So my name is Steve Etzel. I'm Vice President of Investor Relations and Treasurer at Rockwell. Welcome to those of you here in Houston, and also welcome to those listening to this presentation on the webcast. So hopefully, you had a very good tour, those of you who are here in Houston, and got to see us showcase our capabilities. It's always exciting to see that at Automation Fair.
Just as a reminder, we have forward looking statements in this presentation. So those are all subject to our disclosed risks and uncertainties, and more information on that can be found in our SEC filings. We also have at the back of the presentation reconciliations to non GAAP measures. Quick reminder, if you're in the room, please mute your phone. And with that, I'll turn it over to Blake.
Blake? Thanks, Steve. Thanks.
Thanks, Steve. I want to welcome all of you to Investor Day at the Annual Rockwell Automation Fair. For many of you who've been with us and following us for a long time, I think you'll understand why the Automation Fair that week, this week, is the best week of the year to be a part of Rockwell Automation. There's just so much energy and there's so much in the air about what we're doing with customers and partners. It feels great.
This afternoon, we're going to talk about the market. We're going to talk about how we're positioned in the market. We're going to spend some time on the Connected Enterprise strategy, looking at our results and what you can expect going forward. Joining me will be Frank Kulisiewicz, Senior Vice President of our Architecture and Software segment Ted Crandall, who runs our Control Products and Solutions segment Sujit Chand, who's our Chief Technology Officer and Patrick Goris, our CFO. Before I dive in, I do want to briefly address the revised unsolicited proposal that Emerson announced today.
As it did with Emerson's prior proposal and consistent with its fiduciary duties and in consultation with its financial and legal advisors, the Rockwell Automation Board of Directors will carefully review the proposal to determine the course of action that it believes is in the best interest of the company and Rockwell Automation shareowners. The Rockwell Automation Board expects to respond to Emerson's proposal in due course. The Board is well advised. As we previously stated, the Board retained Goldman Sachs and Company as its financial advisor and Wachtell, Lipton, Rosen and Katz as its legal advisor, and they will assist in this review. As Emerson's announcement was just made, we will not comment any further on the proposal today.
As we talk about Rockwell Automation, our strategy is simple. It's to bring the connected enterprise to life. We integrate control and information across the enterprise to help our industrial companies and their people be more productive. That's all we do. We're a pure play, and that drives efficiency as we create value.
As we start a little bit with macroeconomic conditions, something that we've been talking about for a number of years is the growth of the middle class, especially in emerging markets. As more people enter the middle class than ever before, they want choices in the products that they buy. They want clean drinking water. They want safety in their workplace. And they want pharmaceuticals that can help them live longer, healthier lives.
That plays so well to where we are and where we're going to be in the future. As a potential gating factor, however, at the same time, it's a skills gap. And so as technology plays more and more role in manufacturing, having people who are trained to be able to coexist comfortably with that technology becomes more of a challenge. That speaks well to the future of automation and also to some of the things that we're doing in workforce development. That's the existential threat to manufacturing economies is the ability to have a workforce that can be comfortable with that technology and to continue to adapt throughout their careers.
On the technology side, the convergence of IT and OT is not just a theoretical thing anymore. It is absolutely here and upon us with the technology improvements as well as the organizational challenges that we see at our customers. To be able to take that technology that's been used in the carpeted part of the enterprise and to be able to adapt it to the manufacturing area, but to be able to continue to take advantage of the expertise from the people who know how things are actually made. And so bringing that domain expertise together with that new technology is absolutely essential, and we hear that from customers throughout industries. Lower cost of computing, connectivity, all these are tailwinds that will be with us for some time to come.
Near term, there's also some very attractive short- and midterm drivers of growth. The manufacturing recession ended a little bit over a year ago. We saw good growth in this year. And we see the macroeconomic indicators of GDP and industrial production positive across an almost unprecedented array of countries around the world. The equipment out there is not getting any younger.
Some of that equipment has been there for 30 years, and it has to be upgraded. You just can't get the components anymore for some of that equipment. And at the same time, digitization, the need to create a wider data path from those smart products has never been more desired. It's estimated that less than 20% of factories are connected, being able to do things to compare the relative efficiencies of lines between physical locations. It's a huge opportunity.
And then, of course, the potential for U. S. Tax reform holds the promise of spurring investment further among customers in our very strongest market. So against this backdrop of a favorable macro, long term as well as short and mid term, here are some reasons why we'll win. We have a large installed base with the services and the channel to support it.
We have a very wide breadth of offering. Many of you saw that today on the floor, especially our expanded offering in software. And the attractiveness and simplicity of a single platform across discrete, batch hybrid and continuous process applications holds promise for our customers who have many of those different applications within their enterprise. And the opportunity to only have to teach their people once on hardware and software with an easy to use package is something we hear over and over is important. The connected enterprise strategy of integrating control and information speaks to customers.
They want to be a part of that story. And our step by step approach is very practical in that no customers is starting in the same place on that journey. They're all starting at different spots. Sometimes it's putting in the basic foundational products that they're at. Other times, they've had that for years, and they can go to some of the more advanced analytics.
We have the ability to meet them on that journey wherever they are. Domain expertise is critical to complement that technology. Partnerships. We're told, and we sometimes within Rock will take it for granted, but those partnerships set us apart. And we hear it from the analysts who follow the industry from a technology and a business model standpoint, and we hear it from individual customers.
We had the President of Schlumberger Software Group speaking at our media event on Tuesday. And Gavin talked about our ability to partner as something that sets us apart. And Schlumberger sees a lot of people who want to partner with them, and this is something that he said really struck he and his team as they started working with us. And of course, we include distributors as part of that partner network. We're currently collaborating with our distributors for an integrated digital experience, and that's only going to make us stronger together.
Last year, we introduced a vision. That was my first time in front of you at this event. And we talked about a few elements in that framework. We talked about bringing the connected enterprise to life with industry specific value. We outlined the elements of our above market growth, and we'll talk a little bit more about that and how we're doing.
And then superior returns on your investment: EPS, above market growth, above our sales ROIC of over 20%, 100% of free cash flow returned and a consistent return of cash to shareowners. As we talk about bringing the connected enterprise to life, I've talked about an approach beyond just our products. And over the last year, since we last met at this forum, then I found these things only to be more true than ever. It starts with an understanding of a customer's specific opportunities for productivity. We're not offering technology in search of a problem.
You have to start with that problem. And that's why our so called pivot to more of an industry focus within our company has resonated so well, not just with our sales force, but internal with our development teams as we rolled out the concept of enterprise use cases to look at our most important applications and what all of the parts of Rockwell have to do to effectively address those applications across product lines, what kind of services do we have to offer, what is the domain expertise. That area that level of focus and the way that we operationalize it is really helping. Combined technology and expertise. All of our Connected Enterprise pilots require engineering assistance to maximize those outcomes.
It's not just about the technology. For shareowners, that increases customer share. It reduces cyclicality as you add those annuity services, and it protects margins as well because we're not just talking about a single product versus another product. And finally, this is an area that we talked about last year, and it's only been validated as I've talked to customers and channel partners through the year, and that's the importance of simplification. We can unlock industrial growth in the automation space by reducing the complexity and the risk.
That's been one of the items that has gated growth in the industry for many years. And we have an opportunity with our single, multidiscipline platform with standard unmodified Ethernet, with simplified business approaches that take advantage of subscription offerings that bundle most multiple offerings, we have an opportunity to unlock that additional growth. In talking with Fonterra earlier this week, we heard that repeatedly from them that that's one of the things that we have provided to them, and it's one of our opportunities in the future as well to continue to differentiate ourselves. So the Connected Enterprise is a practical, step by step vision for achieving the productivity benefits described in country initiatives such as Industry 4.0, China Manufacturing 2025 and so on. It meets customers across all industries, where they are on their journey, and it provides increasing benefits far into the future.
