who understand the role that we play relative to driving our businesses, and are great practitioners of DBS in ways that I think really create value. The growth drivers of the business are good.
Martin will talk a little bit about some of the changing environmental regulations. You'll continue to see our industrial businesses really try to drive productivity and efficiency, safety and security, and really take advantage of those drivers in their markets, grow the business internationally, and also take advantage of the global trend towards connected devices, software, data analytics, and digital services that come with that. We believe good growth drivers to really take advantage of the strong brands that we have and in the strong market positions that we have. Our capital structure is anticipated to be investment-grade rating, so we feel good about what our ability to do M&A. We feel good about the structure of the business going forward.
As I mentioned before, with the strong free cash flow, we really believe that we can deploy M&A in an effective way, in a disciplined way that'll really drive value long term. Let me get to the segments. We will report in 2 segments, which you would've seen roughly around the same size professional. For those who've been following us for a while, it's a little bit of a back to the future there. If you remember, those names were segment names several years ago. We may be accused of maybe not being as creative as we could've been, but I think really hopefully gives you really an understanding of how we think we can grow the business over time and the position that these businesses are in great ways. Professional instrumentation will really have 3 distinct platforms: field solutions, product realization, and sensing.
A number of those strong brand names should be familiar to you. Great brands, good strong market positions. We think we can take advantage of field solutions by being broader to professionals who are out in factories and in buildings, who are doing things not only to on uptime and safety, but also in data analytics. We believe that our view on the value stream of product development or really that entire workflow of product development can be taken advantage of through product realization. It's not just instruments anymore, but also software and services that we can really expand our view of the market over time. Sensing, as we think about sensors everywhere as the future of the disruptive computing, the world in which we live in with the connected world really brings more sensors.
Our niche positions can be expanded upon and give us an opportunity to grow that segment, that platform as well. On the industrial technology side, Martin will talk a little bit about Transportation Technologies. Our automation and specialty businesses are in good markets and good positions. We believe we're in the early stages of taking those businesses into better verticals as well. We've done some great things. Dan Daniel, who was up here before, who ran many of those businesses for a number of years, did an outstanding job of repositioning those businesses, and we think they're in good shape for the future. Franchise distribution. Probably haven't heard much about Matco in these conferences. I'll tell you a little bit about them in a few minutes, but continues to be a stellar performer in our portfolio. It's really essential technology for our customers.
Our customers who are doing tough things every day, all of these businesses represent essential technology that takes on the challenges that our customers have. They're strong brands, they're leading market positions, and we'll continue to build these businesses around attractive verticals. For 2015, maybe one on the separation, we'll give you a little bit of an update that's progressing well. The leadership team's in place, as I mentioned, that second level of the corporate organization in order to be out on our own and to do the things that we'll need to do as a public company. Those processes, separating the organizations as we need to, is occurring and on pace. We're building a team that has strong DBS experience. I think one of the things for me that's maybe so great is the fact that it's an exciting place for Danaher associates.
We have talked over the years about internal fill. We measure that every month in every business. That's the percentage of jobs that we fill with Danaher associates. Fortive has become a great opportunity to really engage with our teams to really give great opportunities to our folks. We spent a lot of years developing great leaders in our business, and Fortive represents an opportunity to give some of those great leaders a new and great opportunity. Our execution around growth investments, Tom mentioned this in some of the share gain slides he discussed at Fluke and Gilbarco and Matco, but also accelerating innovation, which is not only positioning us well this year, but also into the future. DBS will be our culture. It will be who we are. We'll call it the Fortive Business System, so FBS.
I think it will continue to drive improvements, give us great opportunities for margin expansion and future growth. I think you heard a lot about what Pall is doing relative to that kind of thing, using lean conversion, using DBS to drive opportunities in the business to accelerate growth, and that's a continued effort that we'll have in our businesses as well, and using the solid free cash flow to improve not only our margins, but also working cap. Deploy M&A, and we'll talk a little bit about that in a minute. As we go forward, our strategic priorities are pretty clear. One, continue to enhance our organic growth profile. We want a better growth profile. That means making sure that our organic investments in the business are in better markets around better verticals with less volatility and better growth.
They'll also generate margin expansion, giving us opportunities in markets where we have maybe more pricing opportunity, those kinds of things. Leverage our strong free cash flow, as I mentioned, around strategic and financially disciplined M&A. That's an important priority for us. We believe a lot of value to be created through M&A here with the cash flow that we generate, and we're very excited about accelerating that in these businesses. Finally, really delivering through FBS. Tom really, hopefully, gave you a sense in his opening, I thought, wonderfully about what DBS really is to us, and FBS will have that same importance to Fortive associates around the world. What does the math look like? Maybe a little bit about what the Fortive opportunity really might be. Core growth around GDP, maybe GDP plus, as we go forward.
EMV, Martin's going to talk about the payment regulations that are out there today and how that will add growth to the business. That really gives you your core growth. The continued margin expansion around 50 basis points with good fall-through, then deploying our free cash flow around acquisitions to continue to make sure that we can build our businesses out strategically. We believe that that equation is top-quartile earnings performance. Value created through that with the Fortive Business System. We've done it before.
If you go back to these businesses back a number of years ago, when the principal amount of capital was being deployed to many of these businesses, you could see the kind of performance, both on the revenue side and on the operating profit side, that we were able to drive six years running between 2002 and 2008, when these businesses were the largest parts of Danaher, when they were getting the principal amount of capital in the company. When we think about opportunity, this is where our opportunity is, the opportunity to use M&A not only as an inorganic growth in and of itself, but to accelerate strategy. I know many of you have heard our story around making sure that M&A accelerates strategy in Danaher, and that's principally the way we think about it and the way we'll think about it at Fortive as well.
Let me give you a couple of stories. As I mentioned, Rainer and Dan gave you a great understanding and a great pitch on what DBS will mean to Pall, and that's in the early stages, right? First few months. What does FBS really mean in businesses that have been around a long time? Hopefully, you get a sense from this slide because what I want everyone to understand is that DBS takes a long time to really be ingrained in the business, and it creates value years and years and years over time. There's no two better examples than here. Our Jacobs Vehicle Systems business. 27 years ago, DBS was founded at JVS.
