So you can get them on the calendar. Here from Mike Roman, H. C. Shin, John Linnenkugel, Eric Hammes and Steve Schaeffer. Here's our schedule for the morning.
If we do end up running ahead of time, we'll stay on we'll stay ahead of schedule. For those on the webcast, we will plan on a break around about 9:30 and wrap up no later than noon. If we are ahead of schedule, we'll have about 45 minutes for Q and A following the formal presentation about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10 ks lists some of the most important risk factors that could cause actual results to this morning, excludes yesterday's announcement of the divestiture of the Communications Markets business.
So that is not included in the numbers that you saw this morning. And then also, our guidance this morning excludes any pending potential tax reform. So I want to make sure everybody was clear on that before we started. With that, I'll turn it over to Inge, and thank you again for joining
us.
Thank you, Bruce, and good morning, everyone.
I hope this is a
good tradition, at least for me. I feel that I'm coming home just before Christmas and have a very strong 2018. We will also show you the evidence of the result not only in 2017, but based on what we have done and our key metrics. And you will see that from the Gangstaad later today. We are very well positioned for 2018.
And when you see the outlook, Nick will take you through all those details in the end of the meeting. Now let me make a couple of comments relative to how we have built the enterprise to now be very well positioned for 2018. It started back in 2012, but we articulated the 3 ms vision and launched 6 corporate strategies. They are still all in place. And as you have seen, that have step by step moved us forward to that we today have probably the best ever portfolio in place that we ever have had.
And I will make some comments later relative to that. During the year of 'thirteen to 'fifteen, we enhanced our capital deployment plan. We prioritized the 3 key levers in order to create more value for the shareholders and be more relevant to our customers. And we define the fundamental strengths in terms of technology and supply to life. That was what happened during 'thirteen to 'fifteen.
And then in 'sixteen, we announced to you the new 5 year plan that we now are 2 years into, and you will see the metric on that later today. And we accelerate the business transformation deployment. And then as we went into 2017, execute even stronger relative to have a much better future. And we also, as you know, put in some additional money in terms of commercialization capabilities in something we call core search. That is paying off, and I will tell you in a second how we estimate the year.
It was important for us, 2012, to clarify the vision for 3 ms, and it was important for us to get aligned relative to the strategies to enhance and improve things we do. I think that's why 3 ms are waking up every morning to ask those questions. How can we advance, enhance and improve? And their way is about education, it's about health care, about community and it's about sustainability. And it's an important element for us because the vision should be a stretch because it's what you can do.
You can do it for every company, every home and every life. And it should be authentic to you as an enterprise. And when we laid out this vision, we knew that's not only for us to put it on a piece of paper, this is who we are. This is 3 ms. This is what we can do.
You look upon the 6 strategies that is the enabler, if you like, to come to the vision. The first strategy starts with customers. Customers are very important to us, and you can see expand relevance to our customers. As you see what have happened the last 6 years, that have also how we have addressed our portfolio. We have made sure that we are more relevant and places where we're less relevant, we should exit those businesses.
We have also talked about profitable market share, not only market share, profitable market share. And we talked about investing in innovation. We've historically spent 5.5% in research and development. We made a comment we should be closer to 6%, and we are holders. Intensify capabilities achieve regional self sufficiency is for us to build out our capabilities around the world in order to serve our customer.
And then, of course, make sure that we build a high performing diverse global team. For us, inclusion, diversity and sustainability is important because that is how you win. And then finally, drive consistent, superior level of operational excellence. And you'll hear more about that today both from HC Shin and from John Lindenkugel relative to operation, which is, of course, including supply chain and Lean 6 Sigma. Now the playbook that we have in place is working.
And it'd be important for us when we operate to understand the left hand side of this is about the value for shareholders and for our customers and ourselves, of course, in terms of portfolio management, investing in innovation or research and development and then business trends. We have been able to build a portfolio that is very diverse, both globally and from a business perspective. And you can see in terms of size here, we have industrial that is almost €11,000,000,000 estimated for this year. And then we have 4 other businesses in size of €4,600,000,000 to €6,000,000,000 So very diverse, and they'll be able to execute those in whatever economy we operate. You can also see for this year that we estimate an organic local currency growth of 5%.
So the estimation is 5% for the year, and we estimate operating margins to be 25%. So very robust and good growth. It's 5 steps basically in the evolution of an economy. And it always start with infrastructure. You need to have an infrastructure in place in order to be able to move product around the country.
So the first investment is in infrastructure. When that's happening, manufacturing explored or improving because in many cases, in countries where investment is coming, is coming from more developed economies and companies than in developing. So they raise the expectation on safety. When that is happening, you have created a lot of work that is now becoming disposable income available. Now retail start to move in the country.
And then finally, health care is coming in place because the economy is coming to a place where government, if it's government related, and or private sector start to look for more sophisticated solutions. Now as I always have said, health care is there the whole time, but I'm now talking about a more sophisticated health care providing opportunity. For us, we can capitalize that through the whole chain, which is the beautiful thing for us. So despite where economies stand in the evolution and development, we will be there to compete and we are there to win. So that's also one of the strengths when you look upon the business groups we have, the divisions we have, that we can compete wherever that stands in terms of evolution of an economy.
So if that's in terms of road signs early in infrastructure or our biggest business manufacturing, you will see we will capitalize on that. And we will show a good example today with this road map out from China exactly how that business is evolving for us in China specifically. Now we are leading with a customer first mindset, and I think this is important that we are, by definition, not a commodity related company. We are a scientific based company that are working very close with our customers. And the key here is to understand their business model and understand what they have promised their customers.
If not, you will only be a transaction with your customer. So for us, it's to understand what is it that you have promised your customer and how can we help you deliver on that. And we pay a lot of time relative to understand that at the current time. Now we have 4 fundamentals in the company that I would say is the differentiation in between us and many. And the reason for that, that this is a vertical integrated model with 4 fundamental that are owned by the company and can be used by all.
So we have technology, we have manufacturing, we have global capabilities and we have the brand equity. So the technology is around our 46 technology plan. It can be used externally with our customers. Enterprise 3M owns it. It's not owned by 1 division or 1 subsidiary.
So no one can hold it back and say, this is my technology. You cannot use it. It's something that is very, very important for us. In manufacturing, we have facilities that we can use together. And I think the other thing here that is important to know and understand that onefour of all patents, onefour of all patents and onethree of all our technology platforms are used in connection with manufacturing.
So you take technology in manufacturing, understand it's very sophisticated and the barrier to enter is very difficult for anyone in most of those projects. Then we have the global capabilities where we have subsidiaries all over the world. We have 40 labs around the world. We have 40 manufacturing plants. We have 36 both if they are global or if they are local.
And then finally, the 3 ms brand that stands for innovation, quality, reliability. And the 3 ms science applied to life is important in that element. If you take those 4 fundamentals, they are key to everything we do and they are actually connected to our portfolio management work. Demographic shift, we all know how that's happening, and you can capitalize on it if you're there in country in order to do it. You need to be there.
We are there. Technology conversion is different. You need to have technology platforms so you can work with companies and individuals. You look upon us at 3 ms, we can do both. We are right in with technology platform for technology conversion, and we can capitalize on demographic shift, as I showed you, on that curve moving up.
And if you see that evolution of an economy, at a certain point, it starts all over again if we build the business for the future. Now 2 places where you must win if you have decided that you would like to be a global growth company, and we have decided to be a global growth company. United States is $12,000,000,000 sales for us. It's the biggest subsidiary of our operation. It's the biggest economy in the world.
It's our home arena. We will always win in United States. And why do we do it? Well, here is where we have a very, very good, and we have a very strong and probably the strongest brand equity anywhere around the world. We will never lose in United States.
You look upon the last 5 years, we have had a growth rate of almost 4% on an annual base, and it's becoming stronger. So very good solid evolution of an economy. You're coming to a point where that portfolio will be very well balanced. We have been for a long time in China, and we are the first company ever that had a wholly owned subsidiary in China. Steve Schafer will talk more about it, but we are just in the beginning.
Is today a 3,000,000,000 dollars science based technology company is there, and we have done a lot of work on the portfolio in order to move the evolution of the economy. We have never been better positioned ever in China, and our growth rate is very impressive this year and will stay the same for 2018 and forward and we do and then we will accelerate all our investment in order to capitalize on the opportunity in China. Let me make a couple of comments on the 3 key levers, and let me start with portfolio management. This was important for us in order to make sure that we could align our organization and put our resources at the best opportunity for the future. And as I said, this is what we started back in 2012.
It was also, of course, a way for us to deploy capital better than, which is a given of it. And then it's also to make sure that we strengthen our portfolio both through acquisition and divestitures. And I think you saw latest yesterday, as Bruce talked about that, we have signed now a deal to divest one of our businesses that is in EEBG. And we will talk a little bit later about the financials around that. But this was an important element for us in order to prepare the real future for 3 ms.
And what we have done is we have gone from or we had 6 sectors to 5 business groups, and we've got from 40 businesses or divisions to 20. It's much more ability for us to execute faster in the marketplace. We also prioritized the portfolio very, very fall safety, scrub safety, membrana and 3 ms Somotomo Electric that was part of our operation in Japan, which all were sizable, very attractive acquisitions for us with good growth and very good margins. At the same time, we went out on multiple businesses, and all of this is their overall company. So by definition, said earlier said earlier, we've gone from 5.5% to 6% in our investments.
And I think the important thing is here to think about our platforms in the middle, but it all start on the left hand side. It all start with 2 processes direct with one specific customer. Probability of success of those programs are very, very high because you work with 1 specific customer. Insight to innovation is a market driven process where you type or have more commercialized product in overall in the market. So you think about the 2 of them or the 2 processes that are used in order then to capitalize on the platforms we have and get out higher impact programs and activities to our customers.
Now we have identified here in this case 8 top priorities of growth, which are investment for the next 5, 10,000,000. Mike Roman will touch on multiple of this in his presentation. But you can see here, this is a €30,000,000,000 addressable market opportunity to us. As I could talk more about that this morning, but I think the important thing is that's for us to capture around CHF 500,000,000 to CHF 700,000,000 annually in savings and €500,000,000 in working capital improvement by 2020. The implementation is going very well for us.
We're almost done with West Europe, and we are now moving on. And as I said, Erik will give us more details relative to that after the break this morning. So there is the 3 key levels: portfolio management, investment in innovation and business transformation that all are very important for us in order to make sure that we're becoming more relevant to our customers, more efficient internally and giving premium return to our shareholders over time. But there's 2 more things I would like to comment on before I'm done here. The first one is Lean Sigma, and the second one is sustainability.
So Lean Sigma, we've been on this since 2,001. We have 70,000 people trained in the company, and we have more than 100,000 project closed. This is a key element for 3 ms in terms of efficiency in the model. And you will see not only what John Lindenkugel will tell you today, but you will also see what Nick is showing you relative to the future for 2018 of where the real value is coming for 3 ms. A lot is coming in efficiency and productivity in addition to growth.