It's highly scalable, and that is something that customers tell us is very important. It starts at the bottom of the graphic with the smart products and other sources of information, other disparate databases, sensors, drives, brings it together into the information enabled Logix platform and then turns it into useful information that can produce outcomes as directed by domain experts. And so this is a framework for Quell and for our partners that we're applying in a systematic fashion as we work with these customers at various points on their journey. During the tours, I hope you saw the additional offerings in our FactoryTalk Analytics platform, Project CEO, some of the device level analytics that we're offering. As I talk to customers, that's one of the things that they said was particularly noteworthy about this show was the amount of software that we have in those areas that can be applied in different industries.
And so we feel really good about this framework with an additional year of maturity in it, and we're going to talk about some of the benefits that we're providing for real life customers. To go a little bit deeper in the above market revenue growth that we've talked about, it starts with growth in our core platforms, market share growth in our core platforms. We introduced the concept of information solutions and connected services as a proxy for the new value coming from the connected enterprise. And I'll talk in a minute about how we're doing there. And then we, in a little more explicit way, are talking about acquisitions as delivering 1 point or more of growth each year on average.
There'll be some years that it's more, and there'll be some years that it might not be that. We introduced a scoreboard so we can help you keep track as to how we're doing, and it was a good year for us. As we've talked about in our core platforms, that includes Logix, we had 10% growth in Logix last year. Frank is going to talk a little bit more about some of those other platforms, but that's a big deal. Double digit growth in Information Solutions and Connected Services continues.
We told you last year that it was over $200,000,000 and it's still over 200,000,000 dollars And we're happy to say that we had 1.5 and we'll talk a little bit more about some of those recent acquisitions. In terms of our key verticals, the only reason that, that one is not also green is that we also consider the macro conditions in our industry buckets. And just for review, we talk about 5 key vertical industry buckets. Those are consumer, which includes primarily food and beverage and home and personal care as the first bucket. Talk about transportation, which is a little smaller, but it's fast growing.
We talk about oil and gas and chemical, and we talk about mining and cement. And those last two buckets, of course, have seen a suppressed growth. But as we talked about in the earnings call, we do expect those have turned around in terms of oil gas and chemical together and then mining and cement. And so I'd like to call Frank Kulisiewicz up to talk a little bit about our core platform evolution and some of the exciting things that are going on and across the individual product lines, what we're doing to make those thrive for years to come. Frank?
Good afternoon. Good afternoon. All right. So we began a journey a number of years ago to evolve our core platforms. You all know that's a major part of our business.
And that journey took us from our control environment, LOGIX, as you know it, all the way through our networks environments, our software environments and into our intelligent motor control environments, both motion and drives. But that journey just wasn't about a refresh. It was about new capabilities for new opportunities. It was about chances to differentiate ourselves. But most importantly, it was about how we help our customers on that journey to the connected enterprise.
And so those capabilities included higher performance compute platforms in our processors so they could process more information, high bandwidth networks with our static switch lines so that information had an architecture to flow in better visualization so our customers could give access to that information and then better control in the plants with intelligent devices that could provide more analytics up into that environment. And so we're excited about those systems as they become smarter, more productive and more secure for our customers. And we can give examples in these categories. Our new Logix processors, those are quad core processors, very fast, very performant. Our partner Cisco has helped us create a world class industrial infrastructure with our Stratix line.
Our visualization environment from on machine all the way to the cloud provides customers great visibility into their environments. And then our intelligent motor control offering really are getting smarter. Both our Kinetics and PowerFlex lines have built in analytics that help those applications run better and provide more information up in the control environment. So we're excited about that evolution, and it's something that we're going to continue to build on. You all know that those core platforms are used in a variety of industries, in many applications, in many geographies around the world.
But we bring those together in a common software environment that we call Studio 5000. So Studio 5000 helps a customer expand their automation and information life cycle. That means they get to use that same environment as they design their systems, they operate their systems, and they maintain their systems. This morning, you heard examples from 2 customers that work across that spectrum of discrete, hybrid and process applications. Bradman Lake, great customer and a great example in a discrete environment of high performance packaging and motion control.
And then Fonterra Foods, who I've been involved with personally for the last decade, that's a great example of continuous process application, especially in their drying environment. You heard Tristan talk about the amount of export that they have in their business. It's material not only to New Zealand, but their organization. And so Studio 5000 is the window into those environments. It's also important to say that Studio 5,000 is open.
And what I mean by that is you hear a lot about digital design. And so in that digital design environment, having a platform that's open that can interact with other Rockwell Automation software platforms as well as third party platforms is really special and really important. It provides a better design environment and allows those tools and engineering teams to collaborate. So Studio 5,000 is the way we influence that digital design environment. The next thing we're going to do is give you an example of this.
And I believe Sujeet is going to come up and join us and give an example of how digital design in that collaborative tool environment helps customers be more productive.
This is an example of how a digital design environment works. You'll recognize that this machine that's being simulated here is similar to the machines that you saw this morning from Bradman Lake. The only difference is this is a section of a case backing machine. We picked just a subsection, so you'll see the product falling off at the end of the conveyor. That's not by design, obviously.
So what we try to do here is to pick about half the machine to animating that digital twin with real time data from the Logix platform. So if you look at this machine here on the left hand side, upper left hand side is the mechanical CAD design of the machine. In this case, the CAD design software was SolidWorks from Deso Systems. And once the SOLIDWORKS design is completed, we can import that design into a simulation software application. And in this case, a simulation is being run with a company called Machinery, small company.
So we can take the CAD model, bring it into simulation and run the simulation of the machine and then connect the simulation of the machine with real time data that exists in the Logix platform. So when the real machine is learning, you can collect that real time data, feed it into the simulation, so you can animate the digital twin. This integration is done using open standards. In this case, the standard that we utilized is called Automation ML. And Automation ML allows you to take data from different software applications like the CAD design software or the simulation software and connect it with the Logix software with Studio through Studio 5000, as Frank mentioned.
So one other piece of this demo here, which you can't see perfectly is the fact that the animation part of it is actually mixed reality. This animation is in Microsoft HoloLens system. So we can animate the machine using Microsoft HoloLens. So we've got software from 3 different vendors coming together with Studio 5000 and Logix. When you walk through the show floor, you may have seen the ePlan booth down there.
I know you did not visit ePlan. But this year, ePlan has announced the integration of their software with Studio 5,000 using Automation ML. So ePlan is used by a lot of our customers for electrical CAD, which means the wiring layout, the wiring harnesses design. So now you can connect a lot of that electrical CAD designs into the Logix environment through Automation ML and Studio 5,000. So key takeaway here is interoperability of software applications is absolutely necessary to build information solutions and deliver connected services.
So this is a demonstration of how our Studio 5,000 environment embraces open standards like Automation ML to connect to 3rd party software applications. So I'm going to turn it back to Blake to talk next about information solutions and connected services.
Thanks, Suji.
So we introduced the concept last year of tracking together information solutions and connected services. We thought it made sense to give you a little bit of an update as to how we're doing. We talked about this pilot concept to encourage customers not to swing for the fences right off the bat in what they're trying to do, but to identify clearly defined pilot projects so that they can get quick affordable benefits, look at the results, iterate, plow what they've learned into the next round and then roll out at scale. We learned how to do this through our MES software deployment program, and it's working nicely as we talk about this area of new value as well. So many of those pilots are progressing from early stage contained projects to multi plant rollouts.
We highlight Mondelez as one where as they roll out their lines of the future in their efforts to drive greater productivity, we're happy to be an integral part of that in terms of the products and the software and the services that they need in a partner. Shell has doubled the number of sites that they're using us to remotely monitor their retail dispensing locations for LNG. Those projects are going well with lots more to come. And as we mentioned before, in terms of our offerings, FactoryTalk Analytics and that platform, we introduced a number of new products, and that was a substantial part of what we were showing in multiple booths at the show this year. But this is where it comes together.
When you look at actual customers that are deriving value from this, not many, if anyone, can show this breadth. This is an important slide. Across industries and continents, with almost unlimited room to add new customers, We use the structured process that I described before, starting with the customer's business problem. We heard from the show this week that another very well known brand wants to talk with us and Microsoft to look at switching from 1 of the larger, more visible players in this space after experimenting with their offering. We have a broad tool set.
