So we'll welcome first of all, I want to welcome everybody on the line. We have people obviously around the world listening to us. Clearly, we have competitors listening to us. We have customers listening to us. And most importantly, we have a lot of employees listening to us because they have not seen the information you have in front of you, but also we've seen here this morning.
And so, again, I want to welcome everybody and, thank you very much for attending and look forward to important conversation. You'll and we'll talk a little
bit about what we're going to
cover here in the next few minutes. So attendees, typically on the left side, we have a lot of the from the various people from the management team, the corporate side. And then also this year, I have a lot of individuals that we brought the next generation leaders like we did last year. We brought a lot of the next generation leaders here. They sit in the back of the room.
I assure you you're engaging with them throughout breakfast this morning. You can throughout break today. I appreciate them coming. And now Tim Reeves is on this chart because Tim has now been moved Tim's moving to Europe. Tim has now become the President of Europe Professional Tools.
He's got a job. Before he goes though, he has to finish. He got also got elected this year into the Eisenhower fellows. So he's doing India with Eisenhower fellows. And so we have one more chance to get revenge on it, Tim, because we have a lot of people there and all 8,000 can't wait to get their hands on Tim.
And so congratulations, Tim. But here's all the next generation leaders. You see them across the various businesses. We had two individuals that were going to come from China. We had to push them out for various reasons.
One, we didn't want them caught in quarantine for the next six months. And two, as you'll see, we are highly engaged right now trying to get our facilities up. And these two individuals are very, very important leaders in what they do. And we felt they could do a lot better there than getting stuck on some cruise ship for the next two weeks, not having fun. So we're going to cover here on the left hand side.
Typically, I'll have a little over I'll have an overview. Lyle will have an overview on Automation Solutions. This year, Ram will give you an update on Final Control, which you've done in the last couple of years. A new presentation on digital transformation that Stuart Harris is a business we broke out this year as we focus on the digital transformation. You'll get a good understanding of what's going on there.
We are very active in this area. Bob will give you a update on the Commercial and Residential Solutions. And then Tim Ferry, a new presenter, will also be talking this year about what's going on in the integration of the Textron tools around the Home Products business. So both these both Ram and Tim are very focused on delivering the synergies and the synergies that we see from these two very, very important acquisitions over the last two or three years. We'll have a break couple of breaks, we'll have to do Q and A.
Typically, the other thing you'll notice is that we decide, as you know, we don't use written transcripts, typically because of transcripts as soon you get them through marketing, PR, lawyers, they're worthless. And besides, today's world happens very fast. You can imagine with the geopolitical situation, coronavirus, you have to be current. And so we have we firmly believe you manage day to day. And if you can't manage day to day, know what's going on, you shouldn't be in our job.
That's where we are. People in the back room are the same way as you talk to them about their jobs. So let's talk a little bit about what's going on here. So my presentation, a little bit overview 2019 and get down through the work we've been doing the last six, seven months, get into the what I what we see for the next several years, update on 2020, driving investments and then quickly get out, show you the update on the organization chart, which I've now been showing you now for four years as we go through this. So as we get started.
You know, '19, I'd say as a CEO was not the hardest year we've ever had. I would say the year that we broke the string, forty three years of earnings string with nineeleven was the toughest. 2,008 was pretty tough. 2014 and 2015 when we made the decision to reposition the company and get out of a third of the company, that was pretty tough. But this was a very unusual year as you heard us talk about from the standpoint you'll see as we started out the year, we sat here last year, it looked pretty good.
We talked about maybe being better. And then all a sudden, the world just weakened in the industrial world, you'll see that. But overall, from our perspective, we did still grow. We grew three percent, as you can see in the chart, underlying growth. We grew our margins were under pressure all year long as we expected basically 5% to 6%, 6.5% growth.
We generated pretty good cash flow, a little bit under what we thought because our growth earnings were a little bit less. But overall, a decent year, not what we expected. But we did grow well in the markets we serve, and I would say we outperformed, in particular, the industrial space, we outperformed our competitors. And Bob's business went into the downturn really early on in 2019. He started cutting in early twenty eighteen and now to the point now you see the margins of Bob's business are coming up and I would expect Bob's business to start accelerating growth as we get into later this year, early next year.
But if you look at the from my perspective in the chart on the left hand side, we sat here last year and 4.5%, we thought we'd be doing somewhere between 6%, 7% and it just proceeded to drop. And you as you heard me talk about it from the standpoint of we see weakness, we've seen things slow down. And from the perspective of what we're seeing is we are seeing the GFI, which we track, was really starting to deteriorate down into the low 2s. A lot of our competitors in the same peer in the peer group were saw growth, but they eventually had negative growth from the end of the year. So we were in a very challenging environment right from the start as we got into the calendar year of 2019.
And so we had to take actions. We started talking, you heard me start talking in early March in the calls, April, you'll see a timeline here in a second. We started engaging the corporation. Okay, what are we going to do? Because we built our plan this year in 2019 on a 5.56% growth.
We built the three year forecast, as you know, basically on 5.4% growth. If the first year out of the box was not going to grow 5%, we knew we were in trouble. So we went into Plan B very quickly relative to cost, what we're going to do from a restructuring standpoint, and we started talking to the Board. We started talking to the Board in actually June, August, extensive meetings, extra day in October, extra day in November, extra day in February with the full Board as we went through everything we're going be talking about with you this morning. But we weren't alone.
Our competitors saw the same thing. But fortunately, we had decent growth around the world from that perspective, even though most of our competitors did not in the industrial world. So let's talk about where we're going. That's history. 2019 is behind us.
We're looking forward to 2020, 2021 and 2022 right now. The key thing for me on the chart on the left hand side is the big issue that I started seeing last year is GFI around the world started coming down. Anytime you see GFI under 2%, you basically go to our customer base and they're just doing KOB three. That's all they're doing. They're basically not building a lot of new capacity.
They're going to be upgraded capacity. They'll be doing a lot of fixing efficiency. They're going do maybe some KOB2. And you're seeing a lot of challenges from our perspective as we saw the economy starting to come down. We're now starting to see it drift up.
This is before the coronavirus, which we'll talk about later. My opinion, these numbers will be coming down once you start reflecting the coronavirus in the near term. Now that could you can see a bounce back depending on how the global economies sort of flood the marketplace with money, how does China react to this. But in the near term, in my opinion, in 2020, that number will come down and I think we'll see a much lower number in the world investment environment until they start flooding the investment periods late, late twenty twenty, early twenty twenty one. But what we saw here as we looked at this back in April and May, we saw an environment that our core markets were not going to spend a lot of capital.
You could see that even in the people you follow. Capital spending really came down and there's no reason to spend a lot of capital except for some maybe some new unique project just focused on KOB three. As we looked at where we were last year here on the right, so we sit here, we started talking in February, we thought pretty good about it. We saw a fairly large funnel, which Lal will talk about later this morning. But then we got into this quarter in March, things were slowing.
Trade wars were starting to heat up. China was slowing down. The U. S. Is slowing down.
So we made the decision in April, we had a special meeting inside the management team. We pulled everyone together and say, folks, we are looking at an environment that we're not going be looking at growth here. How do we get our margins? How do we get our cash flow by driving costs? What do we do?
We've made some great acquisitions the last couple of years. We had the recovery had been basically lasted about four or five quarters, installed. And that's where we are right now. So then I started talking to the Board. I presented the Board in June at our normal strategy session that I was very, very concerned about seeing a global slowdown and what we're concerned about.
Then we started talking what we're going to do, started talking to them in August and we moved all the way through some major efforts as we looked at the portfolio, as we looked at the cost structure, as we looked at what we needed to do in an environment for the next twelve, eighteen, twenty four months where we had moderate growth, maybe no growth, maybe a couple of quarters negative growth. I would say this quarter right now in quarter two will be negative because of impact of China. China is definitely going to impact us this quarter. There's no doubt about it. It will impact all industrial players this quarter.
So as we went through the process with the board and the board engaged, we looked at core operations, we looked at the platforms, we formed task force between two platforms in corporate. We brought an outside consultant in to work with us. We brought two advisers to work with a Board relative to look at the businesses. What businesses made sense? Where do we want to go?
Where do we want to invest? Which businesses we made a trim? 're do we're to do and we're marching going forward. We reviewed the Board and all that. The actions we're doing from an operational standpoint, from a corporate standpoint.
We talked to them about what businesses we or divisions or operating units we may want to get out of at the right time. We talked about potential acquisitions. We talked about capital allocations. The Board had a lot of engagement. I mean a lot of engagement because like we brought extra days in, and so the Board could just focus just on this issue over the last several Board meetings.
But as we look at this reset, of the things the Board says, okay, that's great, but are you damaging the company? Are you damaging the organization? Will you be able to come out of this because we will recover? There will be growth. We know that.
The key thing from the board perspective is making sure that we reallocated the costs. We took costs out, improved the profitability, but we didn't hurt the future of this company. Very big point of discussion at the board level. As we looked at taking close to 10% of the salary workforce out, and we've already started this, we started this late last year, the Board wanted to make sure that we were not damaging the long term viability of the corporation, losing that next generation leadership team. Discussions around those were two key issues.
The other key issue is why businesses you think may not make sense going forward, where do you want to go from an acquisition standpoint and what are you looking at going forward. So a very engaging Board from the standpoint of our advisors and for me and the task force involved. The Board meeting on Tuesday or in fact it was Monday, both Lal and his team and Bob and his team and Mark and the corporate team presented to the Board the ideas that we had relative to make a more efficient, faster, cost effective company. And the Board engaged around another area. Are you going to damage the integrity, the financials, the quality of earnings, the issues?
Are you going to screw up the process that we have as a company and we've had for a long, long time? They pushed extremely hard in that. Obviously, from their standpoint of being very accountable around that area, they were very focused on making sure we weren't doing damage just to make short term gains. But from an operational standpoint, you'll see a tremendous cost savings layout both at the top level, but also the two platforms, we'll talk about it. This is the third one we've done.
So we're not new to this game. As you know, the chart you see when we go through the cycles before, we reset, we raise profitability, we do acquisitions, we sell companies off. Since I've been CEO, we've sold $12,000,000,000 worth of sales at Emerson. So it's not something that's new to the game we play. We're constantly refreshing the portfolio.
The Board always is engaging on should we be in these businesses, which businesses should we move to, where should we be investing, and it's a conversation at the Board level all the time. We brought the consultants in from outside. Capital allocation, you're going to quickly see as we look at marketplace right now and the opportunities right now, as we focus on driving our costs back in line to get that profitability back up, You'll see that we're going to be returning more cash to the shareholders over the next two or three years. That's the current plan assuming no major acquisition pops up. We're talking about passing probably north of 70% of our operating cash flow back to shareholders in dividends and share repurchase.
Historically, under my tenure, it's been around 55%. But we made the decision with the Board as we look at the acquisition opportunity right now, more money will be going back to the shareholders. We have a and we're making sure we have a conservative balance sheet. We have a balance sheet that can ride through cycles. This a capital business.
We ride through cycles and to make sure that we get through those cycles and we have the money available to ride through those cycles and we have the money available to do the acquisitions that we are pushing real hard to try to do across the company. From the standpoint of the M and A perspective, we talked extensively on this in the last meeting for several hours. Board given their inputs about where we should be looking, how we should be diversifying, how we should reinforce the portfolio we have today, which are world class franchises that generate a lot of profitability, a lot of cash. Where should you invest? How do we make those investments happen?
What are other ways we can do those investments? More than one way, just pure straight out acquisitions. What else can we do? So a lot of conversations still going on in this area right here as we invest in those platforms and other ways we can look at those investments or as we look at maybe potential business unit divestitures, how else can we do those? As we did the portfolio review, it's an ongoing process at Emerson.
We do it all the time. As I said, I've looked at the portfolio on an ongoing basis. I've sold off $12,000,000,000 worth of sales. We look at it, we sell things. We're in the process right now of selling some small product lines off.
We'll continue to do that. But we also, as the Board pointed out, wanted to make sure that we didn't just sell assets to sell assets. You want to make sure you're selling in the right marketplace. Right now may not be the right time to be selling some assets. Businesses are not stable from the standpoint of where they are in the cycle.
They could be drifting down further. So they want to make sure we don't just go out and liquidate assets just to say check the box. So we're going to make sure we do it right and we're going make sure we find the right strategic partners. If we get the right money for these assets, we'll move forward, but it's going to take time. At the same time, what we spent a lot of time on the Board in two meetings is the actions around $425,000,000 plus restructuring actions to drive over $450,000,000 of savings over time.
And we'll talk about that here and the macro basis, but also the two business platforms we'll talk about at the same time. But a lot of work went on in the portfolio. Look at that strong portfolio, work in the strategic deal, it's very hard to get buy in at the Board level where we want to go, how we get those deals going, how do we structure those deals and then also look at where we can take assets out of the company at the right time and redeploy that money. The Board is not in the process of liquidating Emerson. The Board is in the process of trying to grow Emerson, generate the cash flow and generate the cash flow for our shareholders as we've been doing for over one hundred years.
As you know, since I've been CEO, we've we've paid back close to $35,000,000,000 to shareholders, 19 plus billion dividends, 15,000,000,000 in share repurchase. We've reduced the share base of this company. So we know how to make money and we know how to put money back into the shareholders' hand. The Board wants to make sure that we do not damage that ability to do that. We do not damage the franchise of this company and we do not damage the company for as we go forward the next generation, those next generation leaders.
Yes, I will be gone. The next generation must keep on growing this company and driving value for our customers, the communities, the employees and our shareholders. It's not just one organization we deal with. We deal with lots of organizations. That's our game.
So if you look at it, here's the trend on the right hand side. Here's the reset, broke forty two years. It was a fun day. Nick came in and was on the phone probably when I did it. Stock went down 10%.
We recovered pretty much within three or four months. Then nineeleven came along, caused a little bit more problems, but we reset. The quiver we're doing right now from my perspective is what we did back in 02/2002, 02/2003, 2004 as we reset the organization from a global standpoint, what we're where we focus our priorities and investments in the generations of savings that we see. Very similar. Obviously, the economy had a very good run until another tough time, financial crisis, which was kind of shocking to people like me because we didn't see it coming.
And obviously, it came down pretty hard. Then we came back in, we did a reset again back in the 2017, 2018 time period. And then over here, we came out of this from that repositioning effort, we drove pretty good profitability. We are setting a plan right here and you'll see it and with Board push it pretty hard, can you deliver this without damaging the company. We're going to get back to these peak margins at the EBITDA level and the peak EBIT level and we're going get back to that through the actions that we control that are already underway.
And if we do get a little bit of growth, so be it. The help is leverage. That's what happened here. We reset. It took us two and a half years to reset, and then all a sudden, the market took off and we got very good run-in margins.
So the game plan for us is a reset, and we're trying to do it fast. Lal will talk about his reset. He's trying to get done in less than twenty four months, including major restructuring and major re facility closure. Bob's already started, so it's a little bit easier for Bob, but we want to get it done. Can I say hi, Steve?
Hi, Steve. How are doing? Janet has got has your vest on today. She stole it from JPMorgan. I don't know.
Your choice, Don. Don't if you gave it to her free. I don't know. Your choice. But you can see that we're what we're looking at here is go back up, but it's driven not by sales because our forecast right here from 2019 to 2023, we're looking at 2.7% underlying growth.
Last year, we're here, we're talking about 5.3%, 5.4%. In fact, most of this growth comes in that last year because you're going from 2019 to 2022, it's 2.4% growth. So we see a recovery coming towards the end. In the meantime, Lal is trying to get things done. Bob is trying to get things done.
We have over 140 facilities we're trying to interact with right now from a closure standpoint, consolidation standpoint, both manufacturing, sales and service. There's a lot on the table. We've also increased capital. We debated that with the Board too. We have to invest in the facilities as we start consolidating and closing facilities.
Very important for us. And a program that's underway, it's got to be done very quickly for us to get this done by the 2021. So the game plan is you'll see is try to get most of the restructuring done by the 2021. Easier for Bob, tougher for Lal because from the standpoint on the facilities, if we run into problems and some of these facilities are in places you just don't shut down by saying we're shutting, period. So if you look at the total P and L buildup that we're looking at here, here's 2019.
This is basically the impact we had the headwinds we have this year from the higher stock price because of the market run up. The pension costs, the lower interest rates hurt us here this year. This is the volume that we have built in this plan, basically 2.7% underlying growth, leveraging at 30%. That's what that is right there. Now we normally have inflation hitting us, salaries, other cost inflations.
And every year, every company you file has to offset just to protect margins. Our number is quite large when you look at it for a four or five over a four year time period. So what so you look at that red, it's $945,000,000. We've got to take actions just to tread water, a big number, which we have in the green here, basically the pricecosts, NMI, again, on cost reduction activity, basically to offset that. And then you start seeing as we drive the cost restructuring activity across the company, both in productivity cost reductions, footprint reductions, organization restructuring and other opportunities.
Within the program under right now with a task force between the corporate, the platforms and our outside consultants, we're looking for other opportunities. We like to grow that number out there. So if we have, oh shits, which every company ever does, you hear them on the calls all the time, we didn't expect that. Or we have things we get out there in 2022 and 2023 that we may want to invest in some technologies, we have the room to protect that margins and still make those investments. So we're driving additional cost reductions as we look at the two touch points.
In the meantime, as we showed the Board, we're full out. When you look at the $425,000,000 we have underway right now, plus the normal day to day stuff we're dealing with right here, we're full out from the organization standpoint. In particular sense, we're taking out close to 10% of our salaried workforce through this process. So we're reorganizing, obviously, given these young leaders over here a lot more opportunities to grow. We're testing them.
As I tell the board one of the good things about this process, it's testing that next generation leaders. We are seeing which of these leaders step up and show us they have the right stuff to run the company, not only at the level right below me, but all the way down through the organization because we're stressing the organization as we go forward here. We're still we're still going to grow the company, we've so got to figure out how to do this simultaneously from that perspective. So if you look at that's how the restructuring and the savings, we're talking about over $450,000,000 flowing throughout this next several years. We have built there's the 23.5% margin we're going after.
We built in about $300,000,000 of sales through acquisitions, potential acquisitions. If they don't happen, that won't happen, but we expect we'll pick up. We'll pick up probably 400 or $500,000,000 of acquisition costs this year, not sales, but acquisition costs. And they typically come in at lower margin. And we have to figure out how to digest them and draw those margins up.
But overall, you're looking at this plan right here, the EBITDA getting up to 23.5 the EBIT with a normal growth over 19% and obviously with the acquisitions coming in a little bit above the 23%, but a little dilutive. But from our perspective, we're trying to figure out can we find more additional cost reductions in these two categories right here. Relative to footprint, organization structure right now, I think we have it pretty well tied up. We just got to execute, and we are starting to execute around the world. As you saw in the first quarter, we drove nearly 100,000,000 of restructuring in the first quarter as we went after costs across this company very aggressively.
That's more than we spent all of last year, total year. We spent incrementally about $35,000,000 in the fourth quarter going after the ideas that both Bob and Lal's team had coming out of the April, May, June, July to August time period. So we launched and got those done in fourth quarter, which gives us a little bit of flexibility here as we go into the first part of this year. We've got a lot of work to do. This chart's blurry, so it's it's eye test here.
There we go. But you can see right now, we're talking about $425,000,000 restructuring. If we identify some more opportunities from the organization, will that number in 2021 and 2022 will go up. But you won't we won't be talking about that probably for another twelve or eighteen months unless something really pops because we right now see enough going on activity wise to solve with this $425,000,000 You can see back here in this time period I talked about, we did over three years, we did about $460,000,000 That's about what this when I look at the profile of what we're doing here and what we've done here, it's identical. For the people around, what we did is we really impacted a third of the company in that cycle back in 02/2002, 02/2003, 02/2004.
We reset the company. We went global. We created a very strong global best cost structure. We invested heavily in Asia Pacific and drove a lot of growth for us. You remember this time period, our underlying average growth rate was in the high single digit, very strong underlying growth rate, probably 8%, 9% for several years, which drove very good expansion for us.
That was a good time period, but we reset and then we wrote it. So what you're going to see here is we're going to reset very quickly here and then try to figure out and hopefully things will pick back up at some point in time. If not, our margins will be sitting there in a low growth environment. We should be pretty well set for a couple of years. One of the key things right now that we're facing, as you remember the price cost ratios and price cost, last year was a tough year.
Obviously, price went up. We had obviously, the tariffs hitting us. We had inflation hitting us. So we stay green as we talk about green between the price and cost. This year, right now, with a slowdown in the global economy, the wind basically went neutral to a tailwind.
Now what's going to happen here as the economy slowed down, we're seeing materials come down. We clearly have some materials already locked and loaded for 2020, but we're seeing overall pricing of our material costs drifting down. Now our customer base, we're on the phone, why right now, also see that too. I guarantee you, there's a reason why that red arrow is coming down right now. I guarantee as we go into the year, we'll feel that pressure.
But we're trying to get ahead of it at this point in time. Now one of the key things that we see right now with China basically out of the ballpark for maybe a couple more months is that we'll drive down, I think, the demand for materials, which gives us a chance maybe to get our materials locked up for a little longer time period for a lower price points. So the good global industrial companies will take advantage of that. So I think what's going to happen when we come back here next year, if I'm a betting person, that number will be a lot more negative. This number will be down here closest to flat, but we'll still probably do better than that number because of a different mix.
Containment versus price. Still think we'll have positive price for the year, but my gut tells me we'll be under some pressure as our customer base sees that. But overall, we're in pretty good control at this point in time. We went through this tough period as most of your companies did that you follow, and we're sitting in a pretty good shape in this area. From the standpoint of the fundamental actions we're taking, so we're looking at 2,900, 1,000 about 10% of our total salary workforce, either reduce, taking jobs out, a lot of them have already been actioned in this quarter, last two quarters.
We're also looking at moving into shared facilities in sort of our best cost locations. As you know, we have a very strong best cost location network out there around the world, and we use it from Manila, from India, from China, Costa Rica to Romania. We have a very broad and we have a diverse allows us to move it back and forth as we need to move it. So I see that activity really improving here increasing both as we rebalance, as we go after those facilities, as we go after some of the sales offices, we're going to be rebalancing. So a lot of work impacted about 10% of our salaried workforce, a significant impact for us at this point in time.
From the standpoint of facilities, about 145 facilities. We've done a quick scan of facilities around the world that we have. We do a lot of acquisitions, so we acquire a lot of facilities over the years, and we're looking at how we can consolidate, how we can move, how we can take some capacity, some fixed costs offline. That will be the plan that we're already starting on, but that will run for the next eighteen months. That is the toughest challenge.
Now we've done this, as you all know, over the over many, many years before, something we know how to do. It's a lot of planning. But the key issue for us is we've got to invest in the new capacity in best cost locations or I call them best cost countries. We've got to invest in our shared facilities, shared service facilities to take this new capacity and new absorption that we're going to be pushing in there. And they've got to be ready to take this on.
That's very important. We're in this early stages of this. And we and from the standpoint of new facilities being built, as we went into this cycle, our capacity and best cost locations had been maximized out. We basically knew we were going to have to start investing. The plan assumes you'll see the capital investment assumes at higher levels here for the next two point five years as we invest.
Now we have the cash flow to do that. We don't have to go to bank. We've got cash. We control our own destiny, we're going to invest in those facilities to drive our cost structure down. But that will be a very important gating item for the people from Emerson organization, from Lal's organization, Ram's organization on down how to manage this.
Something that they've already been planning on, the order that the board pushed this real hard. What order are you going to go after this? The other thing they pushed was, are you going to be in my hometown shutting the facility down? Give me a break, but that's okay. That's what they ask.
They don't want to read press. I get bad press every day. But we have a lot of actions going on around the world from that perspective. And obviously, I think that we'll have pretty good the price NMI activity right now as we see it. So a lot of work going on from a consolidation standpoint, planned execution around the synergies, which we which Lal will talk about and not Lal, but Ron will talk about and Tim Ferri will talk about, sales and service centers, legal entity simplification.
A company like Emerson does a lot of acquisitions. We've spanned around the world. We have thousands of legal entities. Now I'm assuming you heard a little bit about when the UTC breakup, UTX breakup. This is the biggest issue.
When we went through network power, we spin them off. The legal entity rationalization is enormous. So what we're going through right now is can we reduce our legal entities? It takes our costs down, obviously, but it's also something you have to do in concert with tax authorities because as soon as you touch a legal entity, every tax authority in the world looks, are you screwing around me? Are you taking money from me?
That's what they care about, tax authorities. So we're looking at the structural between the two platforms, the corporate, the business units. We basically formed this task force. We had an outside consultant. We have a lot of things underway right now.