This is a business that in the last few years, using some of the product innovation and growth tools, value selling, visual project management, and really making unbelievable strides in quality, was able to really do a great job in China, where they grew over 20% with China-specific designs and really penetrated that market at 3X the market growth rate by really doing a great job with DBS on the growth side. They did that while also having a superior cost position to continue to make sure they had earnings growth as well as great working capital performance. 27 years later, here's a business still finding value, still creating value through DBS growth tools. On the Matco side, another great example of a business that's been a part of Danaher since the 1980s.
This business using things like web marketing to go after leads to really expand their franchise distribution model and to do more in the last three years than they've ever done in the history of the company in terms of expanding their distribution network, franchise distribution network. At the same time, being very innovative and bringing in new technologies and innovation with some diagnostic tools that are really a software as a service model that's very unique to the industry. Again, a business that's been a part of Danaher for a long time, still using DBS and creating value, and in this case, growing consistently in the double-digit range over the last several years while delivering superior operating margin and working capital performance. Fluke's another good example. We've talked a lot about Fluke over the years. You can see one of the larger companies in the portfolio going forward.
Fluke actually has a good international footprint, you can see that in the slide. A good size market, $5 billion market with good growth drivers and a good customer base. One of the things that we have been able to do in the past and we can accelerate doing is really building on the Fluke franchise that we've done over the last several years. Our organic growth opportunities are there. Over the last few years, Fluke's continued to pursue technology-driven opportunities around Fluke Connect, really focuses on software as a service, data analytics, and asset health. They've expanded their diagnostic portfolio. They've built their biomedical business to really give them a presence in a new vertical and continue to expand on that business through M&A. That business was nothing seven or eight years ago. It's almost $100 million today.
A great opportunity to build a business within a business, and that's really what our M&A work can really do with a great franchise like Fluke. Then continue to expand and reach their footprint in high-growth markets. They've done a phenomenal job over the last few years of building out product design and low-cost manufacturing capability to be competitive and be innovative in markets around the world. Many of you may have seen this slide in the past, we really update it for 2015. A great opportunity to continue to build on the business. Obviously, much more sizable than it was back when we bought it in 1998. Great margin profile and a great return on invested capital, both organically and inorganically, on inorganic and organic investments. We think we can do more here.
We think this is the profile that we can do more here at Fluke, and we can do it in other places in the portfolio, and that'll really be the Fortive value creation story as we go forward. We think we've got a great high-quality, diversified industrial growth company. Hopefully you get a sense for that. As you look at the portfolio, you get a sense of the brands, you get a sense of how we're thinking about the segments and the platforms that we can invest in. You have the financial profile to do that as well. Our strategy is really focused on value creation through organic growth, margin expansion through DBS and disciplined M&A. FBS, 22,000 associates around the world who've transformed their businesses over time.
It's the cornerstone of our culture, and really, we believe is what will help us continue to build competitive advantage, that fort around our businesses that will allow us to continue to build in the years to come. It's really, we believe, a proven model. It's a bit to the back to the future of where we were and where we can be, and we think it's a great opportunity as we go forward. We want to also give you a little bit of a deeper dive into one of our businesses. Martin Gafinowitz has been with Danaher for a long time, and he runs our Gilbarco Veeder-Root businesses and our telematics businesses, what we now call our Transportation Technologies platform.
He's going to give you some real deeper insight into the great success that we've had at Transportation Technologies and hopefully give you a real good sense of the kind of framework that we can build for growth into the future. Martin?
Thanks, Jim. I'm really excited to spend the next 15 minutes or so talking to you about what today is called the Gilbarco Veeder-Root platform under Danaher ownership, and as Jim said, will become the Transportation Technologies platform under Fortive. I've got this divided up into two pieces over here. I'm first going to talk about what I believe, by any stretch, has been an outstanding 2015 for the Transportation Technologies businesses. Then I'm going to switch gears and focus on how we actually built out the platform. The focus we've had on expanding into adjacent markets to help us drive and accelerate growth, and then how we've used DBS to really improve the overall performance of the business.
For those of you not completely familiar with it, the Gilbarco Veeder-Root platform is a mix of the traditional Gilbarco and Veeder-Root businesses focused on the retail and commercial fueling business, and then the more recent additions in telematics of Navman and Teletrac focused on fleet tracking and management and safety of vehicles and drivers. It's a highly personal story for me anyway. I joined Veeder-Root back in the mid-1990s, and somehow managed to stick around or around it somewhere ever since then. In those 20 years, I think we've landed up in just a tremendous position today. Much stronger position, great brands, very strong competitive position, and very good growth opportunities in front of us. The business has got a great geographic footprint.
The share of the revenue in North America is actually stronger than it historically has been, but that's on the back of a very strong U.S. market that's leading to that higher percentage than we historically see. Organically in front of us, I think some very strong tailwinds around EMV and the coming payment regulations, as well as other environmental regulations and air quality regulations. In 2015, despite some headwinds, particularly in some of our higher growth markets, we produced, I think, a very strong growth picture over there with mid-single-digit core revenue growth, and that came on the back of our core dispenser business being very strong. Mid to high single digit, in fact, core growth in that dispenser business, and then perhaps even more exciting than that has been the point of sale business.
For those of you who spent some time outside looking at the product demos, these are the systems that are sitting inside the convenience store, and we've managed to grow that part of our business by a compound rate of over 20% over the last three years. On top of that 20% growth over the last three years, and I think even more relevant to our future, is that we've actually grown the install base over that same period by almost 30%. That gives us a wonderful opportunity on which to build to continue selling suites of software and incremental services. These are increasingly challenging and sophisticated retail environments, and I think we've got a great footprint with a very sticky product set in that retail environment to continue building on the future. OpEx performance was strong as well.