And again, no one engagement is exactly the same. But analytics are often part of that tool set. And so Frank is going to talk a little bit more about what we mean when we talk about analytics applied to these customers' problems.
Thanks, Blake. So this pilot process has been really interesting. But if you think of what's going on in the market today, the word analytics has become the popular word. Everybody has an analytics offering. Everybody has a cloud offering.
And everybody is trying to meet these digital transformation objectives. And so we thought long and hard about what we'd want to do to try to differentiate ourselves and what we, as an organization, have been successful at and how we transform to be successful here. And so we decided to build on our strengths. And what that means for us is if you think about what we do in a factory, we really kind of control the compute environment, everything from those intelligent devices like those drives I mentioned, all the way into the servers and all the way up into the cloud. And so we believe offering a scalable, open, real time analytics platform is a way we can differentiate ourselves.
And what that means is from the simplest devices and assets in a plant all the way up into the enterprise, we want to offer outcome based analytics solutions. And I'm going to give you a couple of examples of those. In fact, this chart is a great talking chart about how we look at this. Down at that device level, there's things like motors and pumps and drives and machines, some of the things that you've heard this morning from, say, Bradman Lake. There's a real opportunity to optimize the machine and close that real time digital loop with analytics right inside the customer's process.
And so that's open to us because we've got compute in that space. At a system level or a line. So think of an example Sajid gave and imagine there's another part of that line where the things don't fall on the floor but they go in a cardboard box. So at that line level, optimizing the sequence of all those events across that line is another opportunity to close the real time digital loop. And then if there's multiple lines at a plant or there's multiple plants like the Mondelez example that Blake gave, At an enterprise level, how you do comparative analytics across those plants, look for the opportunity to improve operations at any given site and then dig down into that site and use that same capability to drive optimization.
And so across the top here, we give you the simple types of analytics we're talking about everything from descriptive to prescriptive and some examples of what that means. So scalable, real time analytics that allow a customer to focus on the outcomes they have either at a machine, in a line at a plant or at their enterprise level. And it's focused at real business impact. And we think running that analytic closest to the source of the data is where you have the fastest and biggest impact for our customers. And so you're going to continue to hear us talk about real time analytics.
Blake mentioned a variety of the capabilities that we have out on the floor. But it's the impacts and outcomes that we're working on, on those digital pilots to try to help the customers improve their business. Examples always help. And so we thought we'd give you a few examples of things that are happening. And by the way, all these customers are here this week.
In fact, you heard from one of them this morning. And so there's 3 items here that we're going to talk about. We'll start with the enterprise example. First Solar is a company you might have heard about. First Solar builds photovoltaic panels and fields for customers.
And First Solar's process is somewhat unique. They've spent a lot of time working on productivity in their factories. In fact, we've spent time with them working on productivity in their factories. And what's unique about that process is they don't build the entire system in one plant. They build it in multiple plants.
And so optimizing a single plant is good for the components that you're building there or the subsystems, but getting it right across multiple plants is important. And so we worked with First Solar, Microsoft and our information solutions team to move their execution systems up into the cloud. And so now they can optimize at a plant level in those individual processes, but they can also optimize at an enterprise level to make sure that common set of assemblies and capabilities come out right to the market. So that's an enterprise example of what we mean. The next one down is Bradman Lake.
You heard Bradman Lake talk about their next generation packaging machine and the innovation that they're driving with new technologies like independent cart. So what I'm going to focus on right now is the analytic capabilities that we're working on in that same machine. So we have an offering called FactoryTalk Analytics for machines. It uses FactoryTalk Cloud and a set of common dashboarding that are predefined and pre connected to help speed time to value for OEMs like Bradman Lake. And so what that means for Bradman Lake is we create So the information and insights they drive from those machines helps them improve the machine's operation, make sure they meet production requirements and contract requirements for their customers, but it gives them the opportunity to create new business models, too, and maybe offer services on those machines that help the customers keep those uptime and running.
So it's a great example of a system level set of analytics and capabilities that are descriptive and diagnostic. The last one is Great Lakes Brewing. Great Lakes Brewing is a local brewing company in Cleveland, Ohio that's close to actually our architecture team, and they've been growing rapidly. In fact, I sometimes wonder if I can really keep my product management people out of this location. They seem to always find themselves there.
Every time I look on our corporate website, I see a new video of Great Lakes Brewing and another one of my product people on it. But they're a great customer, and they worked with us in a beta phase and now in a runtime phase using an offering we call FactoryTalk Analytics for Devices. What FactoryTek Analytics for Devices is, is a purely plug and play system. It's a little analytic appliance that you buy. You put it in your control cabinet.
You simply plug it into the network and it goes out automatically. It's got a bot. It's a bot called Shelby, that goes out and finds all the intelligent devices, brings all that information back, both the descriptive information about its runtime and the diagnostics about its health and status and brings that up into display either on a PC or on a mobile device and allows you to understand the current status of everything without 1 hour of engineering work. Long term factoring talk analytics for devices will feed into our SCIO platform so we can provide an integrated approach for customers. Great Lakes has already found a number of things that they would have never seen that have prevented downtime on their brewing process.
And so every time that happens, that's one less batch of beer they need to throw away. So three examples of scalable analytics device, system and enterprise, to give you a feel for what we're trying to do for our customers.
Blake?
Thanks, Frank.
So Bradman Lake, John Marley showed you a little bit of the use of independent card technology in his packaging. And Tristan from Fonterra talked about their interest in Thin Manager Software to be able to help them in their operations. Those both represent value that we've received from recent acquisitions. And we do talk a little more explicitly about acquisitions. But still fundamentally, acquisitions are a catalyst to the Connected Enterprise strategy.
And so that's the first criteria is how is it going to help us with technology that accelerates our ability to bring the Connected Enterprise to life? How does it add domain expertise, how does it give us additional market access to customers who want the connected enterprise? We also developed, over the last year, a corporate development function to more formally track and manage those acquisitions, and that's paying off for us. They were a material part of our investment in the Hive, which is an incubator that gives us much greater access to early stage technology in the Valley. And so we have a better opportunity to be aware of emerging trends because, again, that's another side effect of the ITOT convergence, and you see it certainly from the automobile companies, that they're more engaged in that space, and we are now too.
We have a robust pipeline. It has a variety of different size acquisitions. We continue to talk about information solutions and connected services as priorities. And so now we'll talk a little bit with Ted Crandall and Frank's help about some of the recent acquisitions that we've made.
Thanks, Blake. So Ted and I are going to talk to you about 3 acquisitions. And what's interesting about these is they're new innovative technologies, new product offerings that have immediate impact on our customers in the market and solutions and service capabilities that really complement our pursuit of that large process industry. So the first one that I'll start with is Magnamotion. Magnamotion is a company that produces independent kart technology, and you probably saw that when you're on the floor on the kind of the racetrack of independent karts that was there.
Magnamotion combined with an earlier acquisition, Jacobs Engineering, gives Rockwell Automation a market leading position in independent kart technology. So why is that important? Well, this morning when Bradman Lake talked, you saw Itrack embedded into their machine. And so these are kind of game changing technologies for customers that impact cycle times, quality, throughput and become part of that overall machine design, which means we've developed a better intimate relationship with the customer and a longer term relationship with the customer. The second acquisition I'm going to talk about is a company called ACP, and they had a product offering called ThinManager and ThinManager Relevance.
ThinManager is a content delivery software offering that delivers content in a role based secure environment. And so think of all the sources of information out on a factory floor. And what ThinManager allows you to do is organize all those sources of information and deliver it for the types of users who need different types of data so they get better visibility and can make better decisions. And so the production manager wants production. They want yield.
They want order rates. They want to understand their flow in the plant is going. The operator want to understand the machine and the line and the operations of it. So ThinManager allows, with its relevance product, to change the display information dynamically so that the right person gets the right information in the right place at the right time. So 2 great acquisitions.