We identified several $100,000,000. A third of that is most is with the platforms, a third of that is not with the platforms, and we're prioritizing that. The Board's very keen on that because they do not want us to jeopardize the integrity of what we do as a control company. All the things that have been put in place from Sarbanes Oxley over the years, they do not want that jeopardized. They do not want the quality of the audits, the quality of the processes that we go through, the governance touched.
So we're figuring out how to make sure we don't damage that from that perspective. We're looking at all I mean, obviously, those recent acquisitions. We're looking at driving G and A in the best cost locations. And then obviously, we're looking at ways we can engineer cost reductions and do everything we can do. At the same time, at the same time, both these guys, both Lal and Bob will tell you they're actually allocating more money into the research and innovation and R and D.
This world is going through an interesting transformation right now. We're going to talk a little about this digital transformation with us at this point in time. Very important world for us right now that we need to make sure that we're investing in the right technologies, the right software, doing what's necessary for our customers to help them get through this transformation. As you know, you hear our customers talk about, they want to make things more efficient, more refrigerant savings, they want to go reduce emissions, they want to go through carbon dioxide stuff. They have to come work with us.
How do you think the refrigerant changes happen? How do you think efficiency changes happen? How do you think they do the monitoring to reduce emissions in a power plant or process plant, like a chemical plant or refinery? They work with us, and you'll hear about that today, both in Laos and Ron's piece and Stuart's piece are also with Bob's, very important. Here's the capital allocation, dollars 12,400,000,000.0 at this point in time.
I'll remind you that's what we're looking at today, 70%. If something pops up, we got the capacity, we can maybe maintain that 70%. But I know the Board will also look at how do we rebalance that. We will not just drive down a number because it's on this piece of paper. If we see an acquisition opportunity, we will rebalance.
We have a running three year forecast with the Finance Committee and the Board, and we rebalance every quarter. And we'll tell you if we have to rebalance. Right now, the plan is this, with the acquisitions and the capital spending. You can see the capital spending is up a little bit in the next couple of years, but our fundamental drive is to drive about $12,400,000,000 back to the shareholders. As you know, we went through a major downsizing of companies.
We sold off a third of the company. We maintain the dividend payment. There are a lot of people in this room bet against it. A lot. We maintained it and we're increasing it.
We're now back in the mode that we'll be driving this down to low forties. The plan actually goes below 40, but with the divestitures that we'll have, that number most likely will bounce back up into the low forties because our divestitures have cash. But the plan as it is right now, there's nothing built in here for the divestitures. So that number will actually go below 40, but most likely will it'll stay within that band. You can see from a cash flow standpoint, the forecast we're looking at 17% to 18%, free cash flow of 13% to 15%.
We're at two dollars right now. We're going to maintain the 40% to 45%. Most likely in the next couple of years as this number drifts back down, you'll start seeing a little bit more increase in the dividends, in particular after earnings start growing again as we get through this year. So we're in a good shape right now. We've gone through this bust.
We made it and we're drifting back down. A major accomplishment by a lot of people across this Emerson company, a smaller company driving back towards cash flow and ratios than we were before we did the major divestiture. From the standpoint of repositioning, we've been doing it forever. So I looked at it right here, there's $12,000,000,000 of things we've got out of over the years from this period here. I go back when I first joined Emerson in 1981, it's even bigger.
We're looking right now, we showed the Board about 10% of sales right now on companies that we're looking at from the perspective, have they peaked? Lower you know, this peak from the sales standpoint is a lower high and lower lows, profitability stress or technology stresses. Are we looking at businesses we should get out of? Not a whole platform, but a businesses we're getting out of. And we identified about 10%.
Again, we're going to watch this and work it. We're going to look at where we go with those over time, but we're not going to do it if the market is not right for them. We want to make sure we get the value for these businesses. Most of these businesses are high margins. They're just not growing as fast anymore and they're not nearly as strategic to what the strategies we're doing in the two platforms.
So very, very important. So from our perspective right now, we're looking at how we can sort fine tune about 10% of our sales across the company, the portfolio, continue
to
look for acquisitions. The Board wants us to keep pushing into new technologies and some adjacent spaces that will help us with our solutions effort and automations and our solutions effort in the commercial residential standpoint. But this is a game we played forever. Mr. Knight played it.
Before him, a guy named Buck Persons played it, and I played it. And we'll continue to play this game. But we're also going to look at where we can go after other opportunities from an acquisition standpoint to bring technologies and solutions and services that allow us to drive higher margins and higher cash flow to the company. The Board is looking for those catalysts that will help us do certain things. At the same time, the Board understands a catalyst occurs, use that catalyst for other activities.
So we will continue to fine tune this portfolio, and we're looking right now about 10% of the sales at this point in time. But something that we've been doing for many, many years. Same here's acquisitions. I've not names of companies, the type of technologies, some control. We got a lot of things right now.
We have three opportunities going on right here in this Control segment, three of them. Nothing major, nice little bolt on technologies, two for Lyle, one for Bob. But we're continuing to we share with the Board. Obviously, the Board sees names on these charts. We share we share with them the debate around why you'd want to do them and the debate goes on from the standpoint of they'll ask for more information.
How do you how do you how would you action this? And so the details, so a lot of work goes on these things. From my perspective, I've always kept the Board engaged at a very high level, very early on about acquisitions and what we should be looking at and why we should be looking at them and the debate happens. Sometimes they get vetoed, sometimes they say, let's get moving and how do we make it happen? But typically, we keep more than 10 or 15 acquisition opportunities in front of Board at all times.
It's not something I walk in one day and say, hey, I need $500,000,000 That doesn't happen at Emerson. They debate me all along. Very rarely do they see an acquisition unless something pops out of a large company that's maybe attacked and they're looking at spinning something out from us from that standpoint. So if you look at Emerson, we're world class profitability today. Here's the two segments.
There's Commercial and Residential. Today, we're trying to get to 28%. Here's Laos business today, reports around 21% EBITDA. Without Final Control, it's around 23%. We're going from 21% to 24%.
So you look at our world we are pretty well simple. These guys here are more systems oriented. We have a lot of other capability in there in Final Control, but we have a very good position from a standpoint of profitability. If you look at our structure, we're built a little bit differently. We are a very high GP company and we invest in that technology.
We invest in our channel. We invest in our aftermarket. We are a high GP company. You can you have a hard time finding companies across up there. Most of our competitors are down here.
Honeywell is a little bit different from the standpoint. It's a little bit different company. They run a low GP and a very low SG and A, completely different company than we are. But from the perspective of the marketplace today, we run very high level GPs and we're going to move them higher and we're going to move our margins higher and we're obviously tweaking the SG and at the same time. So it's going this way.
So from the standpoint of our perspective, we're looking at ways we can go even higher in the world class area and drive that profitability and stay at and above our peer level as we look at the business today. Marketplace, obviously, we've had a good run here since last year at this time. We look at the capital goods. Here's Emerson. We look at our peer group, the industrial peers, the ABBs, the GEs had a good run here.
Schneider, the European companies have had a good run-in the last three or four or five months from the stock market. Overall, PE from the standpoint, if you look at it, we're pretty much in line with the average. GE up as they've rebalanced the company and sort of had a run here. Rocco is the highest level in the industry, but most of the companies right here were on average right there with them. We'll go up and down 21, down to 18, we bounced 22, we bounced in that range.
Pretty good shape right now from that perspective. So from my so I look at this where we are right now, we're going after operational, capital allocation in the portfolio. Operational, a lot of work going on to fine tune the cost structure, improve the profitability of the company, a lot of actions to protect the profitability, also enhance the profitability. We want to drive the profitability back to peak plus levels, add two additional margin points at the EBITDA level to get over 23.5%. The review across the company has been very comprehensive.
We will continue to do the review. The Board's asked for additional things to be looked at. We have some things we want to look at, so we're looking at those right now. In the meantime, our plate's full from an operational standpoint with a $425,000,000 of actions restructuring underway. They're very broad.
They're not only just one area, they're across both platforms and across corporate. We're going after all the structures around the world to try to make sure we have the optimal structure. My drive is to go as far as possible. If we had to bounce back, we can bounce back. Let's take this right to the edge.
Let's go for it. Capital allocation, as I said here, we're looking at about $6,000,000,000 in dividends, 6,000,000,000 in share repurchase. It's going to move around depending on what acquisitions we do. Again, over the last basically since February, that number has been $19,000,000,000 and this number has been $15,000,000,000 We're looking at investing around 3.5 percent and we're looking around about $4,000,000,000 of acquisitions, if we can find them. If not, then our capital structure is going be looking a little different and want to review that with the Board again.
No breakup at this point in time. We were looking at huge opportunities within our businesses from the standpoint. We are going to fine tune the businesses, as we've talked about. As we look at certain divisions and business units, we're looking at which ones maybe should come out and which ones we want to add to that to drive that value. But we're going to continue the divestitures at this point in time at the right cycle.
We're not going to do anything just to check a box, and we're going to continue to go after opportunities and the carve outs or the breakouts. Some of these companies are spun, maybe potential acquisitions. In the meantime, we've been seeing very small product line acquisitions we'll continue to go after. As I look at this year, I would say we're going to spend probably around $500,000,000 of acquisitions, mostly bolt on type of acquisitions. Look at quickly look at this, where we're going.
Not very exciting right now. If you look at the mature markets, it's going to grow low GFI 1% to 1.5%. Western Europe, Canada, United States, The world is going grow a little faster. Again, this is before the impact of coronavirus because nothing's really been flowed through. But as I look at our mature markets right now, if I look at the next twelve, eighteen months, I'm looking at very low 1% to 1.5% GFI type of growth, which is going to drive very low growth for us.
Potentially, some negative growth unless we gain share, then that will allow us to get up to the zero plus level. But we're not looking at much growth in mature markets at this point in time. We do expect some things to start improving as we move out into 2021, 2022 time period. But at this point in time, I see very low growth. I see more downside pressure, in particular right now, for the whole coronavirus.
The big issue though be, we know that the economies will be basically pumped both in China at some point in time and I think you're going to see some pumping in The United States and also Europe as they try to stabilize those economies. Now we'll see when that happens. I don't think we'll see any impact probably until later this year, 2020. I know China will definitely do that. In emerging markets right now, again, without the coronavirus, we're looking at probably around GFI around 4%, our underlying sales around 2% to 5%.
As you know, we had a very good first quarter in emerging markets. Our China businesses grew both in orders and sales. Asia grew, Middle East grew, parts of Latin America grew, the mature markets were the big issues. The only place we did not have growth in emerging markets was Eastern Europe and Russia as they really contracted as the price of oil, energy came down, and we saw that impact early in our first quarter. But overall, decent growth from the standpoint of what we're seeing.
But the fundamental message for me right now is for the next twelve to eighteen months, moderate growth, how do we drive profitability, how do we make Emerson stronger, how do we invest in the technologies, how we set this organization and we use this as an opportunity to upgrade, upscale the workforce. From the standpoint, can we improve the quality of the people we have as we go through this process? That's the key issue for me. We've done it in the past. We want to do it again as we reset.
I want to show you on the left hand side for the people that know that we had a plan last year. Everyone told me about it all the time. Here's the plan last year. We basically had 5,300,000,000.0 to $22,000,000,000 We're now looking at about $2.4 in the same three year time period, so it drops off clearly. We're looking at a little bit less acquisitions as I look at the marketplace, fundamental lower growth.
On the EPS last, we had a 4.5 in $20.21 dollars but driven by that growth, margin, some headwinds. The headwinds are now larger. We're looking at less growth, down to 2.4%, margins higher, more increased share repurchase. So one year out, this number is going to be in the 4.2%, 4.25% range as I look at 2021 now, just because of overall slowdown in the marketplace. But we still are not backing off.
We still believe that we're going to drive earnings growth. The recovery and growth, I think, will come back, but not in the next I say the next three years as I look at that low growth from that perspective. And this year, in particular, is going be very low growth as we've talked about. As I look at the five or the four year plan here up to 2023, you can see basically core sales growing at 2.7% with a little currency headwind, some acquisitions coming in from that standpoint driving the 22%, but that's what our plan looks like right now. From an EPS standpoint, here's basically last year as we reset with a discrete tax restructuring around $369,000,000 is the base, the headwinds we have this year, which you've heard us talk about since November.
Basically, the underlying growth rate of 2.7%, look at the margin expansion, future acquisitions and then share repurchase driving up to around $5 a share. So that's how the plan is set now. It's built basically low growth, taking control of our cost actions, getting our margins back up, obviously, reinvesting in the company where necessary from a capital standpoint, returning more money back to the shareholders, and we're looking for strategic acquisitions. We're not backing off of that. This plan does not have any divestitures in it at this point in time.
It will those will happen as we go through this process, but the Board's again re challenging us on some of our assumptions and what we're doing with these divestitures and why, the pricing and the timing. The Board's engaged to make sure we're not doing something stupid just to check a box from their perspective. So we're taking a hard look at that, but I guarantee by the time we get out here, divestitures will happen. Well, all 10%, I don't know, but divestitures will happen. And we'll look at cash flow most will be negatively impacted from that perspective.
I'll show you at the end, but our ratios are still pretty good. You can see right here, we're getting down around 40%. And from the perspective that if we have plenty of room from a dividend standpoint, the next generation leaders to raise the dividends like I've done over the last my last twenty years. But our forecast is building off a lot of cost actions, money going back to shareholders, less acquisitions and a reset of that cost structure with a lot more moderate growth. I still believe you're going to see a bounce back in some of these marketplaces.
I don't know exactly when. We just want to get things done, so we're ready to go from a delivery standpoint and a technology standpoint, but I fundamentally believe it will bounce back. Just a question when that timing is. So if the overall plan, which I show the financial plan, which I've been using the charts since I've been CEO, lower growth, more margin, acquisitions, share repurchase, driving a little bit higher growth rate and earnings through this activity right here, these top three things right here, work operating capital efficiency and generating the free cash flow. So as we're building this plan on very little economic recovery, some recovery in outer years, driven off a very strong adjustment to underlying cost structure, driving back to record margins in Automation Solutions, which will be around this 24% EBITDA.
Lal will take you through that. Continued very positive cash conversion over 100% in this time period, very important to us. It's going be coming from margins. We have a little bit of working capital improvement. But from my perspective right now, as I look at where this forecast is driving cash flow, it's coming from the margins expansion that we have.
So higher earnings cash versus working capital cash, which we do both. But right now, as I look at that mix, it's going to be less working capital, probably only a couple of 100,000,000 and most of it coming from the margin standpoint. Driving strong earnings, driving capital in the first couple of years at 3.6%, you'll see that's what we are, and then bouncing back down to 3.3%, 3.2 range. This is all about getting our cost reset done in best cost locations. Have opportunity for acquisitions and we return money back to the shareholders.
We have the flexibility, but the most important thing you have to understand is our we are an industry that does cycle. It does cycle hard and we want to make sure we have that flexibility. If we have the opportunity to do an acquisition, we will do the acquisition. We'll debate to what we do with the capital allocation at that point in time. But right now, if you look at this balance sheet, we would have the opportunity to do an acquisition and leverage that balance sheet.
We don't do an acquisition, then we obviously have to take a look at that balance sheet and see how we deploy that cash flow. But at 70%, that's a pretty high number for the company. We've not run at that level for more than one year. So it'd be two, three, four years. We have the flexibility from that perspective.
And I like that from the standpoint of what we can do. And we'll continue to increase the dividends this year. We're on our sixty fourth year. But again, strong cash conversion. We're increasing our return to our shareholders.
Let's talk about 2020. You've seen the numbers, the key issue for us, focus on costs. That's what we're focused on. Growth, my opinion, is going to be somewhere between negative two and plus two. With the coronavirus right now, I'm more like in the even, flat.
I don't see the second half bounce back at this point in time unless we some improvement relative to the overall economy coming out of China. I know they'll stimulate, but in the meantime, I think that's going to be a damper on sales, it's going be a damper on the global economy. But this is the same numbers we've shown you from the standpoint of sales, underlying profitability, margin, earnings per share, cash flow, nothing new here. Again, we'll talk in a second here about coronavirus, but headwinds at corporate, no change from what we talked about back in November, looking at spending around $650,000,000 of capital as we get ready for the big moves. But clearly, our focus is on costs.
Our focus is on making sure we make those right capital, generating the cash flow and get ready for that bounce back as we go forward here. January orders continue to trend down towards one. We're moving towards one. Nothing it's nothing surprising. I don't I mean, again, I think as we get into February and get into March, I think the number could be less because of what's going on in the coronavirus.
You will see that. The forecast I see overall under sales from the perspective, we were 0.3 in the first quarter underlying. I think now, I think we're going be closer to flat or zero in the second quarter. And I think that depending on how fast China bounces back and the rest of the economy bounces back, we've had it pretty well boxed where I feel right now. Even with the corona right now, I feel we have it pretty well boxed.
But the number I'm looking at is basically a flat number, drive the cost reductions, drive the higher adjusted EBITDA, get those earnings per share through that, get the cash flow and get ready for when the recovery does happen. But a very difficult environment right now between the geopolitical world, the coronavirus, weakness in Europe, there's a lot of things that we CEOs are having to deal with right now, and I don't see that changing at this point in time. Mike might come up and talk, but this is China. A couple of things. As you know, I talked on the phone on Monday or Tuesday, a couple of weeks last week, I talked about we're in this the blackout period is a reentry for the people in the room that were old enough to remember the Apollo Gemini capsules coming.
There's a blackout period between five or six years. That's where we were last week. Our plants are now up and going. You can see here, we have 33, 34 of the 36 plants up and running. And Michael will talk here in a second, a little bit more on the details here, but they're not running very, very at high levels.
Productivity wise, we got to be running 20%, 30%, 40%. The plants will, in my opinion, will ramp up very slowly. We've our organization is focused very, very hard to get these plants back up and running, both the engineering centers and the facilities, but supply chain, workers, logistics, the Chinese government had this thing well wrapped up at this point in time. They you we've you have to get approval to get plants back open and our people have been working this very, very hard. So Mike, why don't you come on up and give them a quick update what you see at this point in time?
Thanks. We did update last week on the call that we are anticipating that we get operations up and running in a majority of our facilities on February 10. That did happen on and then we had a couple more get added through the week. So we are at the 33 number that you referenced, David. We'll have our thirty fourth.
I think they're going to start working tomorrow in our valve facilities as we go forward. We've got a small factory left and we've got an office complex that we're anticipating by next Monday, but we'll have to see. We're working with the authorities. The process we've gone through is we've had to apply to restart work. We've had inspections by the government, agencies and the districts and the different places we operate, and then they've granted approvals, and we've been kind of navigating that process.
I will say in several situations, we were actually the first one approved in some of these districts, kind of helped set the bar, I think, for the Chinese government in terms of what people would expect and, being obviously cooperating and collaborating as we go forward here. Operationally, as you noted, we're having a week where we're probably doing between 20%, 30%, 40%, 50% of output, something in that range right now. We're hopeful next week, maybe we get that above 50% in some cases. And then from there, I think over the next couple of weeks, we'll continue to build on that. We've got about two thirds of our workforce working, which is good, some remotely, some of our office work is being done remotely at this point.
But, again, things are starting to happen, orders are starting to happen. We are trying to get the machine kind of restarted. I'd say the toughest challenges for us are probably around the supply chain and the logistics area. We have 1,600 plus suppliers. I think we noted last week, dollars $750,000,000 of our purchases in China, about $250,000,000 of that leaves China.
So it does feed into the rest of our system around the world. We're getting some impacts there. Our top 36 suppliers have all resumed. And again, they're kind of in the same place, kind of in that 25% to 50% or 60% range. We do have a second tier supplier base, those smaller enterprises.
They are being prioritized differently, I would think, than bigger enterprises. So we're watching those. We're hopeful that the government will continue to support them as they come back. And then logistics is probably the major thing, just moving goods around the country right now, big challenge. We have had a few airfreights leave the country, which is good news.
And I would say the customs, Chinese customs folks have been very responsive in trying to be helpful in that regard. So as we look forward here over the next couple of weeks, again, the supply chain logistics piece, getting some of these making sure there's not a key supplier that's not up quickly when we'll be guarding against that. We have raised the impact we're looking for in the second quarter. I think in the call, we said 50,000,000 to 100 I think we're kind of tending a little bit higher towards that $100,000,000 level for Q2 right now. And it's a judgment call right now, but we think about half of those sales will get recovered with some pent up demand, half will be lost either seasonal business or it'll just slide out at the end of the fiscal year at this point.
And then the last point we want to highlight is we expect the Chinese government will put stimulus into the market. They I think they'll come at us with a very sound program at some point. Typically, that tends to help us on both platforms.
So I
would say Bob's business, helped by that stimulus more than anybody else. Yes. Because they typically go after that marketplace, not necessarily the industrial. But clearly, this is where we see right now. We'll try to keep you updated, but we get dailies several times a day, get updates.
We get already had two or three this morning. We are up running, but it's very slow at this point in time. But having that position we have is very powerful for us in China right now. It's just a matter of how long it takes. But fortunately, we're working.
So we're out of the dark zone, but the capsule is still not on the aircraft carrier yet for the people who know what I'm talking about. So let's talk quickly about investments. I'm running out of time here. Emerson is very much focused on our process and driving the One Emerson strategy, driving the technology, our superior technology, drive market growth, profits, cash flow, leading technologies in the industry. We help our customers from a technology standpoint.
Our serve our customers are very strong industry knowledge. Our regional reach is very powerful from that standpoint. We have world class laboratories around the world working with our customers. We're very, very tight with our customers relative as from an efficiency standpoint or regulation standpoint. We have a huge installed base that we leverage from a KOB three aftermarket standpoint.
But our customers, as they go through their sustainability, as they go through efficiencies, as they go through refrigeration changes, as they go through food safety, as you look at the whole, we're going call it digital transformation, the things that we deal with every day, our customers are tied right with us. We have the technology. It's important that we invest in these technologies and stay up with us because these customers need us to help make these transitions. It embeds us very thoroughly and allows us to support them on a global basis. It's very important that we stay ahead of them in the various areas.
And you hear it all the time when you're out there. And you're going to see Stuart talk about the digital transformation underway. This thing has taken off in the last twelve to eighteen months at the customer level and we are right there with them, working with them and it's important we continue to invest. But we are trying to work extremely hard with our customers to help them be more efficient, more effective, more sustainable, reduce emissions, reduce the carbon footprint, and they're using technologies that we bring to that marketplace and allow them to do that. Very, very important is our service.
You're going to see on the from a technology standpoint today, you're going to see Stuart is going to talk about this. Very important as a business we broke out, wow, in this organization broke it out this year for the first time, separate P and L. Our standalone software is $600,000,000 Total software is about $1,800,000,000 with most of that being embedded that we get paid for. Lal will talk about this, how we get paid for our software. We've also continued to drive invest in analytics, very important from a standpoint of helping our customers from a digital transformation.
But you're going to hear a lot of that about this from Lal, a lot about this from Stuart. But this is an area that we are very strong leaders in the world in this, and we're going to continue to invest both internally and then also through acquisitions and something the Board is watching very, very closely. From an internal development standpoint, you're going to see a new power system come out. Delta V came out in the process world last year, power system Ovation 3.8 is coming out. Next generation of valve instrumentation, which is very important to the digital transformation, next generation of pressure instrumentation, also very important to the next generation of our digital transformation.
But a continued area of investing in the technologies to make sure that we stay relevant and help our customers make the transformations they need to make and bolster our installed base and bolster our value proposition over the long term. Same thing on Bob's side. Bob is up and down this from an energy efficiency, comfort air quality, food safety, refrigeration regulations, food waste management, e commerce, emerging markets, world class change. Bob's business is touching all this and he'll talk about it. But clearly, his standpoint, he has a new type technology coming out, centrifugal compressors.
He's got a lot of different type of products coming out in this area. He's looking at some control technologies he likes to acquire. But very important is his customer base continues to make these transitions and they make them over time. These are not one month. As you all know, when you follow this industry, they plan it out two, three, four, five years.
And so we have to be ahead of them to make that transition happen. And we are at this point in time. A couple of changes. I've been showing this chart the last couple of years. The red checks are pretty simple.
The last red check will be me. Every other red checks will go before I go. That's all you need to know. We've made a lot of changes over the years. We've added a lot of new organization, new presenters, the presenters this year are the blue dots, new positions here, both Stuart Harris, as we broke that out, Hakan come back from Asia.