This is very, very important for us. And it's also one of 3 elements of business development and lead. The point I would like to comment on is sustainability. Sustainability is a key value of 3 ms. And we have done this for many, many, many years and are well known for the 3P program, pollution prevention pay, that we started many, many years ago.
We, in 2013, doubled down on sustainability. We said it's not enough only to do things right yourself. Let's see how we can help other customers. It's a unique way for us to engage with customers on a global base in order to help them achieve their sustainability goals. The beauty with this is we will, in most cases, get direct access to the road map of their product development.
And in 80% of the and when that is happening, the organizations around the world are then committed to what they would like to do in terms of developing new product solutions for that earlier. I think the most powerful thing is in terms of our own business model moving forward, it's very much into design and spec in solutions for Bjorn Sustainability Index. So it's a big, big commitment for us and we are recognized for what we are doing, which is fantastic. And I think that all cars and it's coming around one of our values, that is around diversity, inclusion and sustainability. So the playbook is working.
I think it's evident based on the result we have had the last couple of years. It's very clear for 20 17 and is also very good for us as we roll into 2018 with a very good playbook in place with good processes in place and that we can execute to that during this year. And more than that, I'm here to reaffirm our 5 year plan with 2 years into it. So you will see later today that there is no change of the plan that was a 5 year plan announced in March 'sixteen. We're delivering on all metrics, and you will see Nick talk about that specifically.
All right. Thank you, Inge, and good morning. It's my pleasure to be here today to present our outlook for growth in 2018 and what our global businesses will be doing to deliver that growth. Growth that again outpaces our markets, growth that delivers on the promise of our 3 ms playbook and growth that creates extraordinary value for key priorities that they will be executing to deliver that growth. I'll then share some insights into what it is that uniquely positions us to create differentiated a that will deliver growth in 2018 beyond.
And then I'll wrap up with a summary of how we're positioned to win in 20 18. Our playbook is working, and you'll see throughout my presentation how each of our businesses is utilizing this playbook to deliver growth in 2018. You'll see how their strategic intent is closely aligned to our vision for the total company, and you'll see how their growth priorities are directly connected to the strategies and the 3 key levers you see pictured here. The 3 key levers, portfolio management, investing and innovation and business transformation, continue to have a huge impact on our businesses, helping us to drive growth above our markets and create extraordinary value for customers and shareholders alike. The playbook is the key to our success in 2017, 2018 beyond.
Here again, you see our 5 businesses and their outlook for Our Healthcare business is delivering very strong growth in the second half of twenty seventeen that includes market leading organic product growth as well as several successful execution of several portfolio management actions, we expect that to continue into 2018 with an outlook of growth in the range of 3% to 5%. Electronics and Energy is heading for double digit growth in 2017, thanks to wins in high growth emerging market segments as well as successful deployment of solutions into both LCD and OLED displays. And finally, our consumer business returned to growth in the second half of twenty seventeen, led by strong performance from our home improvement business. We expect that to carry over into 2018 with growth in the range of 2% to 4%. Growth priorities take a closer look at the priorities growth priorities for each of our businesses, starting with industrial.
Industrial is almost $11,000,000,000 business. Our top priority here is to accelerate growth in these 4 key platforms: automotive, abrasives, structural adhesives and filtration. We also are enabling the electrification of the automobile, and I'll talk more about this later in my presentation. We are bringing new science and technology to our structural adhesives portfolio, helping our customers to solve their most difficult bonding challenges with new engineered materials. And we're leveraging the acquisition of membrana to help accelerate our innovation in high performing filtration, opening up the opportunity to penetrate the fast growing biopharma processing marketfolio where we have an opportunity to introduce new and different solutions to our customers.
Examples such as new bonding solutions for additive manufacturing and new abrasives applications and digital commerce deployment. We're greatly accelerating our investment in our B2B digital content and also working with partners to ensure we optimize the digital. Safety and Graphics is our 2nd largest business at $6,100,000,000 in sales. Through this business, we have global leading positions in personal safety, transportation product growth together with leading positions from capital safety and Scotts safety to put together a portfolio that addresses the highest team. We're also bringing innovative new solutions to help improve global transportation safety, including new products targeting opportunities in developing economies as well as new materials that enable autonomous vehicles.
And we're also introducing new film technologies to help enhance our customers' brand image. Health Care is our most profitable business with $5,800,000,000 in sales. Through this business, we are a global leader in medical and oral care with a proven track record of outgrowing these markets. And with health care spending projected to grow again in 2018, we expect another strong year, investing in new products and innovation and expanded coverage. We are seeing strong growth coming from this strategy in 20 17 and see that carrying into 2018 beyond.
We are also working to advance digital solutions in health information, oral care and drug delivery. Our leading position in health information is enabling new solutions in performance analytics, and it's also creating a foundation of capabilities that enables us to develop new digital solutions in oral care and drug delivery. We're also working to expand our capabilities in clinical evidence and health economics, applying science to identify the most efficient and effective procedures and then sharing that with our customers through our Health Care Academy. Electronics and is a $5,100,000,000 business with leading positions across a broad range of electronic and energy markets. We are well positioned to win a number of new applications and technologies for our consumer electronics customers, working to meet the needs of our largest OEM electronics customers today while innovating with them to design in new solutions for the next generation products.
We also see an opportunity on the energy side of our business to consumer is a $4,600,000,000 business with category leading brands, products and innovation. They are our face and innovation. They are our face in our market penetration in developing economies, building out brand awareness, new products, innovated for those markets, driving penetration driving penetration opportunities, seeing strong results from that in 2017 as well. We expect that to be a growth driver in 'eighteen. We're also introducing innovative new products for respiratory wellness and home improvement.
Air purifier growth through our B2C model and consumer through new models, new partnerships, a continuing shift into digital marketing and advancements in data analytics. Our teams are positioned to win globally, positioned to serve large global OEM customers in markets such as health care, safety, electronics and automotive and at the same time, executing locally to meet the demands of our regional end use customers. Our top priority globally here, to build out the most efficient and effective engagement model for our customers, taking advantage of automation in our global service models and supply chain. You'll hear shortly from Steve Schaeffer how we're investing to accelerate growth in China. We also are investing to grow across developing Asia with significant opportunities in terms of business transformation to put us well on that track, and we are well on the way to achieving our targeted improvement.
And we're also increasing our focus on domestic oriented markets, businesses and innovation, such as consumer, health care Many developing economies are prioritizing a strategy to grow their domestic markets, to balance out their traditional dependency on exports. And we're well positioned globally to align to this strategy and deliver. It's important to understand the power of 3M model, ms domainx model that leads to insights into what their needs are, often unarticulated needs, unarticulated needs that provide high impact solution. We then leverage the fundamental strengths, technology, manufacturing, global capabilities and brand to ensure that we develop unique and differentiated majority of our $31,600,000,000 in sales are either specified or designed in by the end user. So it's critical that we drive our customer inspired innovation to them.
The channel to serve our channel to serve our end users may change over time, but keeping the focus on the end user will enable us to partner in the channel with solutions that will deliver where, when and how our end users prefer. In the last part my presentation, I'll share our top priorities for growth. These the 8 high growth, high value product programs that INGA introduced. I'll touch on 4 of these: automotive electrification, advanced wound care, connected safety and data centers. H.
C. Shin in his talk automotive solutions and electronic materials. We're bringing that through a dedicated team connected directly to our OEM electric vehicle OEM customers, opportunities we're seeing. And our value that is being specified into early designs is at a much greater level than our base automotive business. This will enable us advanced wound care is a significant opportunity for our health care business with increasing demand for to aid in healing of difficult to treat wounds.
And we're bringing together unique technology and domain expertise that can help our customers solve this problem across the wound healing process. From preventing, in fact, our ability to combine multiple technology platforms, such as films, nonwovens, biotechnology and adhesives enables us to bring unique solutions that will put us in a position to lead in this marketplace. Over the last three years, we've been building strength on strength in our personal safety portfolio, adding taking from our position as a lead market. And we are taking our deep domain expertise together with that portfolio and continuing to innovate and develop new products and new solutions for our customers and to step ahead and create unprecedented safety results enabled by data. We are seeing strong growth from this strategy and this integrated portfolio in 2017 and expect it to continue to accelerate into 2018 beyond.
We shared this view with you in the past, a high level view of the strategies in Electronics and Energy Business. Simply put, we must be able to grow our business with and ahead of our markets, while we add high value new opportunities through high value market segments, accelerating our growth to innovate in areas such as data centers with an increasing demand for bandwidth in communication infrastructure with a near term focus on 5 gs in automotive electrification, energy grid modernization and new storage solutions for renewable energy. We're excited about the growth opportunities we're seeing here. I'll share a little more detail about the data signal and energy management. And our increasingly deep domain expertise, together with our 46 technology platforms, help us to support needs in terms of air management, power distribution and monitoring.
In servers, helping to provide thermal management and cooling, but also new display technologies as well. On the system side, we're bringing new innovative designs to meet the increasing demand for bandwidth and network interconnects, but also power filtering and battery thermal management solutions solutions as well. Our unique solutions are helping our data center customers to reduce their costs, reduce are So we are well positioned to win. Our global teams will carry the strong growth momentum from 2017 into 2018 and utilize the 3 ms playbook to continue to create profitable growth for our shareholders. We'll deliver another strong result in 2018 by prioritizing our highest growth markets, products and applications by executing ongoing portfolio management to deliver increased investor value, by accelerating new product successes through leveraging our 3 ms playbook and by implementing new commercial changes that leverage business transformation and digital commerce.
So with that, I thank you, and it's my pleasure to introduce Steve Schaeffer, our Vice President for the Greater China Area. Thank you.
Good morning. As Mike mentioned, my name is Steve Schafer. I'm the Vice President for 3 ms Greater China Air opportunity and give you a little bit of detail about what our business looks like today in China. 2nd, I'll share with you some detail about how our playbook is enabling to win in China. And I'll conclude with a brief financial summary outlook of 2018.
So I'm sure most of you can appreciate the size of China, 1,400,000,000 people forming the 2nd largest economy in the world. You may be less familiar, however, with 3 ms presence in China. So I'll share with you some facts. We've been in China for a very long time, since 1984. As Inge mentioned, we were the 1st wholly owned foreign enterprise set up outside of the Shenzhen Economics Manufacturing base in China with 9 manufacturing plants that primarily serve our Chinese customers.
Most global companies see China as an attractive market opportunity, and we agree. We think the large market in China plays well to our portfolio of businesses and technologies. Just to give you a sense of how large China ends, of the PC and smartphone capacity for the world sits in China. But it's also a very dynamic market, one that requires you to move fast, but it creates the opportunity to change the game quickly. Just to give you a sense of that transform.