Over 100 basis points of growth, this while we have been investing at a fairly healthy clip to scale up for the coming EMV growth cycle. Capital expenditure in the business are up over 70%. We've also invested fairly significantly in our fixed manufacturing costs and also our sales force as we're really looking to maximize our share position through this growth cycle. From more of an operational perspective, we took the separate Teletrac and Navman businesses, consolidated them into one business. This is going to give us a number of advantages, particularly around the technology platform, where we've got a single technology platform and a very strong technology platform with which to approach the market. We've also managed to leverage fairly significant back and front office cost savings over there.
During the year, we also made two strategic bolt-on acquisitions, which are going to greatly enhance our product positions and our technology positions going forward. I'm now going to move on and talk about the second section of my presentation. I'm first going to spend some time talking about how we've built the platform through a heavy, healthy cadence of M&A and also what we've done organically, particularly how we've enhanced the growth profile through our focus on adjacent markets. This is a story dating back to 2002. In 2002, the opportunity presented itself to acquire the Gilbarco business. We were already in the retail fuel business via Veeder-Root, but on the acquisition of Gilbarco, we really turned our attention to thinking about how we could build a large-scale, vertically-focused business in this retail petroleum market.
The first thing we did is put together the Gilbarco and Veeder-Root businesses. Then we began to add on some of the essential technologies we felt we needed to acquire to build out the platform. We added submersible pumping systems, we added hanging hardware to attach to the dispensers, and a variety of other products that really enabled us to expand the breadth of our portfolio. We also made key acquisitions in geographies that were attractive, where we could expand our footprint, such as Brazil and India, and a number of others. We continued to expand the business that way. Over time, over that period between 2002 and 2015, we made around 19 acquisitions and deployed over $1 billion worth of capital. Most recently, we acquired the two telematics businesses. I'll be talking about those in a little bit more depth later on in the presentation.
Putting together this portfolio has really enabled us to build up a very solid competitive advantage. We look at the breadth of the technology we have versus the others in the marketplace. We feel very good about that position. We look at our just very strong geographic footprint and the position we've been able to build in those markets, the closeness we've been able to achieve with those customers as key competitive advantages for us. I'm now going to spend a bit of time talking about those adjacencies. Gilbarco today, or Gilbarco Veeder-Root today, is so much more than just a dispenser company. We've been able to focus on these adjacencies and use them to enhance our growth and our profitability profile. Firstly, let me talk about the payment and point of sale market.
Now, we talk about this as an adjacency because we used to be in the gas pump and the underground storage tank monitoring business. As we think about adjacencies, the first place we looked was close to home. What other products could we supply? What other technologies could we supply within the footprint of a gas station? We've long been attracted to this point of sale and payment market. Very sticky product sets, higher margin, much more frequent replacement cycles, and a long runway of recurring revenue that we can generate off these by way of software upgrade, software maintenance contracts, et cetera. The market also inherently grows faster than the core business at mid-single digits versus what we felt is the underlying market growth rate of lower single digits for the rest of the business. Overall, very attractive.
We've been able to build up a strong position in this marketplace, some are on the back of regulations like EMV, the rest just on technology upgrade cycles, and as I said a little bit earlier, this growing sophistication of the convenience store business. At the same time that we see these technology refreshes coming on and some of the legislative refreshes like EMV, we're also able to use that technology cycle to bring in, we think, meaningful new technology to our customers. Again, for those of you who did look at the product displays, you will see a big focus on media at the pump, selling more, using that consumer time as a selling opportunity. Also inside the convenience store, much more rich and engaging interactions with consumers, which can benefit our customers, the retailers, as they go through these technology and legislative upgrade cycles.
I think Jim and others have spoken about the opportunity to use the network of connected devices, we've got a very good focus on that. We've got a tremendous install base across the world and an opportunity to really deliver operational services to our customers from these strong install bases we've got through cloud-based services that help our customers manage their increasingly complex networks. One of the things that the adjacencies have been able to do, and you look at the chart on the right-hand side of the page over here, one of the things that we've been able to do by expanding into these adjacencies is really change the revenue profile and the volatility of the business. You'll see through the early years of the platform, a much lower core growth and much more volatile growth profile.
In the latter years, we've been able to accelerate that through being in a broader set of portfolio, a broader portfolio of adjacencies over here and really change that profile. One of the data points that I think is interesting is that back in 2009, where most of the industrial world was going through a very steep downturn, we had a much more consistent profile. We were down, but by a much narrower range, which I think is again, a tribute to how we've been able to reduce volatility in our business. Just continuing the theme of the POS and payment, I want to spend a couple of minutes just talking specifically about the upcoming payment opportunities in the U.S. The underlying drivers, I think many of you know, for these opportunities is the EMV regulations.
On the back of extensive data breaches and credit card fraud, the credit card companies, Eurocard, MasterCard, and Visa, hence the EMV acronym, have got together and set forth a set of regulations on how to make the payment transactions and data more secure. These regulations have already been implemented in most of the developed world. In fact, the U.S. is lagging quite far behind the implementation of these. They require that all payment processing devices, both in the store and on the fuel islands, unattended payment devices, are upgraded to a newer security standard. It creates a very good opportunity for us. Some of that opportunity we're already seeing on the in-store side where we've seen that growth I spoke about on the point-of-sale side.
The upgrade to meet those regulations was supposed to have been in place by October of this year, the industry is actually lagging quite far behind, and they're not quite complete yet. The outdoor market actually presents a significantly greater opportunity for us. If you think about how many more gas pumps there are than there are convenience stores, you have four or five gas pumps per station versus one convenience store per station. Much greater opportunity set for us. Those regulations are supposed to be completed by late 2017. Again, we think particularly with more complexity, in fact, than there is in the store, this is actually going to lag through several years. We believe it really does create a very strong growth opportunity for Transportation Technologies and also for Fortive. Cumulative opportunities somewhere in the magnitude of $500 million over the upgrade cycle.
As I said, I think a very significant and substantial opportunity for us. We feel very good about the competitive position that we have over here. A strong technology base, a very strong incumbency through a leading installed base in the U.S. And we've also entered into a partnership with Verifone, leading payment security, leading payment device provider in the market. The marriage between, I think, our two companies with our knowledge of the specific vertical, their knowledge of the payment industry and their security technology, is going to stand us in tremendous stead. On to the telematics businesses. Let me first talk about how we came to view this as an adjacency. I spoke about looking at the POS and payment, and we looked within the gas station for adjacent space, and typically we looked further upstream for other adjacencies and other opportunities for the business.
