Honeywell International, Inc. (HON)
March 07, 2012 10:30 am ET
Elena Doom -
David M. Cote - Chairman and Chief Executive Officer
Roger Fradin - Chief Executive Officer of Automation and Control Solutions and President of Automation & Control Solutions
Anne H. Madden -
Mark Levy - President
Andreas C. Kramvis - Chief Executive Officer of Specialty Materials and President of Specialty Materials
Ian Shankland -
Alexandre Ismail - Chief Executive Officer of Honeywell Transportation Systems and President of Honeywell Transportation Systems
Pasquale Abruzzese -
Mike Owens -
Timothy O. Mahoney - Chief Executive Officer of Aerospace Segment and President of Aerospace Segment
Shane Tedjarati - Chief Executive Officer of Honeywell China and India
David James Anderson - Chief Financial Officer and Senior Vice President
Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division
Jeffrey T. Sprague - Citigroup Inc, Research Division
Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division
John G. Inch - BofA Merrill Lynch, Research Division
Jeffrey T. Sprague - Vertical Research Partners Inc.
Christopher Glynn - Oppenheimer & Co. Inc., Research Division
Ladies and gentlemen, please welcome to the stage Vice President of Investor Relations, Elena Doom.
Good morning, and welcome to Honeywell's Annual Investor Conference. While you're getting settled, we want to make sure to thank all of you for being in attendance today. As you can see, very similar to last year, we have a very full house. So we're excited that so many of you could be here with us in person. For those of you who are not able to be here in person, this meeting is also being broadcast live on the web and you can find today's presentations, including any non-GAAP reconciliations, on our website at honeywell.com/investor.
Now among the materials that you have in front of you today, including today's presentation booklet, you'll also find today's agenda and of course, our forward-looking statement. In front of you, we've also provided you an updated 2012 investor fact sheet, which you'll recall from last year, provides a lot of information regarding our key products and technologies, as well as our end market exposures. And finally, there's a copy of our very first edition of the quarterly investor newsletter. And again, this can all be found online at honeywell.com.
Now as many of you know, last month marked Dave Cote's 10-year anniversary with Honeywell. So the theme of today's discussions center around this milestone, which is significant not just for Dave, but for all of Honeywell. You'll hear about our transformation as a company over the last 10 years, as well as the continued evolution that we expect from Honeywell going forward. And obviously, that's a future that we're very excited about.
In addition to Dave, you'll also hear from each of the Presidents of our businesses as they discuss their key technologies, strategies and end markets, as well as their competitive differentiators. And we'll also provide you an assessment in terms of how they're progressing towards their 2014 targets. Now building on the transformation theme, we also have a special group of functional and business leaders here with us today to discuss the role that they played in Honeywell's progression over the last 10 years, from M&A and R&D and the effectiveness, to the Honeywell Operating System and geographic expansion. We'll then close the day with Dave Anderson taking us through the financial overview, walking through the strong financial track record that the company has built over the last 10 years, as well as provide you insights in terms of our compelling outlook going forward. And then of course, we'll close the day with comments from Dave Cote.
Now before I introduce Dave Cote, who will again kick us off, as well as introduce today's other presenters, I want to remind you that we have a number of our senior management here with us today. They're all wearing Honeywell nametags, so I highly encourage that you seek them out during the breaks. They're also here to discuss their new wins and leading technologies. We have many of them on display in the South Ballroom. So again, I encourage you to take the time to go through each one of the displays for each of the businesses. So with that, it is now my pleasure to introduce Chairman and CEO, Dave Cote.
David M. Cote
Well, as Elena mentioned, today's story is one of evolution. And you've probably heard me talk about evolution before, but it's something that we talk a lot about in the company. Because the point that we always make is that Darwin's point was not survival of the fittest, it was survival of the most flexible, the most adaptable. And the more flexible and adaptable you can make yourself, the better off you're going to do. Evolution doesn't just apply to the company, there's also been an evolution of investor expectations, as you can see. And the 10-year change has been significant from, can Honeywell even operate as a single company given we were 3 companies brought together. We got to the point where it was just, "Dave, are you going to blow the cash. Are you going to blow the money?"
We've been through our strategies, are they going to change in the downturn, which of course they didn't. And now we've gotten to a point where it's a case of will we achieve those 2014 targets. And of course, I think you'll come away from today saying, "Yes, by God, I think they're going to." And I think in that evolution, it gets us to the point where we say we're at that stage where everybody should be saying does Honeywell deserve a premium based on how they've been able to perform if things changed enough and can we count on the evolution into the future so that they deserve a premium. So here's what we would say, and this will be the bulk of the story.
Our track record is terrific. And at every stage of the game, we've done what we said we would and we'll show you the data of course because it is good. Strategies stay consistent. We take a look at the last 10 years, we're not the guys who have a strategy, change it 2 years later, pursue it, change it 2 years later. We actually been pretty consistent in the strategy we've pursued because it's worked. Then the evolution is going to continue and we'll break out the stuff that stays the same and the stuff that changes over time. But the whole point of evolution is important because you have to keep adapting. You have to keep getting better. And it's never a case where you can be static about here's the way we do something and it's just going to be this way forever. You constantly have to be adapting and getting better. And I think you'll see that theme throughout the day.
The last 10 years have been great. Our sales, even with 2 recessions are up 72%. The sales outside the U.S., our globalization, up 13% and both EPS and free cash flow are double what they were before. And it's shown up in shareowner returns. Now we picked February 19, given that, that was my first day starting with Honeywell 10 years ago. So it seemed like a nice kind of start point. And during that 10-year period, the S&P is up 26%, we're up 84%. And for any of you who remember 10 years ago, this is not what anybody's expectation was. And when you think back to where we started versus a lot of others, I think it gives you a sense for how that evolution has really transformed us. And the same thing applies on the dividend side. The S&P dividend was up about 78%. Ours was up 98% during that time. And again, remember, we weren't starting from such a good base when you go back to that time.
So we think we've provided a great return to shareowners. And this really has been a decade of transformation. You can see on the left-hand side, year-by-year, how things have changed -- what were some of the big items that we addressed. And on the right-hand side, I think it's important to point out that in the early days, many of you probably heard me say use this phrase where I would say, "Past is not prologue." Just because prior to 2002, we did horribly, it doesn't mean we'll do horribly forever. It's time to think differently about Honeywell given everything that we're doing. Well, after 10 years, now I'm telling you a different story. And it's that you can expect that 10 years to continue based on the evolution that we're going to continue to drive. So we're at a point now where past is prologue. The way we've been able to perform for 10 years is the way we're going to perform for the next 10. And the phrase that I use a lot is, "The best is yet to come for us." We're building on a much better foundation than we had before.
So when you think about this evolution, there are things that'll stay the same in terms of how we actually conduct our business. So you think about execution fundamentals, we've always been very big on just focusing on the basics. And you heard me use this phrase, some of you thought it was kind of a joke in the beginning but it really is true, is, "Go slow to go fast." It means whenever you have an initiative of any kind or some big thing you're trying to get done, is make sure you have it right before you start going 100 miles an hour. And I think we've done a pretty good job to doing that, whether it's rolling out HOS or any of our initiatives.
Second one is, "Making sure the machinery works". It sounds like a very simple phrase. But especially when you get into the top jobs, like the people who'll be presenting today, it's one thing to just be smart. It's another thing to make sure that you are -- you have the right people in your organization and you have the right processes that enable them to be able to do their jobs effectively. So being smart is not enough. It's important to always make sure that the machinery works. We continue to do what we say we're going to, and you've heard me talk about this next one on being able to do 2 seemingly conflicting things at the same time, which people always want you to pick one or the other. Do you want good short-term results or do you want good long-term results? Do you want people empowered or do you want good controls to make sure nothing bad happens? Do you want low inventory, do you want good customer delivery? The answer, of course, is always you want both. And the trick to being successful is figuring out how to do both. We don't ever lose sight of that theme.
Disciplined M&A, I'll show you some charts later on. I think you'll get a sense for how well we've done and Anne Madden is going to take you through a little more detail. And I use of this phrase a lot, "That the trick really is in the doing". All of us, my guess is if you compared new product introduction manuals, Management Resource Review manuals, everybody's stuff looks the same. Everybody in every company knows all these stuff. It's a matter of how well you actually do it. Can you actually execute? And I think we've excelled there. We'll continue our seed planting for a robust future. And we're always looking beyond this quarter. You've heard me say, "I don't want to make just next quarter, I want to make next quarter 2 years from now, 5 years from now, 10 years from now." So we need to be seed planting. Cash generation is going to continue to stay important to us, and that conservative bookkeeping that we do helps us because we just have very high-quality earnings.
So for example, if you take a look at R&D going on the balance sheet, we're not the guys who'd do that. We expense almost all of our R&D because I just think it's a bad practice. If you take a look at -- when you have to give free merchandise for commercial reasons, we expense all of that. None of that goes on to the balance sheet. And I think that's an important difference between us and some of the other companies that you look at, because I just think that makes management just think very differently about things when they go to make business decisions.
We've got a great portfolio. You've heard me talk before about I like a diversity of opportunity. That's not going to change. Now that diversity opportunity applies to geographies, businesses, the products you're in. I never want a product or a business that if it takes off, we will do extremely well. Because by the same token, if it doesn't, you can do extremely poorly. So I like having a lot of bets in a lot of places, and we're not going to change that. We like businesses where technology is a differentiator, and I think you'll see a lot of that today. And there are places that we avoid. Any place that has rapidly changing technology or places that are heavily reliant, for example, on tax subsidies or government policy, not a good place to be. So we've tended to avoid all of that. The things you can count on us continuing to do, we're going to continue to be hungry, we're going to stay smart and disciplined about how we do things and that whole point on flexibility, adaptability, so that no matter how things go, how markets move, we can respond. And none of that is going to change.
Now the things that will change, that will continue to evolve and still have the opportunity to get better, Great Positions in Good Industries, which we talk a lot about and you'll see some more. And big change here is divestitures are a lot less critical to us in these next 10 years than they were in the last 10. One Honeywell, I think most people would be surprised at how quickly we were able to meld 3 cultures into a single Honeywell culture. Our 5 initiatives, which we still talk about 10 years later. And at the end of the day, in all these areas, we still have a lot more runway. There is still a lot more opportunity for us. And the takeaway then is because of all of this, investor returns are going to continue.
Building on each of those 3 items that I just mentioned, starting with Great Positions in Good Industries. You've heard us talk about these macro trends on the left. These are the kind of global macro trends that just put you in a position to be in a good industry. And I like being in a good industry because that gives us a tailwind for growth. Having a great position means we have critical mass in things like feet on the street, R&D, backroom office so that we can grow share. And as a result of those 2, grow sales faster than the industry. And you'll see with what we've been able to do in the portfolio on both divestitures and acquisitions, we've managed to change the overall growth profile of the company to put us in that higher growth businesses, a nice place to be. These are just a bunch of examples for Great Positions in Good Industries. You probably figured out that acronym by now. Each of the guys will be talking more about each of these, so I don't think there's any need for us to go through it. But you'll be hearing a lot more about it today.
And just to give you a sense of the portfolio transformation, if we go back in time, about 79% of our portfolio was what we would call core businesses. Today, it's 98%. We've had 70 acquisitions, 50 divestitures. The net impact of those 2 were about a $4 billion add to sales. But you can see, we've really been able to change the growth profile of the company as a result of that. And this is just some of the details of it. You can see on the left-hand side, Novar was a big one, UOP was a very good one as Andreas will point out.
With the acquisitions of First Technology and Zellweger, we established a gas detection presence. With handheld Metrologic and EMS, we've established a great presence in bar code scanning. With Norcross and Sperian, a great position in personal protection equipment. So we've really been able to change, again, the growth profile, the growth outlook of the company.
We've also done a lot of divestitures. Not all of them were reds, some of them were yellows. Where, okay, it was a great position in an okay industry or it was a great position in a good industry but we weren't -- couldn't grow so well like in security monitoring because we'd be competing with our customers. So we ended up extracting ourselves from a number of these places. And as a result of that, we've been able to put ourselves in a much better position to grow then we were, say, 10 years ago.
One Honeywell. This theme we talk about throughout the company and there's a lot of ways we go through to try to reinforce it. But it all comes back to that glue building. Because there's a number of ways you can organize a business or a company, functionally, by geography, by business, by customer group, by process, if you wanted to, I suppose. But you can only pick one, maybe matrix in another. You still have to do all the other ones. And the only way you get that done is by people knowing each other. And we spend a lot of time making sure that happens, that we have the right people in the job, so there's robust MRR. And again, we get the fundamentals right.
When you think about something as simple as getting people's goals for the next year, before the year begins. You check with most companies, goal deployment is usually done sometime in March. Three months are already gone in the year before people actually know what their goals are. It doesn't make any sense. Ours is done in December. Everybody gets an appraisal before March 31, and we know that, because if people don't get an appraisal, their manager doesn't get a raise. So we found all kinds of ways to reinforce this including salary and bonus differentiation curves to make sure people focus on getting those fundamentals right. Because at the end of the day, we've got 130,000 people and all of them need to be engaged, all of them need to be involved.
Turning to the 5 initiatives, starting with growth. Big change from where we were. You've heard me say that coming into 2002, the cupboards were bare when it came to new products. We really didn't have much of anything. And as one of our business leaders said, "Back then, I learned how to starve a business, now I've learned how to grow a business." And that's what you get when you have full cupboards, when you look at the kind of launches we've had. The global expansion change, 41% outside the U.S., now 54% and growing. And our exposure to high growth regions, Shane will be telling you more about that today, just terrific. Our strategy has worked and we're going to continue to deploy it further.
Pile of new programs. A lot of money available to us here. You'll be hearing more about these from each of the business leaders today. But great new product programs coming. This R&D chart is important. Starting at the upper left, R&D is up in total. You can see the numbers in the patents. Even though patents, I would say, are kind of a loose correlation. At the end of the day, it is a metric. But most importantly, is the right-hand side of the page, because while R&D spend is up 60%, the actual census supplied is up 75%. In other words, the number of engineers actually working on projects is up 75%. So we're getting much bigger leverage from those R&D dollars. And then the bottom right is also important, because there's no real way of measuring in the financials how effective is your R&D. And we've spent a lot of time over the last 10 years making this a lot better. So the Velocity Product Development effort that we have, the push that we have on software, for example, more than 50% of our engineers are doing software. So we're proceeding with getting to CMMI Level 5 across the company, knowing where all our software operations are. And we also are focusing our attention on how do you make sure you're working on the right stuff. Just because you're spending money, doesn't mean you're spending it smartly. And I think you'll see from, again, the pictures from all the guys today, that we've really done a pretty good job focusing on the right thing.
This one's important also because we're on the side of the angels with a lot of our products and services that we offer. So it's important for us to actually be following our own message. If you take a look at our safety statistics, we're 70% lower than the industries in which we participate. Energy intensity has improved by 35% over the last 7 years, and greenhouse gas is down by more than 1/2. It's important for us to do that just because we're in those markets. But at the same time, it helps us grow. Because if you look at what were able to do on the safety side and now we're able to -- with personal protection equipment and our safety services model. On energy and greenhouse gases, as we look at applying our utility partnerships and Building Solutions, this is a great way for us to actually be our own reference accounts as we start to go to other companies.
Getting to second initiative, productivity. We haven't shared this one with you in the past, but I think it's a good one. Because we really start focusing on real estate also about 7 or 8 years ago. Starting on the left, you could see our rooftops were about 1,250. We did a bunch of acquisitions and divestitures that added 600. And we've taken out about 550 locations overall. So we have about the same number. And as a result of that, our sales per structure, if you will, are up 35%, done on a square footage basis. You could see that developed market square footage is up minimally, and you can see that sales per square foot up a bunch. In the emerging markets, we've managed to double our floor space out there and it's still growing. So this has been a great project for us to drive One Honeywell and to improve costs.
You've heard me talk before about census and OEF. That's not going away either. Importantly, remember, sales are up about 75% during this time. Total census is up only 25%. Developed countries headcount is down 4% during that time. And all the growth has been in emerging regions where we've gone from 20,000 to 51,000 people, so up 159%. Now we're evolving again, as we you look at how we're looking at this, we used to just look at headcount. Now we're starting to look at what we call organizational efficiency or OEF, and we look at total labor cost, all-in, everything, as a percent of total. And as a result of that, we still think, okay, you still want the best people, organize the right way. But at the same time, we wanted the lowest cost that we possibly can. So it gets back to this how do you do 2 seemingly competing things at the same time. But this is an important one to do, and one that you'll hear us talk a lot more about.
That productivity also applies on the material cost side, both indirect and direct. So we're managing cost and consumption everywhere on both pieces of that. And importantly, this means we need to do an even better job of focusing on suppliers and supplier quality. And you'd hear from Tim, for example, that he's doing a lot to beef up that organization. And when you look over at the right-hand side, this is how we tend to look at our percent of sales on our overall cost base. It makes it really simple and easy for people to understand throughout the company. Instead of breaking things out into 10 or 12 different categories, just look at it in these 3 or 4 big ones, it's really surprising how much easier it gets for people to understand.
Getting to cash. Free cash flow conversion has been over 130% in this decade. Again, another great indication of quality of earnings, and that's not going to stop going forward. Working capital turns continue to improve that 4.6 to 6.9. It doesn't look like a lot when you see it that way, but that difference is worth about $3 billion over in that time frame. Just going from 4.6 to 6.9, either freed up or avoided using $3 billion. It's a big change and it's one that we're going to continue to drive. And that cycle time focus that we now have in inventory is going to be a big generator for us. We've done a great job of deploying the cash and if you look at the cash we've generated in that 8- or 9-year time frame, we're still going to think about it the same way.
We want to return a lot of cash to the shareowner. We like paying a competitive dividend and, hopefully, all of you noticed that we've been on a 10% annually string before the recession that -- and this year, we actually went to 12% after 9 months. But we do recognize the significance of the dividend and how important it is to everybody's return. We'll continue to be opportunistic when it comes to share buybacks and to acquisitions. I'd like to say I wish I hadn't done that buyback in 2007, given that it was one of the peak of the market. Well, I think we managed to miss peak by 10% or so, Dave, but still, it was at a pretty high price. I wish I'd that cash on the way down, so I'm not as keen on it as I would've been, say, back then. However, we'll see how things develop.