We're really proud to have them as part of the Rockwell Automation family, and they had great performance this year in driving the revenue growth. Ted?
Yes. Thanks, Frank. And a year ago at Automation Fair, we had just completed the acquisition of Maverick Technologies. So we just completed basically our 1st year. With Maverick, we acquired domain expertise and delivery capabilities in process automation, particularly continuous process automation.
And we also acquired some great management talent. We've completed the 1st year. We've been very pleased with the performance in the 1st year. And Paul Galeski, some of you may remember Paul. I believe he presented at an investor conference in 2014.
Paul, could you stand up? Paul Golesky was the founder of Maverick. He joined us with the acquisition. And recently, we promoted Paul to run our Global Solutions business. We have also promoted several other Maverick managers in the more responsible positions in our Solutions business.
So a great combination.
Sujeet? Okay. I'll talk about our partner network. You've already heard us speak about the partner network this morning. John McDermott talked about how partners are absolutely key to bringing the automation fair together, roughly 140 exhibits on the show floor belong to our partners.
And if you look at the type of partners Rockwell Automation has, this includes our distributors, our solution providers. We have equipment and machine builders as well as partners belonging to a program that we call Encompass Partners Program, roughly 130 companies are labeled as Encompass Partners. A lot of these companies build products that go that integrate with the integrated architecture and are configured with the integrated architecture. And we also go to market together with encompass partners. So I thought today, I'll just highlight a couple of our strategic partners.
In the past, we've spoken about Cisco and FANUC. Today, I will highlight Anderson Hauser and Microsoft. So with E and H, we've had a partnership that goes back many, many years. And over the years, E and H has integrated their instrumentation with Ethernet IP and the Logix architecture. So what this means is when you connect an E and H flow meter or a pressure instrument with LOGICS, LOGICS recognizes those instruments because there's a profile of that instrument inside the controller.
We can configure safety very quickly and we can realize the customer's application in a very short time. So just to give you an example, Azerbaijan implemented for Azerbaijan Oil Company, we implemented jointly with E and H a gas storage system. This was a fairly large system, 3,000,000,000 cubic meters of storage for natural gas. This required certifying the system for safety, and we were able to meet a very tight deadline, mostly because the E and H instrumentation integrated well with our Logix architecture, and we were able to certify safety, the instruments talk SIP safety, which is a protocol that runs on the network. That's as technical as I'm going to go today.
So the other partner that I want to highlight is Microsoft, and I'm going to show an interesting video in a second. What this video illustrates is, you've seen some packaging machines this morning. A lot of these packaging machines have an inkjet printing utility that prints labels on cans. So if you have with the Christmas season coming up, Miller Brewery may decide to print some special labels on some cans. Today, if you have to do those labels, you essentially have to shut the line down, program the system, the inkjet system with the new label and restart the line, stop the line again when you're done with the batch, if you want to change the label again.
But what we're going to demonstrate in the video that I'm going to show you is really cool. Using Microsoft Azure Cloud, you can create the digital labels. The labels are automatically downloaded to the machine while it's running, and you can start printing new labels in small batches in real time. So let's roll the video that illustrates the ToneJet application.
Here at ToneJet, we've been developing cutting edge digital printing technology for quite some time, a technology that's really primed for the markets we're addressing in terms of direct to print and direct to shape type applications. So partnering with Rockwell Automation and Microsoft has been really quite beneficial to the entire business as we go forward.
Rockwell's vision, the Connected Enterprise, is an attempt to marry the world of IT and OT together in one offering. We're the world's largest company solely focused on industrial automation and information. We help our customers be more productive. And we do that through implementing what we refer to as the connected enterprise.
It's critical to get analytical data from the machine so that it can run as efficiently and effectively as possible. The future of our technology in the Rockford Automation and Microsoft environment is that when our customers have these machines in multiple locations all over the world, they'll be able to deploy their artwork into wherever they want to put it. It means they've got the same type of machine in all those locations. So they can expect to get similar results and deploy marketing campaigns or sports events, music events, whatever it might be. A single operator can actually deploy those jobs right across all of their platforms and across all their desktop directly to the machinery in multiple locations instantly.
So what used to take weeks now takes minutes.
You can dream up a design for a craft brewery and next hour we could be printing on 2,000 cans. They can do that entirely in the Windows half of the brain of this control architecture. We try to marry the kind of things that we offer with the best of what Microsoft brings to the table to give our customers that much more.
So we're going to take a short segment of the presentation to do a little deeper dive into the specific value that we're offering in diverse industries that we serve. So we're going to talk about process optimization in the consumer industry, a little bit about what we're doing around powertrain and electric vehicles and transportation and life sciences, the use of higher level information software to deliver greater productivity, increasing flow at the wellhead and providing solutions across a broad range of applications in the mining industry, including remote operations. And so with that, I'm going to hand it over to Frank, and he's going to talk about a whole lot of potatoes.
Thanks, Blake. So every year, I get to talk to you about consumer packaged goods in our consumer business. And that's it's fun because it's an easy one to relate to. And so consumer packaged goods, or CPG, is one of our largest segments. And it's one we've been selling automation into for many, many years.
We've also been selling information into this environment and now with the capabilities that we're putting together, analytics. So this Kraft Heinz example is really a tale of 2 stories. 1 was a modernization effort, and the other one was analytics. So I'm going to spend time on analytics. So Kraft Heinz has got a very popular brand here in the United States called ORIDA.
It's a premium brand. And they've got a number of locations around North America that produces these products. So Kraft Heinz wanted to get more yield out of their lines. And there's a variety of things that they challenge us to work with them on to get that cleaning, the prepping, the frying and the freezing and the packaging parts of that line working better. And so just to give you some perspective on what this means, Blake was kidding a little bit about it earlier, Kraft Hein produces almost £800,000,000 of processed potato products say that 3 times fast, processed potato products in a given year.
And so imagine what even a percent yield would do for them on a premium brand. And so they put a target together of about a 5% increase in yield that they wanted to drive. And we spent a lot of time understanding the lines and the operations and the potentials for that. In the end, we used an analytics software package that does multivariate control. And that's a complex way to say it looks at many things and tries to optimize a complex process.
And so after putting that together, learning the system, creating the model and implementing it in real time this is a great example of a real time analytic because it controls the actual automation of the system. Kraft Hein was able to achieve over a 10% increase in yield. So think of that, that's £80,000,000 of prepared potato products in a given year. And that yield over a 2 year period justified not just the analytic installation but the entire upgrade of the entire piece of equipment. So and avoided the capital expense of another piece of equipment.
And so Kraft Heinz is looking now at similar processes in other plants to understand where we go next to apply those improvements. And so imagine what that means for them in a given year across many plants, that type of yield improvement on a premium line like the RIDEA line. So that's the Kraft Hein example.
Ted, do you
want to
talk about
automotive next?
This is one of the great things about the business. We go from potatoes to tire and auto. Transportation remains an important part of our business. In 2017, tire and auto, which the vast majority of our transportation sales, accounted for about $1,000,000,000 of revenue. And as most of you know, we have had several very strong years of growth, particularly on the auto side.
And that growth has been a good combination. It has come from continued success in body and assembly, which has been our traditional area of strength. But in the last couple of years, it has also come from penetration of powertrain and electric vehicle. And those are new opportunities for us. As we look forward to next year, we expect vehicle sales to be down.
That's what most of the projections are indicating. But we expect to see some modest growth in our own business. And that's a consequence of the backlog and the front log that we have entering the year and also an expectation that we continue to drive share in powertrain and benefit from electrical vehicle investment. I think Blake or Patrick mentioned on the earnings call that in 2018, we're expecting powertrain and electric vehicle together account for about $100,000,000 of revenue. And Sujeet, I think that goes to Life Sciences.
Okay. I'll cover Life Sciences and Oil and Gas. So much like Ted said, there's a change going on in the automotive industry, trend towards EV. In the life sciences industry vertical, there's also a major shift occurring, and that shift is from small molecule medicines to large molecule drugs. What this means is a shift from plant based medicines to more biological based or active ingredient based drugs in the future.