This represents an adjacency when we started thinking about what happens, if you like, to the left of the fueling nozzle, what's on the other side of the fueling nozzle. As we looked at those opportunities, we really liked what we saw around a business focused on improving productivity, safety, and efficiency of vehicle fleets and drivers. We entered the business through 2 acquisitions in fairly rapid succession. That's given us an excellent position in the top five worldwide in terms of the number of connected vehicles in our fleet at around 400,000. And with a tremendously good geographic footprint, strong U.S. presence, as well as the leading position in the U.K. and Australasia. The market is relatively under-penetrated still. Even in the mature markets, less than 20% of the vehicle fleets are actually connected through these devices, and we think a good opportunity.
I mentioned upfront that we have now united the Navman and Teletrac businesses. We think this is going to give us significantly more leverage going forward. Strategically, we focused on looking at how do we expand the software deep into specific industry verticals. Two examples over there, what we do with private delivery fleets. These are fleets where they own the goods that they're transporting, and then also areas like construction, where we believe we can provide tremendous productivity and safety benefits to the customer base. Very excited about the runway over here. Very excited about the organic growth opportunities in these businesses. Now I think the most exciting part of my presentation. I'm going to talk about what we've done with DBS in Gilbarco Veeder-Root.
I've chosen to do this in a way that focuses only on one specific business, what we've actually done with one business unit of Gilbarco Veeder-Root in India. But I think it's very indicative of what we've done across the business. This is really just the best way for us to highlight it. Back in 2011, we acquired a business in India. India, no surprise, looked like a very high-growth market, was also a great low-cost base for us to manufacture and support the rest of our worldwide operations. We acquired a business. It was a loss-making business, poor growth track record, very poor quality. And in the time since 2012 that we've owned it, I think we've really been able to transform that business. Our revenue has increased twofold.
We've done this largely through what we've done with tools around accelerated product development, also what we've been able to do around improving the on-time delivery, where we've taken it from sub 80% to in excess of 98% on-time delivery for our customers. This has really enabled us to become an export center for the rest of our business. On the operating margin side, we took that loss-making business, and we've transformed it into a significant profit-making business for us. This is against a backdrop of India being by far the most cost-competitive market that we operate in.
We've done that through just a steady focus on and using Kaizens to drive cost reduction, using value engineering to drive cost out of the product, then a very high focus on improving the quality, which has allowed us to improve the margins in the service business and improve the warranty costs. Putting those two things together, we've been able to drive over 1,500 basis points of operating margin expansion in that business. Working capital has also been a success story for us, and you'll see over there that we've improved from under 2 turns to in excess of 10 turns by the end of this year. As I said, one story around one business, but I think this is very much the story of DBS in a business platform and how we do it and what the commitment from the associates are to drive those improvements.
I spent a lot of time talking about how we built the platform and what the growth profile of the platform was, I thought it was appropriate to spend just a couple of minutes over here talking about what the financial returns we've been able to generate from that is. Again, a story of over 10 years over here. We started off back in 2002 with roughly $420 million of revenue. We added to that through acquisition, about $500 million through acquisition, another $600 odd million of revenue through organic efforts. We finish up with a platform of about $1.6 billion. On the operating margin side, started off at sub 6%, sorry, sub 5%, and we've been able to improve that to north of 15% over that time period.
Still a lot of room to go, still a lot of runway on that margin expansion, I think, but a tremendously good performance. I think this shows what we're able to achieve through access to capital with a strategic long-term investment owner. We've been able to not only generate these tremendous returns, but we've also been able to build up a very strong, very defensible platform with good growth profile for multiple years ahead of us. In summary, we've got a market leading install base, technology leadership across our verticals, a real opportunity to accelerate growth. We've got some good tailwinds coming from some regulatory drivers, and we've got additional acquisition runway ahead of us. DBS has been a foundation for a lot of what we've achieved, and I think a lot more of what we will achieve in the future using FBS.
Thanks very much for your time.
I think with that, we'll take some questions, obviously for Martin and anything in his presentation as well as any general questions. Dean?
Yes. Thank you. Jim, congratulations on your new role. I was hoping you could comment on the Fortive business model and to begin with how it might differ from Danaher RemainCo. The hallmark of Danaher, the business model has always been high recurring revenues, consumables, razor and razor blade businesses and high earnings visibility. When I look across the Fortive businesses that it's clearly not a point of emphasis yet. So might you be investing there, with an eye towards those types of business models? Are you going to go in a different direction? Just be interested in hearing your thoughts at this juncture.
Yeah, I think, well, Danaher didn't start out that way either, so that's probably the first thing. I think number one is, what is occurring in these businesses today is not necessarily a consumable model, but a software and services model. Martin articulated a little bit of that in his business and what they're doing. I think you can continue to see roughly 20% or 25% of our revenue today could be construed as software or service kind of revenue stream. I think first and foremost with the digital technology opportunities that are coming out, the digital world opportunities that are coming out, for sure we're going to be able to continue to expand on that.
Relative to straight consumable stream and things like that, obviously, we've seen the benefits of that for Danaher, if those opportunities were to come to us in markets that made a lot of sense, we certainly would be open to that kind of activity. Over here. Yes, Steve?
Yeah. What's your organic growth guidance for 2016 and any variability around how you're starting the year and how you'll end the year.
Yeah
In 2016, I guess, relative to comps that you're seeing.
Yeah. A little bit maybe on 2015. Obviously, in the Form 10, we had good growth going into the third. We'll probably be down a little bit in the fourth. I think some of the things that you've seen, we've seen maybe less, but we've seen a little bit of volatility in the fourth. We'll probably be down a little bit, down to flat in the fourth quarter of this year, this quarter. Tom mentioned that in his opening. That's part of what's going on. I think for next year, roughly flattish. I think we're in that zone. I don't think we've got any anticipation of any big recovery occurring. We'll stay conservative.