On the M&A side, I think it's important to note that it's not like there's anything we have to have to grow. So there's nothing that I look at out there and say, "Jeez, you know we need to have that company because if we don't, we're not in a position to execute our strategy." We're in a great position with the portfolio we have today. So we can be very disciplined in how we do go about acquiring because there's nothing that we have to make sure we do. And CapEx, we've reinvested in a rate greater than 1, usually in that 1.15 to 1.2 range, and we'll continue to do that because we just have some great opportunities ahead of us. And all this cash gives us a lot of flexibility to provide excess returns to you.
People, our fourth initiative. You make no progress unless you have the best people, organized the right way and motivated. Here's how we incentivize them, and we've made a change to -- a plan this year and I wanted to lay out for you, again, how this has evolved and how we evolved even in paid plans to make sure that we reinforce the things that are important. If you look at our short-term plan bonuses, which are paid out on the year, it used to really just be income, then we went income and cash. Then we went to income, cash and working capital turnover, given how important we thought that was. Then you saw the results from that, it worked. On the medium-term plan, the one that is earned over a 2-year period and gets paid out over a 2-year period to create good retention. It was based on organic sales and ROI, 50:50 if you were in the business, between company performance and the business. This time, we're adding margin expansion. Because we know how important that is to investors everywhere, and we want to make sure that this gets focused on because in our growth plan, in the company, the 600 people that this affects, they really pay attention to growth plan. So what we're putting in there is going to make a difference.
And on the equity side, the longer-term stuff tends to be more options-focused, especially as you get to the top of the crowd. So if you look at our leadership team, it tends to be much more options-focused, meaning that if we don't do a good job, they're worth nothing. It's not a case where you're getting restricted shares, where they're still worth something no matter what happens. In our case, in almost -- for everybody, the weight of the long-term stuff is all of the options side. Meaning, if we don't do the job, we get nothing.
The growth plan, just to give you a little more data on that. The left side just explains the change that we made. On the right-hand side it gives you some of the numbers. So if you take the margin rate piece of this, 2011, our segment margin rate was 14.7%. We're going to have a 100% payout based on a 130-point expansion in that margin rate over the next 2 years, so 2012, 2013. Which means that if we're able to achieve that, at the end of 2 years, we'll actually be at the bottom side of the range for the third year. Now that's at a 100% payout level. Our payout ratio has tended to do better than that over time. Who knows if this next pay plan will work out the same way. But historically, we've been able to provide excess returns here because we've actually done the job on organic sales and ROI, and we're going to try to do the same thing on the margin side. But I just wanted to make sure everybody understood what we're doing in this pay plan, because I know how important margin rates are. Then there's -- if I want to get everybody's attention in the company, this good way to do it.
Our enablers have also evolved over time. It used to be Lean, Six Sigma, Digital Works -- that gave us a great foundation for the Honeywell Operating System, Functional Transformation, Velocity Product Development. You'll hear the guys talk more about that today. The Honeywell Operating System, we'll have a presentation today from Pasquale and Mike. And this is also one that we want to make sure everybody understands the evolution here. Because this started off as, we had to go slow to go fast and make sure we get it right. And it really concentrated on just the 4 walls. Everything was in the 4 walls of the factory. As we got better at this we said, okay, now time to incorporate what we called tie off [ph], the integration of the forecasting process, the integration of suppliers. As a got better, now we started to incorporate new product development. And what it's steadily evolving to is just a total way for running the business. And you'll find some of the businesses, like the Turbo business, that Pasquale will be talking about, doing a great job in moving the whole business in that direction.
Functional Transformation in ERP continue to do well. You've heard us talk about that one. And when put all of these together, it says that we're pretty confident in our ability to achieve the long-term outlook, the changes, the charts that I showed you 3 years ago. Some of you have asked, "Are you going to change the numbers? Are you going to update them?" No. And the reason for that is, I don't think you can handle it. If I make that kind of a change, then everybody starts looking for the change. You forget about what I said 3 years ago. And what I'd like to be able to do is, 3 years from now, to be able to show you, "Look, this is what I said 5 years ago. Here's what we actually did." So that when I give you the next 5 years, you look at it and say, "Jeez, maybe we ought to give this guy the benefit of the doubt. It's been 15 years of doing exactly what they say, maybe we should believe them this time." So I'm not going to change -- those are the numbers. You'll see each of the guys will have an update on how they're doing against their own targets. But overall, these are still our numbers of the company.
So the takeaway for me is, for us, really, the best is yet to come. We're building off a significantly better foundation than we had 10 years ago. If you look at the caliber of our businesses, caliber of our processes, the people that we have in place, the performance-driven culture, a single culture versus the 3 that we had. We have Great Positions in Good Industries. The One Honeywell is working. Our initiatives are working. And I think, importantly, and the message that I'd really like everybody to get from this is, we're going to continue to evolve. And it's that ability to evolve that's so important. That ability to keep changing to recognize what you have to do next. That whatever you decided 5 years ago is not enough this year. Whatever we decided last year is not enough this year. But that ability to evolve is an important part of the dynamic of the company that exists today that was not there before. And it's why we feel pretty good about our 5-year plan and why we think we can do even more going forward.
So that's our story. The next presenter will be Roger Fradin, and I think he's got an exciting video for all of you. Roger?
Thanks, Dave. It's great to be here. We are pleased to share the ACS story with you. Last year was another very good year for ACS. We grew our sales on a reported basis by 13%. On an organic basis, we grew our sales by 5%, which is about double what GDP grew. So another year where we outperformed GDP by a factor of 2. Our income was up 18%. And Dave focused on margin rate, our margin rate for the year was up 50 basis points. And in the fourth quarter, Q4 2011 versus Q4 2010, our margin rate was actually up 130 basis points. So in terms of the big trends that drive Honeywell, they drive my business as well: energy efficiency, safety, security, productivity. And we have beefed up our ability to take advantage of those macro trends with a powerhouse investment in new products. Over 450 new products introduced last year, some real winners. Big investment in emerging markets, and Jane is going to talk more about that. That's very important for my business, 60% of my sales is actually outside the U.S. And a good job on smart acquisitions. So Sperian, EMS Technologies, King's Safetywear, just continue to add to our portfolio.
From a margin expansion perspective, the ability to convert more of every incremental sales dollar into income, which is how I like to talk about margin expansion, HOS is a big enabler for us to let us do that. SAP deployment, which drives Functional Transformation. And something that perhaps I haven't spoken about much on this group, but our new products. As our products get more contemporary, more advanced and customers want to buy them, it amplifies our ability to get price. So new products are also connected to our margin expansion strategy. So a good, well-balanced portfolio. Sales have doubled from 2003. Income has tripled. The simple math is we expanded our margins. About 1/2 of the growth has come from acquisitions. The other 1/2 has come organically. And again, we have grown every year, except the Great Recession, at more than double underlying GDP.
By popular demand from this very audience, we're now providing you more transparency into the 7 businesses that comprise ACS. And we've divided our portfolio up in terms of how we communicate with you into our product businesses, our 5 product businesses. Really great businesses, Energy, Safety and Security is what ESS stands for. These are businesses that have grown at recent growth rates of 10% CAGRs with margins approaching 20%. It's a world-class businesses, all leaders in their field. Having somewhat tempered expectation in terms of the growth of this side of our portfolio this year, mainly because of our exposure to Europe. About 40% of our sales here are driven by Western Europe and we're in a recession there. So that's going to temper that part of the portfolio. Still expecting growth nothing in the 10% range, however.
Process Solutions, a gem of the business. Now you've got full visibility on Process Solutions. A world leader. A business that has grown recently, 8% on a compounded annual growth rate basis. A monster backlog. So we come into this year with a very strong backlog. The industrial economy is still growing. So we feel pretty good about our ability to deliver good sales growth this year. And I'll be the first to admit, lots of opportunity for margin improvement in this part of our portfolio.
Our Building Solutions & Distribution businesses, which consist of our HBS, Honeywell Building Solutions, building automation, contracting, service company and our ADI distribution business. These are fundamental entitlement in terms of what you can earn in these businesses even operated very well our high-single-digit margins. But the ROIs on the business like HBS, for example, north of 50%. So great business. But most importantly, in terms of my portfolio, about $1 billion of my product sales are enabled by the really great positions we have in ADI, the world leader in signal distribution, selling heavily My Security and My Fire Alarm products. And my Building Solutions business, which drives almost $200 million of product sales from across my portfolio. So strategically very important to what we do.
I'm not going to a spend a lot of time in this chart because I think everyone in this room is very familiar with what's going on from an overall growth perspective in the global economy. A good story on the industrial side, but the European business is really dragging down growth expectations in our residential, commercial and other parts of our businesses. So looking at kind of 2%, 3% from our perspective global GDP.
I like this chart. I think for the same reason Dave likes this chart. Our consistent performance, 2x GDP over almost 10 years has been driven by our consistent strategy. So our strategy hasn't changed, but our execution gets better and better. And that's why the best is really yet to come. So Great Positions in Good Industries, commercial excellence and driving a growth mindset for our organization, innovation, technology, new products, globalization. By the way, again, new products, not only do they connect with pricing, when you've got great, new products, it makes your sales organization more productive. From a commercial excellence perspective, it also enables more effective globalization because you have the right local products to sell in India, China, et cetera.
Strategic acquisitions. I think, we've done a reasonably good job at this at ACS and we continue to look for the right deals. And leveraging our core process initiatives, HOS, Functional Transformation, OEF, to allow us to convert more of every sales dollar into income and expand margins. This listing of our key business segments and the positions they have in our industry -- about 80% of our sales are represented on this page. So we really have great position. We have a huge installed base residentially, commercially, industrial, our 3 major vertical markets. So whether it's comfort controls, building controls, fire system, Gas Detection, a good chunk of our portfolio is #1 in the markets in which we operate. What drives the good industries, to Dave's point, is the fundamental drivers: safety security, energy efficiency and productivity. And I have wireless kind of in the center here because that's one of the core technologies we have leveraged in our new products to allow us to grow faster than our competition in these markets.
2011 we continue to make good progress to drive our great positions. So on the safety theme, which includes the safety-related sensing technologies. We're making sensing control and all the great products we have in our Life Safety business, great progress. King's Safetywear, strong acquisition. Adds to our safety footprint, pardon the pun because it's a safety boot company in Asia. Fire Sentry. It's a small acquisition in flame detection. But it fills in a strategically important piece in our entire industrial fire and gas offering we didn't have. So no we've also had flame detection. It allows us to bid on complete fire and gas solutions and a big -- so it's going to enable a lot of growth in the rest of my portfolio.
We are blowing away the numbers we shared with you on Sperian, not only on the cost side, but we're on track to deliver $200 million of incremental sales synergies as a result of combining Sperian and Norcross and King's Safetywear, and leveraging the rest of the Honeywell portfolio, including our access to the industrial market through Process Solutions. So in very good -- good progress in safety. In security, $300 million in critical infrastructure protection orders. This is a market we weren't even in 5, 6 years ago. So this is primarily a Building Solutions-driven market, great growth here. Although it's not up on the chart, we are the providers to the London Olympics for their security, the Caspian Sea pipeline, the nuclear power authority in Belgium. So mission-critical, high-margin security opportunities, great space for us to be in.
Energy efficiency. That's 1/2 my portfolio is driven by energy efficiency. Think about the products side of my Environmental Combustion Controls business. Think about the performance contracting side of my HBS business. Continued to do a nice job on $500 million of new wins in performance contracting. And Smart Grid wins, not a big chunk of my revenue yet, but it's going to be big and enabled by, again, a small, strategic technology acquisition we made a couple of years ago called Akuacom. The world leading technology in what's called fast demand response. So why should you be interested in that? To start, well, our customers are interested in that. So China, the largest electric utility the world, is one of our customers and partners. ScottishPower in the U.K., Hawaii power, Southern California Edison. Key electric utilities around the world have partnered with us to deploy our fast demand response technology. What is it? We all read about wind power and solar power. How do you actually integrate that stuff into the grid? Because as a grid operator, you are very concerned about regulation of the power on the grid. And the grid can't tolerate swings in power availability. And when the wind is available, they can't predict. And when the sun is available, they can't predict it.
So by having what's called fast demand response technology, when the wind's blowing, demand can be managed on a realtime basis to balance the grid. You never wanted it to be out of balance. So by using our technology, you can integrate solar and wind power into the grid. Obviously, that's a big deal. And on the end user, so the buildings, industrial and homes, where electricity is consumed, you need controls to respond to the realtime signals from the grid. Guess what? We are #1 in the world in providing residential controls, building controls, industrial controls. So it is a core piece of enabling technology that's really going to drive a lot of growth for us.
On the productivity side, this is primarily our Process Solutions business and our new Scanning Mobility business. Scanning Mobility, first units shipped in UPS, largest mobility computing customer in the world. We won that business from Motorola, and started to deliver on it. What's not up on the chart is we took Motorola's second largest customer, Deutsche Post, in Europe, another $100 million contract, so great win. Starbucks, Krogers, just doing a great job winning business in scanning mobility. EMS Technologies that -- Tim Mahoney and I with Aero partnered up. That was a business made for Honeywell to acquire because it had a great fit with Aero and another great fit with me and scanning mobility. And on the Process Solutions side, we do have, I won't call it a friendly rivalry, we had an active rivalry with Emerson, someone near and dear to a lot of your hearts here. A 25-year customer, a pitched battle for all year long. We rested a $100 million contract from the City of Los Angeles to automate all their wastewater plants. Major win for us. Shell, the GTL plant in the Mideast, $300 million, we are winning the major showcase projects around the world in realtime industrial control. So a lot of great momentum here.
Commercial excellence, I operate in 110 countries, at 10,000 salespeople, over 1 million customers. Having the right salespeople calling on the right customers with the right marketing message, that's what commercial excellence means to me. You saw where this portfolio was in 2002. What we've moved it to, I think what I'd like to focus on, is big investment in people. So doubled our sales organization, doubled our marketing group, and we have those teams actually talking to each other and working together. Big accomplishment. And our sales organization, Dave talked about executive pay. Our salespeople are paid based on year-over-year sales growth. That may sound obvious, a lot of companies don't do that. If I'm not going my sales year-over-year as an individual, one of this 10,000 salespeople, I'm not very happy. I'm not making much money. I grow my sales by expanding what existing customers buy from me. But more importantly, taking business from the competition and having great new products, great new services enables sales productivity here. So a big deal is a hungry, aggressive global sales organization, equipped with great tools to go out and win business. And of course, when you've got those momentum, you've got great new products from giving price, we're -- now we're able to get price.
I showed this chart last year to meet Velocity Product Development, all sorts of tools and techniques. Bottom line, it makes us more productive in R&D. We get out more, new products faster. So the red line is our growth in R&D headcount. It's gone up every year. The blue line is the number of new products we introduced every year. That blue line is advancing on a greater slope than the red line, that is in the productivity we get from Velocity Product Development.
Some examples of our new products. The safety products world, $20 billion market, highly regulated. We're now #1 in this market, great growth drivers. It has been a sleepy industry from a technology perspective. Thirty year technologies are still being sold. Frankly, its not a very innovative industry. This is an opportunity-rich environment for us to take our great technologies and change this industry.
One example, digitally enabling our safety products. So for example, embedding them with RFID tags, so that every worker on industrial sites will get scanned before they out on that site. Are they wearing the right protective clothing or the right protective equipment? Have they been trained on it? So for example, for protection equipment, you need to be trained on it and be current to be able to use it. So we automatically check for that. And digitally enabling the site, so wirelessly we know where every worker is in the event the site has to be evacuated, or the event that there's a man down, where to send the rescue crews. Safety is the #1 requirement of our global industrial customers and industrial customers are the #1 market for safety equipment. Going to them with a value proposition like this is huge. So expect a lot of growth here.
On the home control side, I showed you a video last year, where just using the Internet to be able to remotely control, seamlessly, your Honeywell environmental control system, your security system, your lighting controls, $150 million installed base, great channel partners, great technology to make this user-friendly and highly secure to interact with your home systems.
Here's a business we weren't even in several years ago. We had no products in mobile -- mobility. So these are the mobile computers that the UPS drivers use, the FedEx drivers to use, retail workers use, weren't even in that business. We had a very anemic portfolio in 2008, our new product machine cranked into gear, we are in great shape. And the by the way, Motorola's, no push over, they're tough competition. We moved from not being in the market to #3 to #2 and just swamping the market with new products, winning big around the world.
On the Process Solutions side. Experion has been a run away hit for us, many billion dollars of high-end industrial control systems installed over the years. I'd be the first to admit that it was not sized right or featured right to go after the emerging market at the middle end in markets like India and China for control systems. We took our core technology, gave it to our China development team and said, "Hey, make this, productize it, so it is competitive to the China, India and emerging -- other emerging markets, primarily in the power and the metal markets." $6 million in advanced orders. We haven't even begun to deliver the product yet called PlantCruise. We expect to do very well and drive a lot of growth in emerging markets, and then take this technology to the rest of the world to enable a whole level of channel of distribution force, using a third-party system integrators to go after customer opportunities that we don't pursue directly in our Process Solutions business.
Globalization, big deal for me. 60% in North America years ago with the 60% outside of North America. We're on track to do $2 billion in China, $1 billion in India, $1 billion in Middle East over the next several years. So emerging markets are a huge part of my growth story. Obviously, changes my growth profile to the better, the more business I do in these regions.
From an acquisition perspective, 65 deals, $4.5 billion in acquired revenue. We've enhanced our core businesses. So big moves like Novar and more investment in the Smart Grid. You see our position before we made the acquisitions and after. So Novar just really accelerated our #1 position in building controls and fire systems.
You see the headline multiple EBITDA that we paid based on the trailing 12-month earnings of the company standalone versus fully integrated into Honeywell. So not only great for our strategy, driving an enormous amount of shareholder value. And we've gotten into some good adjacent markets. You're going to hear more about this from Anne Madden and Mark Levy in a minute. But personal protection, gas protection, industrial combustion, automatic identification and data collection, barcode scanning, deals have fit our strategy. We have a rich pipeline. General Managers have to own the deal. We value the deals based on core synergies only. We drive like heck the sales synergies when it's closed, but we only value based on cost synergies, and we have a rich pipeline. So there's no one deal we have to have. If it's not right for us, we walk away, because we have plenty in the pipeline. So very good deal discipline. How do we do it? What has driven this consistency of execution? A pretty good playbook. By the way, this is not just our M&A playbook. This is how I run every one of my businesses.