3 ms has been evolving and certainly growing along with China and according to the model that Inge had laid out earlier this morning. We have deep roots in infrastructure and manufacturing that form a solid base to our business and important parts of our portfolio as those sectors have emerged in China. Today, those businesses represent over $1,000,000,000 of our $3,000,000,000 There are some unique characteristics of how the playbook works in China, however, that I'd like to highlight. The first is, we leverage our strategies to help companies that are in China improve to both meet the increasing demands of the Chinese consumer. We also have a portfolio that is bringing convenience, quality and health to the Chinese consumers.
And this is exactly where the emerging Chinese consumer is trending. And finally, we have the ability to as I talk through the playbook in the next few minutes, you'll see these themes coming across and they're very important to how the playbook is. I'm going to focus on 2 components of the playbook in particular, 2 of our value creation levers, portfolio management and invest in innovation. We're focused on building scale in domestic oriented businesses that give us sustainable growth and are in large and attractive markets going forward. And finally, we're innovating in and around the very fast moving electronics industrial supply chains in China.
I'm going to talk about each one of these 3 now in a bit more detail, starting with building strong domestic oriented businesses. These businesses are businesses whose primary focus is on serving In the automotive market, like everywhere else in the world, we are increasing our dollar per unit penetration, ends of the Chinese consumer. And they look to innovation partners like 3 ms to help them do it. In safety, we're working fall protection, SCBA through our new acquisition of Scottsafety are the next horizon of safety awareness for China, expanding across China. These are dynamics that play well to 3 ms.
Our portfolio brings better clinical outcomes and our business model of training and educating on best practice health care practices in the new markets allows us to really participate. You can see 4 of the top megatrends here. Air quality, where we have the strongest brand backed up by our leading air filtration technology world coming together with a very strong, well established electronics supply chain that sits in China. Water and food safety and finally, automation and robotics, our consumables with their precision, quality and performance are very well capability and productivity, which is sweeping across China right now. I want to spend a little bit more time deep diving on the air quality megatrend.
As you may have heard on the last earnings call, Inge mentioned that, especially if you've been up into the Northeast or the West, you know what this means. There are millions of people walking around some of the biggest mega cities. Now we believe that with that trust comes a large responsibility. And part of that responsibility is making sure that we take our leading air filter, whether it's at work, whether it's outside, whether it's in the home or whether it's in the car. Tasked have taken on.
There's very unique challenges to child respiratory wellness, but it's the type of challenge that 3 ms will take head on. We're also launching this year an integrated brand campaign that tells our story about air quality. And we believe it's a great example and provide performance and efficiency in assembly operations, center markets to solve their next generation of challenges, including thermal management, signal management and display performance. 1 of our 4 global research labs in China and it houses over 600 scientists. We leverage this to both drive core research and development capabilities around our technology platforms, but also to help engage customers around technical collaborations.
Here's what our R and D footprint looks in China. As I mentioned, our global research lab is based in Shanghai. We also have 4 coverage across the country, but allow us to get very close to our customers in terms of collaborations. Here's some more specific examples for how we do that. We do it through our laboratory capabilities where we work with test and prove out our application support.
Below, you can see 2 examples from our safety business, one where we bring customers to our training center like our fall protection training. We conducted over 3,000 seminars and have trained over 85,000 Chinese workers on safety. And we do all of this in close collaboration with our customers and they value us for it. You can see across the bottom some representative of Chinese companies that we work with around these types of testing capabilities. Bringing it all together, we expect the sustainable double digit growth that we're seeing in China in 2017.
We're going to be aligning to megatrends that are meaningful in China that are giving us new growth platforms and we're going to be launching new products to our Chinese customer base. In conclusion, our playbook in China is working. I'd now like to introduce our Vice Chair, Mr. H. C.
Chin.
Thank you, Steve, and good morning again. So today, I'm going to highlight 3 continuous investment in research and development. First, I'd like to mention again the 3 ms playbook is driving everything we do. It enables our growth. It enables our productivity.
I think the balance between growth and productivity, those are very, very critical because they will ensure us for additional growth and profit going forward. So let's start with business transformation. Our business journey began in 2011, so there was some 6 years ago. It was not meant to be change everything in the company and how we do business with our customers. And the fundamental changes are 2 things that we want you to remember.
1st, global processes have been standardized and optimized. First time in our history, we have now we have been implementing our global ERP system for the last few years. What that does is that it gives us complete data access capability pretty much on a real time basis across geography, across function across all businesses. So if we combine our growth coming forward, And if you think about portfolio work that we have done, streamlining our businesses on top of that, that's why this scale and leverage is possible, not only supply chain but in all business processes. So combining those 2 with our scale and leverage strategy, particularly in supply chain optimization and all the transactional business services optimization in a way that makes it a lot easier for customers to do business with 3 ms.
This particular transformation is also increasing our sales and marketing time to spend with customers to generate higher growth for 3 ms. We are executing customer first approach, as you heard, in everything we do. Is about making each experience globally. Globally, what we have done is we are integrating all customer touch points and contact method into 1 integrated and automated global platform. That's a very powerful tool to our customers.
What that does is that it will make it stronger in terms of our digital and online capability with our customers. It is also benefiting with our customers with a stronger quality and 3 60 degree view of our customer visibility pretty much on a real time basis, 3 ms is also taking full advantage of our global e commerce capability. So that's the reason why we believe that business transformation enables practical and sustainable productivity framework for 3 ms. It basically consists of 3 pillars: 1, our business services operations have centralized all of our customer facing processes to in Costa Rica, in the Philippines and Poland are fully operational and provide follow the sun service model. 3rd, we have significant supply chain optimization opportunity now using our new system integrity capability.
All in all, these actions will result in $500,000,000 to $700,000,000 of annual operational savings and $500,000,000 of working capital improvement by 2022. Now I'll touch on high level supply chain strategy and execution later this morning, so Linda Kugel will spend more time using that regionalized supply chain is effective twofold. 1, it is streamlining our value stream from a lead productivity. 3 regional centers of expertise are also creating value for our customer. While they are close to the customer.
At the same time, we are continuing to optimize our existing manufacturing footprint. We first talked to you about this at our Investor Day in March of 2016. It involves consolidating typically larger sites. The focus is threefold. It improves customer service.
It also accelerates operational efficiency and increase our cash flow. So we continue to make very good progress on this plan. Along with our regionalization and footprint optimization strategy in our supply chain, we are also sustainable plant powered by advanced generate tremendous productivity for 3 ms. As you probably know, our capability is one of our 4 fundamental strengths along with technology, global capabilities and 3 ms brand. We continue to invest in our manufacturing capability.
So let's talk about research and development or investing in innovation. So our commitment to increase our R and D spend to 6% of sales is a very important part of our company's strategy. We are directing the vast majority of our incremental R and D investment to creating new products and new technology platforms for new and emerging market by unleashing 3 ms's strong 46 technologies. Many of you had the opportunity to tour our new Carleton Science Center in St. Paul, Minnesota last year, Desmond.
The reason we are doing this is to make a direct connection with our customers and market needs with our technology platforms. We have global research centers in 4 locations of the the United States, Germany, Japan and China, as you heard from everywhere in the world. Here's an example of how one technology platform, in this case, adhesive technology platform, is applied to basically eliminating the need for mechanical fasteners like rivets, bolts and screws. At the same time, we engineer our adhesive technology to be gentle enough for human skin, as you can find in our medical tapes and dressings. Our adhesives are also inside your smartphones, making your smartphones stronger, lighter and more durable.
And that's just one technology or DC platform. Here's another example of 3 ms's proprietary nonwoven technology being used in so many different markets, applications and products. They are widely used for acoustic and thermal insulation woven technology. Some of our critical health product lines, such as medical tapes and patient warming products, also use nonwoven materials, Filtrete brand filters and scotch brite cleaning products. There are similar stories with each and every one of our 46 technology platforms.
Applications, Think of the endless possibilities when we combine them. Our window film product includes adhesive technology, film technology, nanotechnology and light management technology. How about SWM's medical dressings? It consists of, again, adhesive technology, film technology and 6 other technologies. And if we look at Filta, our line of dental adhesives and resins in the most contemporary manner.
We see a huge need for 3 ms's material science technology in digital and interconnected world and the markets of the future. We embedded IoT technology and data analytical capability into our inhalers and biological indicators to make them smart and connected. Our unique material solutions find numerous applications in new and emerging markets, such as data center application, electric vehicle manufacturing, autonomous driving and biopharma filtration for next generation drug manufacturing processes. I'll show you a couple of practical examples of this. Of markets.
In the biopharma industry processes, a few years ago, 3 ms developed and introduced new filtration product lines to provide new and unique purification solution, which allowed us to combine our existing filtration technologies with membrane technologies from membrana to generate significant technology and product synergy. As a result, we have unlocked many new opportunities in biopharma Purifix processes. Overall, this is $5,500,000,000 market and growing with a double digit growth rate. Here's another example of how we are evolving one of our fundamental technology platforms into new markets and new applications. It has been widely used in semiconductor manufacturing processes, firefighting applications and various cleaning and cooling solutions in center applications, as you heard from Mike Roman.
1 of the biggest issues in large data centers is to how to manage heat generated from so many powerful servers. 3 ms Novec Fluid provides very effective immersion cooling solutions also is used to provide very efficient cooling for electric vehicle battery assembly. Cooling or dissipation of heat from the battery assembly of the most critical elements in extending battery life and increasing driving range with a single Novec Fluid is also a very sustainable product. The test showed that Novak Fluid can reduce greenhouse gas emission by up to 99.99% compared to other competitive products. Talking about sustainability.
3 ms has deployed, as Inga said, innovation inspired by sustainability concept. It means we are incorporating more sustainable materials in the development of new products. For example, 3 ms developed and introduced a non PVC based film product for vehicle wrapping application, the first of this kind in the industry. This V3M reduced our own greenhouse gas emission by 67% in the last 15% by providing products that enable sustainable processes in the eyes of customers. For example, our paint preparation system replaces conventional metal can with disposable containers for paint mixing and dispensing operation in automotive body shop.
90%. This way will help our customers reduce their greenhouse gas emissions by 250,000,000 metric tons by 2025. So 3M is committed The 3M is committed to continue to come up with the products basically inspired by sustainability concept and sustainability philosophy and sustainability, customers, policymakers and students. Topics in those meetings range from the future of artificial intelligence, aging population and the future of science. We think this is a great way to promote common value for the society and the world that we are living in and also enhance 3 ms value and brand around the world.
So let me summarize what I discussed with you this morning. Business transformation drives enhanced customer experience and supply chain optimization is a huge opportunity, and we also drive 3 ms's competitiveness in the market future market needs. So all in all, 3 ms Playbook
All right. We'll get started. Good morning. I'm John Lindegugel. We presented key elements to our approach to supply chain, including investments in footprint optimization and disruptive technology.
Today, I'll present our strategy and update you on both of those initiatives. Here's my agenda. I'll begin by outlining how supply chain provides a competitive advantage for 3 ms. I'll cover our strategy for extending that advantage forward, and I'll talk about how we operationalize the strategy through high impact global supply chain initiatives, producing and delivering 3 ms solutions to every company, every home and every life. It's embedded in every one of our six strategies from gaining profitable market share to delivering superior levels of operational excellence.