We've got good margin expansion, in the fourth quarter, despite the revenue situation. We think we can continue to have margin expansion in next year with first quarter maybe being slightly tougher because of a tough comp. We had a really good first quarter last year.
Just a question on capital allocation. Danaher pivoted a bit to a bit higher multiples, perhaps a bit lower returns given the environment we're in right now with low cost of capital. How are you guys going to approach doing deals from a financial framework perspective? Will you be happy to do higher multiple deals that maybe have a little bit of a lower return to get growth, or are we going to kind of turn back the clock and go old Danaher?
Yeah
Block and tackle on cost and stuff like that?
I think the first thing that we would think about is the upside opportunity of any noise in the macro environment right now is opportunity. That would be the first thing I would think about. Tom and Dan have been really good about making sure that if we've got opportunities from an M&A perspective Now to be on that, and they've been very supportive of that. I think those opportunities are in front of us, and we're looking at those kinds of things. I harken back to 1998 when the Asian crisis was occurring, and we bought Fluke. That was an opportunity when we got Fluke. Back in 2001 when things were a little tough, that's when we got Gilbarco. We bought some unbelievably great franchises during some tough macro situations. I think the macro in and of itself is a good opportunity for us.
Relative to the model and how we think about it, I think there probably will be a value orientation for sure, because I think the businesses that we have and the framework that we have, we're also not going to be afraid to, if the opportunity makes strategic sense, to not be afraid of something that might be slightly more expensive. I think on balance, we ought to think about value being part of our opportunity. I think we're in an environment where that can definitely happen.
Thanks.
Cliff? All right. Go ahead, Steve. Sorry.
That's all right. Thanks, Jim. Couple things. Again, on the capital allocation front, how are you thinking about the relative cyclicality of the existing business and new businesses that are adjacent to your existing ones? Are you looking for stuff that's counter-cyclical? You don't care about the cyclicality at this point? How should we think about that?
Yeah
strategy?
I think the business has done a really good job, say, in the last four or five years, trying to get the portfolio to be less cyclical. Martin talked about the telematics businesses. I think his slide was really good. That's been something we've worked on. We've worked on that and some other businesses. I think if we pro forma our portfolio today versus 2009, we'd be better from that standpoint. I would look for us to continue to do that. It doesn't mean we'll only look at non-cyclical assets, but I do think that we can continue to deploy capital in a way that reduces cyclicality in the business over time.
Just one follow-up. Martin, should we be, or are you agnostic about the evolution of payment systems? Does it matter, or doesn't it matter who sort of wins in that space and how that evolves in terms of the revenue opportunities for you across the different providers and ways that people are paying over time?
Are we agnostic about who wins in the payment space?
How the technology evolves.
The technology, other than some variations, is reasonably well set. Other than how you implement the technology is reasonably well set. There's some core modules around how encryption needs to take place. I think everybody's following, broadly speaking, some core technology path, and then some variations on how it's implemented, some variations around how good we are at encryption and security. I think we think that the majority of the market will follow where the existing install bases are, and then some opportunities for share gains as we make our devices more agnostic, irrespective of what pump is originally on the gas station.
Jim, just over here.
Yep.
What degree of reduced cyclicality do you think you have now based on the changes you've made since then? On your point around acquisition and a sort of value bias, how does that pertain to the effort to increase software and services? Do you think you can still get value where software and services acquisitions are concerned?
I think relative to the pro forma, I think in 2009, this portfolio of businesses was down mid double digit-ish teens kind of numbers, mid-teens kind of timeframe. I think we'll even be better than that if we continue with our efforts over time. That's number one. I think the value equation is really a balancing act of a lot of the deals, as an example that Martin's done, have been smaller deals. We've been very integrated with partners, as an example, those partners often become a buying opportunity, when they become a buying opportunity, they might be slightly pricier, but they're at a small level. They're not a big level. I think it'll be a balance.
I think in the perfect world, we'd have a balance of some good big deals and some smaller deals, you might see some of those smaller deals tending to be more on the technology front that will accelerate software and digitization of the businesses.
Jim.
You can go back. Yeah.
Yeah. Out in the back over here.
Oh, there he is. Yeah.
Anyways. Jim, we haven't talked much about portfolio pruning, or I haven't heard you talk much about portfolio pruning, and I would assume that not every asset in this portfolio you'll be leading is going to be part of the long-term forward of. Can you give us a sense at least of how you think about red assets and, I'll just call them red assets, and then how that may equate to a process of upgrading the portfolio, of taking out some of the maybe less interesting stuff and as you find deals, being able to upgrade?
Well, I think that what we look at today, it's still early stages, and I think what we see today, we like with what we've done in the last few years. Once we have a board and we're up and running, there's no doubt that there'll be a look at the portfolio on a regular basis. I'm sure that'll be very similar to how we do it today. I don't think we have an intention right now of being able to say that there's anything red or green. I think right now, we believe that with the portfolio we have today, we can be in a good place down the road. Never say never, but I think we're comfortable with where we're at right now.
Okay. As a follow-up, have you had any early conversations with the rating agencies about what type of leverage they'd be comfortable with you taking to stay investment grade?
Yeah. We're just starting that process, Scott, so I think I won't necessarily comment on the specifics. That's sort of a January, February, March kind of timeframe where we'll get into that. I think the early-stage discussions, we've been pretty confident we'd have investment grade.
Okay. Thank you.
Yep.
Cliff
Cliff [Ransom ]. Just so we don't expect certain things, what two or three things are you prohibited from doing to preserve your tax-free spin status?
Where's my tax guy? No. I think maybe without getting into the two or three things, I think the one thing we have to remember is. We've been through this with the RMT that we just did with NetScout, we understand the process, it's really about ongoing value that gets created over a multi-year period. I think everything we want to do, whether it's DBS related or anything, we're very comfortable that we can maintain that.
There's no particular hurdles associated with technology transfers.
No
intellectual property transfers or?
Not at this point.
Fabulous. Thank you.
Yep.
In the back, Greg.