Now a lot of companies do the productivity and cash thing pretty well on acquisitions. I would argue that very few do the people cultural integration and growth thing well. I'm really proud to share with you that in pretty much every midsize and every large deal we've done, we have changed for the better with these tools, the growth profile of the acquired businesses once Honeywell's totally taken ownership. New product development, globalizing the businesses, using our government relations group to get access to government and military markets that most small companies couldn't pursue. And it tied in with the culture thing, because when the acquired people see that we're investing to grow the business, and they see the businesses now growing faster, it makes the cultural integration super easy. So it's all connected together. Our focus is to make every business we acquire better, not only in the cost side, but on the sales growth side.
This is the ACS, HOS and SAP story. There's a lot of activity on this page and a lot of focus and attention. But the activity aside, the results of what counts here in terms of the margin rate expansion that these enablers drive. So again, the goal -- we always focus on productivity. HOS allows us to take our productivity rate of improvement up an entire level. Our rate of safety improvement, inventory improvement, quality improvement, from what it was before HOS up to a new level. So accelerates our margin expansion, [indiscernible] SAP deployment, driving functional transformation.
You've seen this chart before, the same margin improvement plan we committed to you a few years ago. We're right on track. Our part of the Honeywell 5-year growth story, right on track. So still green lights. Great positions, good industries, globalizing the business, strong new products, smart acquisitions has characterized ACS.
Now it's my pleasure to turn the presentation over to Anne Madden, who is VP of Corporate Development; and Mark Levy, who's President of our Life Safety business.
Anne H. Madden
Thank you, Roger. Happy to talk to you today about growth through acquisitions. I'm going to start for a few moments minutes on the transformation we've had in our M&A process framework, before I turn it over to Mark Levy to talk about the growth in Honeywell Life Safety.
So 10 years ago when Dave Cote came on board, he needed to understand, in a comprehensive fashion, what our M&A track record was. So we embarked upon a 10-year look back forensic study on all of the transactions that we've closed between 1992 and 2002 to understand what have gone well and what have gone badly. Well, the upshot was we were at best, mediocre, and that's probably kind.
We had 3 key failure modes: strategic miss; integration inadequacy or nonexistent integration plans; and overpay. And so we set out to rebuild and redesign our core M&A processes, our core M&A framework, using Six Sigma tools and build those processes on purpose to defend them against the failure modes that we have discovered.
And so on identification, 10 years ago and before, we were highly opportunistic. We weren't linked to our strategy. Some acquisition pursuits were driven by the desire to buy a company to craft this strategy. Well, when we rebuilt our process, we mandated that the strategy always comes first. You've heard Roger say that. Our process formally links our strategic plans to the impulse to look for acquisition targets. We are constantly screening the marketplace for assets that fit our strategy. We, on average, look at about, well, over 500 companies per year. And what that means is that we can afford to be very choosy. When you look at that many companies, all of which tie to your strategy, you have not put all your M&A eggs into a very few baskets.
On due diligence, 10 years ago, the zeal for the deal was winning the day, and it resulted in very poor performance. We actually had instances, where we discovered things in due diligence that we needed to protect ourselves against. And we needed to either reduce the purchase price or protect ourselves contractually. And when there was risk that we would lose the deal by trying to afford ourselves the appropriate protection, the zeal for the deal got in the way of that, and we didn't do the right thing.
Under our rebuilt program, we have a large group of cross-functional experts that are delving into each of our transactions, getting the diligence findings, and importantly, translating those very intelligently into the deal protections we need, whether it's in the form of price or contract. There's no such thing for us, as a must-have deal. And so it doesn't work for us, we're out.
Valuation. 10 years ago, we had multiple valuation models across the system, no standardization. We fell prey to the temptation to use sales synergies in our models to justify the price we had to pay to win the deal. And our success rate was very low as a result. Under our rebuilt program, you've heard us say it, we don't include sales synergies in our model. So we are not going to be paying sellers for that benefit. We have one corporate acquisition model and the inputs into that model are the results of robust and rigorous debate and dialogue across our team of cross-functional experts to make sure that what we're loading into the model is something we all agree makes the best sense. We are not going to overpay.
On integration. And this is really, really a low point, I think, in our period from '92 to 2002. At best, we were ad hoc in terms of thinking about integration. There was no rigor. We resourced our integration through people who were between jobs. It was just easier to do that. We had a very much wait-and-see attitude. Let's just buy a company, and then we'll watch it run for 3 months and see how they do it. And then we'll figure out how to change it.
Under our rebuilt process, we take the very best and brightest of Honeywell. It's painful, but we pulled them out of their jobs and make the commitment that they be the integration leader or serve on the integration team on a full-time basis, so that we can maximize the opportunity to win through our integration. It's a management development tool for us, and our MRO process identifies these high-potential candidates, and it's a way in which we can sustain our internal capability and improve it every year.
Our teams also get the benefit of being involved in the due diligence, so when it comes time to start executing against our written integration plans, they have the appropriate level of ownership, so that when their feet are held to the fire, it's their deal and their metrics to drive against. So great, great process controls. I'd like to say Dave Cote is our single greatest process control, because he personally reviews every integration plan pre-closing no matter what size, unparalleled commitment to the program.
On this slide, you can see the proactive portfolio reshaping that we've done over the last decade, and Dave mentioned this in his introduction. What we look for is acquiring into attractive, higher growth spaces with good technologies and room for margin improvement. At the same time, over the last decade, we have systematically exited, reduced our exposure to slower growth, lower technology or otherwise non-core assets to Honeywell. And what we have very methodically achieved is positioning our portfolio to be able to have a lot of runway to pursue higher growth and margin expansion.
So Mark Levy's going to talk in a minute with more flesh on the bones of the application of our integration program. But just a couple of words. Dave says the trick is in the doing. And it's so true on integration. A lot of people talk a good game about their rigorous integration programs. But it's the process rigorous, the relentless attention to detail. It's the commitment to quality, up through the highest levels of Honeywell, it's our real differentiator. We don't just say, "Oh let's have a full-time integration leader, because that sounds good." We say it because having it on that basis with your very best people drives your level of success. It's also sends a very profound message to the organization around how important it is for us to win.
We have very, very, very detailed written integration plans. I mentioned, our Chairman reviews them personally. And we, on purpose, have stretched targets, as we exclude sales synergies from our valuation model. So we're never going to pay for those. But all day long, we're driving to those in our integration plan. Mark's going to talk a little bit about that. We use our very best people. Irrespective of the color of their uniform, we have a fair and impartial evaluation process for talent, so that we're putting the best people in the organization charts.
Roger mentioned that we do a great job deploying our best practices into the targets so that they get the benefit of those. But we also, on purpose, draw best practices out of our target company and draw people out of the target company into Honeywell leadership. And we believe that the very systematic way in which we deploy that process works very well to align us culturally, align us operationally, align us from a people perspective and align us financially.
So again very rigorous review process. Dave Cote pre-closing integration review, and then for every deal of $50 million and greater, 30 days, 90 day -- 60 days, 90 days, quarterly thereafter post close and until such time, as we're confident we've secured the success of the deal. So relentless attention to detail. The trick has been in the doing. It's what's driven our great track record. And speaking of trick in the doing, one of the greatest examples of how we've taken our M&A process framework and really translated it into tremendous growth for Honeywell is what Mark Levy has accomplished in Life Safety.
So I will turn it over to Mark.
Good morning. How are we doing? It's great to be here and to tell the story. Life Safety has had an amazing growth record in 10 years, and while Dave was here, we've gone from the portfolio of about $400 million to today a portfolio about a $4 billion business. And you can see along the bottom here in the middle of the page that we've had nice legacy growth in the core business and when we started in our Fire System business, where we're the world leader, but it was a business that basically had a $3 billion total market potential in the world.
So if we wanted to grow, we had to do some other things, and we found through acquisition and through identifying adjacent spaces that we could find and diversify and grow our business over the years. And we went first into Gas Detection, I'll talk a little bit about our 2 key acquisitions there. And then we found a wonderful space, the new safety space that we've been in for a couple of years and made a couple of very large acquisitions there, and we've become the world leader.
So we've gone from a portfolio with a limited potential when we started out to a portfolio now with the huge upside potential, even though we've gotten to be a pretty good sized business on our own. So you can see the portfolio breakdown there, and we've gone from being an America-centric company to 2/3 of our business outside the U.S. So we're very much a global player in the business.
The Life Safety space is a great business to be in. It's a great market opportunity. We have grown from a $3 billion total available market opportunity to what we've identified, and we think, in 2016 about $38 billion opportunity. So lots and lots of place to grow. The key thing about this is we don't want to just grow to grow. We wanted to grow in a profitable place. We want to get paid well for what we do. We want to find places. We've passed on lots and lots of businesses that we're in the 3%, 4%, 5%, 6%, 7% business, even if we ran them world class, we weren't going to get them to 10% operating margin. So we want to be in lots of space in our industry that has the 15% to 25% profit potential.
One of the nice things about the Life Safety potential in the industry is it's highly regulated. We love regulations. All over the world, the more regulations there are, the better for us. Lots of people are running businesses and say, "All these regulations are killing us." In our case, it's not the case. It's the case of increasing requirements all over the world, which we work heavily to make sure that they get implemented in places like China, Asia, Africa, even in all kinds of places in the world, in Latin America. And safety will always be an increasing requirement, great synergies in what we do, sales distribution and innovation. We can add a lot of technology to businesses that you don't think, on the surface, are really very technical in nature.
When we look at new spaces -- I talked about the fire business, fire system center, we're #1 in the world. But it's a business about $3 billion potential. We said what else could we do? What was the extension? What were some of our customers looking at? And we identified Gas Detection as a new adjacency that made logical sense to us that we got it. So we looked at the industry, thought it was a good industry, but it's about a $2 billion industry, but we identified great candidates that we could attach to our portfolio and go and find leaders in the market.
So we found 2 companies, Zellweger Analytics, which was an industrial company. It was based in Switzerland, in Europe. So we've made a purchase of that. And then we said, "What else can we do to become the global leader?" And the company First Technology became available. And we were able to combine those 2 companies and today have leading technology in gas sensors in the world. So we're the leader in not only industrial, but portable gas technologies and those types of things.
When we looked around, we said, "Okay, now we have a $5 billion market potential. What else can we do?" It turned out that a couple of the companies that we were competing against heavily in the Gas Detection business, Drager [ph], MSA were also in the PPE business. We found the PPE business to be much larger opportunity. A $20-plus billion market opportunity for us that people made a lot of money. And the other big company in the PPE business is 3M, of course. So it was highly fragmented. There was no company that had more than 5% market share in this huge business. It was kind of amazing. So we took these 2 companies that we identified, Norcross, being the first one we brought from private equity. Sperian was a public company that we a couple of -- a year later, we were able to combine. We all had tremendous synergies and cost synergies and sales synergies, which we were able to identify. And we're confident that we could get. What we didn't value, as we said today, the sales synergies. And we put them together with Team Safety Wear was the latest acquisition we did in December.
So we've created this opportunity in leading portfolio in a business that has amazing opportunities to grow. And we're the market leader today, but we can add a tremendous amount of technology to the portfolio. Our integration expertise, we use the tools, we put them to work, the real deal, our strategic planning, our annual plans, our human resource planning, NPI is so important. We have 1,200 people in our -- my portfolio that work on product development and innovation. Every single day, our ISC dashboard -- HOS is a huge and important part of what we do. So we have the model. We own it. We sign up for it. We commit to it. We review it. When we make a deal, we've made some very large billion-dollar deals, the Life Safety portfolio, my business. We commit to it. We always expect to overdrive it. And I'm happy to say we keep getting support, because we've been able to do that. And to get the best practices and the best results consistently over time. We're very good at it. We have great integration teams. We have people that know how to do it all over the world. We take our best people. Our people volunteer for it. We reward them for it. And it's a very, very important element of what we do that these teams are really first class all the way. So we've been able to grow larger than our industries. We've been able to do a great job. And we've had a great track record of integrating these companies and the 2 primary examples of Gas Detection becoming the industry leader, successful, global, PPE, becoming the industry leader in a very short period of time. And we think that we can grow and invest and successfully leverage these things all over the world.
So we have a proven model. We have a way we do these things. It's not just an undisciplined approach. It's really putting it into practice in the real world to making sure that -- we have a very, very high confidence factor. The day we closed those deals, we know what we're going to do. We don't go into the deal that they that -- we don't go into the closing and say, "Okay, guys, let's figure it out now." As Anne was talking about the rigorous review process, that Dave reviews integration plan. We really are very, very thoughtful and very good at it. And this is expertise that we really have in the company. We haven't talk about that much before. But we really have a good track record.
Gas Detection, financially, the picture, sales are up about 30%. Since we combined the companies, the operating segment profit's up about 175%. We're great at costs. We're great at efficiency. We're great at quality. The companies we buy typically have pretty poor quality records. In the case of First Technology, it was a shipwreck. It was a total disaster, 12% cost of poor quality. Today, a couple of years later, we're in the 2% range on the way to world class results. So really, really a success and really added a lot of the tick up.
So we have been -- enabled this portfolio to create tremendous opportunities and to be enabled because of successful acquisition integration. We've been able to expand our margins faster than our sales. We've been able to get the best of class organization models, tremendous investment in innovation. And hopefully, you'll see it at lunch time, some of the products that we've been talking about, as far as innovating things that you would think and wouldn't be, obviously, from a technology point of view, we can do that.
So we've got a real traction on sale synergies. So one of the things, when I talk to financial people before, had been interested in is we have a real cross-selling program. It's not something we just talk about and feel good about. It's something that we have financial incentives across the organization for people to get rewarded by. So this is very key and very real. And we know that we have over $200 million in sales synergies that are real that we're going to achieve, who have nothing to do with the models that we presented to make these significant acquisitions. It's a great story. It's a great track record. And we look for a lot more of this in the future.
So I'll turn it back over to Anne, and she can wrap up with the rest of the story. Thank you.
Anne H. Madden
Thanks, Mark. Just a few seconds on our acquisition framework that we have been operating under and will continue to operate under going forward. Just a few notes.
We feel great about our ability to execute against cost synergies, and when we look at acquisitions, we look for the opportunity to drive a high level of achievement in cost synergies, 6% to 8% of target company revenues, high hurdle, but that's what we look for. We insist that our transactions be accretive all in, in year 2. And just a footnote on that, in the industrial sector, it is exceedingly difficult to deliver real accretion all in, in the first year, and that's because it's loaded with all of the accounting impacts. A lot of companies talk about their accretion in year one, but what they're really talking about is their results, x those accounting impacts. We will continue to disclose and measure ourselves on an all-in basis, on accretion. Our ROI hurdle is very rigorous. This is a real tough one, but we're going to continue to insist that our deals deliver that metric. And so the discipline will continue.
So just to wrap up very quickly. We are very proud of the process disciplines that's we've built here at Honeywell in M&A. Strategy always comes first, and we have an extensive pipeline built out of our strategy to pursue. We are a continuous-improvement organization, and so we will continue to do this better. We're not going to sit back on our laurels and say, "Ah, great, great track record." We can just relax. We're never going to relax. We're going to continue to fight the fight and get better every day.
We take the best and brightest of Honeywell talent to deploy to this effort, so that we can maximize the possibilities of winning. And while no single deal has been transformative to Honeywell over the last 10 years, when taken together, our transactions have put us in a fantastic position to leverage runway for growth and margin expansion in the future. There is no such thing as a must-have deal for us. We are unemotional, we're unsentimental. We're going to drive the results -- stellar results in M&A.
And speaking of stellar results in M&A, one of my favorite deals over the last 10 years was our acquisition of UOP, which resides in our Performance Materials and Technologies business.
And so it is my distinct pleasure now to invite Andreas Kramvis, President and CEO of Performance Materials and Technologies, PMT, as well as a Ian Shankland, Vice President and Chief Technology Officer of PMT. Thank you.
Andreas C. Kramvis
Good morning, I hope this video has given you some idea of the width and breath of what we have in PMT. I'm going to start by reviewing the results we had in 2011. With sales, were up about 22%. Margin expansion, we're about 260 basis points over 2010, which in turn was about 120 basis points over 2009. The point I'd like to make here is that this is not a business that has been run to make those margins. It has arrived there with a lot of momentum. It has not been start for the future. And all the investments are in place for it to continue on a good path.
We report the business in 2 segments, UOP is about a 35% of our sales. The rest is advanced materials. And geographically, we are 55% outside the U.S., 45% of which is in emerging markets.
Now, talking about a 10-year track record. This is some picture here. I guess, Dave can take credit for all of it. I can only take credit for the last 4 years. But I just want to go through what happened here. Until 2005, there was lot of changes in the portfolio to improve the positions that we were in, to keep what was good and really get rid of what wasn't.
In 2006, we consolidated the 50% of UOP we didn't own, and as you can see there, there has been a kick up in the margin at that point. I joined the business in 2008. And you're going to see what we've done during that time. Margins have gone up about 490 basis points during that period.
Of course, again, you're going to say this is a very easy and everybody can do it. Then for that reason, we made this special chart for you. I kind of showed it last year too. We tracked what the comparable companies do over this period of time and their margins. The green guys are kind of specialty chemical guys, more comparable to us. They're diversified having their MRO about chemical element. And as you can see, there's a widening gap between us and them, and this is where we'd like to be.
Now what differentiates us, well, I think, and you're going to hear in a while, it's our ability to innovate and the vast investments we have in LABs and the outstanding people. We know how to run plants. We run them very well. We are extremely strong marketeers, and people could generate markets and create markets. And we bundle these with a terrific operating mechanism. And this is a very well coordinated business that does not let grass grow and moves fast.
Now in terms of our core strategy, this is something, again, I'd like to show. It is not changing. But as Dave said a number of times, the trick is in the doing. It's the ability to execute. We have -- is a bedrock of operational excellence. That is very key for us to get most of our assets and obtain results and get cash.
Now our new product development is running along 3 different basis and that is to fit of the market and exploit the opportunities we see with our core technologies. Ian's going to talk about that. Then, we're strong at market creation and globalization, sales and marketing excellence. And we're now entering into a high-growth period with investments that, again, we're going to tackle during this presentation.
So taking those 5 items on that [ph] -- and I just want to share with you some concrete examples of what has been achieved here. This is from our electronics materials business. As you can see the first hot one is a plant in Thailand, the other one in the United States. We have improved our manufacturing conversion cost by 50% on the top plant and 28% on the bottom plant. Of course, we are planning lean HOS, debottlenecking, a sign of all the good things you're hearing putting everything together very well. But I think what the excellent results has been here is the quality improvement that has happened with this kind of effort. Because these plants are operating at PPMs around 1 to 20. In fact, the top one is operating at under 10. These are remarkable numbers, which enable us to get good prices from people who value quality.
