Danaher's CEO Hosts Investor and Analyst Meeting (Transcript)

Danaher Corporation (DHR)

Investor and Analyst Meeting

July 09, 2013 2:00 pm ET

Executives

Matt R. McGrew - Vice President of Investor Relations

Daniel L. Comas - Chief Financial Officer and Executive Vice President

William K. Daniel - Executive Vice President

Carsten Nygaard Knudsen - Chief Executive Officer, President and Member of Executive Management Board

Susie Stitzel

Ron Voigt - President

Joakim Weidemanis

Analysts

Clifford F. Ransom - Ransom Research, Inc.

Scott R. Davis - Barclays Capital, Research Division

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Deane M. Dray - Citigroup Inc, Research Division

Presentation

Matt R. McGrew

Okay. Well, welcome, everybody. Thanks for joining us here in lovely Wood Dale today. And also to those on the web, thank you for joining as well.

A couple of things here, forward-looking statements. We'll not read that obviously, but you can see it here.

Okay. So here's the program for the day. We're going to start off with the PID overview. Dan Daniel will do that. And then we're going to go kind of through each of the businesses. Just something to note here, you see the Q&A at the end, we're going to save all the Q&A for the very end. So if you guys can just wait, hold your questions and we'll do it at the end, we'll bring everybody back up for a Q&A session at the end. When I'm done here, I'm going to have Dan come up, kind of give a bit of color on the release from this morning so we can kind of fit that in, and then we'll turn it over to the folks from PID here.

Let's see. Oh okay. So following the presentations, we're going to have a short break, and then we've got the product demos. I think on the back of your tag, tour group A, B, C, D should get you where you need to go. Where do we -- is it just outside here, I guess, Megan, that we're -- yes, just outside here, we'll be able to get everybody into A, B, C and D when we're done and they'll start to -- and they'll take you to the tours. When we're done with that, we've got -- that's probably about an hour, 1.5 hours of the tour, and then we're going to go -- for those of you guys who are going to join us for dinner, 5:00 in the lobby, where most of you came in the lobby back over here, in this corner over here, 5:00, we'll catch the buses and we'll go to dinner. Also, that's where the buses -- if you're not going to dinner, you're going back to the airport, that's where those buses are as well. So 5:00, just back over in that lobby area.

So with that, like I said, we'll bring the PID team up in a bit, but Dan, do you want to come up and just talk about the release from this morning?

Daniel L. Comas

Good afternoon, everyone. Just a little bit of quick update on our press release this morning. I'm sure you all saw it. We announced that we expected that our EPS to be slightly above our guidance of $0.80 to $0.85, with our core growth to be slightly above our guidance again of 1% to 2%.

Don't have a lot of detail at this point, but kind of what we know, 3 of the 5 segments came in largely as we expected. The 2 segments that came in a little better than we thought, one was environmental, where both our Hach business, our big water business, and our Gilbargo business had strength through the quarter and it continued through June and did quite well; and our Life Science & Diagnostic business, particularly our Beckman diagnostic business, had a very solid quarter organically. So those 2 segments that we thought would be about low single-digit organic growth in the quarter both ended up mid single digit. We'll be talking about PID today. They came in mid single-digit for the second quarter. That was largely in line with expectations.

So in addition to the better performance on the top line, we had very good margin performance in the second quarter. Again, I don't have all the detail by segments, but across the company, our gross margin on a reported basis will be up about 80, 90 basis points year-on-year. And our core operating margin, as you know, we report on that every quarter, that strips out all the acquisitions and divestitures during the previous 12 months. So an apples-to-apples look, our core operating margins were also up 90 basis points in the quarter. So that little better top line, better performance on the bottom line in terms of margin drove the beat in terms of EPS.

Don't have any geographic detail at this point or trends. We don't have any further update here on the second half. Again, we'll be talking to you a week from Thursday to give you that more detail.

With that, Dan Daniel will kick us off.

William K. Daniel

Thank you, Dan, and thank you for getting us all off to a good start this morning. And thank you, all, for joining us here in Chicago, in Wood Dale. This is the global headquarters of our Videojet business, as well as DBS University, where here in this room, we hold a number of training sessions for associates from all over the company. We do that in a few places around the country, but here in Wood Dale is our primary location for that. Happy to have your focus and attention this afternoon on Product Identification, which has been a very good growth story and margin expansion and value creation story for us at Danaher. Was with you in December in New York, and we've got a number of exciting developments and expansion and the opportunity to share 3 business presidents with a deep dive on Videojet, Esko and X-Rite. We're excited about our strategy and our execution and look forward to jumping in with that here this afternoon.

Before I do that, maybe just an update on Industrial Technologies. It's a business that we've been working to enhance the growth potential over the last few years. We've been expanding margins. Today, Industrial Technology is a segment with gross margins now over 50%. As you know, over the last 2 years, we've done some portfolio pruning, with some selected divestitures of approximately $700 million in revenue. And that's all been about improving our focus and expanding our growth potential.

Over the last decade, we've done a number of acquisitions and M&A activity in Industrial Technology to today become a portfolio that is about half Product Identification, our Motion Control businesses, as well as our specialty products in Sensors and Controls businesses as well. It's a segment that has focused on consumer packaged goods companies. Global packaging OEMs is an important part of our business, not just from Product ID but across our Motion businesses as well. And Medical is a focus space for us. So Industrial Technologies today is a platform that we think is positioned for growth. We've had strong margin expansion, and we look forward to continuing that in the future.

But today is all about Product Identification. It's been a wonderful value creation story for us at Danaher. Our business today is about $1.5 billion. It very much fits our focus of a strong instrumentation, plus consumables business. It's very global. Product Identification, in the case of Videojet, has sales from emerging markets in excess of 40%, and that continues to be a very strong opportunity for us. Our strong brands, our leading market positions, very strong relative share and really have us positioned to continue to grow in the packaging consumer products space, as well as retail and pharma. As you know, we've deployed a significant amount of capital over the last 2 years with Esko and X-Rite. It's really helped us expand our market potential with Product Identification, and we'll share with you our progress in that regard.

Maybe stepping back and looking at the history of Product Identification. What you really see is how our strategy has evolved over the years. It began with the acquisition of Videojet in 2002. The acquisition of Willett in 2004 really expanded our global presence. Willett was a very global company and helped establish our initial position in high-growth markets. That followed with Linx in 2005. Linx is a very complementary business of Videojet, similar products with very different approach to the market, primarily path to market through distributors versus the direct model within Videojet. Following that, a number of product acquisitions to strengthen our product portfolio, including ALLTEC and FOBA, with our laser and parts marking business. In addition, a number of distributor acquisitions to strengthen our go-to-market and our direct channel to market with acquisitions in a high-growth market. We've had 4 acquisitions over the last few years to enhance our direct and go-to-market position around the world. And then the last 2 years with Esko and X-Rite certainly expanding our market position in the packaging and further expanding our market potential.

I shared this slide with you in December in New York. It's very important. It's going to be the framework for the day. One of the things we're going to do is continue to lay out the packaging value stream and how we play across Product Identification. Historically, with Videojet and Linx, our position in marking and coding really has been at the back end of the process, where packaging designers and engineers are figuring out late in the process where to put marking and coding onto the actual package. And primarily, with Esko and X-Rite, it's helped us move upstream into the value stream, where it really begins with a brand owner's decision regarding packaging. And in today's world where the competition for shelf space and market share is intense amongst the global brand owners, we have a number of opportunities to expand our capabilities.

We have software and hardware offerings across the value chain that begin with a brand owner, go through some of the design and prepress houses through the printing value chain, the actual making of the packaging and then including even on the retail shelves with some of our software offerings as well. The decision of a brand owner begins with a packaging design, and color is very important. And Pantone is the standard for color that's used virtually by all global brand owners around the world. Next, there's a series of packaging steps that Esko software helps the brand owners speed up the process and manage the value chain throughout the printing process.

X-Rite and Esko have a number of hardware applications that help make the design turn into a package and end up on the retail shelf. So we have a very robust and expanding potential portfolio, both hardware and software, throughout the entire value chain. And, again, it's brought our Product Identification capabilities upstream to the brand owner, and that's very much a focus of our strategy going forward.

Across Danaher, we've talked to you about a number of growth platforms across the business. Product ID is certainly one of those. We have a number of operating companies, they each have an individual strategy for their business, but we also at the platform level developed a platform strategy that really helps us focus on where can we grow, where do we develop revenue synergies and how do we deploy capital across the business. And that's where we're going to spend most of our time talking about here today with regards to Product Identification.

Again, starting with that brand owner, that really begins the process of design and packaging throughout the value stream, and what we're really trying to deliver value to the brand owner in terms of accelerating their speed to market, because as I said, the competition for shelf space is intense, customized packaging, regional packaging, all these kinds of things continue to be a priority for brand owners to win market share in the marketplace. They need to do that for less costs, so the faster we can do that and help them do that with our software and hardware tools really brings value. Quality control is essential for brand owners, where today, the Coke can in Atlanta needs to be the same red as it is in Shanghai, São Paulo, other parts around the world. So managing quality throughout the value stream is critical to brand owners as well.

Traceability and brand protection is increasingly important for brand owners as they implement their global strategies as well. And at the end of the day, we're working to help them drive demand and growth across their value stream as well.

So today, we do that within our operating companies in a number of individual solutions. We're working to expand that potential across the platform, develop synergy across these companies, in addition, continue to expand our capabilities with partners and additional capital deployment.

So each of these 3 companies we'll talk to you about today, very strong businesses on their own. We're continuing to develop our strategy across the platform to create value for brand owners and accelerate their growth in the marketplace.

So as we look at our current capabilities across the operating companies, as I said, it begins upfront with brand owners who are working with their own packaging designers to then take the improvements throughout the value chain in terms of prepress solutions, printing solutions and then cutting, increasing and folding and then ending up on a retail shelf.

Today, we have standards upfront with color. Esko software is the standard in the marketplace for packaging design, and X-Rite brings a capability for downstream color verification and helping suppliers manage the quality control throughout the value chain. And Videojet, with their in-line printing capabilities, has opportunities to move upstream with value brand owners to help design marking and coding into the product upfront as opposed to the end of the process, where many packages you see on the shelves today have the bar code or the regulatory information that is completely out of place on the package. So designing that upfront is an opportunity that has a number of brand owners working aggressively with Videojet and Esko to design in upfront.

Across this value stream, there's really opportunities to digitize the workflow and the work stream. That really comes in 2 areas: Esko software, primarily the WebCenter and the automation engine, which we'll share a demonstration with you on here a little bit this afternoon; in addition, PantoneLIVE, which is digitizing the color standards in a cloud-based solution that allow brand owners to help manage their supply chain. So, again, that color in Atlanta for the Coca-Cola red is the same everywhere around the world. So digitizing the work stream and the packaging value chain is an opportunity that with Esko and X-Rite and Videojet, we're continuing to accelerate across the value chain.

In addition, new capabilities, primarily around track and trace, brand protection, anti-counterfeit, extremely important, lots of money spent on these initiatives from brand owners around the world. We have those capabilities today that we'll look to continue to expand.

So strategy is really how we plan the platform. DBS is how we operate the businesses, and today, Danaher DBS is much more than just operations. As you all know, DBS started with Jake Brake back in the late '80s, lean operations based on Toyota production system. Today, every business continues to drive lean operation throughout their business, improving quality, delivery and cost as the objective. But today, in the Danaher of a $20 billion company, we really scale the corporation by driving DBS through not just lean but also with leadership and growth initiatives. Really, over the last, I would say, 8 to 10 years, improving our DBS growth capabilities in terms of commercialization, product development and innovation is an extremely important aspect to DBS that is applicable to every operating company that we have. In addition, our leadership capabilities and helping develop and scale the teams for the Danaher of tomorrow, these are all 3 aspects that the 3 operating company presidents that we have here today are responsible for driving throughout their business.