And supply chain utilizes all three of our key levers to create value for our customers and shareholders alike. Our supply chain capabilities create a competitive advantage for the company. And building and leveraging our fundamental strengths are basic to our business model. We use our 46 technology platforms to innovate new products, and then we deploy those technologies in manufacturing. You heard Inge highlight this morning that 25% of our patents and onethree of our technology platforms relate directly to what we do on our production floor.
We leverage our proprietary process technology, scale and vertical integration to deliver the lowest unit cost in most of our product categories. We use our global capabilities to serve our global customers in every region of the world. And our iconic brand synonymous with the quality we produce in our plants also supports pricing that's commensurate with the higher value that our products provide. The result of all of that is our gross margins being in the top decile of our peer set and a proven ability to deliver sustainable cost reductions year after year, 240 basis points since 2012. That's good progress with much more to come.
Our supply chain strategy is customers. We put customer first in our all of our decision making at every level in our organization. Our strategy is straightforward. It's to create agile supply chains to deliver what our customers want, when and where they want it with minimal lead times and inventory. We have 3 primary strategies that we operationalize through high impact We optimize global processes to deliver operational excellence results: Lean 6 Sigma, customer engagement, integrated business planning and sourcing excellence are all great examples of what we do in that space.
We regionalize our supply chains. Here, it's helped agility in moving our supply chains closer to our customers. We can adapt to changing market demands, reduce lead times, improve inventory turns and deliver efficiency. We do that in a number of ways, in multiple ways, including footprint optimization. We're fully utilizing our supply chain centers of expertise and our global service centers.
And finally, we're accelerating disruptive technology deployment to create our operations of the future. We're increasing our investment to develop and deploy disruptive process technology. Think of this as mixing 3 ms proprietary process technology with Industry 4.0 thinking to create something that only 3 ms can create, new supply chains, customer solutions and results that only 3 ms can deliver. Now I'm going to highlight in a little more detail 3 of these initiatives: Lean 6 Sigma, Footprint Optimist with the program. Over that time, we've trained 77,000 employees, completed more than 110,000 projects and delivered more than the company.
I was in the 1st class of master black belts when we initiated this program in 2,001. I trained some of our first black belts and green belts. I know firsthand the power of the Lean 6 Sigma tools and the incredible results our teams can deliver when using those tools. The program has created great value for the company over the years, and we expect to be able to do more with it as we go forward. The second initiative I'll cover this morning is our footprint optimization program.
So as we discussed in March of 2016, 3 ms has more than 200 plants in 40 countries worldwide. And on the left hand side of the chart, you can see those plants organized by sales value of production from largest to smallest, that's annual production volume. Our global supply chain is anchored by a group of plants we call super hub sites. You see those represented on the left hand side of the slide with the tallest bars. These sites are typically 4 or 5 times larger than an average plant and house many of our most disruptive technologies.
On the right hand side of the graph, you see the group of smaller plants. Some of those plants are specialty sites, providing a unique source of supply to a specific customer segment. Those small plants are really important to us, and we'll continue to invest in those going forward. Other small plants, however, create an opportunity for us to streamline our footprint, really an opportunity to optimize our footprint. We do that with simple objectives in mind: improving customer service, delivering operational results and increasing cash flow.
So in 2016, we launched a formal footprint optimization program. We committed to investing $500,000,000 to $600,000,000 to reduce 5% to 10% of our production space. This investment will improve customer service. It will deliver $125,000,000 to $175,000,000 of operational efficiencies. It will deliver $100,000,000 of inventory benefit by reducing touches, number of inventory locations and cycle time.
The overall program will deliver a return of more than 20% and some of the specific programs much higher than 20% by $100,000,000 to $350,000,000 In addition to increasing the overall level of investment, we're also shifting our mix, less renewal programs and more productivity disruptive technology and capacity investment. And this is significant. In 2018, we're doubling our investment in productivity, we're tripling our investment in disruptive technologies, and we're increasing our investment in capacity additions that enable more growth by 40%. Taken in concert, we're investing more to build and leverage our fundamental strength in manufacturing. Again, the customer is at the center of our thinking, creating agile supply chains to win with technology to create the most automated, connected, efficient, safe and sustainable operations aimed at one simple objective: delivering the highest quality and shortest lead times to our customers.
So let's take a deeper look at how we do this. Again, we go into our 46 technology platforms and we pull technology, typically more than 1. We combine them to create proprietary processes that we then deploy in our manufacturing operations, AI and machine learning. Now I've been on the ground floor of many of our technology developments. I've seen them in the early days in our research labs.
I've tested them in our pilot plants and deployed them on our factory floors. This is something that is truly unique to 3 ms and incredibly exciting. And here's one example of how we go about doing this. So this is our proprietary automated web inspection system. We're using these systems being produced.
We're using digital scans along with machine learning algorithms to detect defects smaller in diameter than human hair and more importantly, to control our processes by continuously adjusting our process conditions real time to optimize quality and throughput. Again, it's blending our proprietary domain expertise with big data analytics and machine learning to deliver real time quality and productivity improvement year after year. We've deployed more than 100 of these systems on more than 70 production lines around the world, and they're having an outsized impact in our operations. 80 percent decrease in defective parts per million, a tripling in inspection speeds and delivering $30,000,000 company. Its supply chain, delivering 3 ms products enhancing every home and its supply chain through 3 ms innovation improving every life.
And that concludes my briefing this morning, and it's my privilege to introduce Eric Hammes, Senior Vice President of Business Transformation.
Thank you, John. Good morning, everybody. It's a great pleasure to be here today and to have the opportunity to update all of you on the progress we're making with business transformation. Over the next short while, you'll see that we are further enhancing our customers' experience with 3 ms and our ability to grow. We are continually improving our internal processes and efficiencies, and we're increasing our ability to reach the marketplace in broader and in different ways.
Throughout the morning, you have seen how 3 ms playbook is working, and business transformation is very much a key element of that playbook. We help to enable our business leaders to more actively manage the portfolio. And when we bring technology and solutions to our customers and employees, we also help to improve the highest return on our R and D. Business transformation is an integral lever at 3 ms and one that further enhances the fundamental strengths of 3 ms. As you've heard and seen in previous conferences, we measure the success of business transformation through the eyes of our customers.
And when done well, we create the ability for our customers and 3 ms to grow in a partnered fashion. We can further streamline the buying experience. We can help to create easier access to the full breadth of 3 ms innovative portfolio, and we increase our ability to reach the broader marketplace in new and in different ways. But we can also optimize end to end service, which enables sustainable productivity at 3 ms. Our customers can feel this in a very real way, while we can also improve within 3 ms from being more connected, increasing our accuracy and very importantly, achieving operations at scale.
So with that as a backdrop, let's take a moment to look at how the initiative of business transformation has evolved. We've learned and grown with every experience, And little by little, I can assure you that the full benefits of transformation are coming through at 3 ms. There are 3 areas that I'll talk today. The first is technology, the second is process and the third is value. Our technology platform started out as a single instance ERP, but we've enhanced that to include the right balance of both standardization and specialization, which enhances our ability to digitally enable our businesses and importantly, connect with our customers and employees in more relevant ways.
You heard the importance of this this morning when Mike Roman spoke about the emergence of digital commerce within industrial markets or digital solutions within healthcare and e commerce within retail. Earlier in our transformation, we also focused heavily on process standardization. But as we deployed in Canada and West Europe, we started to understand the importance of not only standardizing, but also redesigning and optimizing our processes to better connect with our customers. This helped create an improvement within our support functions, but the visibility that we now have in terms of data across our end to end processes and across our geographies is enabling data and analytics to play an ever increased role at 3 ms. And once again, it keeps us closely connected with our customers.
So we're excited about how this journey is unfolding. We have our 3 service models, which you all understand are the basis for our value realization play: global service centers, business services operations and supply chain centers of expertise. These have been outstanding platforms that have helped to drive value realization in 2016 and in 2017. They've provided 3 ms with innovation and scale. They also provide us the high confidence level that will deliver on our value realization commitments through 2020.
And as you heard from my colleagues this morning and as you continue to hear from me, business transformation has the ability to drive benefits beyond 2020. So let's take a look at how we're performing through the eyes of our customers. Our first order of priority with any deployment is to create a seamless customer experience. 0 interruption to the business is our aim. But as mentioned, we're also looking to improve the end to end service experience.
This creates the ability for new growth opportunities. In 2016 and in 2017, we were very successful. From 3 ms Canada to West Europe recently the United States, our customers are feeling this experience, and you can see some testaments from some of our largest customers up on screen today here. We see strong communications and partnership giving us the ability to leverage a seamless transition. Our partner portal enables quick access to the right products and the right order information at the right time at the right speed, which ultimately improves our customers' ability to grow with 3 ms.
So this gives us confidence, and it gives us confidence as we look forward. At the end of 2017, we will have deployed approximately 30% of 3 ms's revenues on the global ERP. With our technology platform well designed and substantially built, our teams can now shift their focus from build to deploy, and this is highly advantageous in several ways, but predominantly because it gives us the ability to scale down our investment in the program and focus more wholly value realization.
By the
end of 2020, we will have significantly impacted the customers that we reach, employees we engage and supply chains that we transform. While still focusing on value realization in West Europe, our focus will shift more dominantly towards the United States and APAC. And by the end of 2020, we will have deployed approximately 95% of our revenues on 3 ms's global ERP. So our teams in the United States have been challenged in a big way. Given the overall size and significance of the U.
S. And our market position, we've enhanced our focus in 2 areas. The first is with our customers, and the second is relative to deployment. With our customers, we're communicating with them earlier and more broadly. Through a multi month campaign, we're ensuring that our customers have the broadest understanding of business better information and better personal touch points are the wins that early that every customer can expect from 3 ms.
The second area of our focus is around deployments. With the United States, we have a thoughtful and managed approach, segmenting our business groups, plants and distribution centers. This approach enables our teams to focus their efforts in a more prioritized way and ensure deployment success. So we can already see how this is paying off, both in terms of customer engagement as well as deployments. In the second half of this year, we completed our deployment of the health care distribution center in the 1 At $1,600,000,000 in annual sales, it was an outstanding milestone and it demonstrated the strength of our 3 ms teams.
Our customer facing business processes were robust at go live. Our cycle time for recovering productivity within our distribution center was quick, and it provides us confidence through 2018. In fact, several of our major medical distributors, channel partners as well as direct customers were complementary of the seamless transition with 3 ms. So our 2017 deployment success again is giving us confidence realization. Our commitment to value realization has remained constant throughout the past few years and is unchanged as we look at business today and into the future.