We're looking Bob's looking at not Bob's, Lal's looking at trying to create a new business here, form of what they kind of call measurement solutions, figuring out how to make this more efficient for us and also for our customer. Stay tuned. This is underway and will be happening. Same thing and Bob's organization other than myself up here, he's pretty well set with the next generation. Just promoted Sandeep Nair, perfect timing to go to China.
Sure. Is Sandeep there yet, Bob? He's not there yet? He's having a hard time getting to Hong Kong. I wonder why.
Okay. But he'll be going China to run that business. So right now, Hawkins is probably doing both jobs at this point in time. And so Tim will present today. But clear, the Board's highly engaged in this process.
Transition will go. I've been telling you that sometime in 2021, there will be a new CEO. I don't know exactly what the Board is. I I fundamentally believe the Board will be pushing pretty hard this year on changes within the organization from that standpoint to make sure we're set. They understand, you know, successors, who the best candidates are.
The Board's been engaged in this for four or five years and I don't see that changing. I've always tried to keep you guys up to date. But I would if I'm a betting man sometime in 2021, I'll be that red check will be gone because I'll be off. But from my standpoint, there used to be a lot more red checks up here. We're down to two that I see positions changing prior to my change, getting that organization set for the next generation.
So here's the forecast. This is what we're focused on right now. Costs. We're not going to jeopardize the future of our franchises. We have fundamental franchises.
The reason we have the GPs, the reason we have the EBITDAs that we have is because we have very strong global franchises and we use them and we invest in those franchises. We will continue to invest in those franchises. The Board is highly focused on that word right there. They do not want to jeopardize the franchises that we have built over many, many years. In the meantime, aggressive cost reset is underway.
The P and L I see in 2020 is what we laid out when we reported the quarter. No difference here. A little bit higher capital. You can see going forward without acquisitions would be $22,000,000,000 20,500,000,000.0 with acquisitions, we were on 22,000,000,000 This is what the P and L looks like. We clearly have the capacity to do acquisitions if we have the opportunity.
In the meantime, it's all about getting the cost reset. The economy will bounce back and we'll see that. We will get through this coronavirus. We will get through the geopolitical. There will be election in November.
There will be a president in January, and the world will set. Brexit will get through. There will be a new president probably in Germany. I mean, let's let's go through all these things. It will happen because it will happen.
But that's where we look at right now in the near term. But we're very we feel very good about where we sit at this point in time. We saw the slowdown happening. We went after it very quickly. I think we're in a good position at this point in time.
We have a lot of great next generation leaders picking up and taking responsibility in the company, and I feel very good about where we sit from that standpoint. And the Board feels very, very much engaged in where we go from a strategy and also most importantly, where they go with the next leadership team of Emerson. It's not something that's going to happen haphazardly, trust me. So with that, I'm going to introduce Lal. Sorry, Lal, we're a few minutes over.
If you'd like.
I'll present this one
or two. That's fine. I know you know the business. Thank you, sir.
You don't
want that guy.
No, I just need this. Good morning, everyone. Lal Carstenberg, great to see everyone here today. Before I start, I just want to say a few words. 2019 clearly unfolded very differently than we planned and when we met a year ago, but we grew 5% on an underlying basis.
Three that's two points above the market growth rate in the automation space in 2019. And there were three key elements that really stood out in terms of outperformance in 2019 and as we went through the 2020. The greenfield projects, since in the last quarter alone, we've won 60% of the customer decisions around KOB1. As a matter of fact, you can go back two years in our Control Systems business, we won 80% of the decisions in the chemical space. Second piece, the installed base and competitive displacement.
For every 10 for every system that's pulled out, we win 10. So we have one of ours replaced. That's a tremendous ratio, a ten:one ratio of control system competitive displacement. We have over 17,000 control systems today, over 10,000 Delta Versus and we control over 1,300,000 megawatts of power generation across the world. Phenomenal positioning growth in that business.
And then the last is we stood up Stuart Harris' digital transformation business, a fast growing technology business with devices, analytics, software packages that's $750,000,000 today and growing at a double digit rate. All those things we executed through 2019 and we were able to grow by two points over market rate. The environment got slower on us. So as David explained, midpoint through the year, we looked at the cost and we looked at the structure of the company and the organization got behind an aggressive program, as you will see, of accelerated restructuring. That's looking at how we interact with our customers, how we're structured around the world, our footprint.
All in all, we have to execute $1,000,000,000 of activity, about $375,000,000 direct savings directly resulting from the accelerated restructuring. And I'll walk you through exactly what that is and the impact of it in the business. Okay. Growth in this marketplace as we go through this year, there's been a lot of changes in the funnel, right? We talked about an $8,300,000,000 funnel a year ago.
I'll walk you through what that looks like today and give you an update. But the slowdown in the upstream oil and gas market in The United States, the reverberations on lower oil prices around the world have had an impact in the business as well as the global discrete impact. So I'll show you a perspective of what that looks like today and where we think the potential outlook is for the year. We have been winning within the capital wave, particularly around LNG. Ram's business has won 50% of the LNG contracts that have come up in Final Control.
And we have won one critical system that was awarded to us with ExxonMobil. So we're working that very, very hard, and we have a few more, which I'll show you in the upcoming charts. The fruits of our labor is the $120,000,000,000 installed base. And that not only drives a very profitable KOB three business, but also enables the digital transformation journey because there's a lot of customer acceptance and customer knowledge around our technology that we can then leverage to pull in these modernization programs across the plan. So those are very, very critical.
I'll spend a significant amount of time today on technology, not just to give you a perspective of where we're investing across the various layers of our business, but also to pull back the onion on the software business. David mentioned already, it's a $1,800,000,000 business. About $1,200,000,000 of it is in our embedded technologies, but we have a fast growing $600,000,000 stand alone software business today. And I'll break that down for you and give you some examples of what specifically we're talking about. Ram is going to spend thirty minutes going through the Final performance, tremendous amount of effort, operating discipline that he's put into the company, the synergies have been attained on costs and sales that are driving value within the Final Control platform.
And then lastly, the digital. And we'll have Stuart come up for thirty minutes and go through the plans, how we define the business, what the opportunities are to grow, expand that very interesting market. The chart on the right gives you perspective on 2019. I'm not going to belabor it. You've seen it.
We leveraged the company at a 35% adjusted EBITDA basis on an underlying basis on a reported basis, 17 the impact of the mix, geographic mix. So if you think about our most profitable businesses in our most profitable world area, which is North America, slowed. So upstream oil and gas, very profitable. North America, very profitable. That slowed through 2019.
That impacted us through the year and the impact of the acquisitions were dilutive as well. So we that's opportunity for us as we go through 2020, and I'll show you how that looks. The mix in the business didn't really change. If you look at the sales by marketplace, there were one point or so deltas within the geographic mix as Asia got slightly bigger and The U. S.
And Europe got slightly smaller, about one point down on each. But what's more significant here is the mix into KOB three. We expected and we talked about a year ago, the growth in KOB one was going to fuel 2019 into 2020, but we didn't quite see that. And we continued to grow on the underlying installed base in the KOB3. So the KOB3 business now is valued at about $7,000,000,000 57% of our sales and grew by two points over a year ago.
So I'll show you what that looks like specifically. Chart on the left is kind of the nuts and bolts of what we do in one chart. So how the business works from a control perspective. You have sensors that are the eyes and ears of the process. They send information to the brain, which is a control system.
The control system makes a decision and sends that decision to the muscle, which is the final control element of the company. And that's repeated hundreds of times per second over and over again in a controlled environment. What makes the business very unique is the technology within the business and the people and how we interact with our customers across this business. It's very unique. We own the technologies within the business units, and we drive a matrix selling organization around the world with very specific geographic and customer leading initiatives across the business.
The space on the right side is about a $74,000,000,000 sandbox. A broader sandbox is well over $200,000,000,000 as we measure our overall markets today, but just highlighting the $74,000,000,000 of market here. Across the broad perspective, we have leading market positions. If you look at our instrumentation companies, our position in instrumentation is greater than the next two competitors together. Our position in Final Control is greater than the next four competitors added together.
Very strong positions there. The systems in Software and Solutions business, we now have the number one position as we measure this. This includes our control systems as well as our remote automation solutions business and software that's in there. The second competitor on that list being Honeywell. But again, a very tightly bunched group of two or three competitors within that systems and software space.
And then lastly, we have a PLC bracket. Obviously, that's not the total PLC market. The total PLC market is well over $15,000,000,000 in size. This is purely the hybrid and process segment of the PLC application. We have a very small but growing piece of that market, obviously, as we entered it with the acquisition of the machine automation solutions business from General Electric.
Okay. I'm going to spend a few minutes talking about the cost program and how we what peak margins were and how we get back there and the hard work that this organization has to accomplish to go on that journey. So the chart on the left gives you a little bit of a perspective, a decade perspective of where we've been. The business has grown on a reported basis from approximately 7,500,000,000 in February to the $12,200,000,000 in 2012. The peak margins of the business occurred in that 2014 time period.
So on an adjusted EBITDA basis, 24% was the number that's up from 21% adjusted EBITDA in 02/2009. If you look at that period from 2010 to 2014, that was a pretty magical period in the process automation space. We had the best I call it the best of everything. We had a phenomenal North America growth. We had global expansion in chemical in the petrochemical industries, and we had the growth in the shale environment.
And so the drive and the growth from that low 20s adjusted EBITDA to the mid-20s really came through leverage from that very profitable growth. Then we went through the hydrocarbon recession through mid-twenty fifteen through 2017, margins eroded, we deleveraged the business as volumes came down. And then we've had we've been in a what was a curtailed recovery and our margins hit 21%. So over the decade, flat at 21%, but really were driven up through significant leverage in a very strong growth, good mix environment over the periods of 2010 to 2014. So now as we look forward and we look at that adjusted that 24% adjusted EBITDA number to return back to that number, the efforts I'll talk to you about today are not going to be based on growth.
They're going to be based on hard cost activity. The underlying plan that we have going forward is a 3% growth plan. We'll leverage that at 30%. So that's there's about a point of margin improvement that will come from the growth. The remaining two points come from the hard activities around cost.
Now before I go through the details of the plan over the next couple of flips, I do want to just make sure that we are cognizant, and which I know many of you are, that we are in the top quartile of margin performance across our space. And what we've done here is broken this out by each of the technology categories, Whether if you look across the scheme with few exceptions, it's top of the class and if not top of the class in the top quartile in terms of margin performance. Clearly, because of the share positions that you saw in systems and software and systems and solutions, there's more compression and the competitors are a little closer. But in final control instrumentation, where our positions in the marketplace are significantly stronger, our profitability is also much higher. If you look at the little stars that we put on top of our bars, they represent 2023 plan and the commitments that we're making in terms of margin improvement across the platform for each of the four categories.
Chart on the right has the detailed bridge. David showed this for the corporation as a whole. There's a 21% in 2019 and the journey to 24% in 2023. So three points of growth, 30 points of leverage gives us a point of margin improvement. That's the 1% green bar, dollars $460,000,000 of value.
The red bar signifies approximately $180,000,000 of inflation and other headwinds that we have to offset every year. This is part of the operating cadence that we have within the business. And those are things like salaried inflation, material inflation that impact the P and L and we have to drive and offset on an annual basis. That's the combined three year impact of that. And then there are about $1,000,000,000 of actions that drive not just to offset that inflation, but drive the improvement in the EBITDA margin.
First bucket is price and net material inflation. That's a small little bar there. And then the broader bar, part of which is green, which is part of our day to day management of the company, cost reductions, technology cost reductions within the business. But then there's a purple segment, which is valued at about $375,000,000 which is the specific savings around accelerated restructuring in the business. So when you add that together, there's about two points of improvement that add to the point of improvement from the leverage that drive us up to the three points.
So the plan is less dependent on is not dependent on the market. It's dependent on us being able to execute what's in that purple large bar. Now what is that composed of? We're not strangers to restructuring in the business. I didn't put it on this chart.
But if you went back to the financial crisis of two nine and two and ten, we spent about $142,000,000 in restructuring in those two years. If you then fast forward to the hydrocarbon recession of twenty fifteen through 2017, we spent $245,000,000 in restructuring. They're exemplified here by the blue bars. In this planning period, our commitment to the organization, to the shareholders is $325,000,000 of restructuring 2019, 2020 and 2021. The gray bars on the chart exemplify baseline restructuring that we do in the business.
And typically, we'll do $20 to $40,000,000 of just underlying restructuring in the company on any given year. The 18 bar is a little bit larger because of the VNC integration efforts. So that year was particularly larger. But generally, we fall within that $40,000,000 type of number there. So alongside that, as David talked, we've got to invest in capital.
So we've accelerated the capital investments across the company during this time period as well, starting in 2020, about January acceleration in capital. And that will enable us to drive footprint consolidation and best cost manufacturing to be able to do the significant footprint moves that David talked about earlier. So here's the details of the plan on the right. If you took that green bar, green purple bar, which was the largest bar, the two green bar, the little green bar and the purple bar, you added them together, there's the billion dollars of activity that we have to do. It applies to approximately 10% of our salaried workforce.
2,300 salary reduction and 700 salary moves. So that would be from high cost to best cost or better cost. That's about a 10%. We have 32,000 salaried employees approximately within Automation Solutions, a little under 10% of salaried workforce. There are 110 facility reductions in this plan.
To give you perspective, 35 of those are manufacturing plants, okay? Eight of those are service organizations, the remainder being sales offices or SG and A facilities. The SG and A facilities and the service facilities are a lot easier to do. The plants take a little bit longer. So they are on the back end of plan into the 2021 timeframe simply because we've got to build out the capacity in Eastern Europe, in Mexico, in India to move the facilities.
We're looking across the organization in the structure of how we approach the customers. We're looking at our hub and spoke models around the world areas and taking sales organizations and customer support organizations into countries closer to where the customer base exists. That's part of this effort as well, as well
as
driving productivity and cost reductions within the business. The spend table on the bottom outlines what we'll spend and what the annualized savings are per year. What I'll tell you about this organization is they got after it really quick. I have a phenomenal team. We spent $83,000,000 of restructuring in the 2020.
We accelerated restructuring in the 2019 by $30,000,000 So $2,019,000,000 to $65,000,000 35,000,000 of it was planned, 30,000,000 was accelerated in 2019. We committed to 83,000,000 in the first quarter and we'll spend $177,000,000 of restructuring this fiscal year. And then we'll finish the program in 2021 with an additional $83,000,000 of restructuring then. Our goal is to be complete with the hard activities through 2021 and then to reap the benefits with into 2022 and 2023 and hit that peak margins. Again, if we get a pickup on volume, that will be wind in our sales.
We're not planning on that as we put this plan together. And if we do that, that's that will be a benefit to the P and L. Okay. I'm going to switch now into the market and give you some perspectives on what we're what I'm seeing in the marketplace. Spent a lot of time with customers in my first year in this role and a lot of interactions.
Clearly, a lot of our attention has been around North America and what's going on in the upstream oil and gas space. We've heard about the Permian Basin. We've talked about the Permian Basin. Production in the Permian Basin this year was down 21%. There were three factors that we talked about throughout the year.
We were concerned about takeaway capacity, two pipelines were built that we kind of got behind that. We were concerned about consolidation in the industry where larger players took a became a larger share of the production from 3% to 17% within the basin. Obviously, when a larger player takes production control, they drive better discipline on asset management and capital expenditures versus the smaller independents. And then the bankruptcies and the ability of the small independents to operate in a $50 to $60 a barrel environment. That had an impact on the demand and the spend as well.
What matters to us is well completions. So when we look at the drill activity, that doesn't necessarily mean that they're going to instrument the well and complete the well. We've got to really look at the completions, which is when the valves and the instruments will go on to the well and that's what we benefit. So it's been very soft. It's it continued to be soft through the first quarter.
Now we do get into some easier comparisons as we get into the second half of this year. So that's what we're watching carefully as well. On the discrete side, whether it was automotive, semiconductor, packaging or any of the OEM businesses across the world slowed significantly, actually earlier in the cycle than the chart on the left and the upstream markets. We slowed in our discrete environment starting in August 2018. We started to see some signs of inventory positions in our distribution, of OEMs really pulling back on spending.
And that has continued now led by automotive in The United States and in China, in Asia, particularly. That's continued to be a headwind in the business. So Germany, you can see the numbers that's through December on PMI continues to struggle as OEMs look at potentially shutting down operations in Germany, relocating into Asia or other markets closer to customers, but that's had a significant impact into the in our discrete industrial business as well as the industry as a whole. So something we'll continue to watch carefully. I believe that David's talked about this, we've talked about this in the earnings calls that inventory levels within the distribution network have been adjusted two or three times already as we've gone through 2019.
They've been ratcheted down a couple of times. They may be at a point now where we may start to see a little bit of a pickup. We're watching it very carefully, but very concerned there as well. Let's talk about the large projects, the capital projects. So the last time we met, we talked about a $7,600,000,000 funnel.
Then in the July call, I participated in the earnings call with David. We talked about an $8,300,000,000 funnel, okay? The funnel as it stands today is valued at $7,100,000,000 So I'm going to bridge the $1,200,000,000 for you. We booked $300,000,000 of the funnel. Dollars 600,000,000 of that funnel was canceled or delayed to the extent that we felt we should take out take it out of the funnel, dollars 600,000,000.
One petrochemical plant in Egypt represented half of that. We just took it out of the funnel. And then another $200,000,000 were net adds, scope expansion reductions within the funnel. So that's the bridge to the $1,200,000,000 But overall, still very viable at $7,100,000,000 The other number that's relevant on this chart is the committed not booked. If we go back to the July timeframe, that number was at $1,000,000,000 It's now $600,000,000 So we've booked we've committed from that committed bucket, 200,000,000 of that turned into POs, the largest of which being the ExxonMobil Golden Pass LNG project control system.
There was a large Arctic LNG control valve project as well. That's $200,000,000 We did an additional $200,000,000 that is no longer committed. What that means is the projects either on hold, they got moved, it got displaced permanently, but it's no longer in our committed calculations. And then there's net adds and reductions that make up the delta. So in total, it continues to be a very strong number.
We're working very hard to convert those commitments into POs. And but since we last spoke in July, that's moved about $190,000,000 almost $200,000,000 in those commitments. So really good performance there. The LNG wave is continues to be the most fruitful here. There are three large bubbles that you can pick out.
These are actual bubbles. These are not just random things that we put on the chart. There are three large bubbles on the chart here. The the three are the first one here is the on the left, closest to us is the Qatar NFE. That's the Northfield expansion, large LNG project in Qatar.
The next one is the Saudi crude to chemical. That's Aramco. And the last one is the Rastinari refinery in India. All of those continue to move forward at different paces, but and we're very engaged there. The LNG wave has been, as I mentioned, a critical part of the funnel and it's moved on us.
There continues to be significant potential for additional bookings despite the fact that we've already booked almost $200,000,000 of that value. Obviously, the Qatar piece is the biggest piece that sits there in The Middle East, but we continue to have opportunities in The Arctic, in particularly in ROMs business and Final Control and in instrumentation companies and opportunities in The Americas as well. But there has been an impact in terms of cancellations of projects due to trade and due to other concerns in the marketplace. I'll just give you a little example on the bottom of the chart on the right around the impact in Louisiana alone. So if you went back to December 2017, it was projected 187,000,000,000 in petrochemical refining would be spent in the state of Louisiana.
That number today is $139,000,000,000 Big projects have been canceled. The Cameron LNG project is valued at a $10,000,000,000 investment has been permanently on hold. Two large refinery expansions, one at Valera, one at Marathon, valued at over $3,000,000,000 have been canceled. So there's been significant impact within the funnel due to headwinds in the marketplace, uncertainties in the economy and in trade. It's important for us to be cognizant of.
I'm going to turn the Page now and talk about KOB3 and the modernization opportunities we have in the business. Dollars 120,000,000,000 installed base across the world continues to grow, but really opens the door for us not only to execute around the installed base from a traditional MRO perspective, but to really take then Stuart and his team in and drive modernizations in digital and take advantage of that installed base. We continue to invest in our service capabilities, service centers, service personnel out there. In many cases, we learn that the service person becomes one of our best salespeople because they have that connection with the customer and trust of the customer. That really enables a whole slew of activity for us around the world.
We're going to dissect the KOB three business a little bit for you here on the right side. Dollars 7,000,000,000 business today growing at about 4%, 57% of our sales, of which 85% of that business is traditional MRO. So exactly what you'd expect replacement product, replacement parts, traditional type of services. 15% of the businesses, which is the fastest growing part of the business, is composed of four distinct programs that we have as an organization, targeting accelerated growth in the KOB three. There are the shutdown, turnaround and outage services, the STOs, over $640,000,000 in sales in 2019.
The long term service agreements, over $240,000,000 in sales in 2019. And then we have two fast growing elements, the Connected Services piece and the Managed Services piece. One, where you're looking at a particular asset class and looking at its health, a managed service piece where you're looking at the entire automation assets in a specific plant. Those are $25,000,000 today, but growing very, very aggressively. We also enable that with digital solutions.
The MyEmerson is a portal where customers can have a unique experience around their assets, increases the speed in which we can respond to issues for the customer in terms of replacement product, activity, technology upgrades, etcetera. So a very powerful digitally enabled capability. Let's turn a few minutes to innovation. We spent about 4% of our revenue in new product development across the company, 85% of which is in our core technologies. There on the chart on the right, here's a few examples.
We spent a year ago talking about Delta V version 14, the largest Delta V release since the original Delta V release, and it's doing really well in the marketplace. David mentioned the instrumentation investments we're making both in our final control business and in our measurement business around the new generation of instruments, they're in our core space. It represents about 85% and grows expected to grow in the high single digits. 10% of all our investment falls into new to the business. They may exist, competitors may have it, but they're new to us.
A few examples here, digital isolation valves, the location awareness product we highlighted a year ago, we'll show you a little bit more today in Stuart's presentation. And then a two wire Coriolis meter, which expands our opportunity in the chemical space for the flow business. And then 5% falls into the new to the world, doesn't exist. It's a new product. And there's a few examples here.
Plantweb optics, we'll spend some time with Stuart talking about that and how we bring all the analytics into one platform. The PK controller and the OCC, if you recall, we talked about it last year. This is in the hybrid control element that sits between a distributed control system and a PLC, over $250,000,000 of bookings in so far this year since release. So very, very powerful release there. And then single use sensors, mirroring our downhole technologies for pharmaceutical applications, measuring pressure, temperature and various analytical measurements.
Very fruitful. Software comprises about $1,800,000,000 part of our business. The bulk of the software that we do, dollars 1,200,000,000.0 is embedded within our technology. It's embedded within our fuel devices, about $750,000,000 the remainder of it embedded within the control system. We don't run the business and we don't measure it based on that embedded perspective, but we wanted to highlight that for you.
What we do measure is what stands alone as software, which is the chart here on the right. Dollars 600,000,000 in value and there are two pieces to it. There's the operational performance. These are measurable markets, should say. First, these are markets that are measured and exist out there.
The operational performance market is a $10,000,000,000 market. Think of this as a software layer that sits on top of your automation or control system. So that could be advanced process control, that could be MES, that
could
be alarm management. So that market growing 5% and we have a four fifty million dollars position. Other market is the analytics and digital twin. That could be specific analytic packages for a certain asset class in a plant or it could be the use of AI or machine learning models to create a digital twin of an operation. Our business that market is growing, defined at $2,000,000,000 today, growing at 7%, have we $150,000,000 business.
And then Stuart will walk you through some of the key components in that, that really touch on that digital opportunity there. Software also comes in two dimensions. There's perpetual sale of software and they're subscription based. Clearly, IT works in a world of subscription based software. And as we've seen the convergence of IT and OT within, particularly the digital transformation, there's going to be a move in our presence today from perpetual in our participation today from perpetual more to subscription type of models.
That will enable, obviously, lower upfront costs, but also the upgrade rates and the flexibility with the customer base gets great as you move to that subscription model. And the ability to scale becomes more significant. And that's a significant part of what we talk about when we talk about digital. A couple of examples of what we mean by subscription in the businesses that we have today that fall in that subscription model, which is slightly over 40% of our total software sales today, but growing at a higher rate as you see on the chart on the left here. The Guardian is the largest single piece of that, about $115,000,000 in sales in 2019.
Again, this is the support system for the DCS, for Delta V. So you can purchase a subscription that will keep your Delta V up to date, whether that's a cybersecurity patch, a software upgrade patch, we will monitor the performance of the system, come back to the customer with real time opportunities for improvement in the operating of that system. But there are other smaller examples on the right around some of our key assets, whether it's corrosion, machinery conditioning or valve conditioning software and subscriptions that we do provide. We spent a significant amount of time on digital transformation last year when I was up here. We've now built that business out.