And we really boil those down into what we call 9 DBS fundamentals, things like voice of the customer, standard work, Kaizen continuous improvement, problem solving processes. These are the way Carsten, Ron and Joakim run each of their businesses, with a focus on both lean leadership and growth initiatives across the operating companies. So each business, one of the challenges is to figure out where the biggest impact is, how they implement DBS very consistent across the Danaher operating companies.

One of the nice things about Product Identification and our expansion with Esko and X-Rite over the last few years has certainly been that Videojet has been a very strong DBS foundation for Danaher. It's certainly been one of our stronger growth organizations. The DBS fundamentals have been in place for a number of years, and that served as a very strong foundation for Esko and X-Rite as we've integrated that into the company. So DBS and a company that's been around for 10 years inside Danaher, a company like X-Rite that's been around for 2 years -- I'm sorry, Esko for 2 years, X-Rite for 1 year, really able to leverage across the platform.

In terms of lean, our focus really has been the Danaher reliability system. I know we've shared a bit about this in the past, but it's really about how each company takes both the supply chain, our manufacturing process and control and helps improve product, hardware and software quality across the organization.

Every business has a focus. We've really been able to take the team from Videojet and help Esko and X-Rite improve the overall quality and reliability of some of the hardware that they have in their portfolio.

Lean software development has really been a newer lean initiative across Danaher, primarily with Tektronix Communications, as well as Esko, which has really been one of our early acquisitions into a primary software business, helped taking rapid software deployment, scrum and agile development. It's a case where Esko, being a new Danaher company, bringing capabilities that really haven't existed before. It's been an integration of experience from an existing Danaher company, capabilities from a new Danaher company coming together to create a model and a process that can be used around the corporation. Certainly, kanban, supply chain, footprint consolidations, these have all been an important part of the lean story within Product Identification.

From a leadership standpoint, Esko and X-Rite are a little bit different situations. Carsten and the Esko team are largely intact from where they were when we acquired the company 2 years ago from private equity. It's been about how do we train and teach and lead DBS across that organization. X-Rite, as we knew going into the acquisition, would be more of a management infusion into the team. And we've had 6 leaders from Danaher join X-Rite in the first year of the acquisition, including Ron Voigt, who came to us from Tektronix. So it's really been both situations a little bit different, but in both cases, DBS is the foundation from a leadership standpoint to help drive progress across the businesses.

In terms of high-growth markets, these are both businesses that we found opportunities to share go-to-market in selected high-growth markets, where instead of trying to develop 2 teams that are playing in similar markets, have 1 leader and leverage synergy from a go-to-market standpoint in high-growth markets.

And most importantly, from a leadership standpoint, just like it is in all Danaher companies, policy deployment is the leadership tool that helps link strategy and execution across the business. And as we say policy deployment is a journey, Esko is 2 years into the PD journey, X-Rite has just completed their first year from a policy deployment standpoint. But these are the real leadership tools that we use to drive the business.

I'll cover the growth aspect of DBS here on the next page because I really want to set up our 3D framework for DBS across Danaher. And our 3D really has the dream, develop and deliver component. And really, what we mean by deliver is our commercial go-to-market strategy. Some of the things that we're doing across the company, you'll hear from Videojet about our marketing and how we're driving DBS into marketing and really making this a growth accelerator for the business around the world and using that as a platform that we can help drive across the rest of Danaher as well.

High-growth markets, again, Videojet, very established in high-growth markets. Both Esko and X-Rite have about 20% to 25% of their sales from high-growth markets, so we've been able to accelerate that around the world. And leveraging sales force capability are really the key aspects that we're using from our growth from a deliver standpoint.

Product development, both in terms of software and hardware, is extremely important. And, again, taking the lean software capabilities from Danaher companies and accelerating that across Product Identification certainly applies with Esko, increasingly with X-Rite as we add software to our hardware capabilities and, again, with our product portfolio in Videojet, how we link software across our entire product portfolio to expand our growth and potential.

We'll update you on PantoneLIVE today, which again is helping digitize the packaging value chain and creating digital standards that brand owners can manage globally throughout their supply chain. And, again, high-growth market, product localization which has served Videojet so well is a significant opportunity across Esko and X-Rite.

From a dream standpoint, which is really about longer-term innovation and making sure we have a balance between near-term growth initiatives and longer-term growth initiatives, this packaging value chain strategy that we're sharing with you here today is certainly an important part of that. In addition, with Esko's software digitizing the value chain, changing the workflow and helping create higher speed and velocity for packaging in brand owners around the world, their software is helping to automate that and accelerate that across the business.

We'll also share with you at X-Rite today our texture and appearance initiatives. As you know, Pantone and X-Rite is the quality in color standard around the world. We're expanding that into total texture and appearance capture, and that's a longer-term growth initiative that we think holds significant potential.

So all of these things are helping us continue to gain share across Product Identification. And, again, leveraging the strength in the foundation of Videojet has been a very important part of our success at X-Rite and Esko.

So what started 11 years ago with $300 million of revenue at Videojet, mid-teens profitability. We've added $850 million of revenue with 15 acquisitions, organic growth initiatives that have helped add over $160 million worth of operating profit to the business. Today, it's a platform with $1.5 billion in revenue, operating margins in the mid-teens. And our return on capital from these investments certainly has been in the mid-teens, and we look forward to continue to add and invest in our Product ID business.

So it's a business that DBS has helped drive and accelerate growth and margin expansion. We certainly believe that the potential is bright and strong. We're going to take a few minutes here, go through the packaging value chain, starting with Esko, move into X-Rite and then to Videojet, and I'll come back and we'll have some questions and answers from the team.

But, again, to use the framework of the packaging value chain, it all starts with a brand owner specifying a package, primarily around color with Pantone and their standards, and then they go to work with Esko software to help structure the package, develop the package and eventually put it on a retail shelf.

So I have Carsten Knudsen, who is the President of Esko, to come spend a few minutes sharing our strategy and update with Esko. In addition, we've got Susie Stitzel to give a software demonstration. Carsten has been with Esko now for 10 years, 8 years with private equity ownership. He started with the business back when it was called Barco Graphics. And for the last 2 years, he's been a student and a leader of DBS and helping continue to accelerate the growth at Esko. Carsten is a native of Denmark and lives in Belgium where Esko is headquartered.

So with that, Carsten, I'll turn it over to you. I see you've taken your coat off because it's awfully warm.

Carsten Nygaard Knudsen

We could see you sweating, Dan, so I took the advantage of being shaken up there. Thanks for the nice introduction, Dan, and giving me the opportunity to present Esko here today, a business which you have some familiarity, but hopefully, within the next 30 minutes, give you much more, me and Susie.

Esko is a very exciting business. It's exciting because we are deeply based in the packaging business, and packaging, which I'll comment to, is a solid business with good growth fundamentals and giving us opportunities to expand. We have a good core there. And on top of that, we have exciting growth opportunities, specifically in brand owners who see a need for digitizing and managing their whole production process. So that's what I'm going to talk about for the next 15 minutes and followed by Susie.

We have built our business over the last 40 years. 40 years, digitization of packaging was almost nonexistent. We have built a solid base in that business. Packaging is a bit different than printing. Often, when I say printing and packaging, people get a little bit worried. But packaging is different. Packaging is a product. When you go to a supermarket to buy things, packaging is what you see. We don't see the chocolate bar, but we see the paper that it's wrapped into. This is a package. And what we have there is we have the need -- or the brand owner has a need to express what the value proposition of that product is. That's the business that we're in, how to convey that message on a piece of paper in a box or whatever it is. Very, very good business.

On each package, and Dan, he talked a bit about it, but on each package, there is a color. We work with PantoneLIVE. We work actively -- predecessor of that as well to digitize. But I brought a coke bottle here and think about if you go down and buy coke bottle, and 2 bottles next to each other have different colors, what is our perception? The perception is poor quality. That's why color is so important. Color is a key. It's a key recognition factor when we walk through a supermarket chain next after the box. But color is very important. And color is difficult, too, because it has to be the same color on this metal here. It has to be the same color on a piece of plastic. In the 6-pack, it has to be the same color on the cardboard that it's stamped on maybe and maybe even on the shrinkwrap that is wrapped around the bottle. That's where we have some expertise, which is quite unique in this business, make it difficult for others to come in and compete.

The last thing that's unique about packaging is all about the box or container. To manage a box sounds easy, but boxes have different structural characteristics, what you can stack on it. It has to fit in the pad, it has to fit on the retail shelf. It has different thicknesses. And how do you compensate for that? That again is part of what we are experts in and what we have spent the last 40 years on. And what has given us a position today, that if you walked down a supermarket aisle, 9 of 10 products have been produced using our software pieces and hardware pieces.

A bit of an overview of Esko. We have a very clear strategy. We want to digitize the end-to-end packaging workflow. The world has gone digital. You will see many examples of that during the morning or during the afternoon here, but we will continue to drive that digitization. We started our business really focusing on the 2 last bullets in key customers out there, the print service providers and the packaging converters. That's where we started, that's where we have the core of our business. That's where we today, when we look at our customer base of 95% of our customers, we have seen a very exciting opportunity to help the brand owners digitize their own workflow.

And I want you to think about ERP system, for example, think ERP system 25 years ago, which was basically a bookkeeping system. Today, the integrated system, reporting systems, that's what we are doing up at the brand owners today, and we will come into that at a much, much -- much more later on.

The growth drivers we have in the business are quite unique. A company -- one of our company, one of our customers, Tetra Pak, has 42 plants in the world, spanning from Argentina to U.S.A. to India to South Africa to China. What we do for a company like Tetra Pak is we sell our solution into them. We sell our solution. We standardize our solutions at each of the plants, ensuring that they can bring consistent quality everywhere. That has meant that we have been driving our business globally and, together with Tetra Pak, is expanding their business.

Another growth driver important is that these consumers are getting more individualistic. We want packaging that fits us. We want to have shampoo that fits our hair. We want a different type of toothpaste, et cetera. That proliferation basically used is driving some of the -- is driving the business here rapidly.

Then talked about the supply chain here. And as you can seen, it all starts a bit at the end. He's the brand owner and it goes down to the retail shelf. I'll go one step deeper down than Dan did, and I'll talk a little about what happens in that process.

It all starts with a structure, a box, in this case, a pouch for liquid detergent. That pouch also can create or import from somewhere else, but often, it is created here as a gray box in this case. But that will not sell a lot in the supermarket. And if you see that, nothing will happen. So what we do is we take the box, we make sure that structure actually contains what it should. It has the characteristics it should, and we enable it to be branded. We take our management software, our artwork management software, and we brand the box in this case or the pouch in this case and we get something that we actually could pick up from the supermarket shelf.

We don't do the graphics design. Graphics design cannot be printed, cannot. It's too irregular. We take it and make it printable. We make it reproducible in millions. We make sure that each time this code bar is printed, it's the same. When a graphics designer do something, that's not the case. That's what our software do, we automate that.

Compliance is a big issue. Food, medicine, et cetera, FDA regulations. The cost of mistakes are prohibitive so we built in automated management tools for text and other component of any packaging design so that there can be no mistakes in the process of preparing the package.

Furthermore, as you can see, to integrate into logistics chains or packaging is actually designed for optimal distribution on the shelf, in the store and in the truck.