Now this page is about some of the products we brought out in UOP last year. In fact, the whole of my presentation could be around this page. I'll go quickly through those 5 items, but I think these are seminal technologies established last year. The first one are -- all reflects technology [ph] means you take natural gas and make propylene out of it. As you've seen the economics of gas around the world have changed. In the last 14 months, 11 such projects were awarded around the globe. We won 10 of it. Our process is that good.
The second one has to do with making a polyester. There's vast investments in making a polyester around the globe, a new absorbent, is able to go into existing plants and increase capacity by 20%. Obviously, this is a very major contribution to those producers. Now we were talking in the morning and I heard of a one large company that does not want to talk about Fukushima. And the reason is that it's -- what happened there was radioactive, and they didn't want to be associated with it. Well, we came in and solved the big problem. The problem was very simple. You probably saw it on TV. There was a lot of radioactive water. What do you do with it? We developed a chemical filter, which as we pump everything through there, in essence, in a few barrels, we captured all the radioactivity. So that's one of the reasons you're seeing people being able to go back in there, major, major contribution.
The next technology, again, seminal. We can take heavy crude at the bottom of the barrel and upgrade it. We signed our first deal during 2011. We can give you 4% to 10% more transportation fuels, just do numbers. There's 88 million barrels a day, 4% to 10% more transportation fuels out of a barrel. The last one is a new method of making olefins, for use -- the ethylene and the propylene chain are [ph] natural gas or coat [ph].
So let me move now to globalization and give you an example of our Resins and Chemicals business. This is a business that really has done a great job of going from about 20% outside the U.S., exporting last year at 45% of what it made. And we're now marketing around the globe, and we're capable of reaching all the customers, getting the best prices. It's a major achievement here.
Talking about sales and marketing. It's how do you put sales and marketing together in a global basis with technology. This is our specialty products business that was really one that people felt was going to go nowhere. Well, that was not the case. We have a number of basic technologies, marrying those with requirement of customers around the world, triaging those pipelines, keeping -- developing those products in contact with the customers. We now have a $1 billion pipeline and a lot of the growth we're getting out of this business that was meant to be tired is coming out of that process, and it's working very well.
Now here is a breakthrough technology again that's getting approval around the world. This is the requirement for new refrigerants, which do not cause global warming. We have developed our new solstice for mobile airconditioning, that means cars, trucks, which takes down the low global warming factor potential 14.30 to 4. It has higher efficiency, obviously, it's not ozone depleting. So this is a major opportunity, which we are beginning to ship around the world and will grow over the next few years. And it's a great position to be in.
Now, of course, this is a great segue for me to introduce Ian. Ian besides being our CTO and holder of a lot of 60 patents is the primary inventor of non-ozone depleting refrigerants now in use around the world and for which he has won the coveted Perkin medal.
Thank you, Andreas, and good morning. It's great to be here to talk to you about some of the improvements we've made in the new product development process, the impact that it's having on our portfolio and some of the new technologies we have in that portfolio.
So let me step back 10 years. 10 years ago, we, like a lot of other corporations, had a stage gate process to develop and commercialize new products. However, I can say that our business leadership was not truly engaged in that process that kind of -- the R&D guys to handle, and marketing was not that great. We really didn't have great business cases, with the things we were working on. And we weren't really investing in long-term technologies, breakthrough technologies. I can assure you that, that has now changed. We do have business leadership engagement sitting there. And he's engaged every month with this. We've got a much greater focus on marketing upfront and building business cases and really driving the value proposition. We are investing more in game-changing technologies. So absolutely key to this transformation were our people and capabilities, our process improvement and the portfolio that we have.
So let me talk about the people. I had the good fortune to work with 1,100 scientists and engineers in PMP. And they are really creative and innovative bunch. If I add to that, the 2,800 other engineers we have in our engineering and services business, in our manufacturing and process technology organization, that's 45% of our census, with a strong technology background. We are a technology business. And you can see on the list below there that a number of our technologies has received some very prestigious recognition by outside organizations.
Now Andre has mentioned patents. We have 18 people in our organization that, individually, have at least 50 or more and up to 120 patents each, very innovative people. We ranked #4 by an outside organization of the innovativeness of our patent portfolio. Number four, look at the 3 ahead of us, they are much larger corporations within that of business sector, investing a lot more R&D dollars than us. So we are punching above our weight here.
A couple of metrics that I follow here is how many patents do we issue in a given year, and are they aligned with our business strategy? We're at a record number last year. But that's a lagging metric. I also monitor how many invention disclosures that scientists generate every year. And that's the raw material for patents that come in the future. And we'd be in record numbers for the last 2 years. So more to come there.
New product development process. Andreas mentioned that we have 3 flavors of this process. We've adopted it to 3 different business models that are listed across the bottom, fast-cycle applications development, where we have a technology or a material platform that we can reformulate -- reformulation supply in different markets and applications. Our technology leadership approach, this is our UOP technology licensing model. This depends upon a very robust foundation in research. We need to be developing the next-generation catalyst, the next generation absorbent, the breakthrough technology for the refining and petrochemical industries. And in a new molecule and scale up approach here, we go back to inventing a new molecule to meet customers requirements, moving it through all the approval processes and then the building the detailed chemistry in chemical engineering, design, pilot plant and scale up.
These 3 flavors are different in their degrees of complexity and resource requirements and cycle times. But common across them all, the General Manager owns the process. We have marketing engaged upfront again to develop the value proposition and build a strong business case. And my job and my team's job is to deliver the technology.
Now I'm going to just take 3 examples, one from each of those models to give you a flavor of some of the technologies we're developing beginning with the fast cycle applications business, business from our advanced materials -- one of our advanced materials businesses that Spectra business. Spectra fiber is used in anti-ballistic protection devices, bullet resistant vest and other types of ballistic armor. This developed the next-generation material here that we call Spectra X [ph]. It can be used to manufacture a bullet-resistant vest, for example that's 15% lighter and 15% more ballistic protection than any other fiber out there. It's a significant increase. And it meets 2 of the cost demanding customer needs. You wear a helmet all day, you need to have it light and you need to have protection. Now we're standing that technology up to different applications, different types of vests, from law enforcement to special forces, the military and to new helmets.
Andreas talked about low global warming Solstice 1234yf, used in automobile, air conditioning. I mean, talk about 2 other molecules that are part of our platform, Solstice 1234ze is different than 1234yf. It can be used for aerosol applications, thermal insulation foam and as a refrigerant in industrial applications. And 1233zd -- Solstice 1233zd is a great material for installation foam in your home refrigerator and also enables us to get into new markets -- solvent cleaning markets for aerospace, electronics and medical devices.
Both molecules, ultra low global warming, we've had been extremely positive feedback from our customers on this performance, the performance in both, have great safety properties. The economics are great in terms of value for customers. And there are nice opportunities for us to grow our business over the next few years. We have a strong patent position, and these 2 molecules, in particular, we can reuse at manufacturing technology and investment in some assets, at 245 technology through actually lower the capital required to get into these businesses.
And then our UOP technology leadership portfolio. Too many technologies to talk about. But we're developing technologies that provide flexibility for our refining and petrochemical customers. Flexibility on their feedstock that they can use and flexibility on the types of products they can use to maximize their economic output. We're developing technologies that can get more useful liquid fuel out of a barrel of oil, which can be used to refine heavier and heavier grades of crude oil. New gas processing technology, membranes and absorbents to clean up natural gas, remove the mercury, remove the sulfur, remove the carbon dioxide. We're taking that technology and downsizing it and making it more robust so it fits and it works on a floating liquefied natural gas platform. We are developing next-generation catalysts and absorbents that will provide greater yields and greater efficiencies in the customer processes and we're continuing to invest in our renewables technology portfolio. We're currently building a demonstration plant in Hawaii, an integrated bio refinery that will take waste biomass and convert it ultimately to real liquid Honeywell Green Jet and Green Diesel Fuel. So a great portfolio but to be successful there and maintain that competitive edge, we need to have the fundamental capabilities, the pilot plants, the labs, the state-of-the-art scientific equipment. Sometimes it's only 1 or 2 pieces of this equipment in the world exists and we're fortunate to have one and that is a true competitive advantage.
So we have all of that. People, capabilities, process improvement and an investment in next-generation and breakthrough technologies is it making a difference. A few metrics on the right-hand side of this chart, beginning at the top. Two years ago, we made a conscious decision to reduce the number of projects in our portfolio and reassigned those resources to focus on the big hitters, to accelerate them and increase the probability of success. In doing so, we actually increased the value of that portfolio as measured by 5-year revenue potential. New products today that are less than 5 years old represent about 20% of our total revenue in PMT. That's expected to grow to more than 30% in the next 5 years. But more importantly, from my viewpoint, the mix is going to shift. Where we develop a new product, it can be a replacement product. So there's substitution for one of their existing products or it can be a new product, where there's no substitution. We're about 50:50 to date and by -- in the next -- end of the 5-year period, we'll be 75% new, 25% replacement. So that's more growth opportunities for us. And we monitor our progress on a monthly basis. And the boss was involved years, every month. We set ourselves a goal, an annual goal for how many products we're going to launch and how much revenue they will generate in that 12-month period. So if we're late by a few months on launch, that decreases the number of months we have to generate revenue in that calendar year. So we look at that metric every month and we take corrective actions, if necessary. The last couple of years, we've improved, increased the number of products we've launched and exceeded our plan for revenue generated in that calendar year. So more to come. And with that, Andreas.
Andreas C. Kramvis
Thanks, Ian. Just to add something to what Ian said that we are rated #4. The companies that are 1, 2 and 3, I believe, are BASF, DuPont and Dow, which are about 9 to 15% our size -- 15x our size in terms of in the chemical space. So you can see how much we punch above our weight. Now let me just turn to the market and I'll start with the industry landscape for UOP and for all you're hearing and alternatives, fossil fuel demand isn't going away. It's not abating. Barrels per day consumption today is more than 2008. China is putting 17 million new cars on the road so it's a -- in a lot of other parts of the world. So that industry is going to keep growing. Let's say on a conservative basis, GDP 1.5%, 2%, but the reality is that needs for refining are growing much faster in our view. It's 5% to 8%. The reason is it's no good if you need gasoline in China and the refinery's somewhere else. Secondly, there's a lot of obsolescence. You heard about what we're doing. We're bringing new yields, new performance, the crudes are getting different, they're getting harder, people need to keep investing in this business to stay. Otherwise, they have to close down as you've seen has happened on some of the refineries on the East Coast, that they've neglected investment for 15 years and they're just beyond the point of no return.
So on the right, again, natural gas, where we have an increasing play in cleaning, we see that becoming a 25% of global needs as opposed to 21%. Clearly, a terrific opportunity for us. And then the bottom right, again, is the petrochemical need. It's a need for propylene, where on-purpose propylene coming out of gas, we're seeing that increasing by 60% in the period. This is the 10 out of the 11 wins that I was talking about in the last 15 months that we had when this market began to happen. But this is real needs out there as population grows.
So just to very quickly go through about what is our sales pitch? Technology's one thing. At the end of the day, when you're dealing in the refinery business, it's about how much -- for how much. There's some hard-nosed guys like yourself sitting around who's saying why is it going to make a difference? What money do I make? On the left, I have, these are real case studies, a refinery, a large revenue refinery, $15 billion. That's the price tag. Why did we win the deal? Well, it's very simple. The guy needed a lot more diesel from heavy crude. How do you upgrade that? Well, we knew how to do it. We convinced everybody we knew how to do it. Our track record is terrific. Our NPV was $2.3 billion more, well, that clinched the deal. That is the argument.
The second one is a $1 billion investment in how you upgrade heavy crude and I think this opportunity is becoming bigger and bigger. And again, we came up with a new technology to do this. We've demonstrated it. Our NPV was $300 million higher. You get the deal. Just to make the point on the right-hand side, another refinery, who've opened up an opportune on what we sell. It's not just being a licensed or a technology but going to front-end engineering and the reason for that is you can optimize the process and you can take the time down. If you do the math, on a $10 billion deal, one year -- if you can save a year, opportunity costs and on reasonable assumptions and financing costs, you come in about $0.5 billion ahead. And that is part of our selling proposition here plus superior technology. And again, you can see on the bottom the superiority that we have in this sort of deal. Obviously, this is very few deals every year. You got to go in. You got to have the technology and the people and the expertise and the reputation to win them. Now, I know you think it's a lot of press because it's such an exciting business and Advanced Materials is kind of has been historically the weak sister. I just -- things are changing or things have changed. This is a business that has performed extremely well. The profits here have increased 2.5X. The margins are second to none. So again, this is a business that started growing, creating markets and marketing around the globe.
We are in 4 areas here. Fluorine Products, Resins and Chemicals, Electronic Materials, Specialty Products. We are in a lot of -- where we are, they may not be huge spaces in some cases but we have strong technology. We're capable of competing and creating markets and having a good growth portfolio in all these areas. I've talked about globalization being very key. We actually, last year, we hit close to I believe it's 48%. Our plan this year is 45%, in high-growth markets. I think this is quite an achievement for us. Where there is growth, we are there. And we've got some people on every corner of the earth, basically. And we're very linked together in very good realtime systems so that we can optimize what we're doing. We are running technology centers. In chemistry, a technology center is not a cheap proposition. We just announced the Ultron [ph], the India technology center decides to design, et cetera, we have there. This center Phase I, cost us $35 million. It's just operational. Of course, we've been in China for a while. And this is the chart we follow in terms of becoming the Chinese competitor and Shane is going to talk about this, this afternoon. From where I'm sitting, step number one is to be able to establish -- it's counterintuitive strong R&D so that we can talk to a lot of people, add value locally and not wait for the time zones and for us to come there. This is what we've done. We've got 80 scientists, 40 with Ph.Ds, really producing outstanding products. We've moved out the capital curve now. We announced in November, a major joint venture with Sinochem within China last week. We signed another major joint venture with Juhua [ph]. We have a number of plans going in place. We believe it's a great market, obviously. And we need to be there with our best technology. Honeywell Operating System, very key for us. For all the improvements we've made in our operations, only 50% of our plants are under bronze or silver. That means that we have 50% more opportunity and it never ends. I hope by 2014, we'll have 100% and keep improving from that point. But all the parameters improved under the Honeywell Operating System. Obviously, quality goes up, cost goes down, safety goes up.
Okay, let me just give you some view of where we see our markets going. First, I'll start with UOP. I think we have a record backlog today. You've seen the changes in technology requiring our type of solutions. I talked about them during the presentation. The demand for fossil fuels, the demand for renewables, the demand for the things we're doing for energy around the world is increasing. I feel we're on a very good part of the cycle here and things are looking good. When we sign something, it kind of comes in over the next 4 or 5 years but the rate of wins is terrific and the market looks good. What could derail it? Well, a major financial issue because these are big projects requiring financing. As long as we don't have another 2008 type of collapse, I think this market is there. The rest of our markets, there is some headwind. I think the stock market yesterday realized that China was slowing down. I think I've been talking today, even this last October that I said hey, some things happening here. Basic things are slowing down. People are walking up to it. In fact, my impression is and our impression from just seeing daily sales, and being with all this basic stuff, I think is a lot better than last October. It's kind of beginning to come back up again. Whether it 6% growth or 7.5% growth, I think it's still good enough for us. We are not relying on that last 1%. We're relying on our new product machine. We're relying on our people, our ability to sell. So whether the market's perfect or not, I feel good about where we are.
Okay. I know I've taken some comments here. We've put 2010 targets of 16% to 18% and we shared to them in 2011, and where are we going? Of course, I have a very easy escape because Dave said we're not changing the numbers. And I like that. I like that a lot. Having said that, I think we had a great 2011. We're not going backwards. We have a strong business and hopefully, we'll keep seeing some good numbers. Summary, robust position, good momentum, plenty of growth projects and well organized and motivated team. I think the business is well poised. With that, I'd like to thank Ian and ask Roger and Elena to come up for the Q&A.
All right. I already see some hands up . Just so you know, we have 2 mic runners through the 2 center aisles. Please wait for the mics to come to you so we can your questions heard on the webcast. Steve?
Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division
My first question is actually for Mark and for Roger. So this question is more broadly, Mark and Roger, you've been incredibly successful in growing your Asia-Pacific business in Life Safety, particularly in China. If you think about applying that to the rest of Honeywell or the lessons are broader, more broadly within ACS as well, what are the things -- lessons you've taken out of that success in China that you need to apply? And what's the potential for the business, more broadly, based on what Life Safety at least has been able to do in China?
Great question, Steve. I think with Life Safety, particularly in the fire business, was had a fully localized operation long before companies were talking about it. So we had local leadership, local sales, local R&D, local manufacturing, influenced the standards for fire alarm systems in China and we did business as a Chinese company long before it made it into companies, including Honeywell's lexicon, of being the Chinese competitor. So it was a -- and got a lot of support from the leadership teams outside of China. But fundamentally, you go to China and the entire team there is Chinese. So the takeaway is over the years, at least from an ACS perspective, we've used that as a model and when Shane talks about becoming a Chinese competitor, that is essentially the model. Mark, I don't know whether you want to add anything to that.
It's basically become a local company, act like a local company, empowering the people locally, be a full company, not have them make everything, every small decisions that they need to make, they need to ask your permission on different time zones, 12 hours late. So we're looking at duplicating that model like in Latin America, where we're not as mature. But empowering, getting a good local manager, working with them, setting goals, objectives and really becoming a local company. We have 100% capability not depending on the mother ship for all what they need to do. And having localized products is so important. The products in these markets are different. And localize them, a lot of the Chinese products now is from East to West now. A lot of the products you're seeing there that have been invented there now, over the years, 20 years later, we've been in China for 20 years. We really have, it's really becoming a tremendous global resource to leverage and use that model everywhere else we might be.