The underlying premise around what we do in digital falls around the business drivers. Whether a customer is concerned about productivity, reliability, cybersecurity or safety, That is the premise for how we've built the business. We then have the ability to scale significantly. We have the best in class sensors, which is the bottom of the pyramid. We drive that to a through a network of wireless devices into the analytics and the software layer.
And the ability for us and the magic in this comes in the ability to scale from a very small pilot into a very significant business. Now I mentioned a few weeks ago, we had a group up in the Twin Cities that we celebrate $200,000 orders in this business. A $200,000 order is a very significant order. It's a foot in the door. It's an opportunity to prove the value of our technology and then scale and expand.
And that's how this business is built and creating that confidence. On Tuesday, I was in Dallas, Texas, and I was at the AIC, which is an organization of the power generation producers in The United States. In the room were the CEOs and key Executive Vice Presidents representing 70% of the electrical generation capacity in The United States. And I had the opportunity to speak for ten minutes. Jim Nyquist and Bob Yeager were there with me.
And what they're concerned about in the power generation world is aging infrastructure, aging workforce in cybersecurity and the digital transformation. That's what they're concerned about. This is their chart. They want to run to autonomous plants. As a matter of fact, NextEra in Florida is under has gone public with a project where they're taking five control rooms, five plant control rooms, consolidating to one.
So where they go from approximately 20 operators to two, two people sitting in a control room operating five plants. That leads us way up in this curve around autonomous. But what we're able to do with our digital journey is really go from a very basic advanced monitoring of assets in a plant all the way up through the advanced control semi autonomous processes and ultimately enabling key customers like NextEra to drive to autonomous plants. So very, very powerful opportunity. As we look forward into 2020, David has given you the guidance.
We're somewhere in the negative one percent to 3% on an underlying basis right now as we think about the business. We are going to see the benefit, however, of the hard work that the organization is doing around cost. We got after it very quickly in the 2019 and into the 2020. And we'll see 40 to 80 basis points expansion in the adjusted EBIT and 70 to 90 basis points of expansion in adjusted EBITDA in 2020. As we go forward, 2% to 4% CAGR, 3%, I think, is what I shared with you is what our model is built on, and we'll get back to that peak margin performance at 24%.
I'm going to introduce Ram Krishnan now to go through Final Control. Thank you.
Good Thanks
morning. So over the next thirty minutes, I'm going to give you guys an update guys and gals an update on the progress we're making with the Final Control business and the integration of valves and controls, two plus years into the acquisition. I had the opportunity to stand here last year, same time and report on a solid start, a real strong start to the integration efforts with a solid year in 2018. 2018 was a very good year for us. Underlying orders growth was very strong at 9%.
We grew sales underlying 13%, drove two ten basis points of margin improvement, 75,000,000 of synergies right off the bat and almost 500 points of working capital improvement as a percent of sales that drove strong cash flow. We repeated that with another strong year in 2019, a different year. North America was slower, but despite that, our orders grew 8%. We had underlying sales growth of 3%, 70 basis points of margin improvement. We had $30,000,000 of headwinds from a tariff perspective.
We had North America mix go against us, but we had strong synergy programs to the tune of $112,000,000 of synergies that helped us drive a strong 2019. We built $150,000,000 of backlog, which bodes well for us in 2020 despite the changing macro and we're off to a good start at about 5% underlying growth in the 2020 and are targeting about a 4% year. 2020 will be a significant year for us. We're stepping up our restructuring efforts, driving $60,000,000 of restructuring and raising the five year synergy plan commitment to $260,000,000 When we made this acquisition, we committed to fifth year synergies to the tune of $200,000,000 Last year, I showed you a $216,000,000 number by 2022, which is the fifth year number. I'm going to show you today a $260,000,000 synergy plan, 200,000,000 of it coming from cost actions, which give us the needed momentum to drive this business to 21% EBITDA margins by 2023, which will put it at peak margins.
On the orders and sales front, we've seen nice momentum with the integration of valves and controls in 2018 and 2019. Good momentum in the market, strong orders growth. We've gained a point of participation and right now sit at 17% participation in a $24,000,000,000 market, three times the next biggest competitor. And we have an unmatched capability and a breadth of technology for the investment waves coming at us in LNG, chemical and refining. Yes, upstream is going to be slower than what we had anticipated, but we like the mix of activity coming at us from a project perspective.
And I'll show you a funnel of $2,300,000,000 of projects, top 125 projects. And early in the cycle, we've been winning at a 50% rate. So if that continues, we'll drive 4% growth in the plan. So I'll lay that out for you in terms of the project funnel and how we look in the LNG, chemical and refining space. KOB three for us is sitting at record levels at 60% of sales.
We have a $40,000,000,000 installed base as we brought VNC into the equation and combined it with our base business. We have unmatched capability in terms of 100 service centers, 1,000 service techs and we're targeting three sixty critical sites to drive a rich set of life cycle service initiatives. So holding the line at 60% of sales from a KOB three perspective is very important to us, very important for the profitability and the long term growth dynamics of this business. And then I'll show you we are investing to build out this franchise. Yes, we're restructuring.
Yes, we're getting the synergy actions, but we're investing in service footprint, revamping our technology and most importantly, regionalizing the manufacturing footprint. Valves and Controls did not have a regional manufacturing footprint. I'll show you our strategy to regionalize the manufacturing footprint for speed and response to our customers and responding to their needs on the KOB3 front. So we're investing and I'll show you the investment plans. The chart on the right shows the financial profile.
Pre VNC acquisition, this business peaked at $2,800,000,000 in sales, 42% GP, 21% EBITDA. We bottomed in 2017 at the fag end of the upstream oil and gas recession. We brought VNC in, bottomed at $3,500,000,000 pro form a sales, 13% EBITDA and we've driven close to 300 basis points of margin improvement in the first two years in 2018 and 2019, a big year in 2018 and seventy basis points in 2019. And I'll show you the roadmap with the raised synergy plan to get to 21% EBITDA by 2023. If you look at the mix in business, strong midstream exposure, which is where LNG comes in and then valves and controls gave us good exposure to refining and chemical, 32%, a big piece of our business.
Asia And Middle East at 35%, big piece of our business. VNC strengthened us in Europe. Asia And Middle East is where we're going to see a lot of that KOB1 activity in LNG and downstream come at us. And then KOB3 at 60 of the total mix, we want to hold that level with a rich set of life cycle services initiatives and I'll show you the KOB number, KOB1 number will grow from 15% to 20% in this plan. The chart on the left shows you the scorecard of what we've been able to accomplish in the first two years since the acquisition of BNC.
And I want to take this opportunity to recognize the global final control and automation solutions organizations, many of whom are probably listening to this call for the outstanding effort in the first two years. We got a lot done. New organization, new leadership team, new business units. We integrated the sales channels, launched the main valve partner strategy for the complete scope of solutions, both on the project environment as well as the operational environment, gaining traction with that. I'll show you some of the successes there.
Unwound OMT, many of you are probably familiar with the Pentair OMT model. We were able to unwind that very, very quickly, drove significant improvements in service levels and overdue backlog, got quick results in supply chain savings, we're quick to rationalize some of the underperforming product lines. I'll show you that plan. And we're on a journey in terms of consolidating 20 manufacturing plants, 11 of that complete, nine more to do in this cycle as we consolidate legal entities. You can see we spent $48,000,000 of restructuring in the first two years, 90,000,000 in the three years to follow, 60,000,000 of that will happen in 2020, which is the reason we believe we'll up the synergy plan and drive two sixty by year five with 200 coming out of cost.
Strong order growth in year one and two. We see a good path to drive 4% orders growth through the rest of this cycle. And that should give us a good environment to generate that 21% EBITDA margin as we get into 2023. A little more product pruning and rationalization to do. I'll show you some of the areas where we'll focus on.
But most importantly, investing in our service network, investing in our regionalization efforts and the next generation product launches, we'll spend $300,000,000 of capital to get that done, which will strengthen the franchise. The chart on the right shows the scorecard. We've shown you this chart before. Year one and year two, you can see the results. We're raising the game in 2020 and upping the fifth year number to $260,000,000 with 200,000,000 coming from cost synergies.
You can see the leverage rates. In the first two years, we've levered at 50% incremental margin to incremental sales and we expect that to continue at least for the next two years in the cycle. Obviously, the normal leverage rates in this business are in the 30%, 35% range. But if you add the synergy actions, this business will lever at 50% as we work the early part of this next two years and drive this business to 21% EBITDA margin. So we feel good.
It's a self help program. We're committed to the synergy actions and we feel good about the dynamics of the end market to support a 4% growth for us in this environment. And 2020 will be an important year to make significant progress in this journey. On the working capital front, strong year one, five hundred basis points of improvement, 30% to 25%. We drove another 100 basis points this year.
Good progress across our receivable efforts, past due receivables, tremendous progress on the payables front as we harmonize the payment terms of the VNC supply base with what we have at Emerson. Inventory is an area we want to continue to work. We had great results year one, not as we didn't do as well as I would have hoped in year two in 2019 and 2020 will be an important year to get that going. Clearly, the regionalization efforts manufacturing facilities has an important role to play to drive better inventory performance. But net net, we are very confident of getting this business into that low 20% working capital as a percent of sales and a 10 improvement over the five year plan.
The chart on the right shows the initiatives on the operational excellence perspective remains a very, very important element of our plan. Pace is accelerating. Pace in terms of overdue backlog reduction to get that number less than $100,000,000 by the 2020. The facility consolidation, we committed to 20 plants. We're on that journey.
The supply chain programs for the most part are already in. We've gotten $30,000,000 of synergy already captured in 2018 and 2019. And then on the product rationalization front, we laid out when we made the acquisition 33 product transition opportunities. We've completed 20 of those impacting $120,000,000 and sales actually delivered $20,000,000 of positive margin when we got out of those product lines. There's another $100,000,000 left yet to do as we advance the plan over the next two years.
Switching gear to the global market. Dollars 24,000,000,000 global market, clear leadership position as Lal showed at 17%, three plus times the next biggest competitor. This market is made up the top 10 players in this market account for 45% of the market. Emerson is at 17%. You've got Flowserve, IMI, Metso, Baker Hughes GE and Schlumberger Cameron.
You've got two smaller companies, but good focus companies in Crane and Samson. And then you've got two large electric players or actuation players in Rotorc and Alma. That's kind of how we see the market. We have leadership positions in almost all of the segments we participate, possibly the electric actuator segment on the actuation side is where we're not the leader. But outside of that, in control valves, regulators, relief valves, many of the isolation product lines we have a leadership position.
And we have opportunities to lead and separate in every one of these segments. We have acquisition opportunities on particularly the pressure management side of the business as well as actuation. Isolation, I would say, is the one business where we believe we've got what we need. We really like the exposure we have to LNG and chemical and refining with those assets and is the one area we'll continue to look to prune some sales to get the right balance of profitability. It is a very competitive space as you know and we believe at this point we've got the right set of assets to offer a Final Control main valve partner message to our customers.
The chart on the right shows the fact that we've been driving quality growth at premium margins. This shows an example versus our largest global competitor, a good competitor, a competitor we respect and a competitor who's responsible who's on a similar journey as we are. But the point I want you to take away from this is we will drive premium GP margins as we drive growth in this business. As David pointed out, we're a company that wants to get to 40 plus percent GP margins in this business and we're well underway on that journey, which gives us the opportunity to make the needed investments in service, technology and regional manufacturing to drive premium growth. That's very, very important.
And we will get to 21% EBITDA in this business. Obviously, as we brought VNC in, we got a little diluted and we're on the journey to drive those margins up quickly. And we are outperforming the competition. This is one example, but I can show you many examples of other competitors over the last two years where we've gained good momentum. And our goal is to drive two points of share gain over the next two, three years to get to 19% of this market.
That's what this plan has baked in. On the KOB1 project front, the chart on the left shows the tremendous wins we've had over the last couple of years. The early engagement as the main valve partner across many industries, across many of the geographies in LNG, chemical, refining. So the strategy is working. Our early cycle, I'll say early cycle because the cycle frankly hasn't really manifested itself yet, has been at 50 plus percent.
And our hope is to continue those win rates in that 40% to 50% going forward. The last cycle, as you can see on the chart on the right, which was upstream driven, we won at about 35%. So clearly the VNC scope and the fact that our technology and capability for LNG, chemical and refining gives us a better chance of success. A big LNG funnel, $750,000,000. There's eight projects, five in North America, Golden Pass LNG and then there's four other Driftwood, Freeport, Plaquemines and Rio Grande are important projects in North America.
There's a Arctic LNG project in Russia, the Qatar NFE that Lal talked about, and then Rovuma, which is in East Africa. Those are the eight projects we're really tracking in. In theory, we should get $46,000,000 of final control content to train. We've scaled that back to about 30 of the right opportunities we want to go after and put $500,000,000 into this funnel. So we feel very good.
There's activity in Arctic LNG. There's activity underway in Golden Pass LNG and progress across many of the North America projects. So it's we're hopeful that we start seeing momentum on the LNG front. And then similarly on the refining and petrochem side, investments in India, Ratnagiri refinery that Lal talked about. Today in a 200,000 barrels a day refinery, we get $21,000,000 of final control content, 20,000 valves.
Ratnagiri is going to be a 1,200,000 barrels a day investment. Saudi Aramco, ADNOC and three large Indian government owned, HPCL, BPCL and investing. If that goes, that's a big funnel. Crude oils to chemicals in Saudi, another big opportunity for us. So we feel very good about the industries that are spending on our capability in terms of final control content to go after those opportunities.
Switching gear to KOB 60% of our sales, a $2,300,000,000 business holding the line will be very, very important. And the chart on the right shows that Final Control is a KOB three intensive market. After pumps and compressors, valves are a service intensive asset for most of our customers. Typically, 8% of the maintenance spend in a refinery or an ethylene plant is targeted towards valve assets. So it is a service intensive market.
In many of our markets, the KOB three, the ten year KOB three annuity is greater than 1x of the KOB one opportunity we get on the greenfield. LNG is a clean application, so it's 30 oneforty six. But if you look at power, copper, refining, it's a big KOB three revenue stream. So once we get the installed base and we drive the service initiatives, we can protect that KOB three business at close to 60% and continue to grow it. So very important part of our strategy.
We have a focused set of initiatives, chart on the left around quick ship and parts distribution, our ability to go help our customers with shutdown, turnarounds and outages, long term service agreements. We have 180 service agreements today that will continue to grow. Our strategy is we're focused on three sixty critical sites on a global basis and we've got a very strong infrastructure, as you can see on the chart on the right, in terms of service footprint to cover those three sixty critical sites. Today, on average, we generate $3,000,000 of business at a critical site without any projects. I was just recently in Jamnagar, India at the Reliance facility and they haven't had a project spend in the last three years.
We deliver $7,000,000 we generate $7,000,000 a year in Jamnagar alone through our service efforts on control valves, isolation valves and PRV. So if we can get another 1,000,000 point dollars a site through the focused set of initiatives, we've already got the service footprint, we're in calling on the site, we have a rich suite of initiatives, that's a $500,000,000 opportunity for us. So KOB three critical sites and our service initiatives around quick ship parts, STOs, service agreements and valve condition monitoring remains an important element to keep that KOB three mix at 60% of sales. So we'll make the investments in service, but the other two areas we're really looking at to continue the investments to protect this franchise and build out this franchise is around regionalization of the manufacturing footprint. I showed you this chart last year.
Obviously, we're moving the needle. That's what those dials are supposed to represent. VNC came in at very low levels of regionalization. They had an OMT model. They shipped everything out of Asia and Europe plants to all over the world.
That's not our model. Our models are on manufacturing in the region for the region, supply chain in the region to feed the plant in the region. It is an effort that takes time. It's an effort that takes capital. We're putting in that investment.
You can see all of the different initiatives underway in every region of the world. 2020 will be a big year for us in Middle East and India as our Chakan facility in Pune comes on board. That's going to be the area where the KOB1 investment is going to happen in Middle East and India in that region of the world. So that will be a huge deal for us as we ramp that up and move that needle in Middle East and India. But efforts underway across the board, takes investment, but gives us the ability to flex, gives us the speed and frankly is a differentiator for us versus our competition.
And then the chart on the right shows the investments we're making in next generation products. Lal talked about every business with an automation solutions doing that. We're no different. As we drive towards peak margins, there are certain areas we will not compromise. In our case, the service footprint, the regional manufacturing and the technology investments.
Our goal is to drive $1,000,000,000 in fifth year sales from these new product launches that will drive our new product vitality or percent of sales from these products to 20%, which is important. And when we started this journey, E and D spend as a percent of sales was 2.5 percentage points. Our goal is to drive that to a 3.5% number in this cycle to investments and get the new product launch, which will give us an opportunity to continue to lead and separate. So in conclusion, 2020, good two years. 2020 will be an important year if we can drive 4% growth and make the progress in driving $160,000,000 of synergies, puts us in a good position to deliver peak margins by 2023.
We anticipate around 4% growth in the cycle, dollars 4,500,000,000.0 business, 21% EBITDA and then you can see the mix where the investments will happen. Midstream will be a bigger part of our business, Refining and Chemical, Asia and Middle East will be a growth area and we'll hold the line at 60% of KOB three as a percent of our overall mix while the project business grows. So I look forward to reporting on a good 2020 next year, but there's a lot to be done and a lot to learn over the next three quarters. So thank you. With that, I'm going to introduce you to Mr.
Stuart Harris, who's going to come up and give you a presentation on our newly formed business group, Digital Transformation. But before Stuart comes up, we have a short video that we're going to play to introduce the topic. Thank you.
Chevron Orenite is a developer and marketer of fuel and lubricant additives with a global network of manufacturing facilities. The manufacturing plant in Singapore is the largest of its kind in Asia. Following years of operational excellence programs, Chevron Orenite is taking the next step in their journey with a bold digital transformation strategy.
The more we learn about digital technology, the more amazed we are. And we do believe that in order to make the next leap in terms of operational excellence, digital transformation and digital technology will probably bring us there. We have taken our first step in digital manufacturing by installing the right infrastructure to improve safety, reliability, efficiency and productivity. In my opinion, key to successful digital transformation started with small steps to address business needs.
A network of advanced sensors and easy to deploy operational analytics software were critical elements of Chevron's success. To improve safety, a real time location awareness system has accelerated emergency response to identify and reach potentially injured workers in the event of a safety incident. Advanced automation technologies also enable Chevron to minimize exposure of employees and contractors to hazardous areas of the plant. Equipment reliability for a wide range of assets has improved as well. Corrosion sensors detect deterioration of pipes and vessels while vibration sensors provide early warning of potential damage to expensive and critical equipment like pumps and compressors.
Analytics give personnel real time predictive insight to asset health for better informed decisions and faster, more accurate execution of necessary actions. Overall plant integrity has significantly improved with reduced production interruptions and safety risks. To minimize energy usage and further its sustainability efforts, Chevron applies ultrasonic acoustic sensors and analytics software to detect and reduce costly steam loss. Personnel now utilize ruggedized smart tablets to improve productivity when they are in the field, bringing critical information from the control room with them. Immediate access to applications and documentation accelerates response time and minimizes wasted trips into the plant.
I think having a partner that we can believe and trust to deliver the results and providing the solution to our needs are very important. And we were pretty fortunate that Emerson was pretty understanding. They know what our needs are, and they are very fast going out there looking for a solution that we can trial in the plant. So like I said, finding a credible and effective partner is very useful.
Chevron Aura Knight is a really excellent example of a customer who's taking a practical approach to digital transformation. As you heard in the video, they're focused on very specific business issues, they're applying technologies and they're realizing real value from that today with an approach of focus on known problems and scale those across the enterprise. As you can see from the chart here on the left hand side, many of the companies around the world, across many different industries, have digital transformation programs that they're counting on to drive significant operational performance improvements. And because they're committing to their stakeholders, their investors improvements in their operation, these programs are very often under the direct supervision and engagement from the CEOs and the Boards of Directors of those companies. Well, good morning.
I'm Stuart Harris, and I lead our new digital transformation business. I'm a new face to many of you in this room. So briefly, I've been at Emerson for thirty years. I spent most of my career in the systems business, the first twelve years or so in the Europe, Middle East and Africa world area, and then for the past twenty years in global roles. And for the past seven years, I ran strategic planning, marketing and our digital customer experience for automation solutions.
Today though, I'm going to talk about this new business that we've created around digital transformation, and I'll describe for you the strategies, talk about our growth programs, the proven solutions that we have and the pathway to drive this to being $1,000,000,000 in the next two to three years. So the business today is about $750,000,000 It's growing at mid teens rates, and it is accretive margins overall. Customers are moving ahead with digital transformation programs now. And so this is why we've invested in this organization at this time. Companies are appointing Chief Digital Officers.
They're putting budgets together, they're defining programs. And so this is the right opportunity and the right moment in time for us to capitalize on that. A lot of the conversations around digital transformation go right to talking about technologies. And one of the things that differentiates our approach is that we're bringing together not only the technology, but also the expertise and the services that are necessary to get success and to drive the value out of these programs. We're connecting to customers' operational performance issues, as you heard in the chevronauthentic video there, we'll talk more about that.
And this builds on the $120,000,000,000 installed base that Lal has talked about earlier on. We created the Focus Business Group. This enables us to be that best partner for our customer as they embark on this journey of digital transformation. That's an organization globally of around 1,000 people that are dedicated and driving channel, technology, the go to market strategies and the growth programs for this business. And as I said, I'll share with you today the pathway to building this to being $1,000,000,000 in the next couple of years.
So to profile the business for you, the mix from an industry perspective is very diverse. It's very similar to what Automation Solutions looks like. It's also a very global business. Again, we have customers around the world that are investing in these digital transformation programs. And if you look at the makeup of the business, we can really think about it in being really in thirds.
So a little over a third is what we call our pervasive sensing. So these are innovative sensors that give new insights into the customer's operation. About a third is reliability and predictive maintenance, predictive diagnostics technologies. And so you could think of those two pieces together as being sort of the source of information, the insights in how the customers' facilities are operating and performing. And then the other third is software and analytics and the associated consulting and services.
And that's where we take the information from all those diagnostics and really turn that into information that enables our customers to drive those operational performance improvements. So why are companies focused on digital transformation? Why is this such a focus? And why does it have executive level engagement? Well, that's because when you look at process plants and you look at performance, in this case of refineries, and you look at the difference between top quartile performers and the industry average, there are significant deltas across these four dimensions of safety, reliability, production and energy and emissions.
So just to give you a few examples, if we look at reliability, a top quartile performer has two additional weeks of availability than the industry average. Just think about that for a minute and think about what two weeks of additional production and the profitability that comes with that. Now interestingly enough, those top quartile companies also have half of the maintenance spend. So what that means is that they're directing their efforts into those aspects of the operation that really drive the performance and they're not wasting a lot of time in areas that don't drive availability. Another example, safety.
Three times fewer safety incidents in a top quartile plant versus the industry average. And if we look at the area of emissions and energy, very important as our customers focus on sustainability efforts around the world. Again, you can see 30 lower emissions and also 30% less energy usage for top quartile performers. So the opportunities are very significant. They're very real.
And the approach that we're taking is to start with the business problem, where there's the quantified opportunity, build the business case around that, deploy the technology and then realize the return on that investment and scale and replicate from there. Now the opportunities for digital transformation exist across the customer's life cycle. So if we think about operational excellence, Chevron and I talked about that in the video, many of our customers have operational excellence programs. This is perhaps the most obvious area where digital transformation investments are happening as they look to increase productivity and reduce their costs. We also see significant opportunities around upgrades and modernizations, and this would be perhaps if you think about that as our KOB2.
We've got many customers for whom we're doing control systems upgrades at multiple plants, in fact, in sort of a program form. And those companies don't want to just go from an old control system to a more modern control system, but they want to use that as an opportunity to bring in a lot of these new technologies and drive for those higher levels of performance that are associated. And then there's also the opportunity on greenfield projects as well. Most brand new plants are actually designed and built for third quartile performance. Again, think about that.
We're building a brand new plant, and on the day it starts up, it's going to operate at third quartile performance. That's what's happening in the industry today. But the opportunity exists to bring those same digital transformation technologies during the project phase and to drive for that top quartile performance right from the outset of the operation. Across that continuum, of course, we have the opportunity to capture both OpEx as well as CapEx spend that the customer has. And then, of course, there are many different functional organizations across the companies that are also involved in digital transformation programs.