Each of these steps used to be individual steps where operators are sitting and keying in and optimizing each one. We have built automation software that first automate each task. So we take the non-value-added overrated time away, and it can be used for creative work instead. We have automation tools that integrate between the different steps. So we get a flow where the manual interaction minimizes. We have automation tools that actually go across the single plant, so plants can start to optimize the production between sites. We do make automation into MIS and other management tools so the data is transferred automatically. And lastly, we do it while the cloud, as well as collaboration tools with people in China and in U.S. and in Germany, wherever they sit, they can sit and collaborate on the same files. That is a business that we have created around a core business in packaging and really a core business around artwork where the whole thing started.

I mentioned a couple of customers, Coke, I mentioned Tetra Pak. But what you see here, that's really the who of who in our industry. These our are customers today. These are the customers we do business with. In total, as you can see, more than 11,000 customers, more than 90% of them are really down in the lower half of it, print service providers and packaging converters. That's where it started. You will hardly go into any print service provider or packaging converter today if we don't sell part of our solution.

However, I said part of our solution. We said before, we sell tools, we sell automations as well, we sell bigger, bigger systems as well. Many have our tools but not everybody have our total suite of software, which gives us a good growth opportunity in that space there.

Secondly, that space that we have in the production side of packaging has given us an excellent opportunity to expand the knowledge we have into the brand owners and digitize and make the manufacturing process of packaging much more effective.

I said earlier that our business is exciting. We have exciting products. I think we're changing the industry we sit in. It used to be very much an analog industry. Today, it's becoming digital, and we have good underlying growth drivers.

Dan alerted to the fight for shelf space. We can see it when we walked down the new Coke bottles coming out, proliferation of toothpaste and hair shampoos coming in. That fight for shelf space is a result that we as consumers are more individualistic. We want to have product that fits us, we want to have products that differentiate us from the neighbor, and that leads to an increased number of SKUs to be managed. That leads to an increased -- significantly increased complexity in this whole value chain here.

And that is what drives brand owners to what making automated solutions. Susie will show a great example of what is happening. Today, you're going to brand owners. The majority of what you see is paper-based, it's e-mails, it's physical samples being carried around. There's not a management system ensuring a brand owner can manage the process of bringing a package to life in a digital way.

Print service providers is a big group of our customers. Their business has changed dramatically. We have put automation and we have put tools. So we have integrated tools, made error reductions in our tools. So the original business has changed from being managers of images to become managers of images but also managing digital campaigns and other marketing tools, all the marketing initiative for brand owners. Again, here, we see good opportunities to continue to service them as they continue.

And then not least, the packaging converters, which is just the majority of our customers today under immense price pressure and immense competitive pressure between themselves and to the customers, the brand owners and to the suppliers being the big corrugated companies, et cetera, they have to drive our cost, and again, our tools help them do that.

As I've alluded to, we have 3 product groups. We have software, we have digital flexo on and we have digital cutting equipment. And I'll briefly here run through what each one do. But we have a leading position in the software

I talked about Tetra Pak before. We have continued to drive this industry here from an innovative perspective. We drive it in terms of efficiency. We drive it in terms of error reduction and speed. They are largely epics in this space today, and it's really going to cloud instead of on-site or desktop-based, but cloud. It's about enterprise. It's about collaboration across very wide spaces, and it's about color. And that is one of the reasons why I'm very happy to see X-Rite Pantone as part of our sister companies here.

On top of that, we see the changed behaviors in emerging markets with consumers earning more income, more mid-income consumers there and consumer patterns moving from markets to supermarkets, which is a good growth driver for this part of the business.

Digital Flexo. Digital Flexo used to be a relatively simple printing technology. Digital Flexo is used for everything that's flexible: pouches, foils, plastics, think about diaper bag, think about dog food bag, think about everything you find in a freezer. All of that has to be printed either by digital or by Flexo or by a technology called gravure.

Digital Flexo used to be very crude. We worked a lot on the quality. In getting quality output with our software, with our imaging technology and with process integration. And today, Digital Flexo is as high quality as any other printing technology. It is much cheaper to do. And we expect that to take market share over the coming years from other technologies.

And the last thing that we have is digital cutting tables. Basically taking everything that comes out of a digital press and cut it. Flat, it can be signs and displays. It used to be assemble making. It can be short-run production of boxes. The increased speed of digital printers today is what drives that business here, where for us, it is about getting speed up and automation up on these solutions that we have.

When I look at Esko, 2 years in Danaher, DBS. 2 years ago, DBS was a new term to me. I was told to establish a DBS office, which I did. Initially, I was a little bit in doubt how many people I should have in that office, I must say. I was told I should have one in each region, one in each factory and then a leader of it, and I said, that's a lot of people. 7 people in a 1,200-man company. That's a lot of resources. And I was doubting it a little bit. I challenged my direct report, my associate then, and said, can that really be? And now we put some halftime people in, that will be fine. And I was pushed back. Okay, then the leader was full time and the others halftime. That was still pushed back.

So it was -- initially, I had to just get across what was this all about. We had ECO training. I saw results from other Danaher Opcos, and then we started to work. And I must say that, that it has really worked. Today, if -- and I can talk many examples, but take a couple here today, if you run into our factories in Germany, in Czech and in Norway, they are completely lean. They are cell-based. We have Kanban systems. We have 5S. It looks a different factory. Our OTD has improved significantly. Our cost is managed, and our responsiveness to market has gone up.

Dan mentioned earlier software development, scrum, and we have been part of the leaders of that. Agile development as well has meant that our advances, specifically in the brand owner space and in the solutions we bring to brand owners have come far ahead of competition here. I'm very happy to see that change as well.

And we have used it in an area that Joakim will talk about -- and I won't steal your speech here -- but really to drive marketing and specifically digital marketing. How could we drive the digitization of our marketing process and use DBS in a growth perspective, that is why. So from a doubtful belief initially, to a full believer today, that, that's really what's converted me, and it's been a great voyage for us. And I see much more opportunities for us to continue to drive DBS into the organization and thereby increase our customer experience.

Before I go on, I'd like Susie to show what it actually is because I'm talking about slides. And Susie, Susie Stitzel, is a Solution Manager at Esko, have been with Esko the last -- I won't say 15-plus years, and we don't tell your age, right?

Susie Stitzel

Yes, let's not do that.

Carsten Nygaard Knudsen

But Susie has been with us the last 15-plus years. We thought it will be better for you to see what actually it is that the brand owner could experience. Not what he necessarily does experience, but what he could experience when he want to design a new pack. So Susie would just...

Susie Stitzel

All right. Hello, everybody. As Carsten said, I'm Susie. I am a Solution Manager at Esko. It is my privilege to be able to show you some of the exciting software technologies that Esko offers to help people design, manage and produce packaging.

So let's get started. In my travels, I find every company in the packaging supply chain, they have 4 key areas that they always have trouble, companies always stumble. And I call these the 4 crucial keys to speed. Whether you're a brand owner or a packaging designer, a packaging engineer, a printer. Everybody struggles in these 4 areas.

So let's take a look. So the first one I call, protecting brand equity. By protecting brand equity, I mean, taking care of and managing the assets, the information, the people and the processes that are involved here.

So let me give you an example. I'm going to switch over here to WebCenter. This is Esko's online packaging management solution. And I talked about -- one of the things I talked about was actually being able to manage the assets.

This is WebCenter's asset browser. In the asset browser, I can contain any type of asset I want, debriefing documents, 3D models, artwork, barcodes, technical data. And I can categorize it anyway that I want. So for instance, if I'd like to do a search, for instance, I'd like to search for everything for that color pouch we mentioned, WebCenter will quickly find every single thing associated with that. Like I said, structural designs, barcodes, 3D models, logos, content.

And all of these assets are under version control, complete version control. So every time the asset is changed, we know who changed it, when they changed it, why they changed it. And we always are using the right version of the asset. We aren't using an out-of-date piece of artwork or an out-of-date piece of content.

So that's all about managing the assets. But one of the biggest problems that we have in packaging is getting things approved. As you guys can imagine, I'm sure, there's a lot of approvals that happen in packaging. These could be legal people, regulatory, brand managers, printers. Everybody has to approve a particular piece of artwork.

How do they do that today? Today, they print it out on a piece of paper, and they have traffic managers that take this piece of paper and run it around the company and get people to sign it. Very, very inefficient. Or a little bit better, maybe they attach it to an e-mail. But in any way, it's not managed in any particular way.

So this is WebCenter's Viewer. This Viewer is an award-winning best-in-class view markup and approval viewer. As I zoom in, you can see it re-rendering. It's doing this live over the web. I'm connected to a WebCenter server actually in Belgium. And it's doing this live over the web. Now these packaging files can be many gigabytes, a 1- or 2-gigabyte file is not unusual. And you can see that very, very quickly, I can just zoom around and look at anything I want on this particular file. Very, very efficient in terms of use of bandwidth.

If we come in here, I told you that WebCenter keeps track of different versions of a file. And in this case, we do have 2 versions of the file. Right now, we're looking at the second version, but if I switch to the first version, we start to get some other information. It's been rejected the first time out of the gate. You start to see some sticky notes and some comments on here of changes that were requested. So automatically, WebCenter can show you these 2 versions. And if I want to get a little bit more sophisticated, I can actually say, lay these 2 on top of each other and highlight the differences. You can probably see down here, there's something going on with this recycling logo, right? There's a difference down here.

There's also a very small difference up here that I might not notice otherwise unless WebCenter showed it to me in this way. I can also even zoom in here a little bit more, maybe we'll ask WebCenter to actually switch between the 2 versions. So now it's just quickly switching between the 2 versions of this very large file and showing me the differences, highlighting differences on screen.

So this is a very efficient and very effective way to get packaging approved, for everybody to understand exactly what's going on and exactly how this is getting managed.

Now we design packaging in the flat because that's how the production equipment works. That's how the printing press works. But we all know that packaging is a 3D world. And so WebCenter allows us to actually view 3D models over the web. What does that artwork look like on that structure over the web? This is my standard web browser. I have no special software installed at all. This is just standard, standard. In my case, it's Safari, but it could be anything else.

So the last thing about WebCenter is, I talked about managing the people and the processes. And WebCenter includes an advanced workflow engine. Very easy to use, but very sophisticated workflow engine. Where I can define all of the tasks that are required to be done, assign them to people and then have WebCenter take care of the rest. So it basically takes care of that grunt work of notifying people when something is to be done, of receiving the assets that are the completion of that task, and then moving it onto the next person. So very, very effective. It provides complete transparency and also gives a lot of accountability. We always know who said what, when, which are the key things about WebCenter.

So that's WebCenter in a nutshell, very, very quickly. But I'll come back over here, and we'll go on to the next one. The second key to speed here is what I call, managing regulatory content. By managing regulatory content, I mean all of those regulated industries: Health and beauty, food and beverage, pharmaceuticals. They all have packaging, and that packaging has to have some regulatory content on it. You know that there are certain things required. Commercial things as well like barcodes, but also warnings, caution statements, ingredients, country of origin. These are all regulated by various regulatory bodies. In our case, in the U.S., it's the FDA, but it could -- it's different in different regions. But it's really a problem for everybody.

So I'm sitting here in Adobe Illustrator. It turns out that 95% of all packaging is designed in Adobe Illustrator. So this is where we need to meet the designer. In here, there are entire host of plug-ins that basically packaging-enable Adobe Illustrator. It gives you the ability to check inks, to manage barcodes, to manage structural files.

But the one I'd like to show you today is called Dynamic Content. So I have a piece of artwork here. And you can see some logos. There's some fonts. There's some texts. But it's a little bit more than that. This has been made into a smart template. So if I turn on the placeholders here, you'll see some pink boxes. The pink boxes are all awaiting content from that system of record, from that regulatory control system. They're all been tagged as a placeholder.