So when Dave talks about the same, the best is yet to come, we look at that as a model. That has to be I think in my portfolio would be the only one of business is actually #1 in China. We have a lot of businesses that are top 3. That's the only and we say, okay, there's a reason for that and that's because we were local and empower the people to Mark's point. If you just take a look at my portfolio, multiply it times China times India, times the emerging regions that Shane's going to talk about, we really have the cookbook how to do it. We just need to do it and say, this is what we can do because we are not in that position in all of my businesses in China nor in the rest of the emerging markets. So we look at them, say, "Hot dog, what great future opportunity for us." We also built a factory in the India, we're the only global company that has a local smoke detector manufacturing world-class factory in India. We're now in our third year now, supplying not only India but the Middle East and it's been a tremendous success story. And producing world-class margins as well. Our China business is producing world margins equal to the rest of our businesses in India as well, in places where typically companies that make a lot of money typically don't make a lot of money. So we've localized it, there as well so we're duplicating the model.
Jeff Sprague here.
Jeffrey T. Sprague - Citigroup Inc, Research Division
Andreas work for you please. Can you just drill a little bit more, maybe a little bit more granular on the gas opportunity. Obviously, all understand has been this massive positive supply shock, but when we think about the value intensity for UOP to capitalize that, gas versus oil, I mean is there more dollar content? Is there more engineering opportunity? How does that play out? And maybe just secondarily, how important is natural gas for the cost structure of the other businesses in your segment and is that also a bit of a margin tailwind?
Andreas C. Kramvis
Thanks, Jeff. I think traditionally UOP has been very much based on oil and petrochemicals. We've now concentrated much more on building a gas business. Now is the potential the same? I think in 10 years, it may be. At this point, we're building step-by-step. There's 2 types of opportunity in gas. One is gas that is coming out, which is dirty basically a lot of H2S. If you go to Qatar and that type of gas, UOP technology is cleaning it. The gas is going to come out of the South Atlantic Ocean but Petrobras is going to bring out -- is going to be cleaned on the ship with our technology. Those are contracts we've signed. They're going to come out in 6, 7 years, 5 years. That sort of time. Then there's the second opportunity that frankly is just -- is doing all the running now and this is the ability to make propylene but also butylene. Butylene is used for tires out of natural gas. The prices that we have today, clearly that's a much better route. And it changes the mix of the economics of the refineries, which gives us another opportunity, but it makes for a cheaper product. And some countries have really adopted it. China, we've signed 5, 6 deals there, but there's a lot more happening. So it's going to be much bigger going forward and also equipment. We supply a lot more equipment in gas. Lower cost of natural gas, I mean, natural gas is low cost in the United States and that's where things are really created. We keep producing it. If you're using it, cost is terrific. I mean the equivalent of the price today is about $10 oil. I mean that's where we are. Having said that, if you go to China, it's 6x the price. Europe is about the same. So I think this will drive the U.S. economy. We see a lot of Chinese companies coming here now to get their basic ethylene and stuff and future investment here. We are a big user of gas and the Caprolactam. Clearly, clearly gives us a competitive advantage compared to our Chinese competitors and we can export from here. Big item, this is -- I think this is -- I don't think people understand what the importance of full what's happening here.
We will have one more question during the session. Shannon?
Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division
Roger, you're tracking about 50 bps of margin per year last couple of years to 12 here. To get to the midpoint of 40, it has to be more like 80 for the next couple of years. I mean are there things that get better, I mean you have some investment, I know, that you ramp, obviously, in M&A but that could continue the things that lead you to believe you have a pick up in the rate of market expansion [indiscernible]
Sure. Obviously, it's a big focus for us. I mean to me, it's everything I've talked about, where our ability to get price has improved. The ability to as we get more and more plants from the bronze, bronze to silver and HOS maturity and I'm a big manufacturing, I've got over 120 factories around the world. So it's a big deal for me, HOS. I'm bringing up the rear in SAP in the corporation in terms of deploying it. So when you look at SAP maturing, HOS maturing, my ability to get price increasing, all bodes well for margin enhancement. The one wildcard is when you look at my portfolio mix. I have a Service and Solutions business with lower margins than my products business, I don't try and manage that mix if my Service and Solutions business grows at a more rapid rate. That is the one uncontrolled headwind I face. But we just -- we manage through it and we still manage to get the improvements. About the other tailwind for me is M&A integration. So as we get that behind us and that starts to show up in the margin, that's another tailwind.
Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division
I just want to clarify, Andreas, the flooring is $1.5 billion opportunity for Solstice, I mean is that a market opportunity or is that the Honeywell opportunity?
Andreas C. Kramvis
Well, I think it is a market opportunity and it obviously depends on acceptance and regulations, and that's beginning to roll. As you know, this is a product, it's a new molecule and access to this molecule is owned between us and DuPont.
Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division
In terms of how big -- because flooring is like $1 billion business. So a billion of opportunity with...
Well, I think -- Shannon, I think there's 3 new molecules there that we're working around the globe to establish. You can think of this is as difficult as getting almost a pharmaceutical molecule out. So that's the process we're going through and I think we're winning. I don't think we're ready to declare victory. I think this is going to take a lot more work. But clearly, the prospects are very good. And that's the situation we find ourselves. I mean this is a unique situation, we're the only guys with 3 molecules and nobody else has got anything that can compete in all these very essential areas. So this going to take a while, it's going to take regulation, et cetera, but it's very promising.
All right. We're now going to take about a 45-minute break for lunch. Again, I encourage you to interact with our senior leaders, as well as participate in the technology demonstrations that are on display in the South Ballroom. We'll start back here promptly at 1:10 p.m.
Good afternoon. I'm looking forward to spending the next few minutes with you to discuss about the progress we make in transportation systems, strengthening our market position and extending our technology leadership. We are really in the sweet spot of the automotive industry. Governments are pushing more stringent emission requirements. Consumers are demanding more fuel-efficient vehicles. All of it speaks to more turbo penetration and we benefit from it. So today, we have a pretty compelling story to share with you on our market position, our differentiation and our prospects for growth.
Let's get started. Let me begin with an overview of transportation systems that set the stage for our 2012 guidance. All numbers on these charts have been restated without CPG back into 2008. We are exiting 2011 at peak operational performance, both in revenue and operating income, driven by continued fixed costs disciplined, operational excellence and strong performance in win and launches around the world. Turbo penetration continues to accelerate. It is offsetting vehicle volume, vehicle production volumes in the U.S. and in Europe, still about 50% below pre-recession peak level. So in our guidance, we have reflected the decline of vehicle production in Europe at about minus 8%, in line with global insight and we're facing unfavorable foreign exchange. We are ranging revenue between $3.9 billion and $4 billion and operating margin between 12.7% and 13%. Overall, margin expansion on flat revenue.
I'd like to leave you today with 4 key messages. Fuel efficiency and emission regulations drives key long-term growth. Our win rate and our new launches supports faster growth than the industry. We're going to continue to push our technology leadership across all fuels, all segments, all geographies and we continued to strengthen our operational performance leveraging HOS as a competitive advantage and investing in our Specialty Material business to turn it around. I'll come back on these few points as we go.
Let me just share with you the 2012 planning assumptions around the automotive industry macros. Overall, you could see turbo penetration continues to accelerate. Diesel production is up around the world to the exception of Europe, which remains the headwind for the industry, and obviously for us. This being said, TS benefits from significant tailwind. Hundred turbo launches around the world, global turbo penetration accelerating and the EU diesel penetration much higher than any of the industry experts had predicted until now. All of it should offset a challenging EU environment. Let's talk about the future. TS beyond 2012 will continue to benefit from favorable global macros. Governments around the world are driving more stringent emission requirements and mandating more fuel-efficient vehicles. Look at these numbers. For Europe, China and the U.S., that's 50% improvement from today's mandates. To me, those requirements, truck companies have no other choice than downsize their engine. Why? Because in the automotive business, smaller engine is better. Smaller engine means better fuel efficiency. The one thing though that, that companies are struggling with, they cannot give away performance. Performance is what sells cars. Performance is what consumer wants. This is why they need turbochargers. Turbochargers is a no compromise solution to consumer. As a result, you see a massive acceleration of turbo penetration in the world.
Let's take a look. TS will benefit from what I described as being a double lift, lift from global vehicle production increasing and lift from turbo penetration increasing. Look at these numbers. The turbo industry will grow from 26 million units in 2012 to 38 million units by 2016. That's about a 50% improvement. It's happening in turbo gas, but the turbo diesel business remains very good. There's significant upside to this. Industry experts are predicting a faster pace acceleration beyond 2020 of turbo penetration. Honeywell has a great position in a good industry.
Let me talk about how we differentiate ourselves. We differentiate ourselves based on 3 main levers. Obviously, technology and innovation, this is an aerospace heritage. No one has an aerospace business in this industry. We serve customers in all segments, all fuels, all regions and we drive operational excellence through our HOS advantage. I'll come back on each single one of those points as I go along. Being part of Honeywell makes us unique. Our turbo business benefits from synergies in our aerospace business. At the end of the day, the turbocharger is just a small engine under the hood of your vehicle. We have synergies with aerospace in areas of material science, bearing technologies, aerodynamic and everywhere in the world, our turbo engineers are co-located with aerospace engineers. We get synergies as well from Rogers business. The expertise in control systems is very useful to us, as we integrate the turbo in the engine. And we get synergies as well from the insights that UOP has on green fuel technology, as we develop our turbocharger for the future. With more than 100 million turbos shipped to date, we have the largest customer base, a unique engineering insight and a launch expertise and a field experience that our customers really want to launch flawlessly vehicles around the world.
Let's take a look. This is an impressive chart. It summarizes our key turbo launches in 2012. Light vehicle diesel, light vehicle gas, on-highway, off-highway. I'm going to come back on each single one of those growth stories in a few minutes. But in summary, it's about 100 new launches and right now, we are working on 500 new engines that we will bring to market in the next future. We drive flawless launches as a differentiator in this business.
Let me talk about a few growth stories, and I'll touch on segments and on regions. Let's start by gasoline. The gasoline market is growing at about 20% CAGR through 2016 from the strong increase in turbo penetration. Honeywell is expected to grow faster than the industry through new launches in the U.S., in Europe and in China. We're going to grow with 2 sets of customers -- the high-volume runners, VW, Hyundai, Ford, GM, some of the European OEs and the Chinese OEs. But we want to grow as well with some of the premium customers. BMW, Mercedes, for which turbochargers in vehicles are going to be available in the U.S., in Europe and in China. New product range, outstanding innovation, will drive Honeywell growth globally.
Let me now touch on commercial vehicle. The commercial vehicle market is growing at about 7% CAGR through 2016, driven by new emission standards and need for more fuel efficiency. We are here again, going to grow faster than industry, leveraging some of our new aerospace technology to introduce advanced innovations. We are going to be launching with premium customers such as Cat, Volvo, Hino and as well some of the Chinese OE, companies like Weifang Diesel, largest Chinese supplier, for which we are supplier -- 2011 Supplier of The Year. Again here, innovation across the broadest range of projects in this segment should drive Honeywell faster than the industry.
Let me now talk about region. Europe is the largest turbo region. The Europeans are pushing the envelope in CO2 reduction, translating into an impressive 67 miles per gallon. The market is going to grow at about 8% from turbo gas, primarily, but the diesel business remains very good. We are going to be launching new technology targeted at a premium segment in diesel and gasoline, and bringing new product in the small engine range. We feel very confident to strengthen our leadership in the largest turbo regions.
On to China, well, the key is to become the best local Chinese competitor. Here again, regulation is driving massive turbo adoption. It's in gas, it's in diesel and we're going to be benefiting from it. We'll expect Honeywell to grow faster than the industry. Leveraging our best-in-class R&D facilities, driving local innovation speed end-to-end. We're going to be growing through 2 strategies. One is introduce new technologies with the global OEs; two, become the best local competitors -- you're going to hear more from Shane on this. That means East for East product. Product designed in China, manufactured in China and commercialized in China, for China. Great story ahead of us.
Now on to the U.S., a story that you're waiting for. North America will become a fantastic growth story and we see a turbo revolution happening at the dealership. The industry is growing in gas primarily, but the diesel business continued to be pretty strong. Traditionally, we've been very strong in the U.S. in commercial vehicle business, with customers such as Cat one of our largest customers globally. We are now leading the turbo adoption in passenger cars, with customers such as GM. The Chevy Cruze is one of the best-selling vehicles in the U.S., apparently. Volkswagen was going to be part of the very aggressive commercial strategy in the U.S. at year-end launching on a new vehicle, and will as well, part of the success story of Ford on that echo boost lineup. You can find as well as turbochargers on the premium vehicles such as Mercedes and BMW available at your dealer and I really recommend that you drive those exciting V8 and V12 turbocharged by Honeywell.
Overall, flagship launches across all segments should drive our revenue up in the U.S. Let me pause now and talk about our operational transformation. Let me update you on our Friction Materials business. Friction Materials had strong technology and top brands but has been historically challenged by weak cost position, primarily in Europe and in the U.S. As you've heard from us last year, we decided to transform these business and invest. This transformation is underway. We have completed the reengineering of our hostile market business from a make to a buy. We are taking significant costs out, rationalizing our footprint. We announced 2 years ago the closure of our aftermarket operations in the U.S. We've closed Spain in December and we announced the closure of our France operations by June 2013. We are now investing in new technology, better cost position, ramping up our factories in China and Romania and concentrating on the full range of products focused on China growth. Overall, this strategy is on track. Think about what we do here as completing in 3 years what we haven't done in 20. We will come back to you as we make progress but overall, we are executing our strategy and the turnaround is on track.
On to HOS, which is a real competitive advantage. In a few minutes, you're going to hear more about our HOS story across aero and MTS from the team. But let me set the stage here. In transportation system, 100% of our manufacturing base is deployed through HOS. 62% of our factories are currently at silver stage, 15% at bronze. Turbo is leading the game and will be 100% silver in 2012. We are getting from our customer great feedback. It's enabling faster growth. We're seeing step improvements in our top leadership and we're really seeing here a sustainable culture of change. You're going to hear more from Pasquale and a sustainable culture change is really why we believe we have a 20-year competitive advantage.
Quick update on our long-term outlook. Like what you've heard from all the businesses, we're on track to revenue of between $4 billion and $4.4 billion in 2014 and segment margin between 14% and 15%. Now, let me wrap up quickly and leaving you with a few key messages. Fuel efficiency regulations drive long-term growth for TS. Our win rates and launch performance will drive TS growth faster than industry. We're going to continue to push leadership in all fuel, all segments, all geographies, leveraging our operational excellence to win with HOS. Overall and in summary, a pretty compelling story for the future, and as Dave would say, the best is yet to come. Thank you. Let me call now Pasquale Abruzzese and Mike Owens on the stage.
Good afternoon, everybody. I'm really excited to be here and be able to explain to you the impact of HOS. It has an impact on 3 main areas. Customers, employees and shareholders alike. We reaped a huge benefit from HOS so far and you're going to see that the best is yet to come. And if there's one thing I really like to take away from this is that HOS is not an initiative. It's a mindset. It's ingrained in our DNA and it's what we do every day. That's why as Alex said, we think it's a long-term competitive advantage. Okay, it's not an operational enabler. It's a business enabler. We're working on quality and delivery to impact customer satisfaction in the top line, doing a good job on quality and delivery every day for our customers, helps the sales relationship and obviously, when you come to get the next order, you're not talking about problems in the past. You're just talking about the future. Very important. It's also a methodical method of controlling our cost. We're working on safety, productivity and inventory every day and that obviously drives to the bottom line. So HOS is a shifting mindset. Every good company has a strong operational tool set. We've got our own lean tools and Six Sigma. HOS takes it a step further, I would say. We used to have in a typical factory, 10 managers and 500 employees. The 10 managers were thinking and applying Six Sigma tools every day to 500 people who were listening, doing and understanding Six Sigma tools but not applying them every day. With HOS, we've turned it around. We've got 500 people thinking every day and applying tools and the leadership has turned into cultures enabling that to happen, putting a mechanism around that so people with ideas have got a mechanism to implement the ideas and improve their own workplace every single day, a very, very powerful tool. So these people are working smarter, not harder. So people are very engaged when they are just working smarter, not having to work harder every day. I'm going to give a few examples of how that actually works. So on continuous improvement, on the left-hand side you'll see improvement ideas. Here, we're generating 100,000 ideas per year. It's 400 ideas per day. It's going to be 5 ideas in the 15 minutes that Mike and I are going to pitch HOS. Very powerful. Those ideas drive productivity. We leave no stone unturned, small ideas, large ideas, all of them are coming through. An important fact, too, is what we're learning from one site and we've got sites of various stages of HOS, what we learn at one site, we can transpose to the next site, so the next site has it comes through HOS starts at the higher baseline, and therefore, we can accelerate the rate of change, the gain from the future sites. And I'll show you some of the statistics and how we're going to improve them.
On the right-hand side, a great example I think of how a lot of these ideas over 4 years have transformed the process. We used to walk 2.7 kilometers -- or an operator, sorry, working on these machining operations is to walk 2.7 kilometers per shift, very fit person Now after a lot of the ideas and 4 major re-layout changes, so lots of little ideas implemented and then 4x we have to pick up machines or tweak the machines or reinvested a little bit into the machines, we got to a point that an operator is walking 150 meters a day. Very important because when he is not walking, the operator is transforming the product, which adds value to the product or he's checking and making sure the quality is correct. So in operational terms, we say that's taking away waste and concentrated on adding value. All of these, majority of these, again led by operator, facilitated by management.
So going on to the next one, process standardization. On the left-hand side, visual management. In every factory, in turbo, you see the similar sort of thing on how we control the shop floor. Very important that the operator on the floor and the team that he's within knows hour by hour, if he's going to achieve the shift target. It's very important also that the plant manager and his team know where the problem is in the shift and in the shift, they try and move resources to where the problems are so we hit the objectives of the shift in both productivity, quality and delivery to customer. Again, gains in visual management are shared across the site. That's a key reason we can accelerate HOS -- we've accelerated HOS and we like to continue to accelerate it in the years to come. On the right-hand side, as these ideas come through and we've shrunk the layout of the machines so the more operator-friendly and the operator can work much better on a day-by-day basis. We've also gained 25% free space. We put extra machines, extra process is up 25%. We don't invest in brick-and-mortar and we leverage our fixed costs. So a massive productivity gained through that. But the bottom line, we started off with HOS and to get to silver. So a very mature step which I'll go through in a second, we took 3 years to do that. Today, we're taking about a year. That's why confidently that with Alex, we can say that by year end, we'll go from about a 50% penetration of silver in our sites. We'll have everybody silver by the end of 2012.