Many of those are organizations and departments that we know and work with regularly. That would be engineering, that would be operations, maintenance and reliability, for example, but also new organizations like IT are heavily involved in these digital transformation programs at our customers, and they're bringing significant funding, significant budgets to this, and that represents another opportunity area. The solutions that I'll describe for you in a little bit here are very relevant for IT and in fact span what we refer to as the OT or the operational technology as well as the IT domains. So the market is evolving. How is it evolving?
And let's talk about that. Well, the first area is around sensing. And while a lot of our customers realize that they've got lots of data, many also realize that they don't necessarily have the right data or there's an opportunity to measure additional things to get insights. And a couple of examples around that might be corrosion, for example, where we could monitor and understand corrosion in a process plant. Looking at energy, for example, vibration would be another area.
And so companies are investing in that pervasive sensing area. And of course, with our background in instrumentation, this is a real sweet spot for us. The next area of investment is around the software and analytics. And of course, you hear a lot of discussion when you talk digital transformation about analytics. And in that market, have everything from start up companies to the largest software companies in the world.
We're very focused on the operational analytics because that is the area where we believe that the greatest impact to the operation can be found. And then across those four different domains, reliability is where we see customers focusing their initial efforts. They see this big opportunity around availability, around driving maintenance costs. And again, that's an area that we've been very active in for more than twenty years. I want to talk a little bit about the consulting space though, because given the complexity and perhaps some confusion around digital transformation and how to get started, this has created a big opportunity for the consulting organizations, the management consultants to work with our customers on helping to define and set a digital transformation vision.
What we find though is that while they may create the vision, they don't necessarily deliver an actionable plan around the operations piece. And so in fact, that's a sweet spot for us is to work with those organizations and translate a vision into an actionable plan. To do that, we have a team of over 100 consultants who bring together knowledge of automation, of the domains that I talked about, of the industries, and they also know these digital transformation technologies. And they can work with our customers to put together a roadmap, which identifies the priorities, creates the business case, and lays out the ROI from that investment. And then very importantly, we have the resources to be able to implement these programs as well because implementation is critical and it's a very important part of how the value is ultimately realized.
And our approach is really one that is very scalable. We have experienced that a big bang approach to digital transformation doesn't work. The idea that we can deploy certain technologies or bite this off as a whole thing really doesn't work. And so the proven approach is one of scale and replicate. And as I described, focus on known problems, prove the ROI, scale that rapidly, and then replicate it across other applications and across the enterprise.
Now the on your left hand side here, the Plantweb digital ecosystem is at the core of our digital transformation capabilities. And I want to describe for you what makes up this Plantweb ecosystem. First point I want to make though is that, as you can see from the left hand side of that chart, this builds on what we call our digital foundation. That's our intelligent field devices, it's our control systems, it's our control software, things that we've been doing for a long time, and Lal described for you both the installed base and the position we have in the marketplace. And so this digital transformation set of capabilities builds on top of that.
At the foundation then, you see that pervasive sensing layer, and this is a family of sensors. We have actually 40, more than 40 sensors, and these are typically wireless, non intrusive, battery powered. And so the idea is that very easily these can be deployed in an existing facility or in new plans to give these new insights, vibration, pressures, temperatures, corrosion as examples. The next layer in the architecture or in the ecosystem is the secure communications, And the you really can't talk about digital transformation without being concerned for security, and that's something that we have built into this ecosystem. We also partner with Cisco in this area.
And then very importantly is the platforms and software. And that software portfolio ranges from very targeted, easy to deploy analytics around specific asset types to asset performance platforms where we can aggregate information from across the enterprise and provide notifications and really drive that operational performance improvement. It also includes things like digital twins as well. Now our software can be deployed both on premise as well as in a cloud environment, so software as a service. And also customers are leveraging Emerson then to use that technology combined with our services to provide a connected service or help them manage their operations more effectively.
And then as I said, consulting and implementation is really important. So let's take a couple of examples and bring this to life for you. The first one that I'll describe is around pumps. So our customers in their facilities have hundreds of pumps, maybe even thousands. And today, many of them are monitored only infrequently or may not be monitored at all.
And so with the solutions that we're talking about, we have the opportunity now with wireless technologies, vibration, pressure, temperature, to easily monitor those pumps. We have software analytics with out of the box diagnostics for predictive health of those pumps, which we can make available to the customer or Emerson's experts can also guide the users on those assets and the performance. Also, you think about a process plant, it's large, it's complex, there's often hazardous areas. And so knowing where people are inside of the facility is a really important thing, obviously, in the case of an emergency. It's even more important during a shutdown, turnaround and outage where you're bringing literally thousands of contractors into that facility who don't know the plant as well as the employees do.
And so using those exact same wireless technologies that I just described before, we're now able to provide a real time location awareness solution to know where everybody, where every employee is wearing a smart tag, know where all those employees are, and in the event that we need to muster, if we need to make sure that people don't cross into a hazardous area, for example, or provide safety alerts, we can do all of that leveraging the same infrastructure as we would do with, for example, the pump health scenario. Now I give you two examples there around pumps and around location. And on your left hand side here, we actually have dozens of what we refer to as the known solutions to known problems. And these span those four domains of reliability, production, safety, and energy and emissions. And I'll just give you a few examples.
For example, safety showers, monitoring the safety showers in a plant or toxic gas, very important safety applications. Things like pumps with vibration and then energy monitoring around steam traps or safety with corrosion as well. And the key to these solutions is that they use the combination of the innovative sensors along with these easily applied, easily deployed analytics packages that give you the without any configuration, give you the insights into those assets and their performance. Software, also an important part of the portfolio. And this is an area that both through our own developments as well as acquisitions, we've built out a very significant capability.
The first of these is our asset performance platform. We call that Plantweb Optics. And what that does is aggregates all of this health and performance information from across the enterprise and gives the customer a holistic view of their plans and its performance. And then importantly, if we need to notify safety personnel about safety incident, if we need to inform the reliability and maintenance folks about something, we have the ability to do that through that system. Through a recent acquisition of KnowledgeNet or K Net, we have an advanced analytics capability.
It includes artificial intelligence, machine learning. But the power of this tool really is that we have embedded a lot of our intellectual property around failure modes for equipment as well as equipment models so that these advanced technologies can be, again, very easily deployed and start to create value much more quickly than would typically be the case when you're looking at applying those kinds of advanced analytics. And then we also have a portfolio of digital twins. This ranges from digital twins of the power plant, refineries, pipelines as well as the oilfield. And by creating this digital representation of the operation, we're now able to use that for training and for running scenarios and for optimization of the operations, very significant as our customers drive to higher levels of performance.
I do want to spend a couple more minutes to just talk about analytics because it's a space that, again, that when we talk about digital transformation, there's a lot of conversation about this. So if we think about a process plant, it in turn is made up of hundreds of process units and complex assets that in turn are made up of thousands of individual assets, pumps, valves, compressors, turbines, things of that sort, which in turn are made up of millions of components. Now, it's actually not practical or it's impossible to drive plant reliability by focusing only at the plant. You have to dig down and this is a sum of the parts in the sense of you've got the components which you need to monitor, the individual assets, and in turn, reliability is achieved that way. Now a lot of people think that today's advanced analytics, we apply AI machine learning to these things.
But the reality is that 85% of the failures of those assets in a plant are things that we have known solutions for. They're things that today we can apply sensors, we can apply analytics to. And in fact, at Emerson, over the past twenty years, we've built out a very rich portfolio, device diagnostics, machinery health diagnostics, machinery performance and analytics that are associated with that. What that allows us then to do is with these advanced tools like artificial intelligence, we're applying those to now solving the known issues that don't have known problems. And so for us, it's this combination of the principles driven, because we can use a lot of simple engineering principles to diagnose problems with equipment, but also bring those advanced analytics as well for the higher level problems.
We have an installed base of over $4,000,000,000 of these digital transformation technologies that I've been describing for you. Just to give a few examples, we have 52,000 wireless networks installed around the world, 20,000 AMS systems, so these are systems that we've deployed over the last ten, fifteen years that are providing customers with all kinds of predictive diagnostics and insights on their assets, more than 6,000,000 connected devices. And then we have over 800 plant digital twins deployed. And so that's a terrific installed base. As we go back into our customers and talk about taking the next levels of operational performance, this is an installed base that we can build on as well for the next steps in the digital transformation journey.
I want to share a couple more examples with you. These examples were both presented by the users themselves at our Emerson users exchange in October. The first of these is Petronas. They have over 100 offshore platforms. And clearly, platforms offshore, very difficult and costly to maintain, equipment on the asset.
And so what they have done is each of these platforms has multiple pumps that pump the crude oil and approximately $750,000 of oil per day per platform goes through them. So you can imagine if there's a failure, it's significantly costly and they were experiencing pump problems. And so we've deployed wireless sensors on those pumps. That information is in turn communicated to experts that are onshore. And in turn, we can route that diagnostics, as I said, to the right people.
So instead now of a failure happening and then having to dispatch people in a reactive way, they've been able to move to a more predictive, proactive way of managing those offshore assets, very, very significant to their operation. They've done this now on a number of platforms and their plan is to roll that out across all of their platforms. Another example, Celanese that presented this is a customer that we have partnered with on their digital transformation journey. We've done several things with them, including providing valve connected services, which they have proven to drive improved performance and avoid operational loss. But this is a company who recognized that they already had a lot of operational data that they weren't utilizing.
And so they were looking for an advanced analytics application to and a partner to drive that. They went through a process. They looked at 43 analytics applications to begin with. They narrowed that down to 12, then to six, then to two, and then to one. And the ultimate solution that they're using is the K Net solution from Emerson.
And they're in the process right now of rolling that out across multiple applications and across multiple facilities. And again, these are both terrific examples of this scale and replicate model that we really advocate for, prove the ROI and then build from there. So hopefully you got a good sense for this digital transformation business that we've created. It's a very strategic business. It's an important business for us, and it's also very differentiated in terms of the approach we're taking, focused on the customers' business goals, the way we're bringing together the portfolio as well as building on that $120,000,000,000 installed base.
And we're very confident that over the next couple of years, we will grow this into $1,000,000,000 business at accretive margins. Thank you. So yes, so with that
break We're
going to take a break, but I'm going talk for one
Okay. Second
All right.
So we're going to come back in fifteen minutes, so ten to eleven. And I did say on Chart 46, as I look at the trend line and based on the savings coming at us, I did say $420,000,000 to $425,000,000 even though it says four plus. I think that's where the trend line is with some recovery in 2021 in the marketplaces. So I did say that in case people didn't hear that correctly. But let's take a fifteen minute break, be back here at ten off and we'll go to Bob's business next, okay?
Thank you very much. So we're going to get back started here for the people on the line. Bob's and Tim. So Bob, it's all yours. It's all yours.
Everyone pay attention. Thank you very much. Okay. Bye.
Step is not fully secured. That's a safety issue. Okay. Good morning, everybody. I'm going go through Commercial and Residential Solutions.
You can see on the right side, certainly for us as well, 2019 was a tough year. We accelerated actions, as Dave said, really, it was about the 2018, frankly, that we got into accelerated actions. At the time, we were doing things like some China plant consolidations, European distribution consolidations. As we got into the slower sales environment of 2019 and what we're seeing with 2020, actions have changed a bit as well. And then you'll see we've got quite a sustained amount of activity, really even through 2022 at this point as a number of things are facility related and will stage out over more time.
Commercial residential, again, and you can see it in margin numbers that Dave showed. We have a unique position in the industry. It's a key to our role as an industry steward. I like to refer to it as franchises, Copeland, Rigid and Synchorator. These are franchise names with very strong positions.
I know that some of you pay a lot of attention to that because that also brings up the question of can you protect your positions? The way we look at it, we've done that for many years. There are we go through cycles of different things, especially now with all the regulatory activity playing out, that tends to be a time that we shine because there's a lot of refrigerants out there right now, whether it's propane, CO2 and others in refrigeration, R32, four fifty four, potentially others in air conditioning. And we're just talking about that. We don't have the luxury of picking winners in those things because we serve effectively the entire industry globally.
We serve everybody with that. And that's when our local capabilities, that's when our design and testing capabilities come into play. And so we feel good actually about the activity that's playing out. It's very busy. But as you get into 2023, 2024 residential, commercial, everything's changing right now.
That's a good time
for us.
And that's when we really exercise that stewardship. A big part of it also is the investing in the breadth of technologies. More and more, we want to combine the compressors in the climate side with controls, with data activity, and you can see some of our acquisitions around that. And even on the tool side as well, the locating and usage and other things, especially on the pro orientation of tools, there's actually quite a bit of data and electronic side of those products as well. The Tools and Home Products is a world class business.
Tim is going to give you an update, particularly around Pro Tools. I had the question about Textron Tools. Textron Tools really frankly doesn't exist anymore. We have taken that business and integrated it into with Ridge very closely. And so we have certain products together.
Paul McAndrew is here, came to us from Textron, runs the North America side, a part of that business. Europe is altogether, Asia is altogether. And so we'll give you an update on it. But frankly, it gets harder and harder to tell you how Textron Tools is doing because we can tell you how Pro Tools is doing in total. But we're just not running it that way.
It's an integrated business now and very much so going forward. And again, we'll give you an update on that. 2019, certainly, again, was challenging. We did report 3% sales up because we had the full year of the acquisition, underlying down 1%. On a EBIT basis, you can see a big decline.
Again, most of that was the acquisition dilution. We had about 70 basis points on an underlying basis, heavily driven by the volume going down and then some other challenges. And as you'll see in the first quarter, we've picked up more than that in the first quarter. And we're feeling good about this year. So we've got also about a three point delta for the coming period, and we're planning to pick up about one point of that this year.
So we think we're ahead of the game. This chart on left, frankly, has probably come in handy in recent months. We developed it quite some time ago. Our employees hear the question about portfolio and things like that. And frankly, I put this together for them, but I think it's also important for you all.
If you look at commercial residential as a platform, starting with the Emerson brand promise around technology and solutions and global leadership that defines commercial and residential solutions. If you look at the values, these certainly are ingrained in commercial residential, especially the customer focus and innovation to maintain the margins we maintain with the kind of customers we have. It takes steady innovation and customer focus to be able to do that. And our businesses are quite successful at that. Noble causes, Dave talked about the overall Emerson noble causes, which are very much aligned here.
Human comfort and health, food safety, quality, As I like to say internally, they're not just good things for the world. They're also good business opportunities and the good reasons to come to work every day as employees in this business. And so we like doing those things. For differentiated value, clearly, air conditioning and cold chain and the tools businesses are a bit different. So we go to market in that orientation.
One thing they do have in common is the global leadership. And especially with some of the acquisitions we've had, one of the key synergies has been this global infrastructure we have, whether it's the tools businesses or some of the cargo solutions and other things we've done. When we put that into the global infrastructure of Emerson, it leads to some good things. In terms of our focus areas, people development and perfect execution on the left are really Emerson wide. On the right, again, industry stewardship and then business development.
We are certainly focused for the next few years on making sure we can drive value creation with margin, and we've got a plan that we're very confident to do that. The long term game for this business continues to be growing above market, and we're attentive to that. And so we talk about our goals being getting that separation from the market, which historically been around a 3% kind of rate. So we want to get up into the four plus territory in a long term, return to the 23 EBIT margin. This business is run with very high return on capital.
The recent acquisition diluted us down into the 30s, which is still pretty high. And then our plan gets us back over the 40s again. And frankly, some of these businesses run at 100% return on capital that have been around for a while. And then trade working capital is also very strong in this business. That's been a key synergy of the Textron Tools acquisition, which was running very high on trade working capital versus Ridge Tool, which runs around 8%.
And as Tim will give you an update, a big part of the cash generation has been making a change to that pretty quickly, making good progress. Everybody in our business understands higher highs and higher lows. Dave mentioned it. We understand value creation. We're a public company, and it's important to keep that going.
We feel good about having the ability to do that. You can see we have continued to achieve higher highs and higher lows. It was a record year in 2019 for sales for Commercial and Residential Solutions. And maybe more importantly, it was also a record year on cash flow. You can see the line below.
And over time, we've had very strong growth, which has actually picked up a little bit in the last four or five years. So again, we understand there's a threshold of being part of Emerson. Every business in my organization gets that, And we feel good about having the plans to do that. If you look at our sales activity, you can see on the left side is the line is the underlying orders, three month orders, which vary quite a bit. We don't carry a lot of backlog in this.
Our lead times to a Home Depot are two to three days. Our lead times to an air conditioning OEM are one to two days. So we don't get a lot of orders visibility. It tends to move with sales and it tends to jump around a little bit. The green bars are the annual sales.
And you can see, again, we've had periods of getting up into the 3%, 4%, 56%. When we go soft, it's typically around flat, maybe down a couple of percent. We're obviously in that zone right now. And with coronavirus, we have $05,000,000,000 of sales in China. Coronavirus is going to cause some amount of a disruption to that this year.
And that's why we're setting up the cost activities we're doing. As Dave mentioned, in this time, we've really been in the restructuring mode since late twenty eighteen. You go back into twenty fifteen, sixteen, obviously, we're doing it then as well. It's a bit more elevated right now. And you saw that shine through in the first quarter.
Underlying sales was down 1%, but we delivered 900 basis points on the adjusted EBITDA margin. We feel good about it. Q4 last year, our SG and A year on year was down, same thing in Q1. So we're certainly in that mode actively. This chart is similar to the one that Dave showed on the conference call or the quarterly announcement last time, but I did add, it's really an interesting time.
In the first quarter, Asia, Middle East and Africa, Latin America, Canada, Western Europe for the climb of the side of business, had 5% plus growth. So there's activity out there. Unfortunately, The U. S. Was quite soft.
And for the Pro Tools business, which is also heavily weighted to the industrial cycle, we've had some softness as well. So we're planning the history would say that we come out of these periods with some good growth. We're not really building a plan around that as far as the cost structure side of things. And if it happens, it should give us some more opportunity on the value creation side. For the Commercial and Residential margin, you could see on the left, we peaked actually in 2017, the adjusted EBITDA 27.9%.
Some good things lined up in the 2015, 2016, 2017. First of all, the restructuring that we did in twenty fifteen, sixteen kicked in. Price cost was very much in our favor. Volume was good. And so that was an all time high for this business.
And then a combination of the acquisition, which was a bit more than half actually of the decline you see over the couple of years, plus pricecost turning on us, some mix and some other challenges. So we can move pretty quickly. We can have a point negative of pricecost. We can have a point positive of pricecost. This year, fortunately, we're more on the positive side of that.
And that's the environment we kind of expect to happen right now. If volume picks up, it tends to put pressure on price cost, but then we get the volume help with that. So this is kind of just a normalized forward look. We're not counting on price cost beyond this year. But you can see, we also have around three points of a margin plan.
On the right, you can see again, volume at 30% gives us about a point. Inflation and other activities take that away very quickly. And I will say in the other, it's come up a few times. There are investments in this plan as well. I want to show you a number of programs that are active and that are key to getting that sales separation.
We are keeping those programs sustained. And that's one of the reasons we're doing as many actions as we're doing on the other side of the equation, including other areas of SG and A, is to make sure we can keep funding those things. And so you can see we've got about $330,000,000 total for the business. It flows through at about $145,000,000 a couple of points also and gets us about that three point delta.
Right. This
inflation number is separating materials. You can see materials is put over there with price NMI, net material inflation. So right, this is compensation increases, typically around a few percent in The U. S, higher in emerging countries, indirect costs and things like that. So we typically have a few percent headwind automatically.
And so if you can hold SG and A flat, it's usually because you're getting a few percent productivity, at least on a dollar basis. And then we've got other the indirect and other kind of things, too. And yes, it's very important because it's multiple points quickly. In any plan, you start with that dynamic. If you're static, you go down.
The key part of actions, again, similarly, a lot of facility opportunities. Some of these are consolidation of sites near each other. Some of these are significant moves, the manufacturing operations. As Tim will show, part of the opportunity that we have with the professional tools is taking a number of different operations and utilizing them together. And that's certainly part of the plan.
There's other areas as well we're doing that. You can see again, we also have significant activity. This is a business that runs relatively lean on SG and A, around 15% of sales. Even in that environment, we certainly have a lot of programs around that area. And to our employees out there listening, I want to make sure it's also understood.
Part of the reason we do that is to be able to fund other things. We will redeploy. We recently did some adjustments. We've got a pretty good research organization, a pretty sizable research organization for climate. We recently did some changes to that organization, some reductions.
At the same time, we took a good part of that funding and we put it on a compressor program that we're working on. So we have to balance that equation. And certainly, it's not just driving margin. We already operate at high margins. We believe we can get them higher.
But again, from there, it's going to be the sales side that drives earnings. And you can see on the hourly, with plans, with automation, a significant amount of activity there as well. And so again, these programs are well in flight. As I mentioned, a good part of this reads through this year and then it'll keep going for a while, especially when you get into facilities and things like that. Some of these things are staged over time because of capacity or other reasons.
As I mentioned, the key thing for us is really about or the key focus for us is the separation from the market. Historically, this is a few percent kind of market, the industries we're in. We're not planning on it in this period. Hopefully, we will be surprised by that 1,000,000,000 to $2,000,000,000 higher. We're frankly just not going to bank on it right now.
We're building a plan. Our sales plan for 2019 to 2023 is in the low 2s, at least that we build our cost structure and our programs around. And again, if it's higher, that will be great. And depending on where it comes from, we should get some mix from that, but we're just not going to bank on that right now. It's about innovation and technology on a continuous basis, both to keep the leadership positions we have as well as to create some new things.
And I'll show you some of those ideas or opportunities. The solutions activity, we are very different than our competitors, especially in climate in that we have this full portfolio. The compressors, the controls and electronics, the data capability, we are typically competing with a compressor company, an electronics company, a focused area, maybe it's focused in one region. We are unique in that we are global across these industries and air conditioning varies a lot globally. Cold chain is a bit more similar.
And we're also unique of that composition. And frankly, we're going to use it for a solutions play and then acquisitions and investments as well. So again, we also have a strong position. This chart varies a lot depending on which market vertical it is and even what region it is. But in total, we've got very strong positions to work from in each of these verticals, which is a good thing to have right now because of everything going on.
So we talk a lot again about stewardship. Between us and the end user is a linkage chain. We have big OEMs we serve. We have big retailers and other people we serve. They would like the relationship to be in that box, if you will.
From our perspective, going out there and influencing the industry standards, getting end user preference, contractors as well in our businesses. Contractors are the ones who live with these installations going forward. Their brand is affected by what they put in, including what compressor is in the product. And frankly, they help us a lot, because they value what we do and the reliability and quality of our products. The regulatory environment right now is very active.
You could see on the right. On refrigerants, the industry HVAC industry would kind of actually like the Kigali activity to be done because absent that, then California takes on its own life and other kind of things. It'd be more settled if we had a more stable decision. In Europe, it's the F gases as they cause them. They're more aggressive than the Kigali amendments.
In Asia, there's still conversions from R-twenty two to 410A and people are looking at flipping that and just going right to whether it's R-thirty two or whatever other refrigerant, which is very much pushed in The U. S. Or in Asia. In The U. S, there's a question of four fifty four, R32 or something else in air conditioning.
Since we serve everybody, we have to support all of those things. That's what we do. And so we don't we're not in it to pick a winner as far as the refrigerant. We're going to support whatever winner emerges. And that's when, again, our value to the customers really comes into play is our ability to do that.
It's taken new lab capability to do flammables and even mildly flammables. It takes a lot of engineering capacity, and that's what we can offer our customers. On efficiencies, again, both the commercial and the residential, the efficiency standards are changing. Even how system efficiency is measured, what measurement is used is changing. Clean air as buildings get tighter, internal air is also a key factor.
And you have to have control mechanisms to handle it because you don't have the natural fresh air coming in. Asia has got a lot of activity. China on clean air. There's a lot of heat pump activity in China to get away from boilers. It's happening in Germany and Europe as well.
Very aggressive growth in heat pumps to get away from the oil boilers. And then food waste is a big one, too. There's bans on organics going into landfills, starting with commercial and also residential. China, I'll show you Shanghai has put very strict restrictions on what can go in the trash and can't, and there are several trash bins to choose from now. And a lot of people are deciding it's easier just to take the food and put it in the disposer.
And so our China in sync rater business last year grew 50% because there's a it's a very difficult dynamic. There's literally garbage inspectors making sure that the right stuff is going in the right place. And it's a bit of a hassle for people. Dave showed the chart, on the left as far as those regulations create a lot of global trends. And across the verticals, we've got a lot of programs that play into those, whether it's compressor modulation or food safety or cargo tracking or a number of things.