So what I can do is I can actually connect this artwork to that system of record. So if I connect it to that system of record, the artwork recognizes that there is content to be delivered here. And if I say okay, you probably saw that now we have a net weight, we have a new barcode, right? The marketing copy has been filled in, the global warnings have been filled in.

And as -- basically, what has happened here is we have effectively split the content management from its presentation on the artwork, okay? Content management and regulatory is the domain of the brand owner. As a graphic designer, I'm in charge of the presentation of that content on the artwork. It basically eliminates huge areas of risk here. Risk that can be expensive.

If that package ends up on the supermarket shelf, we might have to do a recall, and that's expensive. I have -- this templated workflow actually gives me some other advantages. You can imagine that I have, like, the cherry and the strawberry and the orange, right? Or maybe I sell it in a different region and so I need to change languages.

So it's simply a matter of switching to a different language, and you saw the net weight is now 1.5 liters. The barcode is different. The warnings and cautions are in a different language. So it automatically has switched over to a different regional package just like that. So really reducing risk for everybody in the supply chain.

But if we come back over here, you don't really have to take my word for it. It's actually -- what I just showed you is now a global standard from GS1. GS1 being the standards body, global standards body that standardizes how trading partners, particularly, say, brand owners and their retailers communicate. They distribute barcodes. They define and standardize barcode symbology. And now they have just produced the e-commerce intelligent packaging standard that was ratified December 20. Basically, this is the way that regulatory content will be communicated in the future. And what I just showed you was Esko's Dynamic Content. It's the first software that supports this new standard. Okay?

So let's move on to number three. Number three is about brand color consistency. We've talked about this a couple of different times. Basically, Coca-Cola red has to be Coca-Cola red no matter where it goes. On the can, on the carton, anywhere it goes, it needs to be that color.

And the problem is, is that we're printing on different materials with different printing processes, and everybody has an idea about what that color should be. But our sister company, X-Rite Pantone, is actually the industry reference for the measurement and communication of color. And so this is an excellent synergy together with Esko.

They offer PantoneLIVE. This is a cloud-based solution for managing standards of color. So brand owners add their standards for the brand into the cloud. And everybody and the stakeholders -- all the stakeholders in the supply chain use that standard. That's where Esko comes in. Esko provides the software that connects the designers and the prepress and the printers to that PantoneLIVE cloud. So it's a perfect synergy between the 2 companies, really, really wonderful.

So in the prepress area for instance, color management tools and tools for doing proofing. But in the design area, all the way up in the design area, tools for the designer to actually connect to that cloud database, pull down the right brand colors for the brand and then to be able to see exactly how they're going to print and how they're going to work further down in the supply chain. This helps us eliminate those unmet expectations that happen so often in color management.

So let's go on to the last one. The last one I call, driving packaging innovation. And packaging innovation is critically important to a brand owner. There is a McKinsey study not too long ago that actually says that having more innovative packaging increases your sales. Dramatically increases your sales for a really innovative package, up to 26% in fact.

And so packaging innovation is really, really important. But being able to innovate can be really challenging, partially because we don't always know what we're going to get and partially because it is that 3D world. Like I said, we produce -- we design packaging and produce it in the flat, but what I'd really like to do is be able to see it in 3D. And so as a packaging designer, I can use the Studio Designer plug-in to actually see it in 3D inside of my browse -- inside of my artwork design system.

I make a change here, it will show up on the 3D model. And that's great for me. But what if I actually want to share that with somebody? So I'm going to go ahead and do that. I'm going to save the old -- I don't know, untitled PDF. I basically exported this as a PDF. And if I open that PDF, let's see that PDF that I just made. Here's the PDF file. But this has a live 3D model inside of it. This is small enough for me to attach to an e-mail and send to anybody else. I could upload it into WebCenter and have it there, as you saw me do a minute ago. But basically, really, really quick fast way. It exported this live. Right when I said export, there it was. So very, very fast, very, very efficient.

This is great, but there are some things that we do in packaging that actually are very sophisticated that we can't really render in this way. So I'm going to show you another tool. This is Studio Visualizer. Studio Visualizer understands inks, finishing operations, substrates and how they behave and interact with one another.

So for instance here, I have a piece of flexible polyethylene, and I'm going to start to print on it. And you can see -- well, it went very fast, that progress bar at the bottom. But basically, it's rendering on-the-fly. Every time I print something, it's re-rendering and recalculating what this looks like on that material in this environment.

I can die cut it because that's typically what happens in packaging, we end up with these sort of irregular shapes. And as you can imagine, the 3D model comes along for the ride as well, but now really rendered in high resolution. Even something like this package actually gets crimped around the edges. It has some crimping features around the edges. Maybe you can see them a little bit there. That's great to be able to see where that is. So that for instance, it's not running through the barcode or it's not in an area where I need to do a lot date marking from Videojet, and it's not trying to print on that kind of area. So it's great for that.

But what I really want to do is, I want to see it in the store, right? We want to see it in the store. So let's move over to the store. This is Store Visualizer. And this is my virtual store, and I can virtually walk through the store and look at different products in the store. Look at my product in the store with the rest of the brand or with its competition. Basically, building the virtual store to look at the virtual package before it's even been produced.

I can walk through it. For instance, let's look at this packaging for this lightbulb that we have here. And so I can actually zoom right in and look at the package in the store. Or maybe the suntan lotion on the other shelf here that's -- this is a shrink sleeve around the bottle, and how is that going to look. Or in our case, color. So here's the color pouch on the shelf now sitting inside a corrugated tray, retail-ready packaging, big trend in packaging these days.

And I can even come in and pick something up off the shelf, let's say. Let's grab this guy and pick it up off the shelf. So I can interact with these things on the shelf, zoom in, basically walk through. Do supermarket walk-throughs all the way through the process. Very cool, huh? Is that cool? Is that okay? It's okay. Well, it's okay. I guess it's okay.

All right, well, here's the last piece. What if what I really want to do is I want to take the virtual package and I want to go to the real store. So here I have my iPad. This is my iPad, oops. It's my iPad that you see on the screen. So now we're looking at my iPad. And now using my camera, there are all of you, right? And I bring the package into this environment.

So now I have the package with you guys. Imagine that I'm in the store and I'm walking around. So virtual reality taking the virtual into the real world. So I can see this on the shelf. I can interact with it. Actually hold it up next to the competition and see what's going to happen. So that was okay cool, right? That was okay cool.

All right. So that's basically me. There are a lot of Esko software tools. I only showed you a few of them that are highlighted here, but I hope you enjoyed. I hope you had a good time, and I thank you for your attention. Thank you.

Carsten Nygaard Knudsen

Thanks, Susie. As you can see, a lot of products, a lot of opportunities. But let me just start. What is it that's so unique here? Because what Susie showed, you can see other places as well. What's unique is that it is the same meta data going all the way from the ideation of the package to its displayed up, so its production data. It's not non-production data. It's production data that flows through the system, very unique for Esko, and we're really the only one doing that.

The second thing is that, we cover the complete value chain. From the individual small tools, to the automation, to the cloud-based applications as well. Again, unique proposition that we have in this market.

And the third thing is, we have a large installed base at the converter side, and at the [indiscernible] side or the print -- or at the prepress converters, I say, at the prepress houses, which gives us a unique opportunity to take what is today a manual process of brand owners and digitize that and continue to drive our business forward. So that's why I think it's an exciting business. And thank you for giving me the opportunity to present it to you and hope you have a great day. Thank you.

William K. Daniel

Carsten, Susie, thank you, and well done. I hope you now have a flavor for why we're so excited about the Esko business. Just now over 2 years being part of the Product ID portfolio. We've been very pleased with the results, very pleased with the team and their embrace of DBS and innovation and growth mindset.

I think the thing that probably been most pleased about is really the reputation and the acceptance in the marketplace. And I think the best example I can share with that is every year, Esko has a user's conference. It's a 4-day session. People pay their own way, everywhere from brand owners to very small trade shops. And they come to help Esko improve its products.

So the software products that Susie shared with you, some of the features that you saw were a direct result of user input from last year's conference and incorporating that into the software. So we think it's a tremendous platform for growth and expansion in the packaging space.

So next we'll move on to X-Rite. I'd like to introduce Ron Voigt. Ron is the President of X-Rite since January 1 of this year. Ron has been with Danaher now for 4 years. I actually hired Ron in the Kollmorgen industrial automation business. He was president 4 years ago. Led that business for 2 years. And then the last 2 years has been out at Tektronix in Beaverton, leading that business and happy for him to share the update with X-Rite and how we're going to take the growth potential of X-Rite to the next level. Ron?

Ron Voigt

Very good. Thanks, Dan, and good afternoon. It's really a pleasure to have the opportunity to talk about X-Rite and Pantone within the Danaher portfolio. We are 1 year in to Danaher ownership. And this is a company that really has a lot of historic brand and technology strengths, a very unique place in the market that we've really been able to improve through the application of Danaher's DBS tools and the applications of our systems. So it's a story that I'm excited to tell you.

X-Rite and Pantone are the global leaders in the art and the science of color. And to start out with a perspective on our key customers, we really serve a range of customers across the workflow and across a number of vertical markets.

We start with brand owners and designers. We've got a key link there with the Pantone brand. Printers, commercial printers and converters for packaging are also key customers for us. Textile, plastics and other industrial customers, who as I'll show you in a moment, have similar workflows to what's shown in packaging also use the standards and the instrumentation that we bring as a company.

And finally, we have customers in the retail, photo, paint and cosmetics markets, all areas where the importance of color is becoming more pronounced, particularly in the high-growth markets.

The drivers for our business are really the importance of color. You've heard it a number of times through the discussion today. Color is a key differentiator on the packaging side. It's a key differentiator throughout just about all of the value chains. And we find that when you talk to consumers, it's one of the most -- one of the 3 most important criteria by which they make purchasing decisions.

The globalizations of workflow and supply chains is another key growth driver for us, using PantoneLIVE and other tools to make sure that we have color consistency through those chains. And finally, the development of the importance of color within the growth in emerging markets.

This is a chart that you've seen a number of times today in terms of articulating the workflow. I want to talk in a little bit more detail about how we fit in. We start with brand owners and designers. Pantone has a role in providing both inspiration for color, as well as the means to standardize that color in a way that it can be communicated consistently through the balance of the supply chain.

We supply designers who are doing everything from graphic arts, to textile, to very sophisticated and important industrial applications. And we produce those standards on a number of different materials and substrates so they can understand how their color will be represented in the real world. We've also started to move this business into the digital side, where we can specify colors digitally and then faithfully reproduce them with physical mechanisms later on.

Now the X-Rite business consists of hardware and software and solutions that are really all about trying to measure in a very analytic and specific way to provide verification that colors are being produced in a faithful way throughout the balance of the supply chain.

You can easily see how those 2 parts of our business fit together. We start out by inspiring and specifying the color, and then we provide the means to formulate it through inks and pigmentation and then represent it and measure it in every other area that it's reproduced.

We've talked about the packaging workflow a lot today, but what we find in the X-Rite and Pantone business is that the same basic workflow, moving from the inspiration, through design, through physical realization exists in a lot of other markets, including textiles, the automotive market, even the retail and industrial paint markets. So the bottom line is that we have hardware, software and standards that enable the workflows across all of those areas.

For 2013, we have a number of areas where we're trying to drive growth in the X-Rite and Pantone business. And I want to highlight 4 of those today. The first one is in the area of innovation. We are in the midst of a refresh of several important areas of our product portfolio, covering both the retail space, the industrial space, as well as the press room and textile areas.

During the tour later today, you'll have a chance to interact with some of the key products that we released in these areas over the last 12 months. We're also pushing forward and continuing the expansion in high-growth markets. We've had about a 25% increase in the commercial resources that we've deployed to those markets as we try to continue to progress our business, and again, take advantage of the color trends that we see really gaining traction in those areas.