Okay, the HOS is evolving. We started off within the 4 walls of the factory. It was really working on the continuous improvement culture and the lean tool set. We've moved on but there are other things that influence the factory day by day. The sales and operations planning process, so how we manage the signal, as we call it, from the customer. How we plan that through the factory. And then how we also procure plot. How we do the scheduling for the suppliers and how we get parts from the suppliers into our sites everyday so we're not being disturbed by that. Also now, we're looking at the new product introduction process where we're making sure we don't launch at the wrong rate and then have to fix it through HOS, but we're trying to launch it at the right quality and at the right rate first time. So HOS impacts all aspects of our business. Okay, just a quick snapshot on the turbo operation, if I could before I go deeper on one site. We're doing the full product range that Alex showed. So from the very small turbo for the nano in India to the huge Caterpillar off-road truck, as it were. All right and we got 13 factories. So in 13 countries. We source in 30 countries. We have 1,000 suppliers. We generally are just-in-time delivery. We have 10,000 SKUs to deliver for a period, if you will. So very broad portfolio. The supply chain surrounding that extremely complex. Through the magic of video, one of our better sites, one of our silver sites in Bucharest, Romania to explain a little bit of how they perform to silver. Bucharest is our largest site. It's one of the largest turbo manufacturing sites in the world period, in all our industry. It's a silver. It is loved by the customers. The customers who are very discerning, customers like Volkswagen, are saying quality cost delivery of that site is at world-class levels. They want the supply base to be like that. So if we can go to the video, please.
So here's the key results for all the turbo sites. You can see the progression from before, through bronze into silver, is a significant performance in delivery, quality, productivity and inventory across the piece. Our first silver sites were 2.5 years ago now -- 2 years ago now. We've maintained this level of performance. It's not a flash in the pan, very sustainable month-on-month, with these levels of performance being recognized by customers.
So in the end, HOS is turbocharged in growth. It's working the top line, the bottom line and it gives robustness to the figures of growth that Alex showed earlier. So I'm going to hand over to Mike who's still going to talk to you about the impact he's seeing in aerospace into the future.
Thanks very much, Pasquale. This is exciting for me to talk about HOS and how we build on the success that you've seen in turbo systems, Transportation Systems, also the success you saw earlier in Roger's pitch on ACS and Andreas' pitch on PMT. Aerospace is coming up the rear as far as HOS deployment but we're accelerating quickly. We came out of '11 with about 41% of our sites at the matured phases of HOS. And that really matters because at all those sites now, we've seen a 50% increase in productivity. So what you're going to see from us in the next few slides is what our path forward is and the best, really, is yet to come.
You'll see down to the bottom of this chart here, that we're going to come out of '11 of 41% of our sites at the mature phases to about 70% of our sites at the mature phases. And that 50% productivity across the scale of aerospace will make a huge difference in our operating performance and a huge difference for our customers. What's notable here is when we first started into the journey in '06, our sites were taking a little over 4 years to get to these mature phases. Based on the experience of TS, PMT and ACS, we've been able to copy exact a lot of those practices, Dave talked earlier about the glue. HOS is the glue. We're able to connect with one another, we're able to build on that success, and we've been able to now achieve those mature states in under 50% of that time. So real significant contributor is being part of the One Honeywell process as we go through HOS.
The breadth of expansion and opportunity for us in aerospace is there's 84 product lines, we have 10 product families that encompass those product lines. We're operating in 17 countries. We're buying from our suppliers in 41 countries. We have a plan for each and every single part that we sell. That means we have a belly button, a person, who's involved in Honeywell operating system who plans for that part and determines how we're going to deliver that. We're selling about 80,000 SKUs across the globe, from the nose to the tale of the aircraft, in our tanks, and our runway systems, et cetera. We have 14,000 suppliers. So you can imagine the combinations of problems that can arise if we don't use something as good as the Honeywell Operating System and get each and every one of our employees involved in that culture. It could spell problems for us, but instead it's an enabler for success.
Okay, so I wanted to highlight a particular site here and to demonstrate where in aerospace, which can be a legacy industry. HOS is successful no matter where you are in the stage of evolution. So Minneapolis site was one of the legacy Honeywell sites. It was doing reasonably well, had fairly good performance by industry standards, but it was a top-down driven organization, very traditional. As Pasquale mentioned, you have a lot of leaders who were dictating direction to the employees, the employees were coming back up and saying, okay, I'll do what you're telling me to do. Once we turn that upside down and enabled these employees, they became our first silver site.
Pasquale mentioned about 100,000 continuous improvement suggestions. We're getting -- at this particular site, we're getting 1,000 continuous improvement suggestions per month and that's a measure of suggestions that are actually implemented. So you can imagine there's about 3x of that number suggestions coming through, 1,000 of which are being implemented every month. We've seen a 240 bips improvement in delivery, a 60% reduction in our quality defects, a 125% productivity improvement over the course of that time and a 26% reduction in inventory. So this is a fantastic example of why the best is yet to come in aerospace as we go from 40% deployed at this level of maturity to the 70% range and beyond.
It also matters what our customers think. We talked about the competitive advantage earlier in many presentations. There's really 2 things that matter in the Honeywell Operating System culture that we're building. One, is delivering results; two, is delivering what the customer wants in terms of the products and services. And significant on this page is if you look at the Boeing comment here, recognizing our Honeywell operating system deployments. Boeing has, as Airbus has, been in the press recently with all of their big backlogs and new orders.
Well, understandably they have a healthy skepticism of the supply chain on their ability to perform and deliver these massive rate increases, and they've been at each and every one of our sites now doing what they call rate readiness review. Can you scale up and deliver the product that we need you to? And Honeywell, our sites in aerospace at Honeywell are being held out as the benchmark for the rest of their supply chain. They have seen our HOS in practice, they believe that the HOS is what's going to enable our pieces of that supply chain to deliver and they're asking other suppliers to come in and look and see what we're doing.
All right so going up to the bigger Honeywell now. It is a One Honeywell process, the Honeywell operating system is cultural. It's a foundation built on continuous improvement. You never stop. It is always about how do we in the leadership rank enable our employees to be successful and take their ideas and put them into practice. It's beyond the Lean tools and the Six Sigma tools as Pascuale mentioned. It's really about -- Lean tools are about eliminating variation that you can see, Six Sigma tools are about eliminating variation that you can't see, but the Honeywell operating system and the culture is about knowing when and where to apply those tools. It's beyond the factory walls. If you think about the 130,000-plus employees in Honeywell and if each one of them have even 10 ideas per year that we could implement and improve on, imagine the acceleration in our performance and what the future looks like. It's about customer satisfaction and cost leadership. Dave talked earlier about 2 things simultaneously. It is results and customer focus, okay?
So thank you very much for the opportunity to share this with you. And with that, I'd like to introduce Tim Mahoney, President and CEO of Aerospace.
Timothy O. Mahoney
Good afternoon. Pretty exciting stuff here. What I'd like to do is share with you our perception for 2011 as we had a very nice, strong year relative to the growth and operating income performance in '11. And we think that we're very well-positioned to have a terrific year in 2012 and the years beyond. And that's based on the order intake, the positions that we're on as far as aircraft and so on. And I think in the out years -- this year and the out years, based on our positions, the products and the technologies that we're bringing to market, and I think the transformation that we've undertaken over the last 10 years, is certainly enabling that.
If you look at Aerospace, it was one of the organizations that I think changed very substantially in the duration over the last 10 years. And I'll just highlight 1 or 2 areas, which is if you recall in 2005, we reorganized around the markets that we serve, the customers that we serve, versus how we were previously organized around the products. So, one, engagement with the customer, very customer-centric across the entire portfolio of business and services that we do it either with the OEMs or the airlines.
Another very impactful organization that's occurred in the last 3 years is around marketing excellence and product management. And I've talked about marketing excellence in this venue before, which allows us in order to look at the attributes of an aircraft and understand how successful we believe that platform is going to be and are adjust our investment profile and strategy with that. But what's most exciting now is what's happened in the last couple of years around augmenting that with product management excellence, which is basically when you come to Honeywell now, you can look at the technology roadmaps, which we've always had. The product roadmaps, which includes what's happening on a competitive landscape perspective; and our core manufacturing roadmaps that's going to enable bringing our product to market as we go into the new product introduction process.
Now that's a substantial change from when I was here 2 years ago and last year, they were at a different point of maturity. Third point is around us becoming a much broader global company. And you'll see later on that message here is that I think over this last 10 years, we were I think rightfully characterized as we were very U.S. or very Phoenix-centric. I think that we've had some successes within India and China. We've taken that to market and of course, this is about market access. This is about customer intimacy and having a much more distributed organization globally, and you can see that we've grown in the last 10 years by a factor of 2 in that area.
And Dave touched on the last point, around, I think, transparency in 2 areas. One is the fact that everything is expensed out, so historically years ago, whether it was launch contributions, whether it was free-of-charge hardware, something in those areas, those were capitalized. And there was a change made a number of years ago as relative to that. That augmented with the transparency that we're getting now that the critical mass of the business is on SAP, and I'll status where that is later, we're really starting to understand where the greatest areas of opportunity for us in this area. So I think this has been a journey. We're certainly on the right trajectory and I think we've made substantial changes.
So when I look at the landscape out to 2014, and I know one of the questions is going to be, Tim, you've got to talk about these unannounced successes at some point. I got it. I'm aligned with the OEMs. When the OEMs say, "Tim, you can talk about these successes," we will talk -- we will certainly broadcast where we have won in these areas. But it is across our portfolio. So it's in the avionics area, it's in the engines and the mechanical systems, which has environmental control systems, cabin pressurization systems, environmental control systems, auxiliary power units and so on. So very, very pleased with the additional wins that we've had and I'll touch on some of the pipeline in a couple of charts later.
In 2011, we had a superb year relative to capturing the business that's out in the installed base. So we think about R&O, spares and upgrades, in those 3 venues, I cannot say that we had -- I can't express how happy I am with the success that we had, particularly in Asia Pac globally. But I think more importantly, in the emerging regions, high-growth regions. Middle East and Asia Pac, tremendous job -- by the way, I'm betting that 2012 is going to be actually a stronger year. Our objectives are aligned with actually having a pick up this year.
And also from a defense and space perspective, that the defense and space organization within Honeywell, to a certain extent, had an organizational focus on the big wins versus the big wins in the singles and doubles. The substantial change, I think epiphany a couple of years ago, around if you look at the installed base of the aircraft that are in the customer's inventory, there are huge opportunities. And we capitalized on those in 2011, we realized revenues last year in a relatively big way in 2012 and beyond. We've put together a global strategy that we're implementing at the platform level and we'll talk about that, and of course, you'll hear some of that from Shane, when he goes the defense -- the heat map area.
So very good environment. The message on in this chart is that this is an update from last year and the reason that we're able to capture this kind of business and the content on the aircraft is that we pursue, we win and we execute across the organization because of the way that we're organized, unlike others. Second thing is that if you look at this, there is a nice stream of maturity relative to platform. So for instance, the G650 we have been delivering products since the latter part of last year, feeding the assembly line and down in Gulfstream. On the Embraer aircraft, which is going the 500 legacy, is just going into the flight test program. I was just down in Brazil a couple of weeks ago, and they just fired off all of the systems that were on the aircraft, the engine which is a new 7,000 variant, the auxiliary power unit, cabin pressurization system, and I have to tell you, the program managers said to me, you've got an A in this area. So there's a nice pipeline, which is both near-term and long-term, and it's showing up as aircrafts start to go into revenue service or start to get through EIS, start to realize revenues there.
I've selected 4 areas, to talk about exciting innovation, which is what drives that growth. So if you look across the wheel of our portfolio, the first reaction and message that I want to leave you is, this is the broadest portfolio within the industry. And I've selected these 4, that I think they're very, very exciting innovations that are either in the market or very close to coming into the market. The first one is around our smart series. So this is at the heart, at the bedrock of what we are, one of the areas is around safety, right? That's our heritage, it approaches the customers and what are the risks that are out there from a system safety perspective and how do we make flying safer. We have these products that are here. The key to success here, particularly for the airlines business, software-only changes.
When we're able to deliver products that do not affect aircraft operations, there will be a very quick adoption. Now we'll see profile relative to the adoption rates, the premier carriers will start first and then it will move out on a global basis. This is actually one of the areas that -- on a global basis that we've seen a very quick adoption rate relative to safety. So very exciting -- excited about this. You can see that we've already sold 3,000 of these in the market. There's -- it's certified already for 10,000 and we're working on the balance of the area of interest here.
From an ATM perspective, this is something that's esoteric. I think, that for many people will think about air traffic modernization, not quite able to get their mind around it. This is the way that I think about it and this is the way that I talk to my staff about it. One is foundationally, what's changing is that the influence and there's a shift of influence and control on how aircraft are operating in the very near future around air traffic modernization, which is that control or that influence is moving from 100% on the ground to within the cockpit where there's an enormous amount of information.
And there's really 3 things that have to take place. You have to be able to communicate, you have to be able to navigate and you have to know what your surroundings are. You have to understand what's the situational awareness outside of the aircraft. Those are the 3 areas that we play. Unlike others, there's nobody else that has that kind of portfolio solutions, right? So we have been, I would say selling in the air traffic modernization program. The keen area right now or the -- I would say, the area that is more highlighted in interest in sales is in the communications and the data link area. Secondly, we continue to demonstrate our leadership with the 3 organizations that have been advancing all of the technology demonstrations, and flight things that are taking place with the NexGen within the United States with FAA, with SESAR in Europe and with actually CAAC within China. We've established a joint ATM or ATM lab in Beijing with AVIC systems in order to move forward with this.
All right, you're going to see more of this. This is where we have connected our portfolio. So if you think about mechanical systems and avionics, on the left-hand side of the chart, you'll see and you've probably read about this, relative to the electric taxi and the values this can provide to the customers from a direct operating cost perspective. So we are taking a look at, let's say, our unparalleled product portfolio and we're operating or monitoring systems that are in the aircraft. Now this ties back to product management. This goes back to the fact that the product management organization is looking at how we can enable functionality on the aircraft that has not existed before; and two, is unlike that anybody can do right now. And on the right-hand side of the chart, you'll see that something that was completely disconnected before, which is the apex, which is a variant of our cockpit, and the cabin pressurization system. And from a human factor standpoint, the customer had a need in order to display what was taking place in that system in the cockpit and we were able to do that. This is something that we're going to be doing more of and you're going to be seeing that it's capitalizing on our portfolio of products and services.
From an airborne connectivity standpoint, how many of you either got connected at some point with your either your laptop, your PC or your blackberry today? Are there any -- is there anybody here that didn't? Okay. This is all about being connected all the time that you want, all the time that you want. It's enabled by the technologies and the products that we already had in our -- within Honeywell, augmented by the technologies particularly in the antenna area with the acquisition of EMS. So what's happening now is just that through the extended bandwidth, we're going to see an incredible growth area relative to being able to be connected with affordable ship sets from an affordability standpoint, the ships set value will be quite attractive from a business standpoint, and you'll be able to download and get information off the aircraft at a much higher speed from an Internet perspective. This is a very high growth area for us. We're very, very excited about it, and we're also starting to connect what's coming off the aircraft with some of our other systems, for instances, like with our home system via Sky Connect. So more to come in this area. Big growth area.
From a Honeywell defense and space perspective, so this market is, there's lots of anxiety, misunderstanding relative to what's happening from a defense and space perspective, we look at this as a manageable environment for us. We think that's informed. A couple of dimensions to this. One is we have very little exposure, limited exposure, on any one particular platform. The second thing is that we did not have big upswing relative to war spending. So therefore, we have little exposure to the downturn in a big way. So therefore, we're safe here. And then the third one is actually associated with growth. From an international perspective, in the defense and space area, predominantly defense, we've had nice growth both from the installed base of aircraft and also new aircraft that are going into service in there, kind of fueled by regional conflict sensitivities.
You'll see here that from an RMU or an upgrade standpoint, and the 4 attributes that customers are looking to develop, clearly we have been successful in this area. We are approaching upgrades on a universal basis, commercial, defense, et cetera. And on the right-hand side, you'll see that there is substantial growth both within Asia Pac and India relative to new applications that we have been pursuing. From a commercial standpoint, we're growing faster than the market, both on the Air Transport side and on the Business and General Aviation side. I think that when you look at the aircraft that are coming into the inventory like the 787, 747-8, the progress is taking place on the A350 not in the market yet. And those products that some of us talked about today, like the G250, the G650, very, very exciting products, very pleased to be on those platforms with a significant amount of content.
So the aftermarket. Why do we have confidence in the aftermarket and the growth that we experienced in 2011 and in 2012. There's a couple of dimensions that are with this. One, is the aircraft that are in the field are staying longer. Two, is the aircraft that were parked, significant number of those have been brought back into the market. Three, is the production rates for the 2 large players here have gone up. And four, is the distribution of flight hours is a lot more global. So if you can see in the profile here, it's much more distributed in markets as people are flying universally across the globe. So we look at -- we're looking at flight hours and we're looking at the projections and the upgrades that I just talked about earlier and we believe that our flight hours are going to be -- or the aftermarket is going to continue to be fueled by those dimensions and we think that -- I know there's questions around in the market, when do we think that production rates will show up in the market? We believe, based on the analysis that we've done, that it's somewhere beyond 2017.
Now that would mean that some of those older aircraft that have been brought back into service would go back out of service. So to make this real from a -- from an upgrades perspective, I would say think about upgrades in these terms. It brings more value to an asset that a customer has in their inventory already. So whether it's a helicopter, a fixed wing, a business aviation aircraft. If they're going to maintain it in their inventory and use it, or in some cases, if they're actually thinking about selling that asset to increase the value of it, they are doing upgrades relative to that. And that phenomena is more specific to the business aviation market. You can see 2 examples here. The one in the air transport market is something that was prompted by a change that was -- has been mandated. So there was a production cut in with the OEMs in 2010. There's a retrofit that's going to take place and is taking place relative to the field. In the right-hand side, it has to do with the operating cost, how to manage -- for the U.S. Army in this example, managing their operating costs more prudently as they're in this different environment.
So I talked a little bit about from a globalization perspective. You can see here this augments or supplements what Shane is going to talk about. But on the left-hand side, we've started this journey, I think very Phoenix-centric. Migrated to opening up our aperture a bit and had a primary focus on how to become a competitor in the Chinese market and in the India market. We're not abandoning that and we're not actually decreasing our focus on this, what we're we actually doing is opening up our aperture. And we've come up with the areas of focus from the defense and a commercial perspective. And of course, what's driving this is a couple of different dimensions. One, is from a defense perspective, there is regional sensitivity of conflict; two, is from a commercial standpoint, in the air transport world, more people are flying because the middle upper class is growing; and three, is there are more business aviation aircraft that are getting exported than are staying within the U.S. So opportunity for us.