Another cut is on the right with the when you look at from a pyramid standpoint, a lot of these programs are at the device layer, still very important for us. We make a lot of money on devices. A number of them are at the control layer. And then when you have those, it also creates the data capability as well. And I characterize them as programs in the plan, which means they have sales today of some magnitude and significant forecasts.
And what I call key bets on the right, which is they may be very small or even no sales right now. But as I'll show you in a minute, the market opportunities are big. And it's a bit of I should have put them on here. We've had a couple that have struck out, if you will. That's fine.
One of the reasons we're trying to keep enough of them going is because there are going to be several that don't make it, whether it's for technical or commercial reasons, the customer is just not ready. And but if we have enough of these, if just a few of these things hit, as you'll see by the sale the market opportunity, another point of growth for us is about $60,000,000 plus a year of sales. It's not $1,000,000,000 it's not $100,000,000 And you look at these programs, Scentsy Hydro, which is a full heat pump system. We make the entire heat pump system and then use distribution. We're expecting about $10,000,000 of growth this year out of that.
So that's a pretty good contributor to $60,000,000 Centrifugal, that's out there a little further. It's progressing nicely. Sensei, both the thermostat, interior air quality and then getting into Predict. Sensei thermostat is growing $10 plus million right now a year. The Commercial Cargo Solutions is the businesses we bought, Locustrax and PacSense, We put them together.
At the time, it was about $30,000,000 of combined sales. It's now over $50,000,000 This year, it's growing 30%. And one of the reasons, as I mentioned before, is that international infrastructure capability we have. These were very U. S.-centric businesses, smaller businesses.
International sales for one of them was out of Idaho. We don't run international sales out of Idaho. We run it out of Europe. We run it out of Asia.
We run
it of Latin America. And we're getting good growth from that. So I'll show you a number of these programs. And also for the verticals, you can kind of see our strategic summary. In air conditioning and heating, certainly, again, the refrigerants, the industry efficiency standards, tremendous amount of activity going on right now.
And that local infrastructure we have, engineering, laboratory testing is important in all regions to be able to help the customers through this. Maintaining U. Residential leadership is important, yes. Most compressors in your house in The United States are a Copeland compressor. That's a good thing from an overall sales volume.
It also means we've got people that want to get some of that, And we get it, and we'll continue to fight that with innovation, with cost and with other things. Heat pumps outside of The U. S. On residential, it is primarily a heat pump play. We're not in the mini splits is a little different technology.
But China, Germany, Europe, high incentives to put in heat pumps and also high regulations to put in heat pumps. In Germany, you can't put an oil boiler in the house anymore. You have to put an electric heat pump system for environmental reasons. And so we're experiencing some very strong growth on that right now. Commercial AC, there are some things like centrifugal, dehumidification that we've talked about before, Sensei and others.
And, you can see some of the key initiatives. And again, I'll highlight a few of those. On the product side, if you will, or the compressor side, Sensei Hydro, again, this is not just providing compressor and controls. This is an entire heat pump that we make and that we have teamed up with 98 distribution partners who help with the distribution, installation and servicing. It is more, let's say, a high end solution.
It's the $1,000,000 plus apartments. It's the $2,000,000 $3,000,000 plus villas, as they call them. And there are a lot of those in China up the Yangtze River, where this is really kind of a sweet spot for. And so we've got a lot of excitement around that activity from these partners as well. Centrifugal is the thing we're working on.
And there's a space out there on the commercial side, especially when you get into low GWP refrigerants, low density refrigerants where centrifugal has a place. You probably tend to know who's in that position right now. And frankly, we've had a number of customers who will be very interested in us being there to serve them as well. And so we're working on accommodating them. So we'll be an exciting product when we come up with that one.
On the electronics and control side, again, Sensei is a big part of it. The thermostat itself is a very highly rated product. We're still about 4.5 stars on Amazon. We're experiencing good growth. There's some disruption in that space right now.
I'll say that provides some opportunity for us. We're extending that into air quality, teaming it up with a sensor in the house. At a basic level, you can run the air handler to disperse VOCs or something. You can bring in fresh air if you have a fresh air intake for a house, and you could take it to a number of different levels, too. So you're not just watching temperature, you're watching humidity, VOCs, CO2 and other characteristics that all make up comfort within the house.
SensiPredict is the monitoring system we have to put on as a retrofit solution. As I've mentioned before, there's 15 plus million households today paying a contractor a couple of $100 a year to come out a couple of times a year and check their system. For less money than that, we can put a sensor kit on that. We can watch it every day. We can give the homeowner a report as often as they want, basically.
We do it monthly of how much energy their system is using, and we can alert their contractor if they have an issue, too. And if you're like me, you don't really want to spend a lot of time at home waiting for a contractor appointment. And so two appointments a year is not a positive thing, and this eliminates that. And we've got some interesting things going on. One of the interesting opportunities that's come out of this is the multi dwelling unit owners, who have tens of thousands of apartments per se.
And they're very sensitive to whether when that apartment is vacant, is the homeowner or is the occupant keeping the system going. They might shut it down for whatever reason. If they do, and if you're in the South, you can have a humidity and mold issue creep up pretty quickly, which is a significant problem. So we're finding that we have I've described it before as this MTM, multiple thermostat management interface we have, where you can watch several senses from a central location, things like school houses and religious institutes and that use it because they've got a lot of disparate buildings with different systems. These apartment owners like that feature too because, again, they want to be able to make sure that the system is being left running properly so they don't run into a big repair issue and also deal with the fact that they're paying the energy cost.
So we continue to work on that. It's a good example of where the technology is obvious. The value proposition is easy to put out there. Customer adoption, especially when you're dealing with millions of households and thousands of contractors is a challenge, and we continue to work at that and are seeing some good traction, especially with this multi dwelling side right now. On Cold Chain, as we've talked about before, everything from the origination growing through packing and distribution to the homeowner is the cold chain.
The statistics, it's very high energy use. Supermarkets don't make a lot of money. Some energy savings matters a lot to them. Not just developing areas as far as having a cold chain, but even The U. S, the quality of the cold chain from front to back.
Given the statistic before, the estimate is about 30% of the food that's growing doesn't make it into a mouth. If that goes into a landfill and emits methane, it's the third largest country in the world for methane emissions. So you don't want that to happen. And I heard another statistic recently that about 20% of the arable land and water going with it is making this food, which doesn't go in which doesn't result in any value. So best case, it's going to go back in composting.
Worst case, it's going to go into a landfill and turn into methane, which is a very bad gas. And so we want to help get that reduced. And a lot of that is because of the way the it goes in transit. So focus areas, again, there's also the refrigerants on this side. It's more of the propane and CO2, ammonia and some industrial circumstances as natural refrigerants.
A big part of being the solutions has been putting this organization together and the culture, the electronics and the compressor organizations are fully together and the sales is fully together. Architectures, I'll give you a couple of examples of how architectures vary depending on what kind of a food provider it is. And this is where data comes into play a lot too, because it's the supermarket or the person watching the shipping that can value benefit from the data and it's more of an end user discussion than kind of an OEM in between. Again, a number of programs here on key initiatives. And on the left hand, cargo solutions is this combination of the two, the smaller acquisitions we did.
It's growing very nicely. Since the acquisition, it's over a 20% growth rate. As I mentioned this year, it's even stronger than that. Cooper Atkins is the other acquisition we did recently. This is where we're using kind of cloud based data aggregation.
A restaurant right now will have a handheld thermometer and check the meat patties and check the cold room as a double check-in things and clipboard things. We've got a Bluetooth solution that will feed that information to the cloud. If you're like a QuickTrip or installations like this that don't have a lot of on-site infrastructure, the owner or their maintenance wants to see that from a distance. And I hope to be able to next year highlight a very significant restaurant chain with tens of thousands of restaurants out there globally that we're working on now getting these installations in, which is about a $15,000,000 $20,000,000 opportunity. So it's significant.
On the right side, there's different architectures playing out right now. If you're a large scale supermarket, you typically have a big mechanical room in the back and a lot of piping to the cases. If you're a smaller format, like a QuickTrip or an Aldi or something, you've got a refrigeration loop in every case. It's more flexible. It doesn't take up the mechanical space.
And there's really kind of everything in between these days. And so we have a thing. We used to call it rogue. I guess it's so secret we're even changing the name midway through the program now. But out of the Helix, it is likely to be our first commercial opportunity coming out of the Helix that we have in Dayton.
What we are doing is basically combining the circuitry of the medium and low temp cases. I won't get into the details of how that's done or the IP around doing it. But I'll say it creates a lot of energy efficiency opportunity. At least one OEM in particular right now is very interested in partnering with us on this. And that's one of the things we're working through is what do we provide as far as the solution, how full is it versus we'll provide to somebody else.
And as long as they use our devices, then the IP can be licensed in that kind of a model. Another one is, I call this the Holy Grail because I've been running this business for about five years now and I've heard about it the whole time, CO2 transcritical with scroll technology. That has the potential to be a very breakthrough in the economics and the efficiency of the larger scale like a rack installation. We have these running now in multiple installations, especially in Europe, where this is also a bigger topic. We expect by late this year to be having product out there commercially for sale.
And right now, we're teaming up with both some installers as well as OEMs. Installation of CO2 is more complex. It's a very high pressure. It's not an easy refrigerant to work with. It creates a lot more stress on a compressor, which is a big part of the development capability.
And so that's an exciting product. And it's like I said, we have product running. We have customers and contractors very interested in commercializing this. And so we look forward to some opportunity there. On Tools and Owned Products, this is an interesting business.
It's probably one of the lesser discussed that we do. But from a standpoint of growth and value creation, it's very significant. These businesses in the last ten years have had about a 4.5% underlying growth rate. It is driven by a continuous stream of new innovations, new products as well as now the acquisition bringing us into electrical in full force. Right now, we've got over 40 products in NPD pipeline.
So this is kind of a new product innovation machine, especially in the professional tools side. The strategy is very much on for tools, it's around professionals. About two thirds of our distribution is pro channel. We do some big box stuff and pros more and more use the big box as well. But our tools are very heavily oriented toward the pros.
For the home, again, the food waste disposers, there's still half the homes in The U. S. That could use a food waste disposer that don't have one in them. And we continue to work on that, because of the hygienic as well as the environmental benefits of putting your food through the disposer instead of in the trash can. And as I mentioned, internationally, China right now has the potential to be tens of millions of dollars of additional disposer volume very quickly because of what's happening around regulations on food disposal.
It started in Shanghai, but there are several other cities as well working on this. Obviously, it's on a little pause right now. And then e commerce, we typically have about we've got about 25% growth on the e commerce channel here. Certainly, part of that is displacing other channels, but it also does create some incremental opportunity. So I mentioned food waste disposers in China.
The one on the right is one of the articles about it, sends Chinese city into frenzy. The diagram here, I thought was kind of fun. If you are unsure of what food to put where, this is a simple explanation. There are four kinds of bins. You have the recyclables, you have the hazardous electronics, you've got wet food and dry food.
And then if you have big items like furniture or appliances, you also have things for that. They literally will watch the trash collection. And it's not good if you're putting stuff in the wrong place. And it has led to a lot of activity around disposers. So we've always had a certain amount of disposer business in China.
Right now, we've largely played on the high end. We ship disposers in from InSynchronator. They run at a very high price point in China, which is kind of interesting. We are working right now on a China for China product that we'll be making in China for China, which will help us play in more of a, I'll call it, more of a mid tier. It's not low tier because the price points in China are really quite good for these products.
But it'll help us get at some more of the market. As I mentioned, last year, the business grew 49%. So in a time when China was down and pretty tough last year, this and it was basically driven by this in Shanghai. So as this goes out further across China, we're very optimistic about the opportunity and it can provide a really nice kicker, frankly, for Insynchronator. On the Pro Tools side, pipe and electrical tools, battery hydraulics.
Tim is going to talk especially about the Pro Tools side, the VACs, where we have a very strong partnership with Home Depot on this, Underground Technologies. These are not your typical tools. So I'm not really much on props normally, but I brought one. So here's a product that we have coming now. In the top right there, you see an insulated tool for safety.
So if you're a utility worker working on lines, and this is not a home electric line, this is the kind of cable you're talking about, this kind of electric cable you're talking about. So if you want to cut it, it takes a little bit of force to do that. So this tool does that. You don't want to put your finger there in the middle of that thing because you can imagine amount of force. This is a $1,900 to $2,200 tool.
This is not a $49 do it yourself kind of a thing. It's a very good margin tool, frankly, because it's a very important tool, and it's something that the professionals like this use on a day in and day out basis. And if you're a utility worker going into a trench or somewhere, and there's not just one of these, there are several, you're not 100 sure which one's live, which one's not live. It's nice to have a little protection. And this thing is an isolation between a metal end, and it can take up to 1,000 volts without getting into the operator's arm, if you will.
So again, that's the kind of stuff we do. That's what's interesting to us is the pro orientation. And that's where we're focused. And there's some other areas that are interesting for us as well on that front, which Tim will talk about. Yes, you can do some damage with that thing.
In fact, I'm going to take the battery off, so Martin doesn't play with it in the break. That could be a problem if you play with that tool, if you're untrained. So anyway, like I said, we the sales softness of the past year, what we anticipate happening right now certainly is challenging for us. We've gotten on top of this, we believe. We think you can see it play through already in the first quarter.
The guidance we've given is that we will be in line with that kind of 100 basis points improvement for the year. So expect to see this continuing. That's frankly, despite whatever the sales environment is, that's kind of our mantra inside is whatever sales we end up with, because it could end up being less with China, we are still going for the 100 basis points, and I feel good about that. And then going forward, we've got a 2% to 3% expectation here. I know some of you are going to reverse engineer the bridge and see that we used about $6,700,000,000 of sales for the margin forecast.
That's correct. We were purposely conservative on the low end of the 2,000,000,000 to $3,000,000,000 The midpoint would be more around 6,800,000,000.0 And again, dollars 25,000,000,000 up to around 28% and with a third of that, frankly, coming this year. So we feel good about the program. With that, I'll turn it over to Tim.
Thanks, Bob. All right. I'm looking forward to talking about Tools and Home Products. This is a great business. As Bob framed, we've grown the past ten years, 4.5% on an underlying basis, have a nice tailwind with the acquisition of the Textron tools business, which I'm going to share some opportunities on that segment.
And really have a great team that is all about innovation, delivering on what the end user wants and needs are. We're really tied with the professional contractor that we talked about. This is really the discerning pro, all about reliability, dependability and uptime, and we have the tools and products to deliver on that promise. So if you look at our 2019 results, and again, this is reported separately within Emerson, 1,900,000,000.0 of sales. That was a 22% increase over last year, driven by the full year of the Textron tools business.
We had a quarter in 2018, the fourth quarter underlying sales at 2%, started the year off really strong on the professional tools segment. We are tied to industrial and some of the energy markets and then that tailed off. You can see adjusted EBIT dollars growing at 3% and then the acquisition with the margin dilution at 3.9 points and 2.9 points on the adjusted EBIT and EBITDA. We are we consist of really these franchise brands. So that's Ensancorator for food waste disposers, strong leadership position in the global markets there.
We're very strong in The United States. Rigid, Greenlee and Clocka, which I'm going to talk more about as we had access to the electrical market with the Textron Tools acquisition that provided the Greenlee and Clocka brands, which are again world class franchise iconic brands similar to the Rigid brands serving the plumbing and mechanical markets. Talked about the strong underlying growth, these sustainability trends, which is helping the disposer market, Bob mentioned, we have about 53% penetration in The U. S. Market.
So great growth in these international markets. China grew at 50%, but there's a lot of tailwinds for The U. S. Market where we have obviously is the strongest disposer market in the world and a lot of runway for broader adoption as more sustainability comes into play aside from the convenience and hygienic benefits of the product. And then this acquisition of tools of the Textron tools really does extend our presence.
It expands our served market by about $2,000,000,000 We were traditionally very strong with this mechanical plumbing contractor with the ridge tool business that Emerson bought in the mid-60s. Our Chairman and CEO ran that business for several years. He's very familiar with it, but we're weak on the electrical contractor side. And that's where the Textron tools business was very strong. And again, that gave us access.
So we were at a two legged stool with the mechanical plumbing side. The electrical side really gives us that three legged stool to go after the contractor in a more meaningful way. Lots of progress the last nineteen months. We closed on the deal in July 2018, and the team has done a remarkable job. I've done a lot of restructuring.
We've got a single unified organization that we call professional tools. As Bob mentioned, there's not a TexRun tools, there's not a Ridge tool. We are a single unified organizational structure under professional tools. And we've got really just a fabulous team that's delivering on our plans and the actions that we identify from a synergy basis. So the Tools and Home Products is really an important value creator for Emerson, a great margin business, great growth profile that past ten years, strong cash generator with really these iconic franchise brands.
So this is a chart that we showed when we announced the deal, again, in July 2018 when we closed it. And you can see the product categories from a Greenlee and Clauco perspective. The electrical side, bending, pulling, Bob showed the cable terminations, knockout pullers. These are, again, are premium products that provide reliability, dependability for the electrical contractor, primarily an Americas based business. So Greenlee, again, is very strong with the electrical contract in The Americas.
Clautica is the European leader on the electrical side. So similar products, although there's not as much conduit as in Europe as there is in The Americas. So it's less of a conduit vending. But the battery hydraulic tools, we are the leaders in the electrical side as well as the plumbing and mechanical side, and I'll touch on that in a minute. They did have several businesses, three that were nonstrategic.
So we divested those over the last year, and that would amount onto about 20% of their total revenue so that we could focus on their remaining businesses that serve that mechanical, electrical and plumbing contractors. So they had a business in communications that was in the telco, cable, technician space didn't make sense. Endura hand tool business, which sold in the DIY market in China didn't make sense clearly. And then they had a utility equipment category, which is a high cap high expensive capital business, long selling cycle, and it was a different market in the utility side. So we divested that as well.
And then the one area that we also like is this test and measurement side. So that serves the utility contractor in a high voltage application as well as the electrical contractor. With some of the restructuring we've done, we've tucked that underneath the leadership for the GreenLeaf product. And that's an area that, again, we think organically, we can do a lot with and there's other opportunities to grow that business. So we're excited about that area.
Again, when you look at who we are serving with these businesses, with these key franchise brands of Rigid, Clauka and Greenlee, it's this mechanical electrical plumbing contractor, very discerning professional. It's all about uptime, as I mentioned, it's about reliability. And we offer a full portfolio of tools to serve in those segments. Bob mentioned the distribution channels. Professional distribution is where we play.
That's where they buy because they want the service. Again, it's about uptime in terms of delivery, etcetera. You can see some of the key accounts that we have. One of the key dynamics that's going on is if you're traditionally an electrical contractor, you're wanting to branch out and provide more services in the mechanical or plumbing space, vice versa. If you're a plumbing contractor, you want to extend into the electrical side.
And similarly, distribution is expanding their portfolio to be able to offer a more comprehensive solution to the MVP contractor. So the beauty of this is there's consolidation efforts going on. We now have a much broader portfolio to serve not only the end user, but the professional distributor. Big box is a big channel as well. We do have a long partnership with the leading home improvement retailer, twenty five plus years.
That's where we sell our Rigid Wet Drive X and have a broad portfolio of our drain cleaning and plumbing equipment. We do think we can extend that in the electrical side with the Greenlee brand because these big box, they want the brands that are going to draw the professionals into those stores. And we have those and have done a really terrific job working with, again, the leading home improvement retailer to grow these categories within the big box channel. And we think there's other opportunities within the Greenlee category in United States and The Americas. E commerce, Bob touched on this, great growth.
We've grown 24% on a five year basis. A lot of activity in terms of digital content, making sure our websites are where they need to be because that's where these contractors are going out and searching. We have a big forum that contractors can go on to rigid.com, for example, and talk about jobs that they had issues with or problems with. That takes an infrastructure to build. We've got that.
It's really a terrific resource. We've got a broad software solutions team that I'll talk about that's helping with that. And we really have key differentiations from a digital perspective to serve those key customers. I talked a little bit about the organizational structure. Here it is.
And when you look at we have functional leadership and regional leadership. So we had two businesses before the acquisition, obviously, we combine this into one leadership. So we eliminated a layer of overhead. And then we have business leaders for each of these vertical segments. And on the right side is more detail and color as it relates to the verticals that we have for professional tools.
So pipe and electrical solutions being our biggest category. That's the pipe and threading equipment, tubing tools that is with our Rigid legacy business. And then I talked about the expansion of bending and pulling and fishing and hole making, test and measurement as an area, again, that's very attractive. The Underground Technologies, this is a ridge tool business, great growth profile. We have pipe inspection and cameras.
So we can go into a drain or a pipe and determine what is wrong with that pipe if there's a clock. Is it a root structure? Is it grease that's causing that? And then we have the drain cleaning systems to be able to clean that. And I'll share with you some of the applications from a connected device perspective that really add value in that market.
And then locating is really an area that's growing nicely too. I'll talk more about it. Battery hydraulic tools, again, we are the leaders in the pressing space, which is basically joining two pipes together, whether that's copper tube or now we can go up to four inches steel tube by a hydraulic tool that's got a special fitting. So you don't have to sweat the pipe or you don't have to weld the pipe, you don't have to thread the pipe. And then electrical crimping is a big area as well.
Similarly, it takes a lot of force when you have the cable that Bob showed to be able to put a log on the end of that. It takes about 60 kilonewtons to get an effective connection and we have the tools to be able to do that. And that it's the jaws that work collectively with the pressing and the crimping tools that there's kind of an art to the system approach. Yes. Actually, Tim is going to get trained in Elyria, Ohio and, Rockford, Illinois, which is where, the mechanical plumbing side is with Ridge and Elyria and then Greenlee at Rockford before he heads over to Europe, actually before he heads to India for his Eisenhower Fellowship.
He's a quick learner though as everybody knows here. I wanted to touch on the some of the key industry trends of what's going on in the space. And I frame that with three of these as it relates to the mechanical electric plumbing side. And I want to start off with plumbing. So I talked a little bit about it, where you basically can eliminate the need for sweating pipe.
So again, where a traditional plumber would have a connect two pieces of copper tubing, a zero five inches, two inches, they would traditionally sweat or braze that pipe. And now you can just simply put a new fitting connected to the pipe, put our hydraulic tool over that and it makes an effective crimp, which is a hermetic seal for that pipe. In Europe and The United States, there's 3,200,000,000 fittings that's how big the market is. Billion of those is the sanitation market, point 2,000,000,000 is the air conditioning refrigeration market. In Europe, it's there's more the penetration on the sanitation side.
There's less in The United States. It's growing rapidly and it's at its infancy in the air conditioning and refrigeration market. So you need our tools to be able to connect those new fittings on AC or refrigeration lines. It's a big, big opportunity. We have a terrific partnership with the largest fitting manufacturer in the world.
So that gives us access to some of the things that they're working on, on new technologies, which has really advantaged the rigid product category here. And then on the electrical side, similarly, again, eliminate the need for soldering on electrical lines, simply put a log over this cable, crimp it and you've got a great connection. This addresses the skilled labor shortage. So you don't need to learn how to braze a pipe or you don't need to, in some cases, weld. I mean, these crimps can go up to four inches steel pipes.
So in some cases, you may need to weld that. And all you really need to do, as Bob showed, is pull the trigger on these battery hydraulic tools to make that fit connection or to cut the cable. So it's a big productivity improvement and addresses the skilled labor shortage. The other thing on the lugs with the battery hydraulic tools is electrification. So there's obviously more batteries in terms of energy storage.
It's critically important that you have a right connection, so you don't have any energy loss in that. And this is a system that provides that. And then on the digitization. So I talked about these locating tools. So if you're going to if you're one of these contractors and you got to dig, whether it's a shovel or a backhoe, you don't know what's underneath the ground.
What utility lines, whether it's gas, sewer, electrical lines, we make the products to identify what those lines are. And then we have software applications that can map that appropriately. So it's really cool. It's called a rigid tracks software application. Again, just a terrific system and, the team has done a magnificent job in developing that.
The other thing is these contractor businesses challenges. Bob talked about safety. Obviously, the insulated tool provides a certain level of protection. We would hope that we can get a standard built in that if you're cutting cable, you have to use an insulated product. These fittings that I talked about, again, there's no sweating, there's no flames.
They have torches to be able to do that. So it's safer. I mean, periodically, you will hear about buildings or houses being there's fire in them because it was torched when they were sweating pipe. And then remote cutting. So if you do identify a line underneath from an electrical perspective, you don't know if it's live, you don't have an insulated tool or you can't get into the area, you can actually remote cut it, whether, that's a Bluetooth activated device, which is really cool.