We've also had the opportunity to leverage the PID global footprint in these important areas. We're working on making some key decisions to share leadership in some of the geographies where we can benefit from the scale of our sister companies and provide more effective coverage and a more effective way of going to market in an overall basis. Those areas include Japan, Latin America, Eastern Europe and Turkey.

And finally, we've been leveraging the Pantone brand. Pantone is iconic and has a tremendous reputation within the design and color and graphics arts community for what it has been able to bring, both in terms of inspiration as well as in standardization.

We formed important relationships with Sephora, with the Sephora + Pantone Universe makeup collection, as well as with Valspar, with the Valspar Pantone Universe paint collection available at Lowe's. These are 2 key licensing opportunities that allow us to continue to expand the brand, continue to develop it in premium markets and bring value to the company.

Overall, we've delivered mid-single-digit revenue growth since acquisition. Over the last year, we had been focused on applying DBS in X-Rite and Pantone in each of the 3 areas that Dan talked about to start the conversation today, in the areas of lean, leadership and growth.

I want to share a specific example of what we're doing in the area of growth. Just one example of a specific process that we've put in place in order to improve our performance as a company. Now when we were acquired, between X-Rite and Pantone, we had no standard method or process to collect, process and then eventually track leads that we had coming into the system.

Essentially, we generated leads from a number of different sources. Those leads flowed into our sales team, who frankly didn't have a very effective way of sorting out the quality of those leads and really maximizing their attention where that attention mattered.

We went through 4 separate Kaizen workshops, applied some of the classic DBS tools like value stream mapping and daily management and have now created a process that standardizes the way we bring leads into the company. That we track them, qualify them and present them to the sales force.

This has translated into very, very concrete improvements. We think -- we know we've generated about 7x as many leads year-over-year from January of this year, and we've generated about $2 million in incremental growth. But the slope of the improvement that we have is sustainable, and it's very positive. And the bottom line is, we've unlocked the resources of the selling team to focus on the areas where they can use their time most productively. It's a good example of the use of DBS, and there are countless other examples throughout X-Rite and Pantone.

Now we've talked about color and the importance of color in the various workflows. We're also looking beyond, in that dream stage that Dan had mentioned earlier, and thinking about appearance. Now appearance differs from color only in that it takes into account the texture and the appearance of a substrate or a substance, in addition to the color of that substance.

We've entered into a long-term agreement or a partnership with the University of Bonn late last year to capitalize on what we see as a trend to bring more lifelike digital representation of the way materials actually look and actually interact in order to help designers and those who are working at the upfront portion of that workflow, provide more creativity and better insight into their design.

We also made a small acquisition, a company called Sensible Graphics, who had some of the key intellectual property associated with bringing this into a fact. What we want to do is create a digital appearance ecosystem. Something that allows our customers to digitize a particular material that they have, capture it in a very precise way and then apply that in modeling such that they can overlay different colors or different textures and look at the way that, that interacts with a fabric or a textile or some other industrial product under different lighting conditions, under different viewing angles and such. It really takes the simulation and the way that we look at the appearance of an object from color-only to something that approaches the appearance that you would see with your eye.

What we're trying to do is capitalize on mobile technology and really bring Pantone into the digital realization and leverage the Pantone brand in a digital appearance environment. During one of the tour stops today, you'll have a chance to interact with this technology in realtime and understand why we're so excited about it.

At a couple of points today, we talked about PantoneLIVE. PantoneLIVE is the way that we bring color integrity across the supply chain. Again, it's the way that designers and those brand specialists upfront can define colors and be confident that they're represented in the same way, with the same appearance, be it on the Coke bottle, the Coke can that Carsten referenced or really any other branded material.

Working with Esko, we've been able to accelerate the process of getting wins with key brands and really expanding the use of PantoneLIVE by integrating it with Esko tools and having a common approach to the way that we look at certain customers. We've made significant commercial progress since we talked to you about this late last year. Most notably, we had a release with P&G late in May, where they confirmed that they have implemented PantoneLIVE within several of their divisions, with several brands and are really using it to drive both cost reductions as well as speed their time to market.

We're also engaged with a number of other global brands, and we're in the process right now of rolling out some regional and global converter partnerships, where we're really bringing this technology through the entire supply chain.

PantoneLIVE is fundamental and foundational to a digital workflow, and we think this gives us an excellent opportunity to be involved throughout the supply chain and leverage the traditional strength that we have, all the way from standards, through formulation and into instrumentation.

So in summary, after a year, I think we're off to a pretty good start. We foundationally are using DBS to improve performance in the metrics of quality and delivery growth and expanding margins. We see tremendous opportunities to continue to leverage the capabilities of the PID platform, both as it relates to digital workflows, as well as growing in high-growth markets. And we think that frankly, the market is coming towards us with respect to the applications and our capability. Color is gaining importance, and we think that there's an emerging market in appearance that we can capture and again leverage the technology, the brand and the experience that we have.

So appreciate your time and attention today. It's been very fun to be with X-Rite and Pantone here in this first year, and we see nothing but exciting opportunities ahead.

William K. Daniel

Thank you, Ron. Someone in the room was trying to twist my arm earlier to see if there were going to be any preview announcement about the Color of the Year for next year. That happens in December, and truth be told, neither Ron nor I have any idea what it is. They keep us out of that. But I might comment that fashion may not be in this room. I don't see any emerald green in here so.

But it's been an exciting year for us with X-Rite and Pantone. I think we're just beginning to unlock the potential of that business. It's a business that has really good growth potential. What I think we've brought is really some focus and some DBS discipline, as Ron shared an example with you around demand generation, which is an initiative that we're really driving across all of our businesses.

But the potential is there. I think Ron's leadership, a very solid team. We're just excited about what X-Rite and Pantone brings to our packaging equation, but also to color and the business.

So now, we'll move to the flagship of Product Identification, Videojet. It's a pleasure for me to introduce Joakim Weidemanis. Joakim has been with Videojet now for 2 years, joined as the President of Developed Markets for Videojet. He quickly became the President of Videojet. And effective January of this year, we added our Linx, Product ID business, as well as FOBA, our laser marking business. And he is the group President of Marking and Coding. Joakim spent a number of years with ABB, most recently with Mettler-Toledo, leading their Product Inspection business. And happy to turn the stage over to Joakim and share our growth ahead for Videojet. Joakim?

Joakim Weidemanis

Thank you very much, Dan. Wow, being introduced as the flagship, I'm not sure if that's a good way to start or not. But anyway, it's a pleasure to welcome you. This is our global headquarter of our 3,500 people around the world. You'll get a chance later today on the tour to meet a few of our very best people, who will tell us about some of the exciting things that we do here. So what do we do?

Well, I don't know where that Coke can went, here we go. I'm sorry, Carsten, I'm going to have to turn it upside down. This is what we do. We do in-line printing of packaged consumer goods, pharmaceuticals and other products that you would buy at, for example, Home Depot. And so any type of product that needs a unique identifier, which could be a unique serial number or that determines, identifies it when it was born or by when you should no longer use it.

So our customers are the big consumer goods companies of the world, the big pharmaceutical companies. And they are not only the big brands that you know, that's probably about half of our market. The other half of our market is a vast number of local and regional players that have smaller plants and the bigger guys.

Some of the growth drivers that we see in our industry is people want to print more information in line, and they want to do that for a lot of different reasons. One is that they want to be able to track products through the supply chain or identify how certain products got to a certain point in the supply chain. Another growth driver is that, of course, in emerging markets as food, for example, no longer are sold on open markets but are sold in retail stores. Food is manufactured in plants, and anything that's manufactured in a plant typically gets printed in line.

In terms of the globalness, I think I've just highlight that. We're probably one of the -- we're the most global business in the Product ID platform. You see here that 45% of our sales is outside Western Europe and North America. So actually, 1/3 of our employees speak some variant of Chinese at home. And Dan didn't mention it, but I'm from Sweden originally. I think I'm the only one in the company from that part of the world. Very global business, which makes it very exciting.

So where do we play in the packaging workflow here? Well, predominantly, what we focus really on the manufacturing plants of these big brands and the smaller brands that I talked about, and we'll talk about what our value proposition is in there. But in a country like the United States, there are about 60000-or-so plants that are potential customers of ours. So a pretty, pretty large number of potential customers. We do some work with brand owners regarding helping them how to define what are these unique serial numbers that they want to potentially put on their packages and help them implement that in their plants. It's not -- it's a smaller part of our business, but it's an increasing part. And obviously, with the Esko team on our family, it opens up doors for us to go and expand our value proposition for these brand owners. So some interesting things there around, as you can imagine, where bar codes and codes get placed, if you remember what Susie's presentation was about.

I should mention, too, that these 60,000 plants in the United States, for example, they span probably about 26 different verticals. So let's say dairy is a vertical. So we've got a pretty wide variety of end customers that we serve. What's interesting also with our industry is that our customers don't buy our type of equipment every year. An average plant will probably purchase our type of equipment every 5 or 6 years, in some cases, every 10 years, and that's important to understand when I talk about some of the ways we continue to win here in a minute.

So what about our value proposition? What are we about? So uptime peace of mind has been a mantra for us, and still is. And this comes from the fact that, of course, many of our customers' plants operate, if not 24/7, they operate a lot of hours during the day. And any downtime -- unplanned downtime, whether it's minutes or hours, cause our customers a lot of money. A missed shipment to Wal-Mart, because you couldn't print on your package, will mean that, that order or that somebody else is going to fill up that shelf at Wal-Mart that they saw. So uptime is incredibly important for our customers. We achieved that, we accomplished that through how we've designed our products, by minimizing the risks of downtime but also helping our customers predict when they can take the equipment off-line and service it.

In addition to that, we have the industry's largest field service force. So in United States, for example, we have more than 200 field service technicians around the country who are ready to respond in case something goes wrong in our customers' plant. And trust me, when you use a piece of equipment over 10 years and the kinds of plants that we sell into, unexpected things happen and customers will need quick support, knowledgeable support from a supplier like us.

Our solutions is, of course, not just the printers themselves. In the case of the printers that use consumables, of course, that's part of our business. And like I mentioned, keeping them up by supporting them with this field service force that we have is an integral part of what we do.

Now it isn't all about getting a code or some text on a package. What our customers want to avoid is, of course, that the wrong information is printed on these packages. So in terms of our value proposition, we have solutions that help them avoid coding errors, and we'll talk a little bit about that at one -- on one of the tour stops, how we do that and why that's important.

We're a global partner to the global players that we serve. We're directly active in 26 countries around the world and indirectly in more than another 80 countries. So we're able to provide them with the same kind of solution according to their standards that they've set in all over the world. And in addition to that, we work with a number of OEM companies, packaging machinery, companies that integrate our solutions into theirs. And again, for them, it's important to have a global service provider.

And as you saw there, we've had reasonable performance here over the last number of years, been on the high single digits and had a decent margin expansion. So let's put that into perspective and think about how we've done versus the rest of the market. And here's a comparison that some of you may have seen in previous presentations, slightly different format, but it shows you how we've fared against our peers. And so you can obviously see here that we're very pleased with where we are. Obviously, we need to keep this performance here going, and we can't rest on our laurels. So it's really all about how do we continue winning here.