Delivering a premier customer experience for our customers, expanding into new markets, growing together is all critical elements to ensure 3 ms's organic growth. And all of you understand that organic growth is a primary metric at 3 ms, and perhaps it's the broadest financial measure success for business transformation. But we also see that business transformation can create a more efficient 3 ms. We've established 3 global service centers that provide seamless coverage around the world. Just 2 years since their inception, we're covering all of our major support functions, all of our major geographies and all of our major business but we've also built differentiated capability in the areas of the business.
But we've also built differentiated capability in the areas like language diversity, process automation and service excellence. Over the next 3 years, we will double our capacity in our global service centers, and we have great opportunities for additional services in our support functions and businesses. Our business services operations aims to enhance the customer experience while driving efficient growth and reducing costs. So in a sense, it embodies business transformation with a focus on both growth and productivity. The customer testaments that you saw today are enabled by our business service operations.
And as H. C. Earlier mentioned today, this organization also enables our sales teams to be more precise in their selling efforts, but it also plays a key role in standardizing our processes. For our deployed countries, we've driven nearly 50 percent automated order processing, nearly 100 percent automated pricing, and we've substantially simplified our pricing and incentive plans. This is a great example of how simplification and optimization can ultimately drive value.
As you also heard from John, our supply chains are organizing for success. Our ecosystem of technology is enabling end to end visibility and again for data and analytics to play a bigger role in how it contributes to productivity, planning efficiency and capital efficiency. So our 3 service models are enabling our commitment to our $500,000,000 to $700,000,000 goal for value realization. But it's also very important to understand that these organizations play a key role in driving our $500,000,000 in working capital improvement. A culture of continuous improvement is very strong at 3 ms.
In 2017, we found that our deployed countries and global teams have great ideas how to take things to the next level. And our task is to complement those ideas with systems and technology. So we've applied a couple of 3 ms's basic best practices that can also be very powerful. The first is to ensure we have a global process for collecting usage of Lean 6 Sigma tools. We have Lean 6 Sigma black belts within our business transformation initiative focused on end to end process optimization.
We also embedded them within our global service centers, and they're connected to how John mentioned Lean 6 Sigma around the company. Better more, we've also improved the way that we organize and the speed at which we deploy technology to help get to the fastest path to value realization. So the 3 ms culture of continuous improvement is alive and well, it's contributing today, and it will continue to contribute
into the future. So as
you can see, business transformation is progressing. We're We're 3 ms. We are enhancing the customer experience, and we are improving our ability to organically grow while creating sustainable productivity. So with that, I thank you, and I introduce Senior Vice President and Chief Financial Officer, Nick Gangstedt. Nick?
Thanks, Eric, and good morning, everyone. Throughout the morning in the prepared comments, you've been hearing about our 5 year plan and how we are executing on that plan. I'll close out the prepared comment portion of the morning before we head to Q and A. And I'll first touch on how are we progressing on that journey of our 5 year plan. 2nd, I will update you on our expected strong close to 2017.
And then I'll spend the majority of the time detailing out our expectations for 2018. So to start, in March of last year, we laid out our long term objectives for the company. And we shared at that time a plan of how the organization was focused on aggressive yet realistic goals. That playbook is working and you can see through 2 years of the plan that we are delivering on the financial objectives that we laid out. And before I address the outlook for 2018, let me provide a few comments as we close out 2017.
Overall, 2017 has been a strong year, even better than we expected entering the year. As discussed on the Q3 earnings call, we we expect full year organic growth to be between 4% 5%, and we expect earnings per share to be between $9 $9.10 We expect to be in the top half of that range for both of those guidance figures. Also on the earnings call in October, we laid out 4 planning items that will impact the Q4. Those are included here as a reminder. Operationally, we are tracking to our expectations, while at the same time investing in the business, investing in R and D, investing in CapEx to drive our business model that enables us to grow, both now and into the future.
Cash flow and return on invested capital are important financial metrics for us and they are expected to be strong for the year. Let's now move to our outlook for 2018. 2018 will be another year of delivering reform nor does it include the pending sale of our communication markets business. The main drivers of our year on year growth in GAAP earnings per share will come from organic growth along with strong operational performance. We generate consistent and healthy cash flow due to the strength and diversity of our business model.
And in 2018, we expect another year of As always, investing in the business to fund organic growth remains our top priority. This includes CapEx and R and D, which propels our organic growth as well as strategic acquisitions, which augment our growth. While we invest in the business, we also plan to continue returning cash to shareholders via dividends and share repurchases. Our team continues executing our playbook and leveraging the 4 fundamental strengths of the company. Moving to capital.
Our strong operational cash flow fuels our capital allocation plan. We expect another year of strong operational cash flow generated from operations. We are estimating $9,000,000,000 to $9,500,000,000 prior to our investments in R and D and pension. As part of our 5 year plan to shift our capital structure, in 2018, we expect to add leverage of 1.5 5 $17,500,000,000 of deployable capital. And our first priority for capital is investing in our This includes research and development, CapEx supplemented with acquisitions, while at the same time returning cash to our shareholders and funding our retirement plans.
Specific to acquisitions, our pipeline is active and healthy. All businesses are engaged in developing and prioritizing their pipeline. And our current priorities in health care and industrial. In planning for 20 18, we expect GAAP earnings to be between $9.60 $10 a share, up 6% to 10%. This is primarily driven by organic growth and productivity.
We expect our organic local currency revenue growth to be between 3% 5%. Foreign currency translation is expected to be approximately a 1% tailwind to revenue and we expect acquisitions net of divestitures to have a positive impact on revenue. Finally, we anticipate another year of strong free cash flow generation with a conversion rate between 90% 100%. Let's now take a brief look at the earnings per share roadmap for 2018. And I'll start with growth and portfolio management and how we focus on delivering it.
As I mentioned earlier, our first priority is to invest in organic growth, complementing it with strategic acquisitions, while divesting and exiting businesses that no longer fit 3 ms's portfolio. By having this strategy, we are able to focus the organization on the right areas, shaping the portfolio, providing scale and enhancing growth. Let's look specifically at 2018 organic growth, our top priority. In 2018, we expect organic growth in the range of 3% to 5%, largely volume related with price positive and in line with historical pricing power we have generated through our business model. Our growth in developed markets, we expect be between 2% 4%, while we expect growth in developing markets to be 4% to 8%.
And we expect this organic growth to add between $0.45 $0.75 to earnings per share in 2018. Lastly, our investment in research and development and CapEx in combination is again expected to exceed 10% of revenue as we continue to fund organic growth in 2018 and beyond. Let's now look at organic growth by business. Mike touched on this earlier. So to recap by business group, both Healthcare and Safety and Graphics are each expected to grow between 4% 6% organically.
The Industrial Business Group is expected to grow between 3% 5%, and we forecast growth in Electronics and Energy to be in the range of 1% to 4 percent. Lastly, organic growth in the consumer business is expected to be 2% to 4%. Let's now move to organic growth by geographic area. We expect growth by geographic area to be very similar to our growth in 2017. Specifically, we estimate organic growth in the U.
S. To be between 2 percent 5% and Latin America and Canada to be between 3% 5% organic growth. Organic growth in EMEA is expected to be between 1% 4%, with West Europe increasing in the low single digits. Finally, in Asia Pacific, we anticipate 4% to 7% organic growth with
China
which support and drive organic growth, generating premium returns for the future. Let me start with R and D. As you've heard from other presenters this morning, innovation is the heartbeat of the company. We connect 46 technology platforms to solve problems for our customers and their real needs, which enhances our relevance with our customers and delivers premium margins and return on invested capital. As both Mike and H.
C. Talked about earlier, we have focused investments in our priority areas for growth. R and D is a significant part of our commitment to building 3 ms for both short and long term success. We expect R and D investments to be approximately $1,900,000,000 or 6 percent to revenue in 2018. Let's now move to CapEx investments.
CapEx investments are aligned with our portfolio prioritization process, delivering superior returns and combined with investments in R and D support our premium return on invested capital. CapEx enhances the fundamental strengths of the company by increasing our manufacturing capability, supporting innovation and is leveraged across the business portfolio. We expect 2018 CapEx investments to be between $1,500,000,000 $1,700,000,000 or approximately 4.5% to 5% of revenue. As John mentioned earlier, we are increasing our investments in CapEx in 2018 to add capacity to support higher organic growth and accelerate investments in disruptive technologies and automation. Let's now take a closer look at the impact of divestitures.
We continue to focus our portfolio by divesting non strategic businesses don't leverage the fundamental strengths of the company. With the majority of these divestitures in the Safety and Graphics business, in the last 5 years, we have sold 11 businesses for a total of $1,400,000,000 in proceeds and they have a combined annual sales of $700,000,000 These businesses had organic growth and margins that were below our overall company averages and are better served in the hands of other firms. Let's now turn to the impact of 2017 divestitures on our 2018 earnings per share. In 2017, there were approximately $0.75 of divestiture gains that will not repeat in 2018. The majority of these gains came from the sale of our electronic monitoring and identity management businesses.
And as a reminder, we are not including the impact from the recently planned transaction involving our communication incorporate that transaction. Let's now move from divestitures to acquisitions. Our recent acquisitions are enhancing shareholder value and our acquisition process has led to more impactful deals, better strategic alignment and improved financial performance. We have completed 6 deals of note since 2014, the earliest being Trail Solutions and the most recent being Scottsafety. The combined investments in these 6 deals totaled 6.6 $1,000,000,000 These acquisitions have delivered accretive organic sales growth with margins in line with our overall company average.
Let me now cover the expected acquisition impact, specifically from Scottsafety to earnings per share in 20 18. We closed the Scottsafety acquisition in early October and are pleased with how its integration into our personal safety business is going. With 12 month revenue of approximately $575,000,000 and EBITDA margins in the mid-twenty percent, Scott is a great asset to our to add scale to our safety business and leverage 3 ms's fundamental strengths to make it even better. As we have said previously, we expect this deal to be 0 point $0.08 are expected here in the Q4. For full year 2018, the deal is expected to be $0.10 positive to earnings versus 2017.
Let's now look at the earnings per share impact of foreign currency. As highlighted earlier, we expect foreign currency translation impact on sales to be a tailwind of approximately 1% in 2018. Our earnings per share estimate includes the impact of foreign currency on sales and operations, net of year on year changes in hedging. In 2018, we expect a tailwind of approximately $0.10 per share assuming exchange rates as they were at the end of November. Let's now move to how productivity is a core component of our earnings per share growth.
While driving top line growth is a priority in 3 ms, productivity plays an equally important role in our company. We are constantly looking for ways to make the company better. Let's start with of our portfolio and footprint optimizations on our earnings per share range. John discussed earlier the progress we have made on our supply chain footprint plan that we originally laid out at our 5 year outlook meeting in March of last year. 2017 is the peak investment year within the 5 year plan for footprint optimization, where we are incurring approximately $0.42 in earnings per share charges related to portfolio and footprint optimization.