Again, another layer of safety. Productivity, this move to cordless. These products were traditionally corded. They've transitioned to cordless. We're looking at a broad much broader cordless battery system application on more of our tools.
Prefab work, again, addressing the skilled labor shortage. We have conduit vendors that go into prefab work And this is really a skilled art. If you don't bend conduit properly, it's a huge scrap problem. And so we have new conduit vendors tied with a BIM, Building Information Modeling System, we call BendWorks, that optimizes the conduit bending. And again, addresses the skilled labor shortage, really cool application.
It is tied to the leading BIM software tool. So it's the utilization is terrific. Again, I talked about some of the software connected devices. We have Rigid Connect, which provides location for the tools, provides the number of cycles that have been used from a service perspective, where the device is, where the closest service center is. So really terrific programs there.
And then I want to touch a little bit on our one face of the customer approach. So as we integrated these businesses together, we unified The Americas, Europe and Asia. We've got harmonized pricing programs, which was not easy to do. Greenlee had a separate program, Cloquet had a separate program. We've now harmonized those.
So we have one professional tools programs. We have one CRM system, which was actually developed by our software solutions team in Elyria, Ohio. We've streamlined our customer technical training and are now working on a single ERP system for our Pro Tools business. This is a look at our served markets. As I mentioned, we're leaders in those verticals I touched on.
This is an area that the acquisition extends our position in, again, big market, an area that is very attractive to us. This gets a little more granular as it relates to the product categories, what's applicable from a cordless perspective, what's at a higher growth application, the darker the green is where we are strong in, lighter is where we are not as strong in, but obviously an area of attractiveness as it goes up higher growth scale. And you can see what Drive X is an area that we're very strong in across all three of those verticals. Again, a lot of opportunity here. So a little more detail as it relates to these segments.
When you talk about Pipe and Electrical Solutions, that is our largest business. You can see the breakup of the pipe and the electrical side. It's all about productivity. It's about addressing the skilled labor shortage I talked about, putting new power systems in place. Again, it's reliability, making sure we're delivering on that promise that we have for many years with these key brands.
And these are really our franchise product lines as it relates to pressing and bending and pipe wrenches. And so there's it's a great opportunity to extend the software, IoT capabilities as well as just new technologies, and we're investing heavily here. This is the underground technology portfolio. Again, you can see the mix from inspection and locating and drain cleaning. I talked about going in and inspecting the pipes and having a full array of products to be able to clean these.
Nobody has the scale in this segment of the market that Emerson does. And the technology, we've got new cameras, new systems, inspection systems, in terms of the high dynamic range capabilities for pipe inspection as well as, just the new camera systems are phenomenal, and we've invested that. And this is a growing really growing area. Durability is key because these things are on job sites and we have the most durable products in the market here. And then battery hydraulic tools, again, you could see the size, the mix, Clawka rigid with the pressing, Greenland Clawka with the crimping, new investments on battery systems, brushless DC motors.
One of the big opportunities here is to be able to scale this appropriately. So rigid had a, again, a long history of pressing, GreenLake Cloak, a long history of crimping. Fundamentally, it's the same mechanisms, whether it's the hydraulic valves, batteries, motors, PCBAs. So we're designing where we can have common parts and that gives us a cost and a competitive advantage from a technology standpoint. And then lastly, with the Rigid wetdry vacs, you can see great business, strong mix of filters and accessories, which is a consumable type business.
We've innovated a lot with different filtration systems. This serves the residential, commercial and industrial markets. So growth profile here is a little different in that we've got more res construction exposure and remodeling exposure, which is has still held up and that's doing nicely and more e commerce growth in this segment as well. So this is another chart that we showed at the acquisition, the one that's on the left, in terms of the rationale for the Textron tools business. So obviously, again, these brands are iconic and it complements the Rigid legacy business very nicely, adds $2,000,000,000 of served market expansion, improves our geographic mix.
Clauka is again the leader in Germany, had a strong presence in Asia Pacific that extends our business in a meaningful way in both of those markets, Greenlee and The U. S. And then there's potential for meaningful value creation. So when we did the deal, we thought that we would reach 20% EBIT and we're well on our way to reaching those margin goals. We thought we could take out 25,000,000 to $50,000,000 of working capital.
We think we can extend that even more. And we thought we'd generate over $100,000,000 of operating cash flow. So you can see on the right slide, where we are on the bottom right as it relates to margin expansion with the retained Textron tools business. So we're well on our way to the EBIT margins that I'd mentioned and then significant cash flow generation with the working capital improvements. And we again talked about the divestitures, too.
So some of the results today, one of the things I want to highlight is safety. They've talked about the key values of Emerson and safety, obviously, is one of the seven big improvement in safety. So that took a lot of effort from the team to focus on the activities from a safety perspective and to see a 55 improvement in this is really remarkable and hats off to the whole organization to really pay attention to that. We moved $200,000,000 of spend thirty three days, clearly helped our working capital numbers, optimize the business portfolio. I talked about with those divestitures, the one face of the customer actions.
And then we are underway as it relates to the footprint optimization and opportunities that brings for EBIT improvement as well as our cash flow and ultimately for servicing our customers in more regionalized local way that will be better for them. So we've achieved about 40% of the synergy plan savings in the first year. Again, I want to thank the team for all the work and effort that has gone on and a lot more to do on a go forward basis. If you look at our guidance, so for 2020, we're negative three:one, again, consistent with what Bob showed for total com res, again, tied to the industrial energy markets more on the professional tools, which is a headwind. The 2% to 4% is our forecast on sales going forward.
And then you can see the margin expansion in 2020, so 60 points to 80 basis points improvement in 2020 for adjusted EBIT and a full point for adjusted EBITDA and then growing three to four points on a forward basis from a margin improvement for these businesses. So in summary, it's these are great franchise businesses, great growth profile the past ten years, driven by technology innovation, which we are investing in, in a meaningful way. And we're excited about what it brings as we pull together the Textron tools business with this professional tools and what opportunities that has, again, a cost perspective, asset management improvement. And it just provides a terrific runway going forward from a growth and margin expansion. So it's a great value creator for Emerson, and it's fun to be part of this terrific team.
Cool, late eighty nine, early ninety, ninety one. Oh, sorry.
You
blew that. That's okay. There's a guy, some of you may know this guy. I don't know if you know this guy who ran Greenlee, because I tried to buy this company since 1990. You ever heard of Herb Henkel?
Herb
Henkel. Herb Henkel ran Greenlee Tool when I was running Ridge Tool. And Herb and I got to know each other a little bit differently when he became CEO of IR. We didn't become as much friendly as we used to be when we were at the Tool Institute. He called me friends.
But so Herb used to run Greenlee. I ran Ridge Tool for a couple of years. It was unbelievable history. That's why you don't piss people off because you never know what's going to happen. But, it's a great acquisition.
We're going to create a lot of value with this acquisition and a professional tools area. And, there's other things we can do around this because the one of the things you notice, and Bob showed this tool here, so much, if you just come up and take the battery off and don't play around because it is very dangerous, could have thirty, forty newton power. It's a lot of power. But, the lightness. So when I used to work in the tools, I was a pretty good plumber, and, you couldn't lift the products.
But today, have males, females,
have
a different you have to have products you can use so people can use on a more diverse workforce. And that's been the big issue for the world to go with lighter products and more power. And if you watch those people, a lot of times, the men and women are working over their head. And those things, you do a couple of joints over your head after about two or three times, your arm drops off. And, so it's an amazing technology.
It's not going to go away. The joining is not going to go away. To think that we can connect a four inch pipe today with a coupling and power, it's just unbelievable technology. And what happens with it is, first, you design the tool, but more importantly, you get these amateur people and they break the jaws. You got to buy new jaws.
What a shame. And, so that happens. Okay. Before we take a break, got to show you the photographs. Here they are.
Here's Dune and Rocket. Rocket's in the backside. Rocket's a little bit depressed because his stocks, you know, only gone up a few shares since last year. You guys are calling me pump and dump or something like that. Remember that last year?
Called it pump and poor Rocket got his first certificate, pump and dump. Dune says he's wanting to wait a little longer on this thing. So this is Dune is now nine months old, Rocket's a little over a year a bit. And so this is two days ago. This is a meditate with my wife every morning and that's where they go.
That's the meditation room. And so Rocket's better at this than Dune. Dune's a little bit impatient, sort of like dad, and he's ready to get out of that meditation bed. So let's take a five, ten minute break and then we'll do forty five minute Q and A for people who want to stick around. We're going to do forty five minute Q and A for the people on the phone or the if you're still there, if you have you're not falling asleep, we're going to go back and do a Q and A and we are going to broadcast some Q and A.
I mean, I got to mix
it up.
I got to but what the hell, Dean? You got to change once. No, no, no, no. No, it's from the standpoint of from the we had huge demand this year. And we know can only so many people in the room.
And so we made the decision to do Q and A broadcast. And so but come back in ten minutes and we'll set up and we'll do the Q and A and talk a little bit about what you want to know about, okay?
Thanks.
Let's grab your seats everybody. We can put you on the front row and then we really can have fun.
So
if you think about the math of 04/25, the biggest savings for us is next year, it should be close to $200,000,000 the delta. So this year, remember, this year, can you turn that down just a tad where my microphone person is, walkie talkie, she is, she's talking. You very much. So the biggest this year we have about $55,000,000 Next year, the incremental is going be around $200,000,000 then following year probably around 100,000,000 as we look at. So if these guys and everyone out there on the phone and then my executives at the back of the room around this room execute, we should drive incremental savings next year of $200,000,000 That's how you get that number.
And I think that we'll also get a little growth bounce back in some places. But really what we're driving next year incrementally is a bigger number of savings, which allows us to get back to that not quite all the way to $450,000,000 because we had more growth in that number, but allows us to have a very solid 04/25, 04/20 based on the incremental savings. A lot coming from Lyle because Lyle really kicks in, even Bob next year. We don't talk a lot about the facility stuff because a lot of it's not announced in places you don't want to talk about it yet. If you notice the bottom of these charts, I'll talk about consultation and stuff like that.
Soon as that code word, know you're talking about Europe and things like that. So it's very important. And these guys, that's why I'm very honest with these people. So that's where we are. Let's go to the floor.
Who wants a question? Who wants a question? We're going start right here.
Thanks, So Dave. Are just following up on your comments around the $425,000,000 So like you guys always talk about other inflation, you now dropped it in the year, know as big red bar chart. So when I think about sort of the offset usually between other inflation and productivity, usually there is kind of a one to one offset with that in pricing, guess. Is that still what you're expecting? So basically when you said that $200,000,000 you just said, does that fall directly to the bottom line?
That's the delta from that's from the all the restructuring activity we're taking right now. From the standpoint of what we see inflation is typically driven around salaries and wages and benefits, the government regulations. Emerson profit planning process is driven around to offset that every year. Now we showed it to you because a lot of companies won't not show it to you, but we show it to you because we show it to our Board, we show it internally. It's And very important you understand that the magnitude is what we're undertaking to really drive both the inflationary numbers and then the real cost numbers, the $200,000,000 which will drop the bottom line.
And also what we're trying to do is, in Bob's case, he's building in through his net material inflation work and other work he's working on. He's trying to get some investments going. Lal gets his through a little bit of incremental leverage on the sales. So we're trying to make sure we build into some investments to make sure we're not hurting the company as we go forward here. But the $200,000,000 comes from pure, pure actions we're taking above the underlying job that we do and run the business day to day.
Great. And then, now that we have a little bit of visibility on China, a little, you talked about $0.02 last week or whatever in terms of impact that you're within the $0.81 to $0.79 Is it still feel like that's kind of the impact for the year? Does it feel worse? I know you said high end of the 75,000,000 to $100,000,000 But how are you thinking about it now in terms of the impact on the
I don't think I have any I mean, from the standpoint other people can type pipe in, we're taking orders. The question we're going to watch is day to day, we think about some of these facilities have been shut down for three weeks. And so we're up and running. We're very much in tune what's going on. We have a very great organization.
My hats off to all the Chinese people that were probably listening to this live right now. Hats off to what they've got done, but they've got to get things moving, production, the orders. So I still believe this quarter, 75 to $100,000,000 hit. Bob has businesses that once the season's gone, they're not going to say, oh, let's go ahead and do it anyway. He'll get it next year, but he won't get it this year.
So I think that we're going to so what I'm concerned about right now is I think Lao will probably get his back, but Bob will probably lose some of it until this and then the Chinese will will come in the second half of the calendar year with some stimulus in my opinion. So the number I said, I think we're still good. My concern is right now, it's probably still 75,000,000 to $100,000,000 I have no new information. I'll try to keep you updated. If we have something, Pete and Tim, when do we put the orders out again?
At the end of this month, February? Okay. So we'll probably put a little blurb in there and trying to keep everyone informed. But, you know, right now, you've got you've got the hottest information and the most open information anyone else is getting you right now.
Thank you.
Go on this side over here. Nicole. I'm going to make it hard for the mic players. They're going to try to guess. Good luck.
Thanks, Dave. So maybe just a quick clarification to what Andy asked. So then are you saying that the growth investments back into the business fall within that inflation other bucket?
Bob has we Bob did that in his plan. And so and Lal typically would leverage a little bit higher than 30%. Bob is a struggle to get 30%, but so Bob builds a cost reductions in. He's trying to build investments into his plan at a lower growth. You guys want to go ahead.
Ours is in the leverage calculation. That's where you'd find the investments that are underlying in the business.
The other key thing, Nicole, is, from the standpoint is, if we do get a little nice bump in growth and we're planning a little bit of bump and 2023 could come in a little bit sooner, typically you're going see it will leverage faster. So historically, when you look back at the 2002 to 2005 plan, we got if you look at it, we really got a bump as we came in sales and then we had to come back after the fact and start putting some technical support in the place and to deal with it. So historically, we're trying to set ourselves up for is to set a new high. And part of that's going be most of us coming through pure, pure costs and then get a little bump. And that's how it's going to be.
Now these guys are all saying, I'm setting these targets out there, I'm leaving, and they'll just reset them after leave. The issue will be is I'll come back and get them. I've got a lot of Newton tools. Trust me.
Okay. Thanks. And then with respect to the divestitures, understand that you didn't embed that in the outlook to 2020 Do you have any sense of like potential dilution from those or would the goal be to offset that with buybacks so that it's neutral to EPS?
No, I the dilution will be could be from a cash flow standpoint, it could be significant. I think we're looking around $400,000,000 Mark, was it $400,000,000 total or $200 about $400,000,000 total cash flow. So they're reasonable businesses. The key for me would be is we'd like to do some acquisitions at the same time. So it'd be a combination of share buyback and acquisitions.
The key issue for the Board right now is how do we manage our shareholders expect us to be pretty consistent. One thing I've learned, they want that cash from the standpoint of other dividends or share repurchase from that standpoint. And so we're trying to we'll manage as we go forward, but we also want to make sure we get the right price for our shareholders. We're not really we're not going to dump. We're not going to do the Rocket dump it pump and dump, okay?
Though Rocket is very happy right now. His dividend went up this year, so he's a happy camper. He gets more dog food. Back here in the back of the room, I'll come back up. I'll keep I'm going go back and forth.
We've got 45. I'll wear you out.
Dave, you're pretty consistent with kind of the cost takeout plan and that's great. But there is an opportunity potentially this year for some assets to come on the market. Obviously, there's talk I mean, obviously, Nellis is out there and then the specter of potentially ABB breaking up. I mean, how do you think about maybe switching the game plan if you see some attractive assets that you can get at, I guess, reasonable prices
this time? Nothing is reasonable in this world right now. Nellis Jamesberry is a control valve is a valve company that's been part of Metso for a long, long time. Two phenomenal brands is about €1,500,000,000 mark, is that?
700,000,000
€700,000,000 okay. I've got to think about the valuation of the market. €700,000,000 is a very good business. I fundamentally believe that it's a unique asset, but I'm not quite sure that would be in the top of my list. I think it will create play movement in the final control market space.
The reason it's being spun off is because Metso is going a different way. And the people that bought into Metso are the same people that bought into ABB and they're pushing them to put this out and see what's going to happen. So I firmly believe something is going to happen in the final control space, maybe not in 2020, but 2021. ABB. Now, by the way, both of these assets I've talked to the board about and explained to the board, I we see these assets out as Mark goes.
And, so ABB, from my perspective, there is no information that says they're gonna sell anything off. There's there's a lot of rumor, particular by people in this room. But clearly, what I reviewed with the board is potential interest in that asset. Because I would say, yes, there are assets within ABB. Obviously, I know Peter very well, serving at IBM Board with him and just went through the transition of the CEO there at IBM.
And now I'm looking forward to meeting the new CEO when he starts, I guess, March 1, is that what it is, March 1? So I'm looking forward to seeing that. And so we showed the Board both those assets. We didn't have them up in this chart here, but we show both assets and explain to them what interest that would be to us and why and what that means and the type of thought process we go through. Mark, anything you want to add to that?
Yes. I'd just say in general, we're not shy in calling our corporate peers and letting them know what we're interested in. And there's a lot of activity, I think, with some spins going on that might offer some opportunity. So we have a conservative acquisition plan just because of the environment. But as that turns, we have a strong balance sheet that we fully intend to use to get the assets when they become available.
So Lal, would you like to make any comment? Because you and Ram have been going through this Nellis James brand looking at where we are.
It's a tremendous brand, both two very strong brands. But we have a very complete Final Control portfolio. Across all the technologies, what Nellis really brings to the table is a rotary product. We already have a greater than $300,000,000 rotary valve business that's very strong. They bring certain segment.
But I would prioritize the control software opportunities out there well ahead of building further Final Control portfolio.
I'm more interested in what that could create the tension in the Final Control market space, which I'm always interested. I'm a first mover type of person, lean in and push. Another question?
Yes. My second question, what about Bob, I guess, is Bob.
That was a movie.
Bob, it
was a movie.
So what I would say what I would ask is Carrier obviously just had a pretty interesting Investor Day earlier in the week, actually right here. Right here. Upstairs. Yes. It wasn't like Otis where the elevator was broken.
But from that standpoint, Carrier did talk a lot about their SG and A plan and cost reduction plan, particularly amongst its components. And obviously, the obvious player there would be a lot of the motors manufacturers as a whole and you've divested a lot of that portfolio over the years. But on the compressor side, are you nervous about perhaps increased scrutiny, competition and then even cost out from some of the key OEMs? How are you going to deal with that? How are you going to continue to preserve what is a very strong competitive advantage?
Yes. That's a day to day activity in a space when you're serving OEMs with 100 millions of dollars of content. There's a natural cycle that happens. As I saying, with the regulatory changes going on right now, we're optimistic about that because that's when our engineering and lab and design and other capabilities to help with new applications, especially when there's multiple refrigerants in the mix at the same time comes into play. Products go through cycles where then there's a heavy cost focus.
So
what you're describing is not anything we haven't faced for the last couple of years or so. We believe it's actually shifting more now into the they got new platforms to get out and their main attention is going to be on having the product to meet the next efficiency in refrigerant standards. But again, we have big customers. I mentioned that traditional box. And yes, they would like that box to be the conversation because they want to talk price.
But I'll frankly say that in distribution as well as contractors and others, A challenge sometimes that an OEM can run into is they'll substitute and it's not unknown to people. And so the channel may want piece of that too or may not like what they're substituting. And we'll work that side of it with those other pieces of equation. So again, we they know our margins. They're reported.
They know they're substantially higher than theirs as well as others. They remind us of it frequently. We have to earn that premium every day.
The key issue I'd add to that is, as you as the people follow this, there's cycles, like you just said. So in a cycle right now, cost reductions are big and then but we'll play with that game. Flipping now, yes. It will flip. And then and so what happens is we gain, our margin goes up, I mean, that's how this game goes with us.
And we've been in here for a while from that standpoint. This side over here. Dean, get right there. Don't hit her in the face.
Thank you. Dave, was hoping to get a bit more color on how the $425,000,000 number was reached. We got the you revealed number last week, but in the presentations today, is it a coincidence that both businesses, both segments landed on the 10% down on headcount because that makes it sound like it was a top down mandate. So is it a coincidence, but you brought in consultants, I would have thought there was a more thoughtful bottom up assessment of
It was definitely a bottom up, and it's more coincidental than anything else. One of them is probably a little higher than ten, one is a little bit lower. It's more coincidental. I mean from the standpoint, the consultants did a good job of retesting the way we do things. And I I can let Lal and Bob talk about because they were part of the task force.
I was not part of the task force. Basically from the standpoint as they report back into us, I mean, Justin was led the task force, but they it was a definitely a bottom up and they looked at everything we do from the standpoint of what we do across the company and they break it into the buckets. Where's Judson? What are the four or five buckets you broke into Judson? Yes, the categories, the buckets they broke the cost out into, we called we had the ones from the standpoint of serving the customer, serving Right.
Servicing, shape.
Yes. So we had we looked at it from a safeguarding, servicing Shaping. Shaping perspective. So we always wanted to protect what was core to Emerson's DNA. And then we also looked at it from where the key levers are from a cost savings perspective.
And so it really was a bottoms up approach driven by individual businesses.
And we showed the breakdown between the businesses and corporate and the Board went back and forth. The Board's asked us to do a little bit more work on the corporate side. And so from that perspective, we're taking a hard look at this. We've done a lot of things in both places. The big issue I try to explain to the Board is we have a lot of moving pieces.
And when a company this large and you've got this many people and movement from the standpoint of jobs consolidations, Lal is going to put create a measurement solutions business. There's a lot of things that we have to deal with and we have customers. And so I think that from our perspective, that was just pure coincidence. It was definitely a bottom up. And we have another numbers we can go after that we want to go after.
But right now, we have our hands full from this perspective to try to get this. And I think we have what we need to get to. We didn't say, okay, what do we need to get the 25% or 24%? We said, what really can we do? And from that perspective.
Just
a little color. Within Automation Solutions in mid October, we started we identified 17 operating tracks as the management team got together. Each of those were worked into plans that led to what you saw over on the charts today. So there were individual tracks. Ultimately, the 17 went to four, but there were 17 different opportunities that we saw as we looked across the business to take cost out and get back to peak margins.
Anything you want to
add? And we went at it, I would say, yes, I mean, we came at it from different directions. We went with each business unit, we challenged to get back to peak for whatever their peak was. Frankly, it's a subject we've been on for a while now because you saw with the last couple of years, we've been talking return to peak for a while. We had individual reviews.
We had them do year by year bridging of what is your inflation and your price and your NMI and your cost reductions. We had kind of full day sessions with everybody. When we added it up, honestly, it added a little bit more than the three points of margin, partly because there's a little different sales. We pull a conservatism on that. And frankly, it was a coincidence.
We both ended up on three points and also the headcount numbers. Honestly, I didn't quite know those numbers until the last days. This is a live subject. And we weren't really looking at it that way because we've been more running business by business. They landed very similarly.
Yes. There should be no mistake. We did not start with a headcount target by no means in any of the processes that we drove either one of us drove.
And the same thing we did in the corporate side too from that standpoint. Go ahead.
Yes, that color was very helpful. Just second question, speaking of divestitures, Dave, be interested in your thoughts on the reemergence of network power. And also, could you remind us what and how Emerson stands to benefit with that new ownership?
So we will benefit. Platinum has obviously sold the piece out and has gone into the SPAC, which is I've talked to Dave a couple of times. Have Ed Monzer will be on the Board. And there's a lot of people there's a lot of influence around that from that perspective and what's going on. But clearly, we have a potential piece on the preferred equity side.
I'll let Mark talk about it because he and Frank did it. But we have a potential upside if they do well and as platinum sells out. We're not counting anything. There's nothing in this forecast. It's I mean, for me, it's I think it's cash.
It'll be earnings, but I look at it from a cash standpoint. And so from our perspective that if the SPAT does very well and Cody's and his team does very well, we'll benefit from that.
Yes. We have some pretty significant upside once Platinum reaches a threshold cash on cash return. So it's going to take a couple of years to play out, but we think we're in pretty good position to realize some upside.
Will be will meaningful. Was 200 to $500,000,000
Yes.
In that range.
And so as I told Dave, I'm cheering for you. I mean we made a lot of money in the divestitures. It was the right timing. I wish this team well. They've gone through a lot of restructuring, a lot of changes.
I know Katie Cody really is liking it. And so said, I Dave, I know this business is reasonable. I ran it for a while. It's a little bit different than anything you have inside your company. It's a little bit different.
Over here, John. Yes, the people on the phone can't on the webcast can't hear you.