Randall, just a couple of questions around the profitability of the Fortive portfolio. When you put the pieces together here, how do you view the incremental EBIT profile of the Fortive businesses, with growth and, quite frankly, decremental? And then just related to that, the earnings power. Is there any earnings power embedded in any of the businesses, primarily, say, motion that's maybe underperforming? Because quite frankly, the margin profile of the businesses is actually pretty good. Maybe two questions.
Well, I think with the organic profile that we described, with DBS, we can drive a sort of 50 basis points a year kind of number. We think tied to that sort of growth rate, we could do that. I think that's the first question. I think the second thing is, we have about half the portfolio that's below fleet averages on the operating margin. Those teams are working it. It's not like they haven't worked it, but I think a combination of strategic investments into higher margin opportunities as well as DBS really at its core strength, we can improve those margins, and that's roughly half the portfolio. That's kind of how I think about it. I think you see that in Martin's presentation.
You see that over time, where they've really done a nice job of continuing to improve margins in those businesses, not just from DBS in the sense of doing great things in the factory or simplification of the business, but also by acquiring segments of the market that have a better margin profile.
As a standalone Fortive, what might be the corporate overhead that you need to carry there? Is it similar to Danaher, kind of a 120 basis points? As a standalone, what kind of corporate overhead do you have to put on this to manage it going forward?
I think we're in the $70 million-ish range for corporate overhead. Some of that'll be within the businesses and things like that. There's a question of why does the Form 10 different than that number? The answer to that question is, it's really about the fact that the Form 10 is really looking backwards. It's not about what a standalone company will look like. That's why there's some differences that you might be asking yourselves about. I'm getting the hook here, thanks a lot for the opportunity to be here today, we'll hand it back to Tom. Thanks, guys.
Thank you.
Jim and Martin, thank you very much. Terrific growth opportunities organically. A balance sheet that will be well-structured to get Fortive off on the right foot to leverage their own free cash flow for purposes of inorganic growth. A Fortive Business System that's anchored and will be consistent with all the principles and tools of the Danaher Business System. A team, a terrific team. You put all that together, and I think you have a wonderful formula for shareholder value creation in the years ahead. Jim mentioned the point about the team very briefly in one of his slides, and I just want to add that one of the most exciting things for us internally at Danaher, for our associates, is the great opportunities that Fortive has represented for growth of our people.
Jim's leadership team will largely come from people who have been on the Danaher payroll for a number of years, Jim obviously being one, Chuck McLaughlin, his CFO, another. Our head of HR will come from Danaher, the four operating leaders of these businesses are experienced Danaher leaders. What tremendous opportunities for them, and what tremendous opportunities for those who will come behind them, who will get a chance to take greater responsibility at Danaher. We unlock tremendous potential for people at Danaher, and because of the great work that's been done building the bench and strengthening the leadership team over a long period of time, we're able to stand up a new, independent, publicly traded industrial growth company anchored in a tremendous leadership team that we're confident will deliver great results in time.
That, more than anything else, is really what inspires us internally to continue to develop that great team for years to come. As we head into a summary, we shared a lot with you today. We've had a busy year, we've gotten a lot done. We're really proud of the accomplishments, we know that in many cases, those accomplishments really just set the table for work in the year ahead, the team has executed well. It is a challenging macro environment. We are very cognizant of that. We've seen those challenges throughout the year in the high growth markets. We've seen the challenges that have come by virtue of currency fluctuations. Now we're seeing some softening in the industrial markets. A bit of that carrying over clearly into the developed markets, as opposed to simply in the high growth markets.
The team continues to execute very well. DBS is the core of that execution. Without question, it has been the key to help us improve our organic growth rates to continue to drive margin expansion, and we've seen share gains across a number of businesses in the portfolio that we shared with you today. Pall, and the launch of Fortive, the two most significant parts of the evolution of the portfolio at Danaher, for sure. There have been a number of others. The addition of Nobel strengthening our dental portfolio. The merger of our communications business with NetScout. Finally, 11 additional transactions that have helped to bolster strategically every one of our businesses and add high return acquisitions to many of those.
We've gotten a lot done, but again, we've got a big year ahead, and I think we're well positioned to deliver as we head into 2016. Let's look at how we're thinking about 2016. To start with a few of the key assumptions, we're assuming a macro environment that will set up for roughly 2%-3% core growth next year. We've estimated about a 35% fall through to the operating margin line coming off of that 2%-3%. The Pall incremental contribution that I mentioned earlier, consistent with what we've talked about in the past at $0.40, gotten off to a good start. We're seeing $0.07 accreting in this year. It'll be 47 in total, but we're assuming consistency around $0.40 for next year. FX will continue to be a headwind. This is not just a euro issue.
We have pegged the euro at 109, as we've mentioned, but we've also seen the impact of currency in a number of other markets, particularly in the second half of this year. We'll see the impact of that as we round the corner into 2016. Our tax rate, again, in the same range as where we've been this year, 23%-24%, pretty consistent. We've given you some help there in terms of earnings seasonality with the first quarter being a little bit more challenging. We'll be coming off of our toughest comp during the course of the year. You'll remember, we had a very strong first half this year at, I think, roughly 6% and 4% as we came through the first two quarters of the year. A little bit more challenging there, and we'll see that improve as the year goes on.
We'll also see the ramp, obviously, of some of the impact of our cost actions and then the impact of the improvements in acquisitions. That's how we're getting to our adjusted EPS guidance of $4.80-$4.95. If we bridge that out graphically for you, starting with the jumping off point of $4.30, picking the midpoint of guidance at the moment. Start with FX that I just mentioned, that headwind. That translates into about $0.06 of headwind. If we look at where we get some benefits, we'll clearly get some benefits from the cost actions that we've taken this year, the benefits of those productivity actions, along with a lower share count. That lower share count in the first half of the year as a function of the comms and NetScout transaction and the 26 million shares that's impacted there.