These projects were initiated in 2017 and some will continue into 2018 with added investments of 0.10 dollars net of the benefits we begin to see. Taking into account the combined impact from 20172018, we expect footprint and portfolio optimization to earnings per share between $0.30 $0.35 Let's now turn to the impact of raw materials. In 2018, we are expecting raw material market prices to be up with our sourcing team's efforts delivering sales, savings primarily through negotiation, material substitution and productivity efforts. All in, we expect raw materials to be between a $0.05 headwind to a $0.05 tailwind to 20.18 earnings per share. As a reminder, about half of our cost of goods sold is spent on raw materials and finished goods.
Let's now move on to value realization impact from business transformation. As you heard earlier, business transformation is one of our 3 key levers, creating value for our customers and enhancing the efficiency of our operations. Through business transformation, we are standardizing global business processes by implementing a new ERP system, which is now deployed in the majority of West Europe with the U. S. Deployments ramping up in 2018.
In 2018, we are expecting $0.05 to $0.10 of $0.10 of incremental year on year benefit through value realization in business transformation. This keeps us well on track to deliver $500,000,000 to $700,000,000 in annual pretax savings by 2020 as laid out in our 5 year plan. Let's now take a closer look at where we expect additional productivity savings. Continuous improvement and driving productivity each and every day is a way of life at 3 ms. On top of our business transformation savings, we expect an additional earnings per share benefit of $0.15 to $0.25 by reducing structure and driving efficiency across the enterprise, particularly in SG and A.
This benefit is net of wage inflation and is built on an expectation of improved volume related utilization. We also continue to execute Lean 6 Sigma companywide with an emphasis on our global supply chain and business transformation. Track record of reducing our structural tax rate through supply chain optimization and utilizing centers of expertise. In 2018, we expect our tax rate to be in the range of 26% to 27%. This will result in an earnings impact between a negative $0.05 to a positive $0.05 to EPS.
As Bruce mentioned at the beginning of the morning, this guidance does not include any potential impact from tax reform. Let's now shift topics to other financial impacts to earnings per share. We continue to take disciplined approach to allocating capital and structuring our balance sheet. And as touched on earlier, we do plan to add leverage in 2018 to complement our funds available to use. Beyond growth investments, we are committed returning cash to shareholders and funding our retirement plan.
Let's start by reviewing our retirement plans and their impact to EPS. Retirement plans earnings per share impact next year is expected to be a headwind of approximately $0.10 We estimate year end 2017 worldwide pension OPEB funded status to be 83% with the U. S. Pension plan at 90%. Our 2018 assumptions include the U.
S. Discount rate down 40 basis points versus last year and expected return on assets unchanged at 7.25%. The 2018 cash contributions to our defined benefit plans are expected to be in the range of $300,000,000 to 500,000,000 dollars As a reminder, we have closed or frozen the majority of our defined benefit pension plans around the world. And the change to defined contribution pension plans has provided employees with greater portability and history of returning cash to shareholders via dividends. Without interruption, we have paid the dividend for over 100 years with 20 17 marking the 59th consecutive year of increasing our dividend paying out $2,800,000,000 Looking forward, we expect the dividend to grow in line with earnings over time.
The second way we return cash to shareholders is through share repurchases. And in 2018, we are forecasting to deploy between $2,000,000,000 $4,000,000,000 of cash to gross share repurchases. We estimate this will reduce average diluted shares outstanding by approximately 0.5% to 1.5%, increasing earnings per share by $0.05 to 0 point 15 dollars As always, the timing and the amount depends on the relative value and other potential uses of cash such as M and A. We continue to execute our plan to further enhance our capital structure. To further enhance our capital structure.
In 2017, we added $2,000,000,000 of debt while repurchasing more than $300,000,000 in high coupon debt. We expect to add between $1,500,000,000 $4,000,000,000 of incremental debt in 2018. As we continue to invest in to decrease in 2018, which will increase our earnings per share by approximately $0.05 to $0.10 Let's go back and look at the earnings per share components in aggregate in the earnings bridge on the next slide. We expect 2018 earnings in the range of $9.60 to $10 per share, up 6% to 10% year over year. Our earnings growth will be primarily driven by organic growth, supported by operational productivity.
In summary, I'll wrap up where Inge started this morning. We have continued to execute our plan. Our playbook is working. We are executing on our 3 key levers. We are well positioned and ready to for 2018 to and expect to deliver organic growth between 3% 5% and earnings growth between
I'll ask one question, but three parts to it. So you talked a lot about internal process optimization, And you would think that you will see a significant reduction in lead times internally as you simplify your processes and internal supply change. So I guess, three questions. 1st, where are you versus your targets when you sort of embark on this journey? 2nd, what does it mean for your free cash flows going forward beyond the targets that you have set?
And finally, things are really good right now, but what does it mean about 3 ms's performance in the next downturn as you reduce internal lead times and complexity? Thank you.
Andrew, let me take that and others can add on as they see fit for this. In terms of business transformation and all the year after year, not quite linear, but very close to linear. And the progression we've seen between 2016, 2017 and now what we're projecting for 2018, we're right on track to be delivering the operating income benefits that we expected. As part of that, we also said that we expect to take about $500,000,000 of capital out of our supply chain. That we have always known will be much more back end loaded in the 5 year plan that we laid out because much of the savings there we need to have a complete set of our supply chain in place in order to be fully realizing what we're expecting for the supply chain inventory value realization.
We continue to see that on track. So part of your question is over the 5 years, what do we see with free cash flow conversion? So through the 1st couple of years, we're right around 100% free cash flow conversion. We're guiding right now 90% for 20 90% to 100% for 2018. And that's a couple of things going on.
First of all, there's growth going on. And we are stepping up our investment in CapEx, both to be having a the capacity to be delivering on the growth that we are experiencing and that we expect to experience. But then also working capital investments with that growth, we think in 2018 will also contribute to a 90% to 100% free cash flow conversion. As I look to the complete 5 year, we still see ourselves very much aligned around 100% as an expectation. Chain value realization on of taking inventory out of our supply chain as we get closer to having more of our entire footprint on our new transformed business process.
And Andrew, there was a third part of the question that I'm frankly forgetting.
Yes.
Just as you simplify your internal supply chain and lead times, historically, 3 ms has been very responsive in terms of downturn, but it would quarter or 2 for things to recalibrate. So how do you think company will behave differently even when the next downturn comes, given what you're doing internally?
So scenario planning for all kinds of economic scenarios is part of what we do in running this company. Making sure we don't get too far ahead of ourselves in any type of one particular investment that we can react. In the event of a downturn, part of our reaction is reevaluating some of the investments we're doing, where are things we need to scale back, any things we need to pause on. We've shown demonstrated through multiple business cycles the capacity to adjust our business model down and our spending down when needed when we see that happening.
But any changes given what you're doing, right? I mean, if you simplify internal supply chain, it should give you a lot more flexibility than historically.
As always, part of what we're doing, Andrew, it is giving us more flexibility. And I think what we're doing in transforming our business process only enhances our flexibility going forward.
Thank you. Andy Kaplowitz.
Nick, you mentioned positive pricing for 20 18. And I think you'll end the year in 2017 probably closer to flat, maybe up a little bit. So maybe break down the pricing guidance in the sense that, are there specific businesses where the environment is just better industrial or healthcare versus are you also being proactive? I know you guys have talked in the past about whether it's discounting rebidding.
Are you is
'eighteen different than 'seventeen as you think about that?
Yes, Andy, the when I compare 2017 to 2018, 2017 is a year where our price growth will be approaching flat. And what's going to change on the margin to be back to our historic pricing growth range of 30 to 50 basis points? There's 3 places I'm seeing the most marked change from what we've experienced in 2017. First of all, geographically, the U. S.
Will likely be the area that has the most significant change from the price growth we saw this year to what we're seeing in 2018. And from a business perspective, our Industrial and our Safety and Graphics businesses are the 2 that we see the most change from our price growth trajectory we were this year to what we'll be seeing next year.
Okay. That's helpful, Nick. And I wanted to ask you about China. When you look at your guidance of 10% to 15% growth in 2018 versus 2017, that's off of double digit growth I think in 2017. So difficult comparisons yet that kind of growth.
You talked a lot about the megatrends. But if I look at 3 ms in the past, 3 ms as you said, has been in China for a long time, but never really had this kind of growth. So how sustainable do you think this growth is moving forward? I mean, these megatrends feel like they're here to stay. So should we be thinking that 3 ms can grow faster in China for longer a year as we move forward?
Yes, you should. And we have had very fast growth in China in the past as well. Of course, that was a smaller base, but we have been up and growing very, very fast in China for many years. And I think what is happening now is a couple of things. First of all, our capabilities is much, much better, and our portfolio is much more aligned to what is happening in China.
There is a shift in China if you think about the industrial sector from what they are shifting step by step from try to copy and do things slightly better and copying versus doing things differently and try to use technologies in order to develop new things that make a significant difference in the market. That is a shift today versus 5, 10 years ago. That plays very well to our capabilities by definition. And there is also multiple companies that have been purchased by Chinese owners that now start to operate much more in China. So that piece is very positive for us based on our portfolio, how we can serve them.
That is what we maybe can that's a lot of it going to the local market, but a lot is also exported. Then you think about the last two pieces of that transition and economy in terms of retail, consumer and health care. We have shifted a lot the last 5 years in order to focus on that. And we have made significant investment in our nonwoven technology China specifically. We saw that early, I would say.
We made a corporate investment around that platform that made investment in China in together with what we're doing in St. Paul. And we made investment both in research and development, and we made investment in terms of capacity that we're using. And I think as Steve said, in terms of our brand equity in China, everything around Air is 3 ms. So I will say in terms of your question, is this sustainable as we go ahead?
In my mind, yes. And I would say, we have a $3,000,000,000 upon 3M, it's nothing. In my view, and I've been traveling into China for 20 years, I don't think we ever have been in a better position as we are now relative to capitalize on it. And there is a big shift going on in China relative to the future of what they try to produce and what they will consume domestically. And you need to be there and walk the for them in terms of the leading equity on the enterprise in China as a country will not shift.
They are very eager to make sure they continue to invest, both to have a good ending for their regime shipping now and a good start for the next ones. So in terms of what we see, this is very positive, and I'm very positive for the future. And the growth for us is sustainable based on our portfolio.
Dean Drake?
Thank you. Good morning. I was hoping you could comment on the pipeline of potential divestitures ahead and timing. And then for Nick, I know you're not including this $0.40 gain coming through in 20 18. But what are you considering in terms of potential options against this gain, potential restructuring?
And are you concerned at all about the optics of having any of this gain fall through, to reported earnings for
2018? Maybe I start with the portfolio management. And I think there's key element of what we have done the last 5 years and so on. And I think, as you know, when you start to move your portfolio to a better place, it'll take you some time before you're ending up there. And I think that was key element to identify first where every business stood inside O3M.