What this also implies is flexibility in packaging because more and more pharma companies are now moving towards creating personalized medicine, which means the production of the drug and the packaging of the drug has to be synchronized or coordinated. So just to give you one example, Alnylam is a very interesting start up company, and they've come up with a drug that's based obviously on the biological drug platform. And they built a greenfield plant that was awarded to Rockwell Automation. And the reason they picked Rockwell Automation for this greenfield plant is because they wanted to make this plant future proof, in the sense that they're just starting out with creating new personalized medicine because their drugs are very targeted at individuals and the diseases that the individuals have. So they needed highly flexible packaging.
They integrated the production of the drug with the packaging, same platform Logix. Logix is also being used to manage the environmental system that they have, the utility system as well as the 200,000 square feet building that they built for this production. So the fact that they have a single platform, a simplified interface integrated with information, those were the key selling points for Alnylam to pick Rockwell Automation for this particular application. Since I'm talking about life sciences, I want to take this opportunity to share with you my personal excitement and Rockwell Automation's excitement about being part of a very aggressive program, a very challenging program called Biofab USA. This is a public private partnership funded at about $300,000,000 by the government and industry.
And this partnership is focused on automating human tissue regeneration. So by being the exclusive automation partner in this consortium, we get to learn a lot. We get to learn how to interface to newer imaging sensors that monitor how human tissue can be produced, as well as new information specific simulation algorithms control that will be invented for human tissue regen. So very exciting program, just got started this year. I thought I'd just mention that.
One last point I want to mention here is, I have a great new colleague from Life Sciences. You heard Chris being introduced by John McDermott. Chris Nadekia joined us 3 weeks ago. He comes from the life sciences industry, working at Amgen before he came to Rockwell Automation. We're delighted to have him with Rockwell Automation because he's going to help us focus on IT OT integration, not just internally, but also to showcase what we do with IT OT integration to our customers.
So I'm going to move on to oil and gas. In the oil and gas sector, the trends continue to be CapEx and cost reductions, no surprise there. Also digitizing the oil fields and safety continues to be a major area of focus. So one example for on safety is at Total, we upgraded their fire and safety systems, their emergency shutdown systems and their legacy controls with Logix and a safety solution, which was nominated for a safety award. Also in oil and gas, today a lot of oil and gas companies are very rich in one thing, data.
That's the only sector that talks about petabytes with a P of data. The issue they're running into is they have tens of petabytes of data. But as you all know, trying to find value from that data is like looking for the needle in the haystack. So what I'm going to tell you is in about 3 to 4 years, we're not going to be talking about big data. We'll be talking more about structured data, contextualized data.
So we've created this platform that we call connected production platform that allows our customers in the oil and gas sector and other sectors to contextualize the data at the source, which means you pre format the data to feed analytics. You also implement scalable analytics, just like Frank spoke about earlier. So connected production allows us to take data as it's being generated, structure the data, get value from the data and connect that data with simulation platforms such as the simulation platforms that Schlumberger has. Blake mentioned Schlumberger giving a keynote address at one of the events that we had at Automation Fair. So our connected production platform is now being tried out now being tried in several pilots.
And now with the partnership with Schlumberger, we hope to take it to some of the major oil and gas companies. So in the oil and gas sector, it's really all about safety, control, the technology side, domain knowledge, which combined positions us really well to continue to grow both in oil and gas and chemicals. Now I'm going to turn it back to Ted.
Thank you, Sujeet. Just a few comments on Mining. So this is an industry where we have a really complete set of solutions that span a wide range of applications. It's an industry where the environment has been tough for a couple of years. Low commodity prices have contributed to that.
We've found customers have been reluctant to commit CapEx to new capacity. But we're finding customers are willing to spend money on improved productivity. We have a customer, Mezzo, that I think is a really good example in mining of both Connected Enterprise and Connected Services. Mezzo is a large mining OEM. They make rock crushing machines that are used in mineral processing.
Those machines are expensive. They're a critical part of our critical component of mineral processing. And they often end up in very remote locations. Metso has a desire to try and improve the uptime of those machines for their customers. As you can imagine, those machines experience a lot of physical wear and tear.
Uptime is critical. And that's why I wanted to collect a large amount of data from the machines and a significant number of different parameters for each individual machine, but then also be able to collect that across a large number of machines that are globally distributed. We participated in a bake off with another IT OT provider. And Mezzo selected Rockwell as their partner to implement this. We've provided a cloud environment to basically capture and aggregate the data.
We've provided dashboards within our software environment so that it is easy to visualize machine performance, either at the individual machine level or across a set of machines. We implemented a machine learning capability that over time will track the data and create predictive analytics. And we're doing 20 fourseven monitoring of those machines by Rockwell service personnel. So we have deployed so far at 3 sites, all in Africa. But we expect to roll this out to dozens more sites over the next 24 months.
So with that, I think we have ended the vertical industry part of this. And I think you will all appreciate this. It is now my really great pleasure to turn this over to Patrick to talk about the financials.
Thank you, Ted. It's always fun to follow in your footsteps. Good afternoon, everyone. I'm going to start by talking a little bit about our financial performance since 2,008. If you look at this slide, you can probably say it's fair to say that we had a strong record of good financial performance since 2,008, driven by strong organic growth.
What you also see on this slide is during this period, we've had really attractive free cash flow performance. Our free cash flow has had a CAGR of 10% throughout this period. This has allowed us to do a few things. 1, it has enabled us to return a lot of cash to shareowners and 2, it has enabled us to continue to make investments in research and development to fuel future profitable
growth.
We expect this strong financial performance to continue going forward, and here is the framework that we're operating on. First of all, earnings conversion. At mid single digits of organic growth, we are targeting 30% to 35% earnings conversion. That's what we've averaged over the past. That's what we've done in fiscal 'seventeen, we think we can do the same thing going forward.
And actually, that's what's in our guidance for fiscal 'eighteen. What it also means is that we expect an upward trend in our segment margins going forward. The second element on this page relates to free cash flow performance. We continue to target 100% or more free cash that provides us with a lot of flexibility from a capital deployment point of view. That takes us to our balance sheet.
Our balance sheet is really strong and includes some excess cash we have today outside the U. S, but provides us significant capacity to make strategic capital deployments. And that includes not only acquisitions, but also includes share repurchases. So I talked to you about denominator and denominator of EPS, and both of them will lead to continued EPS growth and we target EPS growth faster than revenue growth going forward. The other thing here on this slide relates to invested capital and return on invested capital.
We continue to be disciplined with respect to capital deployment, and we continue to expect 20% plus return on invested capital going forward. Before I talk about capital deployment, a few words about free cash flow performance. As you can see from this slide, since 2,008, we've had a continued upward trend on free cash flow performance. Actually, free cash flow has averaged over 110% since 2,008. Also, you can see the upward trend of free cash flow as percent of our sales.
It's an indicator of a few items. 1, we have a scalable business model. We don't need a lot of working capital, a lot of capital expenditures to grow our business. The other thing I'd like to point out on this slide is we think we can continue to make improvements on this, and so we see continued work capital improvements going forward. So with that, let me turn to our capital deployment philosophy.
And you'll note when I cover this slide that it's very consistent with our philosophy in the past. Strong cash flow from operations, limited capital expenditures, less than 2.5% of sales gets us to free cash flow. We target 100% or more free cash flow for fiscal 2018. And then here are the priorities for our free cash flow deployment. It starts with acquisitions.
Acquisitions come first. We target free cash flow yield exceeding a hurdle rate between years 3 no later than year 5. After that, we target a competitive dividend. As you may have noticed, we just recently increased our dividend by 10%. And after that, any excess free cash flow will be returned to share owners.
And for fiscal 'eighteen, we target $500,000,000 of share repurchases. And as I mentioned earlier, our strong balance sheet provides us flexibility to do more than that with respect to both acquisitions and share repurchases. Before I turn it over to Blake, just a quick reminder of our guidance for fiscal 'eighteen. Nothing has changed since last week. So we expect good organic growth of about 5% at the midpoint.