And before I go into 3 major initiatives that we have running now, to frame it up a little bit, I'd like to just spend a few minutes talking about how we in Videojet have sort of changed our minds, our own thinking about what it is we provide to our customers. So a few minutes ago, I talked about uptime peace of mind, all right? We've evolved here over the last 1.5 years to really build what we call these 4 pillars. And so our new value proposition is more expanded than it used to be, and you'll see more details on this on the tour. I already alluded to code assurance, helping our customers avoid printing and coding errors. Most of our customers will have a coding error event about once a month. And when they run packaging lines with 600 packages a minute, you can imagine that if you don't check -- or you make a mistake, there could be thousands of packages that are run and printed before you can find out that there's a mistake. So a number of solutions around that.

We've also taken a step back and said, "Look, our businesses isn't just printing. Our business is really to figure out what is it the customer's trying to do, what are the challenges in their environment, how can we help them with that." And actually, it's -- the productivity tools pillar is very DBS-like, because it's all about continuous improvement, how can we help customers improve their business. So we have, in a recent product launch, embedded a number of tools that allows them to understand what's happening on their packaging line and how can they improve that. More about that on the tour. And simply, usability, obviously, is very important considering the type of staff many of our customers have on the packaging lines. Very few of them are trained engineers, and we'll also show you a little bit what we've done in that area.

But so, what are we doing then to continue winning, to continue to outperform the market? Let me talk about 3 things here. One is we want to accelerate growth by turning marketing into a true sales growth driver. We want to continue winning in high-growth markets, and we want to accelerate the speed of new product development so we can launch more products quicker. So let me say a few words about each one of these topics here.

So right now, we're going -- we've made a significant investment and turning marketing into a growth driver. This is all about driving incremental sales, sales that we wouldn't have had if we hadn't gone and done what we're doing in marketing. So it's very little about advertising; it's very little about branding; and it's very, very much about lead generation, finding new customers and new opportunities that we wouldn't have found if we hadn't deployed this marketing approach.

Now I'll go back to what I talked about, the 60,000 potential customers in the United States that buy every 5, 7, 8, maybe 10 years. When you have 65 salespeople or 70 salespeople in the field, you can do the calculation. It's physically impossible to get to all of these plants in time, right? And it's not economically feasible to triple or quadruple your sales force. So you have to figure out how do you get to these customers at the right point in time when they're thinking about considering making a purchase, and how do you make sure that you educate them during those 5 years, when they're not going to be in the buying mode, on what it is you can do. So that's what all of this is about, lead generation, making sure that we're there when they're going to make the decision.

So far, in the last 12 months, we've added close to 100 people around the world. So it's a significant investment for us. And really, what they're working on is deploying a series of lead generation programs that you see on the left side here to drive these incremental sales. We're doing this in a very DBS-like way. We've codified tools, rolled them out, trained people and have specific metrics, and we'll talk a little bit more about that later.

Furthermore, the way we're rolling this out is we're taking advantage of the fact that we are a world market leader and a big player in what we do. We have a global footprint. So we have a back office in India that we refer to as our marketing factory that supports the countries around the world, and so that this investment is done in a very cost-effective way and that we can ramp much quicker.

Furthermore, I said that we need to educate people who are not in a buying mode so that they remember and think of us as somebody that they should consider when they get into the buying mode even if they've never used our products in the past. And that's where the rightmost column here comes into play. We've changed how we're communicating with the marketplace to make sure that we position ourselves as the thought leader that they need to consider when they're making an investment in our type of business. And obviously, to be a thought leader, you need to speak the customer's language. So therefore, all of our marketing is now vertical-specific to each 1 of these 26-or-so verticals that we serve.

So how do we use DBS then when we cascade this out? Well, visual management, you heard from Dan earlier today, is a key tool in the DBS toolkit. So we are applying that to marketing. So it's a very quantified way of setting stretch targets and making sure the progress is transparent and tracked not on a quarterly or a yearly or a monthly, but even on a weekly and a daily mode, and you will see -- the leftmost column here, you will see this on one of the tour stops. That visual management, performance management approach, has now been deployed in more than 15 countries. And as a matter of fact, just 10 days ago, we had 20 marketer -- marketing managers from all over the world in this room going through a training and a boot camp in how to manage marketing to drive incremental sales growth.

Driving the change in the countries, we're using kaizens, a very important vehicle for change, key DBS tool, and you can see here how many kaizens were driving around the world, and of course, every month, the speed there accelerates, and you see a photo from a kaizen in China.

The DBS leaders, change leaders, remember the 7 people that Carsten was talking about, in Videojet, we're traditionally quite manufacturing operationally oriented and over the years, of course, moved into carpet land and drove a lot of improvement in office-based processes as well. We have trained them in these marketing programs that we're running. So they are now fully contributing to driving this change program here as well, so really, applying DBS.

So what about some of the results so far? This is a snapshot from North America. Basically, year-to-date, we've created 27% -- there's a 27% increase in the amount of sales opportunities that marketing has generated. And we measure this by what vehicle we use in marketing, very quantified. Again, you will see that on the tour here. So some nice early successes here, but we're very, very early in the journey, but we're very excited about what we're seeing so far.

Winning in high-growth markets, very important to our continuing to outperform our overall market. 40% of our revenue today comes from high-growth markets, and this is the result of acquisitions in a little further back than 5 years, but also bolt-on distributor acquisitions in more recent years.

In the last few years, though, it's been less acquisition-oriented and much more around driving growth organically. And we're doing that in 2 ways. We are developing now products and have been for a little while, but products that are specific for fast-growing markets that meet the specific needs of market segments that perhaps existed in the Western world 15, 20 years ago or never did, but they're just -- the market segments in China, for example, that are there, are just different than they are in the Western world. So we need to adapt our product portfolio. So local products is one organic growth driver here. And the second one is really about adding commercial capability, both in terms of numbers of people, of course, but then in terms of skills. So let's take a look a little bit at what we're doing on the product side.

So we've gone through the same journey that many companies have gone through. I think we're on the right side of that journey, and it's accelerating now. Basically, we've gone from a number of years ago taking Western products and localizing those in China. And we've left that behind us now. I mean, we've staffed up with product management teams and R&E teams in China that are capable of defining specifically what products are needed for these market segments that I talked about that we typically don't see in the Western world. And we have teams there that are capable of developing these products as well. And as you can see in China, just year-to-date and also last year, we're close to that number, about 1/4 of our equipment sales is now coming from products that have been defined and developed locally. And this ratio is, of course, accelerating here over time.

In terms of building a commercial capability, we have, since several years, been adding feet on the street, and the 35% increase here refers to salespeople. But of course, we've made the same kind of addition on the service side, since that's such an important part of our business.

Now adding 1/2 an army of people in fast-growing markets won't be very productive unless you put in place the proper management processes around that and also have very strong training approaches. And this is where DBS comes in again. Within the DBS toolkit, we have what we call a sales force improvement toolkit. And basically, that's about how you manage your sales force, how you help individual salespeople improve their productivity. And what you see in the middle here is that we are in our major fast-growing markets deploying that DBS toolkit to allow them to continuously improve their sales management process.

In terms of the capabilities of the individual salespeople, we have taken a strengthened approach around how much resources we commit from other parts of the world to helping our new colleagues in China and India, for example, learn quickly. So we've developed a larger library of training tools and have deployed people from the Western world to go spend weeks and weeks in China and India to help our teams ramp up quicker. Some very exciting early results there.

So then the third growth initiative, which will help us continue to win, is then really around accelerating new product development. And you can see here on the left side that we have increased our investments in R&E here over the most recent years, and we accelerated it again this year. And let me talk to you about the 5 things that we're doing there. And let's start with the photograph of the printer there.

Our business is not different than many other hardware-based businesses, and that is that with software, embedded software, it allows us to start differentiating. And with graphical user interfaces, it allows us to start differentiating on other things than the core printing technology. And this could be around how you use the product, if it's easy or not, what kind of things you can measure -- weigh the product in terms of the performance of the product or how you communicate with the external world, because about 50% of our printers or so are connected to some external system.

Now the -- let's say the software -- there's some -- if you take the top part of this inkjet printer that you will see on the tour here and you think about the graphical user interface and the things that operators need to do in terms of interacting with this printer, I mean, that's really not that different or no different, whether it's an inkjet-based printer or a laser printer or some of the other technologies that we have. Now but if you look at the core printer technology, sort of the bottom half here, that, of course, is very different, depending on whether it's an inkjet-based printer or a laser printer.

So what we're doing here is we are separating out our R&E teams. In the past, the same R&E team would design the entire product, both the user interface and the control software, let's say, that drives the printer, as well as the core printer technology part of the product. So we're separating that out, and we've created a software-based team, and then we have a couple of printer technology-based teams. And that's basically points 1 and 2 here. So why are we doing that? Well, first of all, there is commonality in the top part, like I said, between the different technologies that we have. And by focusing our resources, we're obviously able to do things quicker. And so by specializing, having a team specialized in software and staffing up with, let's say, a different kind of R&E team that we've had in the past, we're going to be able to drive what we call this cross-platform which is the software-oriented piece, much, much faster than what we've been able to do in the past. And on the same time, we allow the people who are really experts in printer technology to become even better at that and allows us to differentiate even more there because this -- in this business, there's still plenty of room to differentiate on the printer technology part of our products.

Points 3, 4 and 5, I mentioned that we have a dedicated team in China now, developing products for China only. Of course, with ring-fence resources focus again, generates results. We can drive that faster. We have now a few people who are dedicated to developing vertical-specific products. The needs of the dairy industry are slightly different than the meat and poultry industry. So how do we make sure that we really design products that meet those specific needs that helps us win much better in each vertical?

And last but not least, number five, we are actively working with a number of external partners to incorporate technologies that we don't have in our portfolio into our products, and very exciting to share that with you in the future some of the results of that.

So what is it we're driving for then? What's really the takeaway in this slide? We're trying to dramatically increase the speed at which we can launch new products. So in 2013 already, we're looking at launching 3x as many products as we did in 2010, and we intend to, with what we're doing here, to continue the pace of the product launches here going forward.

So let me give you 2 examples then of products that have launched very recently and that are a result of some of the things that I just talked about. The first product is around -- it's a software-oriented launch and -- or that's the technology. But the value proposition ties into, if you remember, the 4 pillars I talked about upfront. So we're more -- it's not just about uptime anymore, it's really about trying to help our customers avoid coding errors, help them improve productivity on their line and simplify the usability of our product portfolio.

And if you think about it, those types of things, how we redefine ourselves, what we're trying to do here are very DBS-like, right? And you'll see this in action on the tour. We've just launched this product. I think it's the only product in the market that really allows our customers to truly drive productivity on their line. It's a comprehensive tool, lean-manufacturing type toolkit that is embedded in this product here. Very exciting, and you'll see it on the tour.

So that was a sort of a software-oriented type R&E project. Now here's a more printer technology-oriented project. We just launched this product, very excited about this. As you can see, we have high hopes for incremental sales here going forward. This printer is an ultra-high-speed printer. Obviously, a lot of our customers are trying to run their lines faster to get more out of the investment that they're making.

And simplistically, you can -- and of course, the other trend, like I mentioned earlier today, is that our customers are trying to print more variable information on their packages, right? So we're addressing both of those needs here. So we're able to print 3 lines of code at -- and that's the first bar chart here. We're able to print 3 lines of code at the speed that the old generation could print, maximum could print only 2 lines of code. And this is quite an innovation in our marketplace.

And then in terms of the 2-line applications, you can see there that in terms of speed, we're able to run more than 40% faster. And you can imagine for applications where speed is important, 40% is a big deal. It's a very big deal. So that's why we're so excited about this product that actually we just launched a few weeks ago and we got our first orders here in June.