That will be the 2012, when we identified Heartland, push forward, intra transition and under strategic review was an important element. And then when you overlaid the 4 fundamental strengths of 3 ms in terms of technology, manufacturing, global rich and brand equity. When you looked upon them, it became very clear which one you should continue to invest in and some you couldn't fix them yourself, you should exit. The one that we have divested during the last couple of years or 3 to 4 years, been very clear that they were not in the top end of the chart and they couldn't leverage more than 1, 1.5 of the 4 leverages of fundamentals that we had in the company. So by definition, long term, you couldn't win in them if you were 3 ms.
And number 2, they were not strategically important for us. So I think that way of us driving it have been very good and we have had a good roadmap of how we have done it. As we announced yesterday, the communication business, I would say we have now gone from strategic review to basically a couple of 100 or 1,000,000 that now are only product lines in some of the bigger The communication business that went on yesterday is, in my mind, the last standing business that was a business that did not really will capitalize on this financial strings for that business into 3 ms and or fundamental strings as an enterprise. And then Nick, you can talk about the Dean,
at the point this closes, when it does close, we expect a couple things to happen. Of course, there'll be a gain on transaction that will occur, a gain from resulting from that sale. But when we divest of a business that large, there are also stranded costs that are left in the company. So we expect anticipate that we will be 0.40 dollars net of actions to address those costs. So we'll be announcing that.
We'll also have some impact depending on when this is in the year of what this does as far as divested income of what is the income from that business that will not be in our results going forward. So we'll disclose all that when that happens. In terms of the optics of it, as always, we'll include that in our results and we'll be very transparent about what's included in those results. And we're doing it not around earnings, but we're doing it around trying to set up a portfolio that we think is the right portfolio for 3M.
Jeff Sprague.
Thank you. Good morning. Just follow-up on that point, Nick, Oringa. So the $0.40 is net of kind of cleaning up the aftermath of the divestiture. Are there things that are clearly visible on the Board for you to do that perhaps accelerate some of what we've heard today?
Or I don't know anything clearly come to mind from a restructuring standpoint that could be chunky and expensive?
Not really, Jeff. We what we have and what we've laid out there, that encompasses
what we're looking at. The other piece
you may be talking about as we've continuing into 2018. That is incorporated into the guidance. Continuing into 2018. That is incorporated into the guidance that we laid out.
And then just further on capital deployment. You're not alone in having this high class problem that you've got capital to deploy. You've got a highly valued stock. Your targets are highly valued. How do you navigate through this to be careful that we don't look back a year or 2 or 3 from now and we found that we hurt returns because we were buying things too expensively.
And give us a little color on how you're making sure you guard your return profile that you're expecting when you do M and A?
Yes. And as you know, we've laid out over a number of years what is our plan around both our capital structure and what we're moving our capital structure to and how we're allocating capital. And in that, we laid out some broad ranges. I think another equally important component to that is the concept of patience and discipline. And throughout our metrics as we look about how we deploy that capital, we are looking at what are the right strategic fits as well as the financial returns on them.
And we remain disciplined in 3 ms at making sure that they're going to generate the right return. And sometimes that requires more patience than we probably originally guided when we laid out that plan.
Just one unrelated one. I thought perhaps you might even do a bigger accelerated pension contribution or something to kind of put that to bed given kind of your excess liquidity. Any thoughts on that?
I've laid out $300,000,000 to $500,000,000 to our pension. And all of these are not assuming deployment. Pension could be one of those items.
Scott Davis?
Thanks. Just following up on that, Nick. I mean, had a chance, I'm sure, to look at the House and the Senate bills. I mean, can you just give us a sense of what you think the magnitude of impact on tax and cash is?
Yes. Scott, this is going to be an unsatisfying answer to you that, while it's still a bill and something we're working through that's being worked through in government, we're not going to talk a lot of specifics on it. The direction that we've been advocating for years, both the House and the Senate version make a lot of progress towards that. We are pleased with those versions. We think they're beneficial to 3 ms.
The specifics it would mean both from a transition tax and then to a longer term impact, we'll share that when all the details are worked out and we're ready to be sharing that at that time, Scott.
Okay, fair enough. And then can you give us a little bit of color on the sale of the communications business? I mean, I think Corning has wanted this business from you guys for a long time. What was the catalyst to move you at this time?
Well, I think as I said earlier, we are working this in a process, right? And I think that's a business that I have looked upon over time with question of do we really have relevance and would we like to get relevance investment that is needed in that space? It was a very good business for us, but it was by definition not totally global for us. It was difficult for us to get scale as we move forward. And given the opportunities that we have inside of our company to invest in other areas, it's maybe always we come short relative to those discussions.
It's also part of our EEVG business where we have had a lot of focus in order to make sure we get a very relevant portfolio and get people focused on what they should do in that space. When we went through our process from a strategic perspective, it looked like Corning was one of multiple companies that will be able to take care of this asset in a way that will be beneficial both for them, for our employees and what could be done with that business moving forward. And as I said, also Nick said earlier, in terms of growth rate and margins, they were not up to the level of 3 ms's average. And in that case, you look upon it and said, would you like to have a business that you see yourself difficulties to build out real scale and leverage and be relevant to your customers when you have those other wonderful opportunities inside of 3 ms. So the timing came in a discussion, and we decided to move forward at this point in time.
And I am personally very pleased that it's ending up with Corning based on the commitment they have made to us relative to what they will do with the business, what they will do with the people, etcetera. So I think they will be more successful in that regime and with that owner than they had been with 3 ms. And so you have seen what we have done with our portfolio. We are committed to certain spaces. And where we are, we make the investment.
We would like to be relevant and we build around it, right? And I didn't see myself that, that the communication piece was one that we could really over time build a really relevant position for us.
Steve Tusa.
Thanks. Can you just talk about within the segments, maybe healthcare as well as consumer? What is accelerating next year to get you to the high end or beyond for those two businesses, the 6% and the 4%?
Yes. Well, I will let Mike Roman make those comments. But I think you look upon those two businesses specifically, we have a higher growth rate and we are delivering that specifically. But Mike will give you some comments relative to what is there in order to come closer to the high end.
Yes. I think you saw in my presentation some of the growth priorities that we're driving in each of those businesses. And those are not things that we're starting now going into 2018. They've been underway as we come through 2017. So in the case of Healthcare, investing in developing economies and talked a little bit about it relative to China.
This is driving strong growth for us and adding additional broad base of business opportunity for us to what we've established in developed economies around the world. And we see our broader portfolio delivering strong growth as we come through the second half of the year in the current market opportunities for developed and adding that developing pushes us to that outlook in that 4% to 6% range for next year. Consumer is also got that accelerated growth in developing economies that's been adding strong growth in the second half of the year. And a couple other dynamics that I touched on that are strengthening as we come through 2017 and we see them going into 2018, that this home improvement business. It's been a strong leader of growth for us.
And it's not just a U. S. Home improvement center kind of model, it's building out globally. And we see expanded opportunities in this in the improving economies and the do it for me customers around the world. And our innovation is targeting those and we're getting strong growth from that.
And then this digital commerce, this leadership in digital commerce, we are a very strong partner to digital commerce plays around the world with our portfolio, our brands, and we're getting category leading growth in those categories. So digital is a big part of that. So we see those as very good momentum as we go into next year and we'll build upon the growth that we saw in the second half this year. Just remind us how fast did
you guys grow as a company in China this year when all is said and done? When the books are closed in 2017, what's your organic growth in China this year for total 3 ms for 2017?
We'll
be around 15%. Okay.
And then just one last one for Nick. You said normal pricing that's normal for 3 ms. Just remind us what that means within the 0 to 1 or whatever it is where you you're going to be?
Steve, when we look at our price growth over time and pull out FX movements where we adjust up price in relation to a strong U. S. Dollar in some developing markets. When we pull that out, we find that we pretty going to be in.
Just to come back to your question, Steve, first relative to consumer health care. If you think about the way that the economies are moving, our pie or portfolio for both consumers, health care is smaller in developing Using consumer specifically in terms of doing business through e is actually a good opportunity for us in terms of disrupting channels in India, in West Europe and eventually in China. So there is good upside for us in those businesses. And consumer, the real big base for us is actually United States. So big opportunities in international.
Rob McCarthy?
Two questions as a follow-up to some of the questions that were asked this morning. One, within Healthcare, can you talk about dental trends, because there's been a lot going on in that market and your outlook for 2018? And then in the context of acquisitions, and this is Part B of 1, Could you talk about kind of how you feel about that business or the debt related business as a whole in terms of core to 3M? And I'm sure it is, but just maybe you can walk through the exercise a little bit and how you feel about Dental? And then the second question is just around China and distribution in general.
Is there opportunities to partner with folks that perhaps have pretty good local brand distribution? I give a specific example, A. O. Smith in China with his water heaters, building in a water treatment, air purification as just an example of as a potentially go to market because I know distribution in this environment, you probably have to be a little more creative about.
Well, starting with oral care, if you like, right? So we like that business very much. We are, in fact, doing very well. And when you look upon that business, I think what the challenge have been lately for the the wise and geographically, it's coming down to restorative products in United States. It's a very good business for us.
We have we are leading in terms of innovation, research and development and new product introduction. That is the model for us. Is there some disruptiveness in the channels? Yes, there are. But you have that everywhere.
And it's coming back to, as I think Mike talked about earlier, it's important that you focus on your end customers. And in these cases, it's on the dentist industry by definition. So I think it is maybe some consolidation will come there, but I think it's important that you stay close to what you're all about. And for us, that is material science development. So good business, we are committed to it.
We like the business as such. In terms of China and different ways of go to market, you talk about channels. I think that's an evolution as you go. That's an evolution as you go. I think our strengths is very much that, as you know, that we are very much spec in the design in by definition.
That is a direct business for us. Then if other opportunities is coming in terms of channels, then we will evaluate that at the time as we move forward. But I think the important thing again that you yourself, I will not use the word control, but you manage the way you go to market, that you make a strategically important decision, who do you play with, that you make strategically important decision of what is your strategy in order to grow. And in my view, for everything we do, it's the telescope that is important. You can go wrong if you use the microscope.
You can be pushed to do deals that is short term beneficial for you. You have to have a long plan relative to what you do. And that's the same if it's China or it's in United States with some consolidation of channels, some new players coming in from overseas, you have to make strategic decisions relative to how will you commercialize with or without them. And in some cases, it's without them. So you have to make sure you understand what your long term goal is for the enterprise and how you would like to execute your plan.
But I think that's a generally speaking partnership is increasingly important in most things that
enterprises are doing, right?
Because you cannot do everything you sell
Jan Inch?
Jan
H? Good morning.
Good morning, Jerome.
Good morning. So Nick, the free cash conversion in 2018 guide is a little light versus last year, it's sub 100. Is that just the elevated CapEx? But it looks like the CapEx is still 4.5% to 5% of sales. So I'm just wondering
2 single biggest components changing in that are contributing to that range of 90% to 100% for 2018 are both growth related. One is working capital investments that we're expecting to be growing in 2018 with the growth. And that's happening because we're not quite yet getting to the value realization that we're expecting from business transformation in 2018 related to uptick in CapEx. Those two pieces are the 2 uptick in CapEx. Those two pieces are the 2 largest.