We expect segment operating margin of just a little bit below 20.5%. And then at the end of the day, as I mentioned earlier, we expect continued good free cash flow conversion of about 100% of free of adjusted income. With that, I'll turn it back over to Blake.
Thanks.
As we head into the final part of our prepared remarks, I make a few comments about culture and a summary. There was a recent NACD Blue Ribbon Commission report that said culture is the rocket fuel that delivers shareowner value. And when you're in it, when you're in a very special culture, you can feel that. And you know that when you have the passion and the shared purpose, things happen. And we're proving that every day.
Our pursuit of excellence manifests itself in a lot of results and a lot of recognition. We show some of these here. For example, our company was recognized as a leading innovator by both Forbes and Reuters. For the 8th time, Rockwell Automation was named 1 of the World's Most Ethical Companies by Ethisphere. Some of this is the impact of a single integrated business.
We're all focused on the same thing. It fosters a shared sense of purpose, and I see the tangible benefits of that every day. We won the Catalyst Award this year. Catalyst is given to only a handful of companies every year for promoting diversity in the workforce, particularly around women. I was proud to accept this award with 3 ms and BMO.
And we're proud of that because it speaks to our commitment to developing the broadest possible talent pool, where everybody can do the best work and everybody wants to do the best work. John Marley mentioned in passing a program that we highlighted earlier in the week with the media, we call the Academy of Advanced Manufacturing. And this is a program where we're training returning vets for advanced manufacturing skills and where they're guaranteed a job at industrial companies. I was in a meeting with an engineering firm after that event, and it's not a big firm. They don't hire tons of people every year.
But the President said, We're going to take 2 trained vets per year. Just tell us how we do it. We're going to take 2 a year. And we're seeing that kind of response because people recognize that workforce development is such an important part of their future success and differentiation. So now we're going to show you a video that explains better than I can what the program is about.
The interesting part about this program, the Academy of Advanced Manufacturing, is that it separates itself because it's number 1, it's filling a void in the manufacturing world. We're filling a skills gap. But the other part of it is we're employing men and women who sacrificed for the country.
My name is Christopher. I was in the army, and I was a 14 Tango, which is a Patriot Air Defense Artillery.
My name is Jin. I was a communication navigation and mission systems technician for the Air Force.
Chad, I was in the United States Marine Corps for 7 years. Had some medical issues and ended up actually being medically retired. When I first got out, I was looking at the job boards and I actually saw, you know, a lot of jobs out there for automation and manufacturing, electrical electronics type stuff. And I'm like, oh, okay. You know, I've got the electronics experience, but I don't have I don't know anything about PLCs or HMIs or any of this stuff at all.
It took a toll on me, emotionally because I went from this guy who's traveled the world. I felt like I was worth nothing to anybody because, you know, I started looking for jobs. I really couldn't get any jobs or anything and people were confused as to what I wanted from my resume. I had to start from scratch. I got contacted and did a phone interview.
They were really excited. I was really excited. And I said, Hey, you know what? This program seems like it was, it was made just for me, not only for veterans, but it's in the industry, the manufacturing industry with the controls and automation, which is something I've always wanted to do, but I was never able to get into.
I'm definitely I'm I'm nervous, but I'm excited.
I mean, as as to which most people would be. I mean, I
I come from a background of doing a lot of hands on things, troubleshooting, doing technical, you know, solving technical problems and such. So it's exciting to get to come in.
As we embark on this program, the great thing about the partnership between Rockwell Automation and ManpowerGroup is we each bring elements that are critical to make these 15 people that are on pilot successful. And for them, success will be measured by proving out what they know by the Applied Learning Project, doing well on their engagements with their future employers, getting job offers and having the opportunity of moving into a new role.
In closing, I hope I can ask you to remember these final words. We believe that the market that we play in has very attractive opportunities and growth drivers, both short- and long term. We believe that there is nobody better positioned in this market to succeed. We have so much room to run. And customers want the connected enterprise.
Every day, they're asking us for it. Our shareowner returns are superior, and I hope you'll agree that we have an unmatched culture. We have above market growth that's adding share. We have top quartile financial performance. And we have averaged over the last 9 years an annual TSR of almost 22%.
With that, we'll close the prepared portion. And I think we have time for some questions.
Thank you. Just a couple of questions. First, Blake, on all the new things we've seen in the developments here today and some of what you shared with us, could we or should we expect some kind of visible inflection in the company's growth rate? And what I mean by that is 5% growth for 2018 is fine and might be a little bit above average for industrial companies. But when we kind of see all this exciting looking stuff, it seems like it would want to translate into something larger.
So maybe a little bit more color about where we are on these pilots. Do they inflect into something bigger or a step up? I was just curious about how you think about that balance sheet, right? You obviously have stranded cash. Others like 3 ms have decided to borrow against the stranded cash because they thought their stock was undervalued and that made sense.
I won't mention the company from St. Louis, but they think the stocks were something. Why wouldn't you express kind of a stronger view on the stock maybe by using the balance sheet a little more aggressively?
Sure. So I'll take the first question about are we at an inflection point for more rapid growth? And then I'm going to ask Patrick to address the balance sheet question. In terms of the more rapid growth, I mean, we believe that we're going to have another year of good growth. And for the reasons that we talked about, we think the market is particularly attractive for short and midterm drivers across geographies and across different industries.
The Information Solutions and Connected Services area is one that we've pointed to specifically as an area of value that's going to deliver accelerated growth. And that's why we talk about the double digit growth there. And we talk about, rough order of magnitude, of over $200,000,000 As we compound those double digit growth years, then that's going to add an additional growth driver that begins to be more and more meaningful to the overall company percentage growth. So I think we believe that we're in a point of growth that's adding some additional accelerators to the core multiple of IP. But the slope of that curve is going to depend a lot on us and the industry and how we can deliver those outcomes.
So if we have a pilot that's not a huge amount of revenue and it doesn't go well, that company is probably going to wait and take a breath before they roll it out. If we do well, we produce the outcomes on that pilot, then the rollouts and the meaningful revenue are going to happen faster. And so that's the kind of way you should think about what the constraints are for unlocking that additional growth? And then Patrick to balance sheet question.
Yes. So at the end of fiscal 'seventeen, our balance sheet had about $2,300,000,000 of excess cash. Substantially, all of that is outside the U. S. Our preferred use of that cash and any balance sheet capacity is to make acquisitions.
Absent tax reform, non U. S. Acquisitions would be preferred use of the $2,300,000,000 So that's our preferred use of that cash. We don't exclude share repurchases with in general for the use of that balance sheet, but our preferred use is to grow the company and make acquisitions. Absent acquisitions, if we get access to that cash, we will repurchase shares absent any acquisitions.
I think as a twist to Jeff's question, Blake, you yourself said prior to the last year, we were in an industrial recession. And historically, Rockwell, coming out of a downturn, given your operating profile, would have been expected to have put up faster growth for because of replacement factors and other things, right, deferred CapEx. Is one of the reasons you're not growing more rapidly? And I recognize you're conservative, but let's just hypothetically is because while we went through heavy industry recession, the rally is since 'eight, we've been through pretty good consumer times. So in fact, it's kind of half the company is getting that uplift and the other half is simply just doing what it's always been doing.
So the blend doesn't look like coming out of 'eight or 'one, 'two, that sort of thing?
John, I think that there's a lot of truth in that hypothesis in that.
Heavy Industries is
a big part of our overall
mix, and it's mining and cement. But there's other big segments of heavy industries like metals, for instance. And it's true that while we saw the rapid growth in aspects of consumer and especially in transportation over the last year, Heavy Industries didn't have anything like that kind of growth. And so now we are seeing heavy industries start to come back as commodity prices go up, as the oil and gas companies are starting to spend a little bit more. And so that is a big factor that will affect our growth going forward.