So in summary, I'd like to mention a few points. I think that the market we're in has some healthy fundamentals, healthy growth drivers. We're also globally diversified in where we play. And not only that, we're well positioned in particular in the high-growth markets and can continue to capitalize on the growth there. In terms of our product portfolio, I think we're well positioned. You'll see our breadth on the tour here in a minute, but I also think that what we're doing in terms of how we think about what we're trying to do for our customers, I think, that is really a differentiating approach and that we're going to continue going down that path. And as you saw through this presentation, DBS is a very important part of the Videojet and the Danaher culture and our company, whether we are looking at the manufacturing operations or as you just saw in this presentation, how we go deploy marketing to drive incremental growth. And all of that, of course, using DBS to improve our company, allows us to improve our profitability, which allows us then to make these kinds of investments that I mentioned here.

So thank you, again, for your attention today. And I look forward to sharing a little bit more about what I talked about here on the tour in a few minutes. Dan?

Daniel L. Comas

Thank you, Joakim. I think you're all aware that Videojet has been a really strong growth story for Danaher for a number of years. I think I would probably bucket that over 3 phases in 3 areas.

First, particularly, in high-growth markets, investing in feet on the street, really raising the capabilities of our sales managers and sales force management. Really, Danaher company has done well with commercialization and driving growth.

I think the second thing, and it really started with 1,000 series of printers, has been product vitality and product development and innovation that was launched 4 years ago. On the tour here in a little bit, we'll share with you some of our recent innovations that are continuing to drive share gains in the marketplace.

I think the third phase that we're going to share more with you on in the tour is DBS demand generation. Joakim hit the highlights of marketing development and marketing application. This is really a model that we're planning to use across Danaher. We've made significant investments here in Videojet. We're continuing to advance those, develop those. We're spreading those across, not only in the industrial businesses but using that as a model all across Danaher. So one of our tour stops here this afternoon is going to be our stand-up visual management board with our DBS demand generation.

So that's the framework that I think you'll continue to see us apply across Esko and X-Rite as we continue to integrate those companies and expand our growth potential. I think you saw from both Ron and Carsten investments of 25% and 30% in high-growth markets and feet on the street; product vitality, an important part of the growth story; and the demand generation is certainly on the to-do list there as well.

So hopefully by this point, you have an update and you can see the -- what's been a very strong value creation story in Product ID. It's been an excellent growth driver and a growth engine for Danaher, really driving across all aspects of DBS, lean, leadership and -- lean, leadership, talent, all these things are going to continue to drive DBS across Esko and X-Rite. Opportunities apply in companies that have been within the corporation for 10 years as well as 2 years and 1 year.

But hopefully, what today really helps do is position how these businesses fit together for a unique value proposition for brand owners in this packaging value stream. We're able to have conversation with brand owners that nobody else can. We've got individual competitors in each of these businesses, but the capabilities in bringing them together really create a unique conversation and one that is changing workflows in the market.

So now I think we've got plenty of time. I'm going to invite Ron and Carsten and Joakim back up on the stage. We'll open it up to all of you for question-and-answer on anything we've covered today or anything that is on your mind.

So Megan, I'll let you sort of pass out the microphones.

Question-and-Answer Session

Unknown Analyst

Can you talk about the synergies between Esko, X-Rite and Videojet? It's not really clear to me what those actually are. And particularly with Esko, could you actually talk about the products? I don't quite -- I understand you have that software demonstration, but it's not really clear to me what -- you say it's 25% software. What are the -- what is the actual hardware? That's not -- that's been undefined.

William K. Daniel

Sure.

Unknown Analyst

And then lastly, what do you guys do that's different than Dover? Dover launched this, I think it was the 9232. They're very proud of it. It's very versatile. It seemed to be somewhat successful machine. What are you guys doing that's different than them? Because if this were a Dover presentation, they'd probably sound a lot like you. So what do you think the differences are?

William K. Daniel

Sure, Jon [ph]. Let me cover the first piece, and I'll let Carsten to comment further on the Esko products and Joakim with Videojet. Fundamentally, what we offer in the synergy across these 3 operating companies is the opportunity to address all aspects of the packaging value chain. It starts upfront with the design with the X-Rite and the Pantone color standards. It moves next to the Esko software, which is the standard used in packaging designers, not only in brand owners, but also across the value stream of prepress design houses that work with brand owners in designing their packages and printers who execute the design into the actual physical package. At the end of the design chain is Videojet. It's putting marking and coding on the actual product. By having those capabilities throughout the entire value stream, for example, it allows Videojet to move upstream, have conversations with brand owners who are existing customers to incorporate the design of the regulatory information, the marking and coding information upfront where today and in the past, it's really been done at the end of the process and often results in some rework, lack of quality and speed and those kind of things to really drag out the process. So it's those capabilities really to move upfront to have the conversation to brand owners for faster packaging design changes, higher quality and help them drive demand across the shelf space. And it's those unique capabilities that individual competitors don't have, like the portfolio that we do. Carsten, may be you can comment further on the Esko product line, in particular hardware since we've covered the software demonstration.

Carsten Nygaard Knudsen

On the Esko product like, you may recognize this slide here. And I was -- when I got back, I was mentioned this is the Esko overview, and this is where it says 25% software/service and 75% equipment. Incorrect. We have to change the numbers. It's 41% equipment and 59% software/service. So that's the first thing. I'm sorry about this mistake, and it's all pretty late [ph] in the process. The products that we have, and I will spend quite a long time on our software, which basically digitize the production or digitized data flow from the brand owners down to [indiscernible] packaging. We have 2 hardware lines, which I'll mention briefly. One hardware line basically takes that graphic image and translates that or projects that onto a printing plate. That's what it does. So our software makes the image and then via laser gun, shoots it down to a flexible printing plate that is then developed with the image on, which is put on a printing press and then we can start to crank out the substrate with the printed image on. So that's what the second thing does. A very unique piece of equipment which do resolutions up to 10,000 dots per square inch, quite unique in the market with a very solid market share that we've been in this business in the last, what is that, the last since -- well, that's close to 20 years now where we are clear market leader in that. That's one of the hardware lines. The other hardware line is -- accordingly [ph], we consider a big flat space where there is a guide-on and a knife or other mechanical device that cuts off material originally made to cut samples in the packaging space. Remember before, when Susie shows a software before and you have to design a new box, you actually have to print it on a very small printer. You have to cut it out, assemble it and then you will see what it looks like. That was why we bought the business originally back in '98. Today, that has been translated into a business with short-run production, with digital presses doing runs of 200, 300, 400 for promotional campaigns, for example. They make shorter runs, and you cannot cut back on a traditional die cutting press, which is expensive to set up and you cannot hand cut it, of course. So you need some kind of digital cutting machine that is put after these digital presses. This is the third business we have. Our 2 hardware businesses approximate the same size. And as I said, our software and service businesses approximate to 60% of our business.

William K. Daniel

So Jon [ph], the 2 pieces of hardware that Carsten talked about is the second and third legs of the business. The second was really around flexographic printing, the fastest growth sector of packaging printing. It's labels, it's bags, it's pouches. It's growing double digits, and Esko makes the equipment that processes the plates that make the image. And the third area, digital cutting tables that are used for small run packaging actual production making the box of the pouch on small run prototype basis, in some cases, just low volume in others and also in the sign and display market. So again, that's an area that's of interest to the brand owners as they go through the packaging value chain, but also at the retail shelf level and we talked about software really flowing through the entire work stream. On Videojet, obviously, having this kind of packaging conversation along with Esko and X-Rite, unique in terms of our capabilities and portfolio. Other aspects compared to the 2 main competitors, I think you saw some of the product development in other areas.

Carsten Nygaard Knudsen

Maybe I can -- and just to add, we had -- as Dan said, we had the EskoWorld, our user conference, what is that, 1.5 months ago. And one of the things we showed down there was exactly that Joakim and my team were to give and showing brand owners what we could do in terms of intelligent marketing, as we said, that we made marketing part of the design process of a package instead of an afterthought. And the reaction was -- well, you joined that show. So this is some of the opportunities we see by working closer together and making our combined capabilities into a stronger product towards the brand owners.

Joakim Weidemanis

Right. And then on the reference to one of our formidable competitors, I'll just say that we're very pleased with our relative performance here in the most recent years. We're convinced we're going to be able to keep that going. In terms of the product, I'll just say that the 50 Series product that I talked about here that you'll see on the tour and we can go through more detail if you'd like, we think that we have taken the most comprehensive approach of all players in our market in terms of trying to understand what it is our customers are trying to accomplish on that packaging line in terms of workflow, things that can possibly go wrong. So we think we have a strong differentiation in each 1 of those 4 pillars, Uptime Peace of Mind, and therefore, also total cost of ownership. We believe we have a very, very solid differentiation on code assurance, how we approach that. And when you see on the tour, I'll show you how we really can use that printer to help our customers improve their productivity on the line far beyond providing some statistics. So I think we're very, very happy with the product that we've just launched and have seen some really nice uptake on it.

William K. Daniel

Thank you, Jon [ph].

Unknown Analyst

You guys have acquired in a couple areas outside of the CIJ, obviously, and you seem like to have a good solution across these various verticals or whatever you want to call them. What's next? And is there a big fish out there? Are we going to continue to see these little product add-ons? Or do you feel like you've got a solution now that you can grow with for a while without doing something on the acquisition front? And then secondly, just interested to hear what the core CIJ business is seeing in China, and what you would expect for the next 1.5 years, 2 years in kind of bottle situation there.

William K. Daniel

Well, first thing I would say is we see plenty of runway to continue to expand our capabilities and build that out around the packaging space that we talked about here today and particularly, staying focused on those areas that provide value and benefits to the brand owners because they really own the process. They start it. They drive it. They're supported by a supply chain. Some of the tools that these guys have in their businesses are helping them improve to do that. So we see plenty of runway in the packaging space to continue to expand our capabilities. As I also mentioned from a platform standpoint within Product Identification, we continue to expand and explore adjacent markets, just as we've done with packaging over the last couple of years, and we start with strategy, we analyze markets and understand and cultivate companies. So that's really the approach that we use across Product Identification and the rest of Danaher. In terms of Videojet and the product portfolio, we've seen over the last decade, it really started with the CIJ franchise, expanded into lasers, TTO. And having a full product portfolio is very important because different customers have different needs and different applications, and we want to have the complete solution. Your last question around China, we've continued to see pretty strong growth results in China. There have been some pockets of softening across the industrial businesses. A number of my businesses saw extremely soft demand in the second half of last year, so we've actually seen improvement here this year across these 3 gentlemen's business. We continue to see high single-digit growth in China, although we have seen some pockets of softening, so we continue to see strength there. I think your last reference point was around CIJ product for China. Joakim, may be a little more commentary on what we've done with the product with development there.

Joakim Weidemanis

Right. And as you saw I mentioned in my presentation and that we have launched over the last year, I think I called it out, there are 2 CIJ products specifically for China, defined in China and developed in China for what we call sort of the Tier 3, Tier 4 cities, regions of China. And we continue to see very healthy growth for those products.

William K. Daniel

Deane? Or Cliff, you got the microphone.

Clifford F. Ransom - Ransom Research, Inc.

Cliff Ransom. Two questions, please. I understand why you want to move up the food chain to the brand owners, but this also sounds like classic disintermediation of the converters and the printers and maybe even the designers. How do you avoid those conflicts within the traditional value stream in that channel?

William K. Daniel

Well, there has been some disintermediation in the printing process. Certainly, the commercial printing side, which has not been a big part of the business, nor is it certainly been part of the focus. But today, we serve all of those segments with both software and hardware tools. For example, the prepress houses, you have different brand owners, and prepress houses serve brand owners, in some cases, in an outsourced model. Other cases, you have brand owners who are looking to bring more that in-house. So the software solutions that Carsten and Ron increasingly on the X-Rite side offer, really stick [ph] both of those markets.

Clifford F. Ransom - Ransom Research, Inc.