There are other more minor things, but those are the 2 biggest impacting that in 2018.
Right. So on the CapEx, Nick, remind me what is the uptick for? Because it's still the same percentage.
So it's we're going from approximately $1,400,000,000 this year to a range of $1,500,000,000 to $1,700,000,000 in 2018. 2 biggest things that are driving that increase. 1 is increasing in capital to be manufacturing the goods for this higher demand. And then the second is investments in the disruptive technologies that you saw John talking about this morning that we are accelerating some of those investments in CapEx related to automation and disruptive technologies.
Okay. The Electronics and Energy, the 1% to 4% organic guide seems very conservative. Last year, we talked about the impact of OLED. Is that still a significant factor in terms of why that
the a year ago, John, you heard us talk about that we felt each year the OLED conversion the conversion from LCD and LED to OLED would reduce our revenue between $50,000,000 $150,000,000 a year. That's what we said a year ago. What you're seeing in 2017 is we are getting enough penetration into OLED devices that we are not seeing that headwind materialize. And in 2018, if there is a headwind, we expect it to be on the low end or below that. And that's part of the guidance.
When you look at our growth this year, we're estimating approximately 10% growth. Part of that, John, is being driven by the amount of growth that we had in 2016. We were down organically about 8% in 2016 and now part of that is a rebound in 2018 in 2017 with the 10%. 2018 is a bit of a more normalization in the supply chain and demand there.
That's fair. And then just lastly for me, the global economy ingot is very strong right now relative to certainly where we started the year. And I think you're a big short cycle company, your targets for top line seem very reasonable. The 6% to 8% EPS growth, is there some gating factor as to why 3 ms can't be a double digit sustained EPS grower? Because you're buying back shares, you're doing sort of all the right things.
What's that gating factor? It's not really apparent. Is it that your margins are already very robust and it's sort of hard to push them higher? Or is what maybe you could just shed some light on what you think the cost cost cost cost
cost cost cost?
I think it's maybe it's tough to push them higher by definition. But I think that what we can do is, of course, get the efficiency in the organization. And we have when we had talked about EPS growth, we have talked about that in line with other things as we move forward, as you know. But when you look upon the economy around the world, where you started your comment, it is better today than when we started as we enter the year. And I think we see that in our result, generally speaking.
I think as we lay out plans, we are always making sure that we lay out the plan that we are pretty sure that we can meet and hopefully exceed. And as you have seen, as we have laid out our EPS over time, we have improved. And I think as we execute the plan, we have to see which pieces are coming together in order for us eventually to come where you will like us to be, which is much higher.
Martin Sankey?
Inge, earlier this year, and you discussed the outlay of $100,000,000 or so for accelerated successes? Where were the successes? Where were the failures? And what might we see going forward? Is that would that program be repeated?
Or you didn't like what you saw
and you
and not do it? And then would accelerated commercialization investment be a use for the €0.40 gain next year?
Yes. Well, first of all, if we go back to where we started, we put in €104,000,000 €105,000,000 something we call core search, where we identify certain program on the corporate level, where we have to accelerate our investment in order to grow that business on a global sale. The outer end, we said we expect 50 to 150 basis no, 50 to 100 basis points of growth. And I always said 50 plus 100 is 150 for me. So we should expect more.
I think you see the growth. We estimate this year now growth of 5%. Clearly, an impact is coming from core search and investment we have done. I don't see any disappointment in the investment that we did. Now if you have an enterprise like 3 ms and others, I'm sure, one thing for you is to make sure you just decided on a corporate level to give value into the businesses with additional investment for those programs.
As we go into 2018, we will not do that because I think that every business now recognized with those investment, they should be able to do it themselves based on prioritization they additional with additional investments from the corporate level. It will now be done in each business group and in each division as we move forward.
Yes, Geoff.
Thanks. I just had a
couple of questions on the growth priorities, a couple of them that you laid out. First on automotive electrification, can you give us a sense of what your content for vehicle is and how you view the entitlement? And I'm sure that entitlement is changing with automotive technology. And then the second part of that, is there inherently a larger content opportunity in EVs for 3 ms? Or are you agnostic to that?
Yes. I will let Mike talk about the specific, but if I would like to make one comment that is important relative to 3 ms in this space. If you take we are very good and big supplier in automotive. We are the world leading in road safety, and we have our electronic and energy business. Those three components is going right into this trend moving forward.
You can see the addressable market is SEK 6,000,000,000 growing very rapidly, 8% to 10% probably. If we pull those things together and we have now formed a special organization, here's a big opportunity for us where we believe that we can provide something to that industry that is very difficult for anyone else to do because most, if not all, are very fragmented in those three segments. So it's actually one of the bigger growth platforms over time that we see in 3 ms based on what we can do. And then Mike will talk about what we see specifically in terms of the vehicles, etcetera.
Yes. Maybe I'll start with our automotive business today. We continue to develop new solutions and advance applications for the internal combustion engine. Many of those are going to play in the electric vehicle. Assembly methods and light weighting kinds of technologies and acoustic insulation, all those are going to be important in electric vehicle, in some cases, more important.
Acoustics will take on new dimensions and there'll be opportunities to expand our number of applications as we move ahead. And then as I talked about and Inge laid out, we bring not just our automotive base, but we bring our electronics materials and our transportation safety. And those are bringing together new applications and new combinations of technology that can help our electric vehicle customers solve some of their problems. And so we'll play bigger in the powertrain of electric vehicle. We'll play bigger in terms of areas like thermal management and insulation in the electric vehicle and battery designs and assembly methods and so on.
Light weighting will be amplified in its importance. There'll be new assembly methods and then electronic materials will play an increasing role in electric vehicles. There is a shift to a higher value in automobiles of their bill of materials being electronics, but it's going to be even amplified in electrical vehicles. And so we see that as opportunities. And as I mentioned, we're early designs.
We're early days of the in terms of percentage of the overall build that is electric vehicles, but early designs, we're at a much higher value per vehicle than we are in our base automotive business. And we see those opportunities continuing to grow out of that combined capability we bring from our 3 different bases that we bring into this transportation safety, automotive and electronics.
Just to follow-up on that, can you define much bigger, are we talking 50% 2x, 3x? And then separately, just unrelated, it was also just a little unclear to me what you're calling out as the opportunity in automation and abrasives, what exactly you're doing new and different there? So if you could elaborate on that.
Yes. Well, just
maybe to start with automotive. Again, it is early days. So we see, like I say, a much bigger opportunity in the powertrain than we have in internal combustion. So that's one of the areas that will advance it. We continue to drive penetration.
We're relatively small part of the kind of examples kind of examples of where we can go in higher value spaces across our industrial portfolio, one of the areas is robotics are playing a big role. Robotics, there was a tipping point for robotics and welding. We're seeing some similar signs as you look at abrasives and automation in factories. And that kind of robotics automation coming into the factory requires very precise performance from its abrasives. And so our precision engineered abrasives is uniquely positioned to fit into that.
And we've been working in partnership and really rolling out some new designs that really optimize that robotics application. So it's a little bit early days there too, but it's moving ahead and we are uniquely with those precision engineered appraisals to take advantage of it.
Any cap words?
I just wanted to follow-up on electrons and energy for a second in the sense that someone asked about it being conservative guidance. But when we're talking about the high value add business that you have and it's still sort of early days, if I look at the 1% to 4%, how much of the growth in 2018 or maybe even 2017, you did 10% growth. Is how much is the high value added business is percent, things like automotive electrification, grid type work should be boosting that 1% to 4%. You're penetrating Chinese OEMs. I asked you the question about about China, you're going to grow double digits, E and E is big China exposure.
So it seems
we when we talked about 0 to 4, I remember some of you really thought that that was very, very conservative when we talk about 0. And I agreed, if you remember, I agreed to that. You would like to have a faster growth in that business. We have done a tremendous work in order to focus that portfolio the way we like to have it. And what you see is one thing when we report every quarter.
The thing that is going on as we shift the portfolio is what Mike showed on that chart with a bigger market going 1 to 3 and a smaller market that is going 10 to 15. That is where the shift is going. So and we were we have talked about internally in terms of should we guide differently, but we have decided at this point in time to wait and make sure that we really feel the traction on what we are doing. I'm very pleased with the portfolio work that have gone on in that business, which is for me the most important thing that you type of feel that the action that I've been taking is putting you in the right direction moving forward. And I hope that we can update our outlook in that business rather sooner than later.
And we have had a very good year this year. And I think it will continue, but we have also to make sure that we are very realistic as we roll into 2018 specifically. I think that will be a year that we will get the answer to what is the real growth rate with our new portfolio and the way we focus in that business as we move ahead.
And just one more, I guess, unrelated Nick. Like when you the March 16 Analyst Day, you introduced a curve for business transformation where you talked about pretty big acceleration in 2019 2020 versus 2018, if I remember correctly. And so like it's true that your margins are high, but at the same time, you get more of a boost from that and from factory optimization as you go into 2019 2020. So we're thinking about your incrementals, could your incrementals actually get better in 2019 2020 for these initiatives? Like how should we balance that with the fact that your margins are already pretty high?
Couple of things that will get better beyond '18. Business transformation will be going into the most significant part. It's not we haven't too back end loaded it. There have been nice contributions we've been making over the last 2 years and continue. But 'nineteen and 'twenty, we do expect to be higher than what we've averaged the last 2 or 3 years from business transformation.
The other thing that will be changing from 2017 2018 going into 2019 2020 is we'll really be moving into the value realization phase on our footprint optimization that 2017, 2018 are largely about the investments and we expect in 2019 2020 that will be having a more noticeable positive impact. So those are a couple that are changing. Am I ready to declare a new incremental margin? No. But those are 2 things on the margin that are improving and will get better in 2019 2020.
All right. With that, we'll wrap up Q and A, and I'll turn it over to Inge for some final comments.
Okay. Well, thank you very much for coming this morning and listen to our story. I so you've seen, we are coming off 2017 with very strong and good results on all our metrics. We are very confident as we're rolling into 2018 and beyond that we will continue with this performance. And as you have seen, things are lining up very well for us.
There are 4 fundamentals are in place and are working. Our portfolio is stronger today than ever before in the history of 3 ms. And all supply chain is building us for a more efficient 3 ms as we move ahead. We have talked in other meetings relative to margin expansion that one of the key element of that is West Europe, which will benefit all businesses. And on top of that, all the efficiencies we are doing internally is helping us.
And we are, by definition, a project based company and process oriented. And I think the last years, we have actually added very, very good competencies relative to customer interactions. So from our team on this side, we would like send you the message that we are very confident that we will capitalize on this very, very well as we go into 2018 and beyond. And I think also when you look upon the 5 year plan, as we are 2 years into the process of meeting all metrics, that is a good sign of a continuation of our success. So thank you very much for coming this morning.