Mike and Pasquale talked about HOS. This is a big operating -- so from a performance standpoint, of course from an OTTR quality, the benefits that are derived as being a good supplier and I think good stewards of the people within our organization to become part of the solution, you've heard that. However, this contributes very substantially to the operating margin performance that we are forecasting over the period. And 2011 was a big year for us in order to attain silver at certain sites and bronze sites. That's where the big benefit starts to be realized. We did realize those. And of course, 2012 and 2013 are big years.
From an ERP perspective, we're about 93% of our business is on SAP. That's not the exciting part. The exciting part is as you get the business on SAP, being able to prosecute the information that's in SAP to understand how your operations are operating and where those efficiencies can be gained, all the way from the point of order management through distribution, is actually what I'm most excited about, most excited in that area.
From a velocity product development, think about cycle times for here, so what I talked about as far as our pipeline. And I think the big item and change that's occurred within aerospace over the last couple of years is, we prided ourselves on developing a particular product that was a point solution for that aircraft, for that application. We abandoned that a number of years ago. We put it in a structure that said, we're going to drive something that is core, that you are going to develop it, you're going to codify it, you're going to code it, you're going to validate, and, verify it, certify it once, and therefore, the incremental investment, or that marginal investment is only going to be for the application-specific. And you can see that we've invested very substantially in this area across the portfolio, both from a mechanical standpoint and from an avionics and software areas. This has been a nice success for us, but I think there's a lot more for us to do in this area.
So from an outlook perspective, we're still committing to the plan that we had outlined before. Think of the heavy lifting from an HOS perspective and some of the areas of productivity started to realize last year in 2011, starting to realize in a much greater way in 2012 and so on, in order to hit the operating income number here. But certainly, that's the performance that the leadership team within aerospace owns.
So in summary, I think that we're organized properly. I think we have the right behaviors within the leadership team. I feel as though that I have a tremendous -- tremendously strong, well-balanced leadership. I think that we've got tremendous portfolio of both products, technologies and services and the outlook looks very good both from a -- and favorable from a near-term and a long-term growth perspective.
So with that, I'll ask Elena and Alex to join me for the Q&A session. Thank you.
So we have our second round of Q&A for the day. We have a lot of questions.
Thank you, Elena. Tim, I thought we talked about this on our next orders? I was wondering if you could clarify when you might be able to give us some more detail on them. And also whether these market share wins versus follow-on orders on incumbent platforms?
Timothy O. Mahoney
Okay. So on the first one, we'll be able to talk about them as soon as the applicable OEMs are able to talk. Once they say, we're going to talk about those new platforms. And for those of you who have maybe not grown up in the aerospace industry, one of the sensitivities are that obviously, once a customer announce that there's a new platform coming, they're concerned that, that will cannibalize their existing production systems. So it's not that this is in total secret, it's the fact that they don't want to cannibalize the investments that they've made relative to that. And of course, that's a level of trust that exist with Tier 1 suppliers like ourselves and others. As far as the wins that I've identified here, these are new platforms. So we keep the -- we talked last year about how others may look at accounting as far as wins and so on. And we've maintained the way that we look at it as these are new platforms, they are not a variant or a rollover.
Next question, Steve?
Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division
Tim, just a follow on to that. Can you talk about the engineering and development expense pattern and how you see that progressing and is that in-line with your product -- it lines up with your thinking around sort of long-term margins?
Timothy O. Mahoney
Yes. So first of all, the investment is between 6% -- RD&E is between 6% and 7%, which is the industry standard. Two, is all of the benefits from Velocity Product Development, we're deriving that. I'm driving -- obviously, the organization is not driving down the expenditure relative to RD&E. Our thesis has been we want more top line lift for the investment that we make and let's make smart investments. If you look at the operating margin performance that we're forecasting out through 2014, there's about 5 tailwinds that I see. And the one unknown, Steve, is if there are additional investments that we have not forecasted in that time period, from an RD&E perspective. So I think -- if I think about long-term growth, if there was more substantial investments, that would probably be the headwind.
John G. Inch - BofA Merrill Lynch, Research Division
Tim, defense has been doing a little bit better than you had originally thought, perhaps, if you go back a year ago. Can you talk about why that is and if this is somewhat delayed spending cuts because of programs at the federal level? Or just why are things better and what's your longer-term outlook for the business?
Timothy O. Mahoney
Okay. So when you say better, you mean better within Honeywell?
John G. Inch - BofA Merrill Lynch, Research Division
Timothy O. Mahoney
Yes, we actually came in almost precisely where we had forecasted in 2011. But there is a substantial change. We had this organizational focus around winning the big platform like a JSF or something like that. And the organization didn't have a balanced view around how broad the installed base was. And I'll give you an example. Take C-130. In order to qualify as a country, you need to own a C-130. It's a great aircraft, right? We want the success of Lockheed Martin on the C-130s that are on delivery, but we need to have the balance view around all those C-130s that are out there and for the products that actually are on those aircraft, are there upgrades that are products that are sitting on the shelf, not literally, but they've been designed and developed for an upgrade standpoint. Perfect example is Libya. Libya just opened up. They have C-130s, we've had a team in there and kind of characterized their configuration of their aircraft, et cetera. So that's an example but, John, the short message is, the focus on singles and doubles has a been a key fueler for us. The second thing is actually, Dave surfaced this idea a couple of years ago, that we were making changes within D&S and the organization within Honeywell moved at a different pace than the commercial side. And we had a discussion and he suggested why don't we approach this as an integration? Tim, as you're moving into this leadership role, why don't we look at defense and space as an organization and let's look at -- let's use the exact same templates that we used on an acquisition process to integrate a defense and space such that we're driving the cultural change, we have the processes relative to pursuits, SYOP, et cetera, et cetera. Now unlike acquisitions, actually, after 180 days, Dave said I'm very pleased with that review. Actually, is that not sure, Dave? But it was actually, to be honest, it was a brilliant idea, and I think it's driven a huge cultural change. When Shane gets up, you're going to be surprised at the areas that we are going to have people or we have people already capturing business in 2011 and 2012.
John G. Inch - BofA Merrill Lynch, Research Division
Next is a follow-up. One of the things that you folks have talked about in defense that was your unique opportunity was to be able to fungibly take engineers or personal resources from defense, and as commercial grew and defense softens, you transfer them and you obviously saved all the costs of hiring the people and you retain the talent and so forth. Have you been doing that? And if there's any way to quantify perhaps how many people you've shifted from one side to the other or just what are your plans, Tim?
Timothy O. Mahoney
Yes. So what John's referring to is what is identified as cross-site workflow when we -- around the 2006, 2007 timeframe, we built a module that bolts on to SAP, it's called cross-site workflow. And it means that people across any boundary, those engineers that are anywhere in the world based on constraints like ITAR export controls, can work on that project. That's something that we're very proud of that we put in place. We are using that in a very big way, John, and we could provide the numbers but to be very honest, not just associated with defense and space. Last year, we were up to somewhere around 3,000 engineers that were working across sites that historically would not have been working on those sites. And that doesn't include [indiscernible] and Bangalore. So that's -- these were sites like they're in Minneapolis and they're in Albuquerque, and they would not have been working on those projects. This has worked out phenomenally well for us. And what it's done is it's dependent on the fact, you can see I'm passionate about this, right? Sorry, it's based on the skills set versus location. Whereas before, it was based on location first and then maybe skill set, you'd have people go to a particular location. That's worked out really well. Well, there's 12,000 engineers, probably, am I saying, I'm giving a number here of around 3,000, I said? Yes.
Okay. We have time for one more question. Jeff Sprague?
Jeffrey T. Sprague - Vertical Research Partners Inc.
Also for Tim. Actually just 2 for you. First, big picture, obviously UTX and Goodrich are coming together. Is there anything there that you find particularly troublesome or anything that shifts the landscape that makes you want to think about the business in any different way? And second, and totally separate, the tailwinds to the margin story, I mean, some of that was implicit in your pitch with HOS and other things. But what 2 or 3 things really stand out as getting you to those targets when you look out to 2014?
Timothy O. Mahoney
Okay. So obviously, now that you asked the question, I'll rattle through all 5 of them. But from a UTX and Goodrich perspective, my comments would be this and they're not going to inspire or have any specific -- I don't think they're going to add any insights to what you've identified already. But one is, is that obviously they're going to be bigger. Bigger is not -- in my opinion, bigger is not necessarily better, but they're going to be bigger. Two, is if you look at the portfolio changes, it certainly broadens their portfolio relative to mechanical systems. Not integrated systems, but there's a collection of broader mechanical systems. And then the third one is that, like any other company, this is not the peculiar to Goodrich or UTX, like any other company, when you're going through a merger, as Dave talked about before, or an acquisition, a cultural integration needs to take place, right? And with 2 companies that are -- sell engineered products, certainly there is, though, that integration that takes place from a cultural standpoint. So I think that the integration is a draw, it has to be a focus on the organization in order to get it right. Relative to margin, if you think about tailwinds, and I referred to them as tailwinds because they're already underway. The first one is volume leverage, both from an OEM perspective and an aftermarket, we're forecasting that we have the growth. The second thing is the HOS benefits that Mike just laid out, and of course, there are proof points in 2011 when we got to something that was of critical mass relative to bronze. The third one is some of the smart repositioning that is already taking place and some more that I actually have the appetite to do. Four, is actually capitalizing on the investments that we've made from ERP. I'd really be happy if when I come back here next year, are going to be able to put it and tell you about what's been done relative to cycle time reduction and how we've accomplished that based on prosecuting the data in SAP. It is very revealing. And then the fifth one is just a natural. As 2014, we have 5 deployment teams. There's less spend -- sorry, the short answer is there's less spend on ERP deployments. We have 5 teams on a global basis. Of course, by nature when we finish up in 2014, that's a pickup right there.
Okay, thank you. We are going to take a short break, roughly 10 minutes. We'll be back here at about 2:35. So thank you.
All right. Welcome back from the break. We'd now like to introduce Shane Tedjarati who doesn't really need an introduction because I know many of you have had the opportunity to meet Shane in China as well as a number of our local leaders. But with Shane's newly expanded role as now president of all high-growth regions, he's going to talk to you about how he plans to build on the success he's had in China and India, and create a bigger engine for growth across a wide spectrum of opportunities. Shane?
Thank you, Elena. Good afternoon. Very pleased to be here to share with you our growth stories and some of our strategies in what we now call high-growth regions. If you remember, last year, we changed from referring to these regions from emerging markets to high-growth regions for good reasons, because they have been a key driver of our globalization strategy, they've been the key driver of global growth and you've heard a lot of the comments from our business leaders already about how they have been instrumental in the growth of every one of our businesses.
The past 10 years, you know the story. The high-growth regions have gone from 20% of the world's GDP to 30% and they've driven more than 50% of the world's growth. But the next 10 years, think of it as a full U.S. economy being added to the world in terms of the growth, nearly another $12 trillion to $14 trillion are going to be added to the world economy from the high-growth regions.
Our focus in the past 10 years has been largely on China and India. And when you look at it, it's been a good call because China and India has been the principal engines of this growth story. We've gone from $700 million to $2.4 billion. We're well-positioned to go to $4 billion over the next 3 years in China and India. We've done it largely by focusing on creating local capability with 10x, more than 10x or census in this period. But if we look forward, we're only -- we're going from $2.4 billion to $4 billion with only adding 4% CAGR headcount. So the real uptake in productivity is coming in, in the next 3 years in China and India.
The key drivers for that is what we've been you've been hearing our business leaders call, Becoming the Chinese Competitor. And this is not just a pretty page or a pretty wheel that we've put together, this is something that we absolutely drive our strategies with twice a year. Dave Cote reviews them with our business leaders, sales assessment by every one of our SBUs on all of these dimensions: Supply chain, research and development and engineering, marketing, segmentation, down to the level of what mid-segment products we're offering to which customers, sales and channel development in Tier 1, 2, 3 and 4 cities. And most importantly, focus, relentless focus on people that we'll talk about.
Great lessons that we've taken. I think one of the questions was about how we take this playbook. Great lessons we've taken, unqualified focus, our executives on these regions, more than 70 new sites in the past 10 years in China and India, 17% CAGR growth in the front office. We deliberately decided 10 years ago to look at China and India as growth engines not as just merely low-cost manufacturing place because low cost always expires. Growth engine is always here for you to stay.
Census grown to 25,000, but we've done it with less than 50 expats. Those of you who've visited us in China and India, you'll see that the faces are all local. And even the expats that we have are not the types that come in and unpack for one year and pack the other year. These are people that have come and stayed and focused to deliver a great value on the market.
One of the biggest things that we've done is much deeper local expertise, over 300 marketing experts today with the help of Rhonda and the team, we've built a core of marketing experts who understand deeply the requirements of our customers and are able to change that into products and services that the customers need and would pay for at the right price.
Much greater and broader and full capability in research, development and manufacturing, and I'll touch on that and operating as a local competitor. Here, we want to operate at China speed. We want to operate at India speed and at the speeds in which our markets operate, not at the speeds in which typically multinational companies have grown.
So I want to talk a little bit about what our strategy going forward would be. At the heart of that strategy is what all of our businesses I've referred to is our East for East and East to West platforms. The integrated strategy of having R&D, supply chain and manufacturing capability locally in order to be able to respond in realtime to the requirements of our customers. And we've been at this for nearly 10 years.
In fact, for probably the first 90 years of our existence, like most multinationals, we've been developing products in the West and maybe manufacturing them in the East, but have not really developed them in East. The past 10 years, we've been focusing on this. This stuff is hard to do. It's all about changing DNA, changing metrics, changing people, creating capability on the ground. And we've done it fully 5 to 10 years before most people published these ideas in Harvard Business Review or other places. We've been at this for a long time. That becomes a playbook. But I want to pause with a caution that as many people have asked me in the past 6 weeks in China, this means that we've now moved the headquarters for high-growth regions to China, far from it. Our playbook is about the capability on the ground, and our mindset is about creating capability closer to customers, not about making China the next Moorestown or the next Minneapolis. We want to bring decision-making capability closer to Brazil, closer to Indonesia, to all the markets that we operate.
So the first part of that strategy on top of this platform is geographic growth, and I'll talk about the next 8 and the singles and doubles that we're going to be looking at. The other part of it is going to be a one-world look at global Defense and Space, global resources and energy, and a concept we call, follow the money, and this is all about the new emerging high-growth region companies that are globalizing fast, and they need technology partners like Honeywell. They need the brand, the channel, the quality and the products that we bring to the table. Fully 80 of the top 225 contractors in the world are from China and Turkey, for example, and increasingly, they want to know you in their home countries before they're willing to go with you, say to Africa or to Istans or other places, and this is a big one for us to win in.
East for East platform is real. If you look -- and on the left-hand side, the biggest part of the growth story in the high-growth regions is the new emerging middle class, going from 900 million people to nearly 2.5 billion people, but this is a very different middle class than what we're used to. What we're used to in America and Western Europe is the more than 30,000 GDP per capita a year middle class. This does not exist. The middle class that's emerging is the less than 10k middle class. It's the middle class that needs those products that are at the right cost, the right features and at the right speed for the markets, and we have them.
Roger referred to a PlantCruise, which before even the launch last week, we've sold 9 systems, 2 of them fully commissioned in speed that is really startling. Less than one year, we brought that product to market, and it's going to play very well for us. Youjie, the handheld device that we -- our China team has built, the HALO Series and the new micro turbo gas, these are just some examples of new chest of drawers that have multiple layers of products across the whole new middle class, which we call East for East and East to West.
When we look at geographic expansion, we're looking at -- there are more than 75 high-growth countries in the world. But really the next 8 gives you nearly 70% of that growth, and what I call singles and doubles gives you a lot more of up to about 80%, 85% of that growth. So we're going to be very surgical about putting full capability in terms of focused management attention, adults on the ground, strong local marketing and existing supply chains around the world that we have and expanding new channels on those segments.
Russia, Brazil, Mexico, Indonesia, Turkey, as well as South Africa, Poland and Thailand are the next 8. But also regions such as Middle East, which we have a very strong business. Roger's business is coming to nearly 1 billion in a few years in the Middle East, but what -- we can bolster that and create much better synergies in the Middle East.
In Africa, many emerging economies picking the winners. Resource play is still a very big deal in Africa, and follow the money through the Chinese contractors, as well as the investors from Brazil and from Middle East and India.
In Istans, the Central Asian republics, really it's a big resource play and accelerating it through the investments that are coming largely from China, but also increasingly from Turkey and other places. In Latin America, the trick there is to pick the winners, Colombia and some other parts of Latin America, that have a distinct winners in certain segments of the market.
When we look at the next 8, the heat map for Honeywell is just fantastic. And as we discover more, the colors become darker and darker green here. For example, we're -- recently we were in Mexico and Turkey, and the opportunities is just -- are fantastic and phenomenal, especially in the growing mid-market, and the opportunities continue to grow there. In airlines, in D&S, in OEMs and even aftermarket for TS, opportunities are terrific in all these regions.
If we only look at GDP and GDP per capita and geographic expansion, we will miss other parts of the world that are big resource players such as, for example, Angola or Azerbaijan. But as a result, we've looked at the whole world in terms of also the string of pearls that pulls together a common story about resources, oil and gas, as well as other natural resources to make sure that we capitalize on the key trends, such as energy efficiency, energy -- alternative energy and energy security across the world. Many of these overlap with the next 8 and the singles and doubles, but some of them that don't, we want to make sure that we capture them and cover them well.
By the same token, Defense and Space also needs to be looked at on a global basis. Tim's team and our team have been working together to make sure that we also cover globally the requirements for Defense and Space as new countries, new emerging countries begin to bolster their defense spend and how they can tie together in terms of our common team on the ground, as well as our team in Washington. If we didn't look at it in this way, we would miss, for example, places like South Korea that are big defense spenders or small countries like Israel that are big defense spenders. So this is also a very important lens to which we need to be looking at high-growth regions.