They might. Dave, how so the plan, the way I understand it's going to take a couple of years, right, to go through the facilities and so forth. How concerned are you about the risks? Or how do you manage the risks, the economy actually coming back much more quickly? You don't want be caught flat footed or supplied out or something like Correct.
Think there was a lot of discussion on the Board around this. Now one of the things we actually are starting to take action in facilities right now, we actually are. The big issue that we're and I'll let Lal and Bob talk about this is the window is eighteen months. We've got to build, we've got to get going and we got to move. So what we're doing right now is prioritizing which ones we want to do and because you can't do them all at one time because my that's my biggest concern.
You get halfway through this process and it's happened to me before, then all a sudden you have a spur to growth and you're sitting there holding an empty facility because you're not going to move because I mean customer service, quality, all these different things. So what these guys are doing is prioritizing how they want to go at it. Ram has had a benefit because he's been at this for a few years. So he's running a little bit faster. Both Bob and Lau and the other areas are a little bit behind from the standpoint of just starting this.
But that's the biggest concern. The Board's watching it. Not much the Board could do about this issue. This is really pure operations, which we know how to do. But that is probably my biggest concern in this whole plan is that all a sudden we get halfway through this and I'll say in a surge of growth for some unknown reason and you say, okay, we got to pause.
Now we've got obviously faster growth, we can leverage that, but we our cost structure will be out of balance. So I'll let Blalph because this is a big issue for us right now. We're trying to go as fast as possible. The Board has given us the capital. We don't like we're not going to waste capital, but we need to build and go quickly and start prioritizing those facilities or we will get caught flat footed and it will piss off our customers, which is a big problem for us.
So the acceleration in capital from $297,000,000 to $400,000,000 is not only a bulk increase in the capital spend, but it's also reprioritization on what we spend the capital on. So we looked at that original list that we had reviewed as we budgeted the year, actually took things off that didn't fall under the priorities of driving the cost plan. So that's number one. Number two, risk mitigation is part of what we do. Anytime we pick up a line and move it, whether we're moving it from one part of the plant to another part of the plant or across the continent.
We know how to do that very well. We've I can't tell you how many line moves we've done across this corporation, but it's a ton of experience there. The supply chain is a big risk when you do line moves. Now what I'll tell you about the supply chain in this process, it's not a big element of what we're touching. We've already, to a large degree, best cost our supply chain.
And with few exceptions, we're touching that. It's really around the assembly and the planning, of material that will be impacted here. So big three big cost centers for us, Mexico, Eastern Europe and India, as we think about what will be impacted here in
terms before we go to Bob, I'll I'll go to to Bob, facilities in India are already underway. Our Eastern European facilities are not underway yet, but we've got things ready to go. And Mexico is ready is geared up. So Ram, which I mean, because we had started in India last year. So Ram, anything you want to add?
You got a mic there?
Yes, do. The India journey was right at the time of the Valves and Controls acquisition. We knew that that would be a phenomenal location for valve manufacturing. India and Middle East are two markets that are going to spend in a significant way on the KOV-one wave. They've got the best cost position.
So we will commission the plant that's being commissioned right now. So the capacity will come online as we exit the year. And we've got a great facility in Pune and we've got investments happening in Chennai in the South and a great supply chain to go with it. So we feel very good about it.
So in 02/2002, 02/2003, 02/2004, when Ed Monzer was working with me as the COO, we moved just as many plants. It was it is the biggest hair out here. And it's very, very important. And fundamentally believe these guys, I mean, they went through it very carefully, which ones make sense and where which one of the priorities are. But John, you've hit the nail on the head.
That is the biggest risk I see in this. If we get stuck in this thing, we're halfway there and halfway across the road and the speed train comes. That's the biggest issue. Bob, anything you want add?
I would welcome that problem. And we've got enough of these things going on. We've got a certain sequencing already because of capacity and other considerations. If we had to shuffle it around, I'm not concerned. And frankly, when we would typically come back and even if it's a 5%, 10%, I'm not too worried about that kind of volume.
If we had a double digit challenge, again, I like that because that volume bar would grow pretty nicely. So not to worry
about that.
It's Laos business. It's Automation Solutions you
the key one. So then just as a quick follow-up. I mean, you guys do continuous restructuring every year. And I think last three years, you've done over a couple of 100,000,000, even ex the 35. So is the 04/25 plan, did you has the what you were doing previously been sort of arrested or stopped and this is all brand new?
Or does it build off what you might have otherwise done? I'm curious, because clearly some of this has to be a bit of Greenlee, a bit of the Pentair business, right? Was that a pull forward or just to put a bit more of a context Yes. Around 04/20
we have
a profit planning process that Steve Pelch runs within the businesses and we look out five years and we identify significant moves like this. So we yes, we do things all the time, but typically when you do the magnitude of consolidations of or shutdown our facilities or consolidate facilities or reshaping fundamental changes in the organization, which we're doing here through the outside help that we brought in here and the work these guys are doing, it is a different type of restructuring that we normally do on an annual basis. A lot of structure we do in a normal basis helps us offset some of that inflation. And so what this is really allows us to do is to reset, reset that whole cost structure. Like I said, this is the third time we've done it.
And you've got to do it from a lot of people worry about this. I look at this as a cleansing. And when you have growth slowed down like this, allows us to get after things that normally we can't get off get after, John. So it does build out what we've historically done, but these are areas that we may not have even gotten to for four or five or six years. But now with a lot of the acquisitions and some of the slowdowns and the repositioning of where we want to go from a cost structure and end market structure, this allows us to really take a hard look at some things we normally wouldn't touch at this point in
time.
I think that's fair. Half of the things we're touching were creatively new, new ideas that we thought through that would change the way we do business.
Yes. That's one of the things that consultant brought to us, thinking a little bit differently.
And I'd frame it as if you notice on if you take kind of the current pro form a company, we get back about a point higher than what it was in the past. And I would say the normal stuff gets us back in line. It's the additional acquisition synergies, putting internal organizations together and creating our own kind of internal acquisition synergies per se. And certainly a little more dramatic footprint activity that gets us that new lift to a different peak.
But if you watch me talking about getting nervous about growth and restructuring, you know I'm getting nervous about the job moves these guys are going to. I'm talking about plant moves and jobs. On this side over here, I know you guys are over here. Let me go this side here, Martin. Just right here, Josh.
Thanks, Dave. I guess part of the strategic review, I would imagine there's kind of a long term outlook for what your customers are doing and maybe a demand component. It seems like within the energy space, we haven't had kind of a capital deepening in some time now. So maybe large projects other than the LNG side are just harder to conceptualize being optimistic about. Are there ways to carve out the businesses that are just more exposed to the chunky stuff versus the MRO that comes on the back?
Or is it all kind of in the same bucket where you can't say these businesses, we just can't underwrite as much now?
So we do. So that's how we look at it. Now I don't share it with you all that way, but that's how we look at it. We look at what are the real MRO type of capabilities, what are the dog eat dog stuff that maybe we were de emphasize. And so when we go through product line looks, product line pruning, maybe some divestitures, that is how we go at this.
Look, if you look out where the customers are going, where the technologies are going, and we want to make sure we stay out in front of that, These businesses here are not necessarily strategic. So we'll look at maybe moving those out of the portfolio or moving different ways. There's still very good businesses, but from our perspective, where the technology is leading us to, that would say you should probably move out of those and find a different home form. Now the Board debates me on this issue all the time. Are you just trying to sell stuff to sell stuff?
Or what are you going to do And so but that is how we look at it. So we look at it, where's our customers going? Where's the technology is going? Is there a compression relative to growth and profitability, aftermarket?
Are things fundamentally changing? And maybe these were great acquisitions twenty, thirty years ago, even ten years ago, we should move on and put our money somewhere else. So that is a hard process that we look at as a company. And the Board sees that the senior executives of Emerson has a good understanding of this and we spend a lot of time debating this issue. Outside consultants that we have with us, advisors, don't necessarily understand that as much as we do, but they do go in the debate.
So Alal, anything you want to say along those lines?
No, I think you answered it correctly. In terms of looking at particularly the capital wave, there are clearly businesses that are more exposed to the long cycle business.
Like KOB1 type of
Correct. They're in the process control system business, the part of ROMs, final control business has a higher exposure to that. The instrumentation business and our discrete industrial business, more of the short cycle higher KOB three type of run rate. So that's how you'd segment it. But a lot of the effort and investment that we've made over the last five years has been around driving KOB three service MRO relevance for ROM and in Jim Nyquist systems and solutions
business. And then digital transformation. But the issue really boils down to there's ways to get out. Do you sell the business or do you sort of melt the business? So those are the decisions we go after because the business will still be out there.
And so one of the things that Ram does in a project, will not bid in parts of it. So he'll melt that business. And rather than sell it, he'll just melt that business. And he may not bid in the certain parts of that. And it's all tied around what the aftermarket or a lot of times, not aftermarket, just technologies or technology advantage here.
Is that going to help Stuart Harris's organization from a digital transformation standpoint? That's how we look at it. Bob, anything you want to add to that? Sounds much No.
I mean, for us, it's not a KOB1, KOB kind of strength. It's a higher highs and higher lows. And if a business isn't able to achieve that for whatever reason, technology, customer changes, I think every business in Emerson knows that's a key threshold.
I mean, that's why we got on the appliance components business, the founding business of Emerson. I went to the Board and said, look at this business is going to get continue to get commoditized. Asians are changing this business. We made a gazillion dollars in this business over a long time. It's time to move on.
And we got out. It's the way it is.
So I guess kind of related to that, what portion of the $425,000,000 in savings or $450,000,000 or whatever you want to gross is out related to businesses that are kind of under that microscope? Because obviously, there's probably a little bit overlap today, but you wouldn't want to put too much capital into a business that you're planning on?
Exactly. Bingo. And the answer is yes. So these guys are prioritizing that. And on the list, Lal will say, Dave, I'm not going to put any money over here other than minimal restructuring.
Let's look at getting out of this business.
They are business that are under stress, as David described, that would love to have the restructuring dollars and we haven't prioritized.
Haven't prioritized.
Haven't done it.
So that's a game you have to play. For the people on the phone, which, know, because Emerson people on the phone right now, it's a tough road to play. Because as Bob knows, I put people on code red all the time. Code red is not something you want to get on and inside Emerson. It's not a good thing.
Right. You as you guys will miss You
bring out the utility tool.
That right there is a good tool right there for Code Red. Code Red typically doesn't last. You might get to Code Pink, but you don't it's very hard to go below that. Yeah. Okay.
Over here. Right here. She's coming this way. Julian, I see you. Martin, I see you.
Right. Hi, Dave. You know, just going back to the pitch last year and then some of the things you guys were excited about at your Global User Forum in Nashville. Just flipping through, I was a little bit surprised to see the piece of the pie of automation that represents hybrid and discrete is the same today as it is out in 2023. It's become more meaningful.
I would have thought that'd be growing a little bit faster, just
I don't think they want a lot of work into that
Yes. I wouldn't read into I would not read our forecast into the mix of business too.
There's nothing unique about I mean, we're as you all know, we're putting money into it. Had a great start with the PK and the OCC 100. We're continuing to invest in the acquisition we did with out of GE. These guys got a lot of new products. They are actually protecting that innovation because there's some unique places.
We're looking at a small product line acquisition on there. So I think that it just we just sort of put the same numbers. From my perspective, we are making good progress in hybrid, both from a system standpoint and a sort of instrumentation standpoint. A lot of new products going on relative to the instrument business are in that space going on right now. So from my perspective, I think we're going to look back and say it's a bigger segment.
It's going to grow faster. The Board is keenly interested in trying to make some acquisitions around that space. And so if you think about it, that's where our focus is. Nothing big from this perspective, but definitely it's going to be an area of focus and we're protecting our investments around that space. I wouldn't look at that chart and say that was the roadmap for where we're going with this.
Got you. And then thinking about digital transformation, we've all been trying to figure out when are we actually going to see kind of the inflection point here, faster adoption. Do you have anything to share around how fast pilots are now moving to deployment maybe today versus a couple of years ago? And then, are we seeing it kind of broaden out from those major multinationals that want to be the first leader in that to some of the smaller guys that then start to kind
of We'll naturally let Stuart go first because I've seen a major I think the curve has been hit. I'm seeing it Stuart I we're trying to be very protective of our customers up there because we put that I made them put that list up. But I've seen more organizations of 200, 300 people at the corporate level and at the operational level equal number to drive this. So Stuart, you want to once you give because this thing is definitely taken off and that's why he's broken out. And because we want visibility to see where the investments are going to go.
So Stuart?
Yes. If you go back a couple of years, customers were talking about these digital transformation programs and you asked about the timing for that. And they said, well, a couple of years out, three years out, they started with looking corporate wide at where the opportunities were and sizing those up. And we actually surveyed 100 process leaders in the summer this past summer. And if you now look, 95% of them said that their programs were either underway or within the next eighteen months would be fully rolling.
And that's the first part of the question. There's no question that companies are moving ahead. As I said, they're putting Chief Digital Officers in place. They're signing budgets. You're seeing teams of significant numbers of people.
And I think the other thing that the second part of your question was around the speed and what we're seeing for pilots there. I'd say along with that, we've also seen that pace of going from the pilots and moving into the scaling. Why that's happening now is a lot of the pilots were happening at the plant level and a lot of the vision was happening at the corporate level. Seagulls. And now what's happening is and in fact, we're actively involved in working with our customers to facilitate this, is the connection of those two things.
Because unless the corporate programs have very specific problems to focus on, they stay as initiatives and vision and the ROI doesn't come. And likewise, if the pilots just stay at the individual plant level, they never do get scaled and replicated and the value being created at scale. So that is that bringing together, if you will, of the corporate initiatives with the site level activities is
And the other thing key thing that Stuart's organization, the reason we haven't broken out is there's he's going to drive a lot of our technology roadmap now because our we've been putting out digital capability in a facility since the early 90s. It's never been used properly. And so the next generation of digital equipment that he's going to need to do the programs for the digital transformation is underway right now to be developed. And he's having major inputs on what is needed for the plant levels across and it's going across all industries right now. Because he needs certain type of technology out there and that's going to be good for us because they're going have to replace a lot of that technology.
And they're going have to replace what we put out there ten, fifteen, twenty years ago because it's not going to do what they want to do now from a speed and communication standpoint. So he has a very important role and the customers are very open about this now. I mean, Laudis saw the power stuff the other day. So Laudis
So three things to add to that. 20% of the headcount in Stewart's business is engineering headcount. 80 of Stewart's engineers are software engineers, to back up David's point. So two additional things. When Predix was introduced and GE was out there in the marketplace, they got the industry riled up, but they really weren't able to deliver a whole lot.
So you had corporate led programs at that point with big dollar numbers being talked about, but very little actually delivered within the plant. Our approach was always different. It was application specific, plant level, operating individuals and then scaling. So the approach we took and the strategy we took from the beginning was very different from what was being talked about and that's what's gained traction and credibility in the market space. The third is, I don't know if you saw this morning, BP announced a major reorg, sustainability goals, decarbonization goals by 02/1950, I believe.
The digital transformation journey is going to a key element to enable people like BP to get there. Methane measurement, methane capture, a lot of what you're going to have to do as an oil producer to get to zero to a sustainable, footprint is going to rely on the kinds of tools that Stuart and his team are going to develop.
So before this new CEO or VP was announced, I met with him for over an hour and a half. As Lal and the team knows, I've known Dudley for a long, long time. And so I got to meet with him and that's all he talked about, digital transformation. And my Board didn't quite understand why, why wouldn't he talk about cyber security? He's talking about digital transformation.
He's got to figure out how to change his profile in the industry from the standpoint of everything he's going to lay out. So that's so that this is at the it's being driven at the CEO level, which is something that's changed dramatically in eighteen months. I mean, I walk around and see customers. I mean, they're they're talking stuff that normally most of my CEOs would never be able to talk to me about. I'm shocked.
And that's what that's a major change. Andrew. Got to get the microphone, Andrew. Come on. I know you have a very powerful voice, but not that powerful.
It's not so powerful.
That's what my wife says. It's not so powerful anymore. That's right.
Oh, he's got coronavirus?
I do. Probably the garden variety one. Just moved over. My wife says I don't have an indoors boy. My wife claims I don't have an indoors So just to continue on the digital transformation question.
If you look at the software growth that Lal talked about, sort of 6%, 7%, if you look at the industry numbers, that's what the industry grows at. And if you look at the companies that outgrow, right, you sort of outgrow in these smaller, much faster growing areas like asset performance monitoring. Culturally, and I guess it's part two of the question, just segueing into M and A. How Emerson as a company with very sort of strict returns on capital requirements, right? How do you go after these growth opportunities where chances are eight out of 10 are not going to work, but the one that's going to work is going to work spectacularly?
And the same thing, part two of the question, as we think about software M and A, how do you think about sort of returns on capital and sort of ROIC requirements when you go after software versus hardware, given what makes industrial companies greatest is focused on returns on capital, but software seems to be a little bit different?
Correct. Very good. Go ahead, Lal, you go first.
So 20 part question. I'll go at it, Andrew.
Take the
first seven. Take the first seven and hand it over. Software growth on the analytics and digital twin side is clearly a faster growing market than on the operational side on the standalone piece, five versus seven. We can argue about what the industry is growing. We assess it to be $2,000,000,000 at 7%, could be 8%, 9%.
Our business has been growing at a double digit clip within that market, which is what Stewart has grown. It's grown at 15% the last two years. So we're doubling the market growth. The bulk of Stewart's business has been around the analytics element of digital. That's where the growth has come from.
So we're outperforming the market, but the market is one that's growing aggressively at this and is continuing to define itself. On the M and A, I'll let I don't know, Stuart, if you've got anything else to add there.
Well, only thing there as well, you asked about the number of deals and the probability of hitting a home run, so to speak. And a lot of what we've done in that space is to, first of all, partner with companies that, in fact, our customers are using. And so if you look at many of those software acquisitions, that's KnowledgeNet as an example that we acquired this past year, We worked together with multiple customers in advance of making that acquisition. So it's one of the ways that we gain the confidence, if you will, and have an understanding of how that's going to fit with our own portfolio.
So we're looking at it differently because clearly it's a different multiple from the standpoint, higher GP margins, quite a big investment. We sat down with one yesterday, it's really exciting to us, a European one. And I'm sitting there going, okay, let's figure how to get 25% of this, let's figure out to get 50% and stick with it like that. And just ride that horse and not change the culture of what they're doing out there, but allows us to bring new technology to our customers, allows us to pull in other analytical tools that we have. So from our perspective right now, Andrew, we're looking at this a lot different.
Bob's having a look at this too because Bob's bringing in some new software type capabilities. The price point is much, much higher clearly. And what for us to figure out how to do this, what can we pull with it? It's not product, but it's other analytical work. It's other things that we can do.
So we've been doing the software acquisitions, but it's definitely a different model. And my Board look at they shake their head. It's really for us, it's part of this transformation. We know to stay relevant and to really mine our installed base because we know the sensors are still going to be needed out there. And that's very important for us.
But we've got to figure out how to help them use that information and not somebody else use that information. Correct, packaging it and then also keeping the mentality in to not let it get destroyed by getting in a big company. And so what we try to figure out, so some of these partners, we leave them in, some of them we'd say, hey, let's stay fifty-fifty, let's say forty-sixty. So we're going at this differently right now to make sure that we have a much broader breadth. And then we have our own development work internally in the analyticals work that he's pulling in that he if he can get more access with his analytical work, it'll easy make up for that the price you're paying.
But clearly, the guys, I think Honeywell and Emerson are really strong in this space right now. And we're using this to our benefit. And I think this is first mover and we're moving fast. I've already talked about three in the last two weeks. We've got three outstanding right now.
The one you're looking at, we're trying to work on this one I just talked about because you got to go at this differently.
And case in point, last year in automation, we did eight acquisitions, five of them were in StewardSpace. All five of those we have had relationships with for multiple, multiple years. None of them went to bid, not a single one. So those relationships, those initial investments are very important for us, not just for us, but for our customers and our channel to gain trust in the technologies that we're bringing forward.
And a lot of the sorry, a lot of it is part of the eight is small because it's a budding space. And I think on both sides of the business, we're looking at definitely leveraging the device and control and other capability we have. That's what differentiates us versus somebody generating the software out of their dorm room, which is literally what's happening right now in some cases. It's combining that capability with something a lot bigger as far as our domain knowledge. And so they do tend to be smaller, We which is its own
got Martin, you get one question. Julian, get a question. Martin? You're getting this year, you're on bonus time.
Right. Since I only get one question.
Don't make it a long one.
Earlier in your presentation, you noted that there will be a CFO succession in the near term. What are you and the Board looking for as the characteristics of the new CFO? And how might the job change? Maybe contrast what skill sets that, with all due respect to Frank, you might be looking for that are different.
Frank's really
interested in Frank's in
the room.
I actually had a question for Frank as well, if you want me to give you question. So from my perspective, Frank's been a great CFO. It really is the combination of CFO, CEO. What's the CEO? So you got to I think from the perspective, as everyone knows, I want the foundation built, includes the CFO and then so the next CEO could walk in with first people that can play a while with him and then he can make a change if he wants to make a change.
The skill set could be differently, could be different. I mean, I'm an individual as you clearly know that like to go out and engage with investors. Some CFOs like to do that. Frank is more on the financial side and running the back office from the standpoint of financials. Everything else that we have to do, I don't even touch that world.
I'm more of engaging from a standpoint of investor. Now the next CEO may not be that. And so that he will be maybe looking for a different type of style CFO. But our CFOs are very operationally oriented and they spend more time in making sure everything ties together and not as much time spending with you all. And that's it's always bad.
Now the next CEO may be different and may not want that. But from my perspective, that's what I that's why I wanted a strong operational CFO, one that could deal with the financing world, one could deal with all the issues from insurance, everything that we do as a company and making sure we protect ourselves. And that's what Frank has done for me for a long, long time as did Walter Galvin for a long, long time, my perspective. Anything you want to add Frank to that?
I think I'm good.
But I want to have a CFO in place for a little bit while there before I make that transition next time. The next guy may say, I don't want that and move on. But we have some operational, very strong CFO and potentially could do outside world activity too. He could do both in my opinion. Yes, Julian.
Thanks. So maybe just on oil and gas, maybe just short term talk about what you expect for upstream spending in the next year or two? And then longer term, there's a lot of talk about secular challenges in that industry. A lot of companies are talking more and more about ESG. And so I guess when you and the Board are thinking about the longer term composition of end market mix at Emerson, how comfortable are you and the Board with the oil and gas weighting within the company right now?
It's something we talk about and we just talked about in the last several meetings. And our concentration is definitely reducing. And from an acquisition standpoint, the Board is very much focused on continuing that trend. We clearly see a very difficult market upstream oil and gas for the I mean, other than some large LNG, some very difficult challenges for the next several years. There's no doubt about it.
They will have to continue to invest. We believe they'll have to continue to invest. We have a major play there. They're going to have to maintain the assets they have, which we obviously play a key role and they're going to have to invest in emissions, they're going to in the technologies that Stuart is talking about. Those are all good things.
But clearly that marketplace will not be a growth marketplace. It'd be more going back to what that Josh was talking about. It's going be a marketplace that we have a very strong presence and how do we maximize the value of that presence and where we continue to invest other places when the process will in the hybrid world to offset that over time. But that's going to be a gradual transition. It's something the Board keenly talks to us about as we look at acquisitions from that standpoint.
But I think my gut tells me it's going be tough in that market for the next twelve to eighteen months period. Anything you want to add, Lal?
No, diversification is an effort that we have ongoing across all our businesses. Obviously, our process control business is highly diversified into life science with the number one DCS. The investments in the hybrid controllers, the PK, the OCC drive more diversification simply because of the application space they play in. Stewart's business reaches into a far, far heavy fragmentation of industries and puts us into foods and lives and within sub segments within and then the M and A side and the opportunities that may come up to diversify So through
we're very strong there. How do we take that and continue to make money? It generates a lot of cash for us, a lot of aftermarket. And we have technologies that could truly help our customers, the BPs and figure out how they want to do this. They need our technologies, they need our know how, our consultants and we can do that for them.
It's going be a different game. It's going be less KOB one, more KOB two and a lot of KOB three. That's where I see, which is good for us in the long term. Less top line, more bottom. With that, I want to say goodbye.
I want say goodbye to everyone on the phone. And I appreciate everyone's inputs. I appreciate the time, your insights. I really do all the questions, good questions today. And Martin, why would you pick on poor Frank?
It's a very important role. Depends and it does depend on the CEO. Trust me. It's a big job. And we and Frank does a great job for me.
Thank you very much, everybody. Thanks.