Then can I ask it might be a question for Sujita? I'd like to know about kind of your role in the FANUC field system. Maybe you could talk because I mean, you were cited as one of the contributors of the establishment of this. Maybe you could just actually explain to those of us who are not software engineers what it is and how this may have a sort of a future foundation for AI and your own perhaps ability to sort of access data, own data in the future, that sort of thing?
John, so Fanuc fuel system is a machine learning system, the so called deep learning system that FANUC acquired from an early stage company in Japan. And they've packaged that field system together with their robots, so they can collect data from the robots and use the field system to learn when there could be a potential failure in the robot. So that's how they initially rolled out the field system. We have a field system in house. We are evaluating its machine learning capability and potential applications of the field to other areas other than robotics as FANUC initially started out with.
The field system is still not mature yet, and it will evolve. I mean, it's a machine learning system. There are other machine learning systems. We're looking at how well field performs and what type of applications it's going to be suited for. Because with analytics, as Frank said, there are hundreds of analytics software packages and machine learning packages out there.
These have to be matched to problems. No one machine learning software package is going to solve all problems. So you have to match the analytics machine learning to the problem and only then you're going to get the business benefits you're looking for. So for field, it's still too early to say what type of applications it's really good for, and we're evaluating that.
Technology?
Right. So AI and machine learning, those are game changers in our industry. But then there is no one machine learning software or AI software that's going to solve all problems. Because for many of the problems that we have that you want to run analytics on, you may not need machine learning. Some simple statistical analysis or rules could do the job.
So there are certain problems that do use machine learning, and we are trying to identify those. So it's too early to tell whether field is a breakthrough or not.
Over here. On the Connected Enterprise, what's the latest scenario? I think it's 4 dozen in terms of Connected Enterprise pilots. And then what's been converted? And how should we think about the progress here over the next 18 months or so?
It seems like there's certainly more movement there and some better conversion.
Yes. I mean, we the 4 or 5 dozen formally tracked programs don't include a lot that are not being formally tracked, but are applying similar types of technology and services in other places. So I wouldn't think of that as a specific number of 47 or 48, but we thought it was important to give you a rough order of magnitude. That's more than doubled in the last year. We think that, that will look like something like an exponential increase as we deliver those outcomes.
And as you get those references in vertical industries that others can look at to give them confidence as to where they should start. Nothing is more important in an area like this to be able to look at a company that's doing something similar to what you're doing and to see the benefit that they've derived. And obviously, some industries share more than others. But we see that continued increase of new companies that start out with their pilots, but also very importantly, most importantly from a financial standpoint, who's getting that early value and rolling that out. And we have a few that are delivering important value in terms of revenue today.
And we'll see again that something that looks like more of an exponential curve as people adopt that over the coming few years. But as I mentioned to Jeff earlier, a lot of that is based on us being able to deliver those successful outcomes, And that's why we're managing these in a structured fashion to make sure that we understand what problem it is the customer is trying to solve, and we're working closely with them.
Okay. And then just on M and A, Blake, you had the slide up there about 20% ROIC in excess of that. Given the environment, it seems like it's probably more difficult to find those types of transactions. Can you talk to that and then also talk to the you mentioned culture a few times and how important that is and the criteria for that because Rockwell has always been known to have a particular culture and how important that is as it relates in addition to the financial metrics.
Yes. It's a good point. So when we talk about an ROIC north of 20%, we do consider that in the way that we evaluate acquisitions after we look at their strategic fit. And so what's this going to do to what you think of as Rockwell Automation? Because we still fundamentally look at whatever acquisition we're considering, whether it's large or small, as being supportive to the Connected Enterprise strategy.
From a culture standpoint, I try during the consideration period to think about what can we give to that company that we're looking at. Obviously, we want to look at what they can provide to us. But it's important in terms of the sustainability and the success of that acquisition, which is by no means a certain thing, to be able to look at what can the acquiring company give to the target. And so that's an important part of our consideration as well. But the financial metrics that Patrick talked about are integrated with what we're talking about in terms of our acquisition.
It all has to work together.
And Rich, when the financial hurdle rate is not an ROIC in excess of 20% for acquisition. That's our long term target for the company. For individual acquisitions, we target them to have a free cash flow yield that would exceed our hurdle rate in years 3 to 5. And think of our hurdle rate our WACC with a few points depending on how risky the acquisition is, the geography and so on.
Blake, getting to the acquisition point, kind of 1% per year doesn't seem overly heroic. And just looking across all the partners you have downstairs, there seems to be some candidates just sitting maybe within this building that could fulfill that fairly easily. What do you what holds you back from thinking more, maybe defining your markets more broadly or thinking about in terms of is it how much benefit is there to having more content on the factory floor? Is it just about having more technology on the factory floor and that's what's holding you back?
Yes. Well, we're not making acquisitions just to bulk up, right, to add a lot of iron, to add a lot of, if you'll pardon the phrase, hollow calories on the bid list. And we do have good partners for that. And so what we're looking at is to provide the best possible offering in delivering productivity to those customers in a premium space that is increasingly centered around software. And so making a lot of acquisitions just for that sake won't be good.
And by the way, if they're sloppily integrated, then you're going backwards pretty soon afterwards, right? And so we're looking at acquisitions. We say a point or more of growth as a rough way to think about it. But we look first at what can catalyze the Connected Enterprise strategy. And sometimes, that's little acquisitions and sometimes, that's going to be a little larger.
But the objective is to provide more value to an individual customer. It's not to fill out all the cells in a spreadsheet of somebody's view of what the total automation and electrical universe is. That's not the game that we're trying to play, nor is it the game that customers want us to play.
So just to follow-up on that. When you did the Maverick deal, it didn't necessarily seem to fit kind of the traditional Rockwall acquisition. But what have you learned from that transaction that maybe for good or for bad, that keeps you from doing more on the distributor integrator side.
So I'm going to make a couple of comments, and then I'm going to put Paul Goleski on the spot behind you to talk about it from his vantage point as well. Every acquisition takes a lot of tender love and care to make sure that you get the success. I mean, obviously, acquisitions are at a high valuation today, and it takes a lot of work at all levels to make sure that you can optimize the value. I was very personally involved and remain personally involved in the Maverick acquisition. They had a unique position in the market that we felt could help us unlock more value.
And so we're making sure, and we're seeing great success from that. And we may do some others, but this doesn't signal kind of a formulaic roll up of other similar companies because each one is different. They have different people managing them. They're at different places in the market. And while we don't rule out doing more like that, there are a lot of work, and we want to make sure that they go well.
So 14 months ago, I was 15 months ago talking to Blake and we're going through the process. And when you're in a position of a midsized business like I was, you have a lot of discussions. There's a lot of things that go on during the negotiation. And the one thing that is most critical in my view is that promises are kept on both sides. And there's a lot of discussion and a lot of things that set an expectation.
And if those promises aren't kept, those expectations fall on the floor. And I can tell you that Blake and the team have been 100% on the commitments that they've made to me personally as well as to the organization. So we operate from a very solid foundation there. We've had a good 1st year. And there's always going to be bumps in the road, but rational people like here at Rockwell can work through those.
And I think we've done a pretty good job.
Hey, Blake, over here.
Okay. Thank you.
How are
you doing? So if you talk about your EV strategy, you have talked about your EV strategy, EV, electronic vehicles. I'm sorry. Electronic vehicles. Yes.
So if you talk about your EV strategy, you talk about being $100,000,000 next year. But if you believe the more aggressive estimates out there, the car park could change pretty significantly over the next 10 years. So how do we look at the business for you guys over sort of that 5 to 10 year period? Could it one of the sort of concerns with Rockwell is that the transportation business can be very cyclical. How do we look at this sort of changing environment versus that cyclicality?
Could it actually help mute that cyclicality as we go forward?
We think so because we've talked for a long time about the importance of model changes and expansion of existing models as being more important than just the raw SAR count, the number of annual units. And of course, over time and with some latency, if SAAR goes way down, it's going to affect the spend in the traditional area. But in the $100,000,000 just to clarify, that's powertrain and EV together. All the tier suppliers that are providing powertrain for internal combustion engines are also in the EV business. So it's indistinguishable.