We'll see the benefit on both sides there. Coming at us a little bit on the other side as an offset would be the natural increases in wages and benefits. We'll see the impact of our growth investments. We'll continue to invest, particularly in organic growth across a number of the businesses. Finally, we'll see some higher corporate expenses, largely as a function of separation in 2016. Pall, we mentioned the $0.40 of contribution. You see it again here. As we look at the contribution from a core growth perspective, we take that 2%-3% core growth, we lay that out against a range, the fall through that could create anywhere from $0.11-$0.26.
Probably at the low end of that, we're talking about some conservatism at the higher end, talking about the benefit of the higher end of the growth spectrum and what we might get in terms of some accelerated performance or drop through that could be a function of some of the more newly acquired businesses that could drive a slightly higher level of accretion. You put those together, that ramps to the $4.80-$4.95 and translates into an implied earnings growth next year of 12%-15% year-on-year EPS growth, consistent with our objective of getting the earnings growth into the double-digit realm. That's how we see 2016 laying out, both at the assumptions level and how it stacks up piece by piece. With that, we'll open it up to a few final questions. I think Dan is still with us.
I know Jim is still with us. If anybody wants to go to the footnotes somewhere in the 195 pages of the Form 10. Is that where you're going, Steve? You're going to start there?
Page 150.
Can we please flip to page 150? Steve.
You mentioned the opportunity for people to step up and have a larger role in the organization. I guess we were joking earlier about the donations you guys are making instead of giving us gifts. When Danaher grew, obviously, it got to be a relatively big company. Do you think you faced morale issues at one point as a catalyst for this decision? You guys have really focused and pressed hard on productivity over a long period of time, and as a smaller company, maybe that's easier to do, but the bigger you get, perhaps you lose touch with the people at maybe perhaps a lower level that face the brunt of the productivity measures. Any morale issues that you guys had at any given time that may have been a catalyst for the timing of breaking this thing up?
I think we have been the beneficiary over decades and certainly through most recent years of really exceptionally high morale at Danaher. That said, it is a very challenging environment for folks to work in. It's a very performance-oriented environment, very results-oriented. We're very focused on metrics, and we have an extremely dedicated and motivated group of people around the world. When you're in that environment, it's important that we make sure that people remain engaged over time, because the environment can be challenging, particularly in a tough macro environment, which makes that challenge even greater. We have put a focus and probably a higher focus, more recently, at least in the last couple of years, on ensuring that we're doing things to make sure that our people are as engaged, if not more engaged, now and in the years to come.
The way I tend to frame it with our team is performance and people, metrics and meaning, and results and recognition. I'm a big fan of Jim Collins. He talks about avoiding the tyranny of the or and focusing on the and. I think getting that balance right around people, around meaning, and around recognition is important to operating in a very results and performance-oriented environment with very high standards and very high expectations. I think if we continue to head down that journey, we can continue to grow, we can continue to perform in an exceptional way and in a tough environment and bring people along the way we have for so many years in the past. Hi, Tucker.
Hey, Tom. Can you just spend a minute on some of the gives and takes for dental? You didn't really spend time on it today for the dental business with Nobel going organic and you're coming off a flattish year in 2015. How do you think about the trajectory next year?
Sure. I did talk about Nobel. Very happy with that start. A tremendous team, tremendous business. Very much a recurring revenue business with high margins. We like that business a lot, and it's doing quite well. The balance of the dental portfolio has continued to make progress this year. We came through a period of some fairly significant restocking or destocking, I should say, in concert and in partnership with our distribution partners. I think we're at the tail end of that. If we see anything, it'll be the tail of it here in the fourth quarter. I think we're in better shape going into the first quarter. Obviously, we have a little bit of a days issue. We have fewer days here in the fourth quarter, so that days impact on a recurring revenue business is a little bit more significant.
We won't see all the impact of that here in the fourth. I think as we come around, despite some tough comps in the early part of the year, we'll see better performance in dental. I think we have a very good leadership team there right now. We brought Amir Aghdaei over from some of our other businesses to lead the dental platform. He's off to a great start. I think there's a strong focus both on what we need to do from an innovation perspective that'll lead to greater growth, as well as continuing to move the operating margins up. It will be a significant strategic focus for us in 2016.
Hey, Tom. Right at the back here.
Oh, hey, Nigel.
Yeah. How much M&A capacity do you see for Danaher today for 2016? How much M&A capacity?
I'm sorry, Nigel, can you just give me that one?
Yeah, how much M&A capacity do you see?
Got it.
Within that, is the bias of Fortive to be de-levering the balance sheet post-spin, or do you think they're good to go from day one?
In terms of Danaher, looking forward into 2016, we put our M&A envelope in the billion and a half to $2 billion range. Obviously, for the right strategic transactions, we'd go further than that. It would have to be the right deal and really meaningful to a platform and highly attractive. That's about the envelope that we think about today. In terms of setting up Fortive, we want Fortive to be ready to go day one. In fact, we're ready to go in supporting Fortive from an acquisition standpoint right now. Jim and his team have ramped up their funnels. They're looking aggressively at opportunities that can strengthen the current portfolio. We would be very much prepared to do a deal in support of Fortive tomorrow, literally.
We're very much biased to getting them off on the right foot, both in terms of having deals that would be accretive right away during the course of next year, also, as you're asking, having a balance sheet that's ready to go. Right here, Scott.
Yeah. Following up on that theme, we've seen the high yield markets widen out quite a bit in the last few weeks, if Fortive spins off at two and a half times leverage, let's just say theoretically, then maybe has room to go to three, that's not a lot of space. Would you reconsider how you think about capital structure on the spin, just given the recent changes and the ability of core Danaher to probably hold more debt?
Hard to say. Obviously, what's going on in the markets is pretty fresh here in the last few weeks, all that anxiety, who knows where that sits in June or July or August or September, October next year. A little bit hard to judge. I think under any circumstances, though, we would want to make sure that Fortive is set up and ready to go. Just a little bit hard to project how much of the angst that's been going on, even this week, really is in the market six, nine months from now. I think our commitment is a solid one. We want an investment-grade position to get them started. We want to preserve Danaher's ability to continue to invest and grow. We'll just have to balance that out in due time.