Now you're really entertaining. I'm not serious. How do you massage the egos, and what was your traditional customer base as you move into a perceived higher value customer?

William K. Daniel

Again, there are 2 major categories of brand owners, those that do themselves that are looking to implement the Esko software either as a direct link into their own business systems or a side-by-side to the business systems that they have. Some of the prepress design houses are using Esko software solutions to provide similar services that are done in-house with brand owners because they outsource them, and those are primarily in developed markets. As you go to high-growth markets, they're typically less developed earlier on in the development of the packaging value chain and some of the software tools that we've talked about here today. So there's room for both. Is there going to continue to be changes in the packaging value chain? Absolutely. Some of that is an offshoot of the changes in printing that have happened over the years where a number of commercial printers clearly are moving into the packaging space as well. And that's where, particularly the Esko software tools, help them in that migration. Carsten, you'd like to add to that?

Carsten Nygaard Knudsen

If you take a look -- or if you see our entry into the brand owners, it's really providing a tool to manage the process but not do the production. That's what our tools do. It gives them insight in. It helps them understand that the prepress providers is actually doing what they agreed on time and it changes this manual flow of paper, DHL [ph] based on traffic control or based on whatever it was into an electronic workflow. So that's what it does. We do not see rarely brand owners starts to do image manipulation, which is where the whole business started. What we see them start to do and they usually do a campaign in Europe where they start to do digital printing. But that's a different -- that's a different ballgame that we also participate in.

William K. Daniel

And I think the other thing I'd add, Cliff, is a tool like PantoneLIVE, that helps us solve a problem, not just for the brand owners, but the prepress houses and the printers who today, in many cases, are committing to color and quality that they cannot deliver. So digitizing the color standards, having a cloud base so all points of the value chain can access and get the color specification, how it interacts with the substrate in the specific application, everybody's looking at the same data. Now clearly, that's a big change. So this isn't something that happens overnight, and there's education happening in the marketplace today. But our early indications and adoption and acceptance of PantoneLIVE has been tremendous.

Clifford F. Ransom - Ransom Research, Inc.

Are any of you particularly advanced in the use of leadership or management standard work? Would you care to rank yourselves in that area?

William K. Daniel

I think we have examples in all 3. Let's start with the left end, Joakim.

Joakim Weidemanis

That's a pretty personal question. Part of our culture is to -- we always look at what we can do better, right? And I actually recently completed a 360. And so to share that with my team, that person who worked with me on that -- summarizing the 360, you have to talk about some positive things about yourself. And it's not really how many of us are wired. So I can say in terms of leadership, I have tremendous opportunities for improving and becoming a better and stronger leader of Videojet. In terms of in general, how do I fare in terms of deploying the DBS toolkit, coaching my team, helping my team understand where they need to improve, helping them find the right training and so on, I think I'll defer to some of the results that the company has generated here, which of course is the result of many people, not just me.

William K. Daniel

Cliff, we're going to show you a 20 minutes work here this afternoon: standard work, demand generation, DBS marketing, Videojet-led initiative, it starts at the top.

Clifford F. Ransom - Ransom Research, Inc.

This is daily management?

William K. Daniel

This is daily management, just like you have seen many times here on the factory floor, moving into marketing and it's having some very strong results. I think Ron shared with you an example around funnel management and sales process there as well. But it applies across every Danaher company, not just the 3 you have in front of you here today. So Scott?

Scott R. Davis - Barclays Capital, Research Division

Early in the presentation, you talked about digitization of workflow, and I'm actually surprised there are still a number of customers on analog. But can you help us understand the percentage of customers kind of digitized as you define it? And what does that mean in revenues? I mean, when you think about a customer that's fully digitized versus one that's not, is the opportunity 2x, 3x? And help us understand the magnitude there.

William K. Daniel

Carsten, I'll let you cover the first part of that question.

Carsten Nygaard Knudsen

The first part, develop mature installed base, approximately 25% use our amazing tools today.

Scott R. Davis - Barclays Capital, Research Division

5%?

Carsten Nygaard Knudsen

25%, 25%. So -- but some of the big ones do, but there are also a lot of small sites which will never benefit or at least have limited benefit from it. But there is a huge chunk in the middle there that gives us good organic growth opportunities. That's what I said my core business. There is a lot of opportunities to upsell to that business as it is today.

William K. Daniel

In terms of the growth potential, the software portion of Esko business has been a double-digit grower for us, and that's really where we got our expectation line to continue to maintain that. And that's really been around for a few years, and we see that continuing for a number of years in the future. I think the other key aspect of digitization of the workflow is really with PantoneLIVE. Hard to use a baseball analogy here in Chicago at this point in time, but it's still the first inning in the game. Clearly, that's 1 of the 2 or 3 things that we saw -- we seem to be able to accelerate the X-Rite growth and have it be a steady mid to high single-digit grower when clearly, the history has not been that. So very excited about that. We recognize there are a lot of changes. Speed, adoption implementation varies by brand owner, by end user. But everybody is interested in having the conversation and most are moving in that direction.

Scott R. Davis - Barclays Capital, Research Division

Okay. As a follow-up, we spent -- most of the presentation was around product, and you've been out there buying distributors. I mean, help us understand how critical is distribution. And I know the easy answer is it's critical. But when you think about the trade off between having the best product and putting the most money in R&D versus putting the investment in broader distribution, what are the trade-off benefits there?

William K. Daniel

Well, the primary area that we've acquired distributors is in Videojet, where the direct model, in particular for large brand owners, is really important as their businesses have globalized. They don't want to have 25 different deals with a bunch of distributors out there. What we found, as we've really ratcheted up the growth potential from both a product and a capability standpoint, there are certain markets where distributors were pretty happy living off the consumable stream. And the Videojet model, as well as the instrumentation model across Danaher, is very aggressively looking to place machines and then obviously, the consumable stream is the benefit. So there had been selected high-growth markets where that's helped accelerate our growth. But in the Videojet portion of the business, it is a direct to end user-type of model. We'll continue to expand upon that.

Joakim Weidemanis

And channel is very important. Remember what I talked about, the 60,000 plants in North America that buy, on average, every 5, maybe 10 years. They don't wake up dreaming about Videojet or some other people every day. So to be able to communicate and explain our value proposition, it's very important. And of course, with what we're doing in marketing, we're trying to find more vehicles to communicate with the market, right? But at the end of the day, the salesperson who interacts with the customer, who can assess their application and what they need and then act as an advisor and recommend to them what they need and really explain our value proposition, the salesperson is incredibly important. This is not a catalog business, not at all.

William K. Daniel

Shannon?

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Just a couple questions on margins. So Esko is 60% service, X-Rite is 15%. They have the same margins. Why is that, we would think. I mean, unless I'm wrong, you would think the software mix would benefit the margins of the one versus the other? And then for Product ID overall, I mean, you're 23% margins here. What are the -- other than normal DBS as the answer, I mean, what are the other margin opportunities here? Are there things that are not performing up to snuff?

William K. Daniel

The Esko, you said 60% service, 60% software.

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Oh, that's right [ph]. I meant...

William K. Daniel

Software and service...

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

I meant software, not service.

William K. Daniel

Well clearly, strong margins. Both aspects of the hardware business have strong margins as well. Certainly, from a footprint standpoint, there's still plenty of opportunity to drive margin improvement from both an X-Rite and an Esko standpoint. Last year, we've consolidated from a high growth -- from a developed market into a high-growth, low-cost region from some hardware with Esko, doing the same on the X-Rite side. But from a margin potential standpoint, across the entire platform, we believe every year, we can drive 75 to 100 basis points of margin expansion. That comes with improved productivity, improved sales force effectiveness, the product vitality and continuing to drive further up the values chain where some of the value benefits that we talked about with brand owners really get recognized. So we think there's tremendous margin potential to continue to raise the Esko and X-Rite margins to the Videojet level which will bring the overall platform up us well.

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

So are the Esko equipment margins not sort of where you want them yet? Or is that -- was that part of what you're trying to do? I mean, should those -- if you got equipment margins where you want them at Esko, where should all of Esko go?

William K. Daniel

I'm not sure we ever have margins where we want them. Certainly, we've done a lot of early supply chain work with both Esko and X-Rite, 2 years versus 1 year. Plenty of runway there. We were in process of cutting the floor space in half in the major X-Rite facility in Kentwood, Michigan, just within 6 to 9 months of work there. So plenty of runway in both of the businesses, both on the hardware and software side to continue to drive margin improvement. I think if you look at Videojet where, over the last 5 years, we've added 500-plus basis points of gross margin improvement in an already good business. I think that just gives you an idea of the potential that we see in our 2 newer businesses. So Deane's been really reaching for that microphone, so maybe turn back around and hand that to him.

Deane M. Dray - Citigroup Inc, Research Division

A couple questions for you, Joakim. Could you give us an update on the issue with ink piracy? That was -- that's been an issue. Is it still an issue in China? What has been the opportunity? What's been the lost revenue? What's been the technology solution to get around that? And for Carsten, I might have missed this, but what's the linkage on the regulatory side? Let's say like for the FDA, where they'll require a certain type of packaging information, ingredients, origin of the ingredients and so forth. And does Esko act as a linkage and a go-between all the regulatory agencies that have an influence on the packaging?

Carsten Nygaard Knudsen

Yes. You want to start to that?

Joakim Weidemanis

Yes. So for a lot of different reasons, when we launched the -- if I talk about ink jet now, what we call the 1,000 line platform, about, Dan, before my time, about 5 years ago, we introduced a chip on the ink cartridges, and we'll show you that on the tour, and we did that for a number of reasons. First of all, sometimes customers want to change inks and so on and -- or they only want to use one ink and one printer, so to really help them avoid errors. And so there are a lot of different reasons for introducing that. Obviously, that limited piracy in a very severe way. In terms of the installed base, piracy, and that's sort of an everyday feature in our type of business. So we have different kinds of approaches and toolkits for making sure that we can stay in front of the customer and explain the value we offer amongst them. We have ink portfolios, and ink isn't just ink, right? I mean, we're talking about inks that have milliseconds of dry time, right? Because when you're running 1,000 bottles a minute, that's quite critical and not everybody can make inks like that. So we also have good value proposition on the inks. Sometimes, some customers need to be reminded about that, what the benefits are and sometimes, they venture out and they try what they call alternative service providers. And many times, we find that these customers come back, but not always, of course. But it's a normal sort of feature of our business, has always been. So we -- I think our teams around the world are well equipped to work that issue.

William K. Daniel

But over the last 4 years, we have seen our retention rates rise dramatically globally with the 1,000 series and the chip technology.

Joakim Weidemanis

Right.

William K. Daniel

Carsten, regulatory side?

Carsten Nygaard Knudsen

Regulatory side, what we provided is that we manage content on the package so the designer cannot change it. But it will typically be either the legal department of the company. Others would define the text. We do not do interfaces with FDA or the authorities per se. We do not.

William K. Daniel

So my friend Matt here is wanting to move us along. I think we've covered some logistics. But our 3 break -- tour stops and breakout sessions here will really be around the hardware and the product vitality we've talked about on the Videojet side, the same with X-Rite and then our DBS demand generation stop from a digital management standpoint.

Matt R. McGrew

Okay. All right. Thanks, guys. I want to try to keep us a little bit close to schedule here so we can get out right at 5:00 for dinner for those who are joining.

When you look out the back here, we've got 3 signs, A, B, and C. Check the back of your name tag, find out which group you're in. A and B are going to head this way, C is going to go that way, if you guys could follow that. And then again, 5:00 down back in the, I guess, it's the entranceway over there in the corner for people who are going to the airport as well as people who are going to dinner. So thanks.