We couldn't break them out really if we wanted between those. But because that means there's going to be more models entering the market, and there's going to be more variability and diversity in existing plants and new plants being built, we think that's going to be an offset that will mute the downside on the raw SAR count. How much? We haven't tried to calculate that. But we think over time and over that 10 year horizon that you're talking about, we think that, that's going to be positive to us.
And remember, 5 years ago, that business was 0 for us. We didn't participate in the powertrain business for IC or EV either. And now we have so much room of upside there. And we're very proud that, again, that compounding effect of $20,000,000 $25,000,000 a year gets you to $100,000,000 and that starts to be real revenue.
So you made the comment also about age of equipment. And you I mean, we all kind of know that replacement kicks in before projects when it comes down to it. But one of the sort of questions that's been asked is about how do you accelerate growth? Is that one of the sort of things that we should look for here is that most of the last year of growth has come from replacement, very little from projects? And do you think that projects can be a much bigger part of the growth here in 'eighteen as we go forward?
Yes. So the aging the replacement of aging equipment represents a very significant opportunity for us. We haven't put a number in terms of percentage of growth on the replacement of that aging equipment. But there was a big wave of capital expenditures, the late '80s '90s in the paper industry and other industries. And that equipment is getting just too old for those customers to keep running anymore.
And we think it's on a prolonged period of replacement. As we look at projects, projects are a little heavier more heavily concentrated into heavy industries. And so it would be natural to think about projects having a greater impact on our results as we forecast more meaningful growth in Heavy Industries going forward. Now remember, a project for us, dollars 3,000,000 $5,000,000 occasionally $10,000,000 So we're not talking about these massive deals if we were in other spaces. That's a good size for us, but we do expect more of those as Heavy Industries recovers this year.
Yes?
Yes. Okay. Great. You've laid out a pretty clear plan about how you're going to leverage Connected Enterprise with acquisitions, partnerships, incubator investments. And then you announced this week this Project SHERLOCK to really layer on artificial intelligence into we're hearing seeing signs that cloud computing may be peaking and that cloud computing may be peaking and that edge computing may soon become much more critical.
And I'm kind of curious, with all your plans that you've got in place today for CE, which is a clear backbone of the company's future growth, What are the 2 most critical linchpins that support the direction that you're laying out and putting in place today that if we did see changes in how technology evolves, you're able to overcome or adapt to those?
So the two things that I would direct you to in thinking about the promise of the connected enterprise and how we lay out a little bit different story that's going to allow us to differentiate is the scalability, first of all. We've never talked about having to do everything in the cloud and then having to change our story when we find out that customer that doesn't resonate as well with customers. We talk about from the device to the machine to the edge to the cloud as all being a part and being appropriate for different types of storage and analytic calculations that are required to deliver those outcomes. So that scalability is very important. The second, and we heard it all week, we heard it from Schlumberger and we heard it from others throughout the week, the importance of marrying that technology with the domain expertise.
We've got a lot of it. We live in a production environment. And we've got 100 and 1000 of partners who have even more specific domain expertise in their application. And so our ability for them to use that connected enterprise framework and then for them to be able to apply their own expertise on top of it, that's okay. In fact, that's great for us to work with companies like that, like Schlumberger and like Mezzo, where we're not trying to do the whole thing self.
We're not coming in and saying, step aside, we're going to take care of it. We're going to give you a vertical technology stack and a monitoring center. That's all our people. And don't worry about it, just pay the bills. That's the opposite of what we're finding as a successful approach.
Okay. Thank you. I see you now.
I'm not that tall. I get it. So you guys were leaders and pioneers with PLC, obviously, and now everyone seems to be talking at other automation shows about the death of the PLC and the movement towards industrial PCs and I see now on some of the logics that you're rolling out has Intel and Intel Processors and Windows capabilities. So it seems like a bit of an acknowledgment that we are heading in that direction maybe over time. So how do you maintain leadership and continue to have that role as we kind of transition that way?
Well, like we've been talking about, people purchase LOGICS for the outcomes it provides them. What I'm going to do is ask Frank to talk a little bit about that overall that strategy that accommodates a platform that traditionally has been built on ASIC technology and now accommodates COTS as well.
Thanks, Blake. So I'm going to relate this back to the discussion that I gave you earlier about core platforms. And there was a number of elements to that work. One was a technology update, another one was capabilities and then some differentiators we wanted to drive to deliver the value of the connected enterprise. A part of that evolution was compute platforms.
And so our traditional way of doing PLCs was on ASICs, as Blake mentioned. And we still do a tremendous number of ASICs on our platforms. But as we evolved into the new world of multicore processing and virtualization and all those things, we made some pretty significant investments to bring the logic's IP, the value, up a ways so that we could operate in multiple environments. And so think of that comment I made about scalable compute and I made about scalable compute environments and our analytics. And so the new version of LOGICS is taking a migration as well so that we can sell the value that LOGICS brings, the IP, the thing that produces the outcomes in multiple compute platforms.
And you see examples of that on the floor. So you see scalability in the different processors we have, and now you're seeing things like Intel based systems. And so that evolution will continue. We believe capabilities we continue to add to logics, sequencing, new languages, all those things will happen over time. And we believe that march to virtualization will allow us to exist on many platforms and continue to drive those outcomes for customers.
So think of it as a bigger opportunity for us for different capabilities that we want to drive. But still, that core IP remains the same.
We'll take one more question.
Thanks. I've got the mic over here, Blake. That's 2 parts of the question, okay? First one is, from a regional standpoint, what does it take for Rockwell to achieve maybe in Asia and some other parts of the world? What you have achieved in North America?
And over what time frame? How can you accelerate more aggressively in a way that materially drives the growth rate higher elsewhere?
Yes. Great question. I will tell you, it's not doing precisely the same thing that we do in North America to drive that growth. There are parts of what we do that are just as valued in emerging markets like Asia and in particular, China. But it's also going to require different channels to market.
So we'll have a higher direct content when we're working in China to complement customers who were served by distributors. Having strong regional partners with technical capability is particularly important in areas like Asia and again, in particular, in China. And so working with those partners who have that market access to be able to complement what we can provide there is increasingly important. And we're working aggressively to expand the relationships with those partners. And we believe that will give us continued growth over a long period in excess of our average and certainly in excess of the overall general market expansion there.
Okay. And then also in terms of the single there's a debate out there in the automation community obviously between the benefits of a single platform and that of an integrated capability, the value of integration, right? And you can see you guys have taken advantage of the single platform for a while here. Other people might argue there's more value in the integration across platforms. Can you maybe talk about how you talked a little bit about the 3rd party integration today?
Are there any ways in which you could expand that single platform integration capability, so you can take more advantage of more competitive and other third party platforms that are out there up and down the supply chain?
Yes. Let me start by saying that a single platform doesn't mean that you're giving anything up in terms of integration. We talked a lot this afternoon about the open aspects of our architecture. And Frank, as he talked about in our common software environment and Sujit as he demonstrated the interoperability with 3rd party software, now his application was more in the discrete field, but we also see that in the process field as well. And so with our relationships with people like OSI, for instance, it's equally applicable there.
We're not going to have every shred of software that's important for a particular application. And that's why open in terms of our interoperability, our communications backbone and our philosophy, our partnering approach is very important. And so that single platform gives benefits to the customer because the easiest one is when they have multiple applications in their individual site, it's easier to maintain and to learn one platform and to be able to migrate that platform than to have to bring a mess along. Now it's reality that in most sites, there are multiple pieces of equipment because of the vintage that they were added. But being able to converge to a single platform across their facility gives very specific benefits in terms of saving them money and reducing risk.
Internally, when you think about it, it's also much more efficient for us to be able to continue to evolve a single platform rather than bringing multiple platforms along. It costs less money. And we're talking about efficiency for our customers as well as for us internally. Thanks.
Okay. Thank you, everyone, for participating in our Investor Day. Thank you for your attention and questions today, both in person and on the webcast. So with that, we'll end the presentation and end the webcast. Thanks again.