Okay. Just backing up a bit, you talked about November weakness. Can you be more explicit about the rate of change? What locations, what businesses where you saw the biggest weakness? Now we're well into December now. Has there been any stabilization? Would you make any judgment as it relates to, is it more inventory destocking or some real weakness through the channel?
Right. We haven't seen much relative to December at the moment. Our visibility on the rates in December is low. We're obviously early on in the month. We've still a ways to go. The order weakness that we saw, we saw during the course of the month of November. As I mentioned earlier, it is more acute. It's certainly almost, to a great extent, isolated to our more industrially oriented businesses. You can think about the Fortive businesses. Clearly, our automation business, our sensors and controls businesses, those that we've called our industrial technologies businesses. A little bit of an influence there relative to even PID or water. Not as acute as some of those more truly industrial businesses, but a little bit of a carryover there.
I think what's interesting about that relative to some of what we've seen geographically during the course of the year is how we've seen some of that slowdown in the order rates in the more developed markets, meaning the U.S. and Europe. So that's a little bit of the new news geographically for us. Obviously, has us on a little bit more of a conservative footing relative to the balance of the quarter. That said, that's also why we're taking some of the cost actions we're taking, and when we'll take those cost actions here in December and through the balance, that'll lift the impact of that both in the quarter in terms of its impact, but I think in the benefits next year as well.
Thank you.
I'll go after that.
Yeah, I just have a question about cash and cash generation, and it's twofold. One on Pall. Could you talk about kind of the working capital benefits in association with the cost takeout and the complexion you've given there on SG&A gross margin, and give an update there? Just in terms of Danaher as a whole going forward, do you think there's a chance to raise the bar for perhaps cash flow conversion or growth even further in an explicit way?
Relative to Pall, similar to what we've seen in other acquisitions, clearly similar to what we saw at Beckman, we think there's significant cash generation opportunities there. We could go back to the Beckman numbers and bring those back to you, but it was a really significant amount of money that we took from the combination of efforts between accounts receivable, accounts payable, and inventories. We also, in the case of Beckman, saw a significant repositioning of the capital spend, but also increased the free cash flow. I think we see equivalent opportunities as we look across Beckman, particularly in the three aspects or the three elements of working capital.
We're still looking at the CapEx side of the equation to make sure we understand what we may need to do from a facilities standpoint, what we may need to do in terms of capacity, particularly in the high-growth areas of biopharma, so we're still weighing that out. There's no question that we have significant cash opportunities at Pall. We have a new CFO at Pall, highly experienced, a veteran Danaher CFO who's come through a number of our acquisitions, who's teamed up with Rainer in the past, and he's all over those opportunities as we speak. I think relative to Danaher, we're very confident that we can continue to show very good cash creation. Our free cash flow track record is important to us as a ratio of that free cash flow to net income conversion.
I think you'd still see consistency in that in the years to come. Yeah, Jeff.
Tom, right here.
Hey, Jeff.
Hey, a couple questions. First, with Fortive coming off, does this in any way change your appetite maybe for new platforms within existing Danaher? Some of that might be semantics, right?
Yeah.
Pall fits in Life Sciences, is obviously a filtration platform.
Sure.
That's kind of the first part of the question. The second part of the question is, I would almost assume for sure that Jim will be looking for new platforms, it's conceivable you guys could end up kind of scuffling in the same backyard at some point. Is there some kind of standstill or agreement to communicate with each other? How does that really work going forward?
Sure. I think with launching Fortive, that would not necessarily change our bias at Danaher going forward about continuing to invest primarily in strengthening the segments and the platforms where we exist today. You're right in noting that, to use Pall for example, which I think is a good one, that when you do a large acquisition like that, it does create vectors of expansion that create great opportunities. You've heard me talk in the past about the opportunity to go potentially more horizontal in terms of filtration and separation opportunities or potentially go more vertical in some of those vertical end markets, where we might be able to provide added value propositions to customers that might be beyond filtration, but expand our position with that customer. That's an example.
I don't see us going notably wider than we are today, but more so strengthening our existing positions. That would be the general direction. Relative to what Jim would be looking at, what I would be looking at, I think it's pretty safe to say based on what you've heard Jim say and where you see Danaher headed, that it's unlikely that we're going to be bumping into one another. It's not inconceivable. I think for the foreseeable future, the odds are, we're probably going to be more looking at different things. There isn't any particular standstill agreement, but Jim's always a phone call away. Sure. Hey, Steve.
Hey. Thanks, Tom. A couple of things. First, just on the details of the EPS seasonality, you provide that, but you don't give us a perspective of organic growth through the year.
Yeah.
Maybe talk a little bit about what we should anticipate, how that matches to organic growth.
Sure. We'd be a little lighter starting out of the year, primarily as a function of a tougher comp. I think first quarter was our strongest quarter last year. You remember we had the benefit this year. Remember we had the benefit of days as well, so not only got off to a good start, but also had the benefit of days. That'll probably be the toughest comp of the year. That'll be where we will start. That comp gets a little bit easier as we move forward, but even the second quarter was a pretty good growth rate for us, even without any days impact. I think you'd see that ramp over the course of the year.
Is that also including underlying demand improvement through the second half, or is it more just comps?
I think marginally so, Steve, but I don't think we're looking for a second half miracle in terms of the macro. I think in general, as I maybe said earlier today, there are some puts and takes, but generally, we're assuming a macro environment that looks a lot like the second half of this year.
Can you size within the $0.05 of productivity, share count, and growth investments? How big is the growth investment side of that? How much are you planning to spend on the growth side for next year?
I probably couldn't size that off the top of my head, but I would say we have consistently, as I showed you earlier, continued to put those gross margin lifts into lifts in sales and marketing. You saw the basis point lift in sales and marketing into R&D. I think that was 40 basis points or in that neighborhood. However that maths out, I think you'd see an equivalent level of reinvestment in sales and marketing in R&D in 2016 as we've shown in 2015. I think that's the time that we have available today. Thank you very much. We know you've got a busy day. Thanks for coming. We wish all of you a Merry Christmas and a very happy holidays. Thanks for coming.