I wanted to give you an example of -- again, this one was "go slow to go fast." But in the case of high-growth regions, it's kind of like a "go fast to go faster." An example of -- Vietnam, for example, where we decided to give it a lot more focus in the past year. Our businesses and business leaders have given it a lot more focus. And just in the past year, we've grown 63%, and in the current year, we're going to more than double the business in Vietnam by focusing on One Honeywell, continuing to build our capabilities and also reinforcing compliance in each of these countries because compliance and the way to do business in many of these countries are going to present a challenge. We've learned how to do it in China. We've learned how to do it in India and Vietnam, and we're now rolling it out around the world.
Sales outlook. We've gone from 9% of sales in high-growth regions just 8 years ago to nearly 20%. We're well positioned to deliver 25% of our sales from these regions by 2014 and to deliver more than 50% of Honeywell's growth from high-growth regions, which will work very well for us in the next 3 years and beyond.
In summary, the story of the globalization in the high-growth regions has been terrific in the past 10 years. The focus on China and India, the relentless focus has been a good call. This East for East platform is a long-term competitive advantage and is one that really bodes well for capturing majority of the growth that happens in these regions and an integrated strategy of focusing on the growth geographies, focusing on global resources and energy, focusing on global Defense and Space and following the money, putting the people in the right places, for example, by putting a team in Beijing, that we have now established, that focuses on Istans and on Africa, is the strategy that we're pulling together to make sure that we're thoughtful, integrated and are delivering great value from these regions.
Thank you. Now I have the pleasure to introduce Dave Anderson, Senior Vice President and Chief Financial Officer. Dave?
David James Anderson
Thank you, Shane. Well, what I want to do is -- just to start, I want to recap a little bit just in my own words the transformation story of Honeywell, spend a few minutes on that, talk about just in a summary way the 2011 performance, which was obviously terrific and then an update in terms of our 2012 outlook. We're obviously reaffirming guidance for 2012, and then finish with something that I think is very much interest to all of us, very topical, is really a perspective on Honeywell's valuation, which would continue to be somewhat confounded by in terms of our relatively -- relative trading multiples. And I'll take you through some numbers there, I think, that provide some useful insights.
In terms of the transformation, sort of a variation on the slide that Dave used in his opening presentation today, incredible in terms of the cultural transformation that's taken place, really building power of the One Honeywell performance culture, the significant work and lifting that's been done in terms of the quality of the portfolio. Anne and Mark gave us good insights into the acquisition process and the discipline that goes into that. We've also, as we pointed out, made a number of divestitures over this time frame, which have been also very significant in terms of improving the quality of the growth characteristics and the margin characteristics of the company.
The seed planting investments, the growth as Shane took us through, which will continue and accelerate in terms of capturing growth in high-growth regions. We survived and actually became a better company through the economic downturn of '08, '09. And in 2010 and 2011 cumulatively set records for Honeywell in terms of our organic growth, our margin rate expansion, our working capital turns and also our free cash flow delivery. So a very, very solid performance.
The numbers, recut another way, you can see the revenue growth up $14 billion from the beginning point in 2003 of about $22 billion. All these numbers have been recast for CPG, $36.5 billion in 2011. Now on that $14 billion again, $10 billion from organic, $4 billion from the net of acquisitions and divestitures. So really again, supports the technology roadmaps, the organic growth emphasis that we have in the company, as well as the disciplined M&A. 410 basis points of margin expansion during that period, an average of 50 basis points a year. You can see the growth in net income. And on the cash side, $3.7 billion in 2011 again, capping off a very strong track record. Every year of that performance period, we're above 100% in terms of cash conversion. And as Dave had in his slide earlier, I think averaged about 130 basis points in terms of cash flow to net income over that time period.
Strong organic sales growth. I talked about 2010 and '11, but you can see the track record relative to world GDP measured in real terms. Typically, about 1.5 to 2x. You can see we accelerated that growth in '10 and '11, really represents the rate of new products, successful new product introductions. Again, global expansion, all the things that we're doing right in this environment.
Simple but powerful indications of productivity. You can see sales per employee on the left. You can see the steady, steady march up to '09 that continued through '11 but look on the right in terms of segment profit per employee, and you can see that the acceleration at the -- has occurred since 2009. OEF productivity is clearly behind that. As Dave said, in his opening remarks, OEF is really late -- organizational efficiency or labor productivity, it's that competing objectives of having the best talent organized the right way, but also at the lowest cost. You can see part of that is because of location. On the left, you can see the growth that occurred only about 5%, up 7,000 from 128,000 to 135,000 from '08 to '12, our latest estimate. But look at the distribution in terms of where that census is, and that's really contributing to the productivity that you see on the right where we've shown labor costs as a percent of sales. And again, on that simplified structure in terms of looking at direct and indirect material, labor and depreciation is the key components of cost and measuring those -- all of our businesses accordingly.
R&D has been a success story. You can see the rate of growth that's occurred, particularly from '09 to 2012 coming out of the downturn both in dollar terms but also as a percent of revenues. And importantly, leveraging the R&D census that we have globally. You can see the productivity that's built in there of some of the census in the gray line through the middle of the bars.
Segment margin expansion has really accelerated, 45 basis points a year on average again, 2003 to 2009, but look at that 70 basis points per year from 2009 forward. And it's that trajectory that gives us confidence. It's part of obviously our focus in terms of achieving our 2014 targets. I'll spend a minute on that in a little bit. And then also is part of our motivation for the inclusion of margin rate expansions as part of our 2-year growth plan measurement.
And, of course, CapEx. Also investing in our businesses in terms of growth. On the left, what we've shown is CapEx in absolute terms in the red bars, and then I've shown CapEx to depreciation relationship. You can see we're spending at about $800 million. It's not indicated there but about $800 million in 2011 up to about $1 billion in 2012 is what we have in our latest estimate. And you can see those as a percent of depreciation. And on the right, a couple of takeaways. One is, some of our major growth project is listed there and all 4 business segments represented. And importantly, new products, capacity expansion taking place, as well as emerging region are really the themes in representing, that growth representing almost 1/2 of that CapEx spend that we're estimating for 2012.
With that, let's segue and talk just for a moment about 2012. Again, we're reaffirming guidance. This is the highlight numbers again, 4% to 7% in terms of top line growth. Segment margin expansion 30 to 60 basis points. Earnings per share 5% to 11% on an all-in basis, up 12 to 19 on a continuing ops basis and 100% free cash flow conversion. And there's no change down below in terms of the key factors that we're looking at that would lead us either to the lower end of that range or the higher end of that range. Those factors are the same that we identified when we provided guidance back to you in December and we updated at the end of January when we reported first -- our fourth quarter earnings for 2011.
In terms of the geographic mix, you can see the transition from '03 to '12 on the left. We've talked about that. Dave had the highlights for that. Shane referenced that in his material. On the right, more currently, what I've shown is the '11 to '12 assumptions that we have in terms of our guidance. You can see the range of up 2% to 4% for U.S. but that's really 6% to 7% if you exclude D&S, which we're forecasting to be down about 5% this year. Europe 0% to 3%, the rest of the world 10% to 12%. And what we're tracking to today is a little stronger than that in terms of our U.S. outlook. Europe, as expected, is relatively soft as we start the year. And rest of world looks like it will be on track for that 10% to 12%.
So what we're seeing, sort of leading into what we're seeing and what we're expecting, echoing some of the comments earlier in the presentations and discussions earlier, obviously, commercial aftermarket continues strong for us. Commercial Aerospace continues strong for us, but the aftermarket and the OE, the moderate declines obviously in D&S that Tim referenced, driven by program ramp downs, as well as some completions. Industrial strength continues across the businesses, particularly UOP, HPS and our industrial safety business. We're seeing still softness on the res, non-res construction sides of the business. We're seeing a little slower growth as we start the year in emerging regions. Some of that is related to the timing, I think, of the Chinese New Year.
In Europe, the short-cycle macros remain weak. That would be on the ESS portion of ACS, as well as in the Turbo light vehicle production. So what we're expecting? We're expecting and again, consistent with the guidance that we've provided that the commercial OE business will continue very strong. We're looking at high teens growth on a year-over-year basis.
The aftermarket of Commercial Aerospace should grow at about 1/2 that rate. So in the 7% to 9% in terms of our outlook for 2012 growth. D&S we think the downturn, the decline is manageable this year and relatively stable beginning in 2013. UOP, HPS and the Building Systems business and Distribution business is very robust. You recall that we ended 2011 with a book-to-bill of 1.2. So we're benefiting from the conversion, if you will, of that backlog into revenue in 2012.
The Europe macro headwinds that we talked about, those are going to continue, but we'll see easier comps in the second half of the year, given the significant strength that we had in the first half of 2011. So that's part of the challenge of what we're seeing in the first half of '12, and again, I would say just overall as expected.
China growth outlook we think is likely to improve. We've come out of the gates somewhat soft on China, but again, I think, Shane, some of that is just attributable to the timing of a Lunar New Year. And we're seeing sequential improvement there, I think, each week literally in terms of our businesses in China.
For the first quarter update, revenues remain unchanged in terms of our outlook in the fundamentals in terms of by-business are unchanged. In terms of our EPS guidance, we have taken that guidance up previously $0.93 to $0.98 for the quarter. We're now guiding to $0.96 to $0.98, which really underscores the confidence that we have 2 months into the quarter. We feel very good about that performance, feel good about that outlook.
So with that, what I'd like to do now is transition to valuation perspective. I wanted to start with a slide that we actually used 5 years ago. Dave, I think it was one of your creations as I think back at this, and I can't recall where we were at that time. We were probably down where we -- I think we were downtown. I think we're in one of the hotels downtown. What we talked about was the fact that we felt on several measures, several very important metrics including P/E ratio, the free cash flow multiple, as well as the PEG ratio that Honeywell felt undervalued in terms of our performance and our performance outlook. We also provided, as you can see on the top right, our comparative number on ROIC and also in terms of dividend yield.
Now what's interesting is at the time, I think we were near the bottom in terms of P/E ratio, at the absolute bottom in terms of free cash flow multiple and the lowest of the peer group, and these are 8 companies in the multi-large, multi-cap industry space. They're included in your appendix, and they're consistent with the peer group that we've used with you historically.
So just to put that in perspective what do the 5 years look like, what we've done is we've shown on an index Honeywell's share price performance compared to the 8 average -- 8-company average peer group and compared to the S&P. Our performance in January 1 of '07 to 12/31 of 2011. And you can see the outperformance by Honeywell and it becomes particularly important and I think relevant when you look at TSR at the top with the inclusion of dividend, including share price appreciation, HON hand the layout, outperforming the peers and obviously well above a still negative S&P over that time period.
Now if you roll the clock forward, in February of 2010 -- and we were here, I think, at the Mandarin in February of 2010. We showed this chart again, and what we showed you was HON's P/E and we showed it on both pension-included and pension-adjusted basis. This is before we had adopted, you'll recall, the mark-to-market. It really was -- pension was really influencing the optics, the presentation of our P&L. We felt the relative metric was the 14x compared to the 16x for the average and up to 20x for some of our peers.
The free cash flow multiple again, we were at -- near the bottom, near the bottom of the heap in terms of that multiple, quite a bit of improvement in terms of our ROIC in a relative ROIC rating, ranking. And one of the things we thought was relevant at that point in time was the performance in terms of our margin compared to our peers coming through 2009. And you'll recall 2009 for us revenues were down about $5.7 billion compared to 2008, a 15% decline, and we were able to hold margins flat. We felt that, that performance was commendable, and we wanted to obviously remind you about that.
And the other thing we had done, Dave talked about in his remarks was the continuation and the continued focus on the dividend. And thus, the improvement in terms of the dividend yield. And by the way, over on the right-hand side, you can see TSR again for Honeywell here, which is compared to the S&P 500. On the next chart what I've done is I've indexed again, but this is now for a 2-year period beginning January 1 of 2010, ending December, as you can see, of 2011 indexed Honeywell relative to those that same 8-company peer group index, as well as the S&P. And rather than show you TSR, what I've shown you at the top is a market capitalization comparison.
Our market cap 1/1/10 was $30.7 billion. We ended 12/31/11 with a market cap of $42.7 billion or a growth, as you can see, of $12 billion, which is both relatively good and absolutely terrific. And if you look at it relative to the peer average, and this is for illustrative purposes and you just take that same starting point for the peers. Let's just take the $30.7 billion illustratively, apply the index, the 111 index compared to the 139 index for Honeywell, and it would result in $34 billion or a growth of about $3.3 billion. So again, we think pretty, pretty solid evidence of good performance and undervaluation when you go back to the February 10 data that we shared with you.
So let's roll forward now to March of 2012. Honeywell's P/E ratio 13, we're the third lowest, by the way, in that 8 companies, so 9 companies including Honeywell Group. Free cash flow multiple, we're at 12x. We're second from the bottom. You can see somebody in there, some poor guys at 10x in terms of their free cash flow multiple, but we don't know that may be deserved. We don't think the 12x is deserved.
We run over to ROIC. Again, pretty impressive in terms of return on invested capital. PEG ratio, we're dead last. We're right at the very, very bottom of the 9 companies in terms of PEG ratio, probably one of the most telling numbers of all. And dividend yield, pretty respectable at 2.5%, and something that, again, to echo the theme from today, something we're very, very focused on, consider very important in terms of continuing to look at dividends and opportunity to reward shareholders and reflective of our confidence in our strong cash generation.
If you look at TSR over on the right-hand side, this now shows you the data for 2003 to 2011. We've outperformed the S&P 500 for every year except for 3, and you can see on a cumulative basis it's 2.5x roughly, 2.44x the return compared to the S&P. So we think that's also fairly, fairly dramatic evidence of outperformance and undervaluation.
What are some of the differentiators? So that's sort of the numbers. What are the things that we think you think about or certainly that we think about that we think are important for you as you think about Honeywell's valuation. Among others, the Aerospace leverage. You heard Tim talk about it, including at some point in time, Tim, in actual being able to discuss those significant unannounced wins, which is going to be, I think, tremendously exciting. The long cycle backlog. That is something that's going to be with us. We've got a global macro trends coupled with tremendous business positioning as you've heard from just as illustration, you've heard from Tim on the Aerospace side, you've heard from Andreas in the PMT side, you've heard from Roger on the ACS side in terms of just the underlying fundamentals and why we're winning in the marketplace and what that winning is translating to in terms of growth outlook.
The high-growth region momentum that Shane took us through and the discipline and energy that's behind what's occurring in the success stories in India and China that are now translating to the playbook that we'll take to other high-growth regions in the world. The restructuring tailwind, the very smart deployment of gains really going back to 2008 and building through 2011, taking advantage of the sale of CPG in 2011, as well as some other gains to smartly redeploy the repositioning and restructuring that's going to enhance our performance 2012, 2013 and '14.
The acceleration of HOS. And HOS is now not a concept. It's a realized very, very defined way of operating. As Pasquale said, a mindset that is being measured. It is making a difference in the marketplace in terms of customer attitude and customer perceptions, and it's making a difference in terms of our plant operations, with our cost, the inventory turns, the quality and productivity.
Acquisition upside. You heard from Anne and from Mark the processes, which aren't accidental. They came out of detailed a review and research of what went wrong, our failure modes and the product is one that really Dave has led and has instilled in the organization that we're going to be successful and continue to replicate M&A in a highly disciplined way. It's not the "be all and end all" of the Honeywell story. It's an adder to the organic growth that underlines the positive outlook for the company.
So we think all of these combined not exclusively, but very importantly, these items are part of the path to industry-leading performance. A little perspective on the long-term outlook, and I think it's helpful to go back in time. Let's go back to 2009. We just went through the depths of the Great Recession, right? The largest downturn, most significant downturn in 80 years. And coming out of that in late 2009, Dave said, I want to develop internally and communicate externally a set of targets for each of our businesses and for Honeywell overall. And we gulped at that time. But what we put together, revenue growth from a base of $30 billion to $41 billion to $45 billion in 2014, again, position yourself back in '09, $41 billion to $45 billion in 2014, from 13.3% margin in 2009 to 16% to 18% in 2014. No wonder those targets were met with skepticism at that time. There were -- we clearly all viewed them as incredibly challenging. Well, now let's roll forward.
We're well underway. We've got 2 years underway under our belts, and we've got another year of guidance that we feel very good about in 2012, $37.8 billion to $38.9 billion of revenues in combination with what we've delivered in '10 and '11 puts us at the high end of that revenue range in terms of our performance.
On the segment margin side, 39 -- 60 basis points of improvement in 2011, another 80 basis points of improvement -- I'm sorry, in 2010, another 80 basis points of improvement in 2011. Well on the trajectory to be smacked in the middle of those segment margin objectives that we've set for 2014. So that's really also, we think, tremendously confidence-building when you think about the outlook, when you think about the trajectory for Honeywell.
So in conclusion and before turning it over to Elena for Q&A, it's the consistency of strategy and execution. It's the accelerated penetration of high-growth markets. It's the confidence that we have in the paths to those 2014 targets and coupled with our strong cash generation and the disciplined effective deployment of that cash that we think really makes us a premier multi-industrial company.
And with that, Elena, we'll bring Dave back up and Shane and we'll go to Q&A.
All right. I don't see any hands. Chris, Chris Glynn.
Christopher Glynn - Oppenheimer & Co. Inc., Research Division
A couple on M&A. With the -- because one thing that jumped out was 500-year targets actually tied into your strategy. I'm wondering with a lot of the "go slow to go fast" internal strategies, with the "go slow" part may be mature now that opens up a lot more management bandwidth to accelerate the M&A program. And then just wondering how you look at your liquidity currently.
David M. Cote
I would say on the M&A side, we tend to -- we've never set any kind of targets that say, "We have this much money, this is what we have to get done or this is how much we have to get done every year." We've never done that and pretty consistent with what the guys are saying, what we do is tend to have a great pipeline and when the time is right and the price is right well, then we buy. When it comes to liquidity well, we're one of the most liquid companies you'll find out there. We found it kind of interesting in the middle of the crisis in 2008 and 2009, we are one of the places that all the banks wanted to give money to. It was kind of a nice position to be in, but I don't -- we're fine. Dave, I don't know if...
David James Anderson
Well, I would just echo what Dave said. Number one, we don't see liquidity as being the driver for M&A, number one. And number two, we're going to continue to be motivated about building out our existing strong businesses using the playbook that we've talked about. It's going to be very difficult to project. We can never really project and as David, you've often said, we don't start a year and we don't plan an M&A number. It occurs when it occurs, and it occurs for the right reasons.
David M. Cote
Sometimes, it comes in bunches like no-bar European Zellweger, as I recall. It all came at one time. And we ran into the same thing a couple of years ago with Sperian and a couple of others and sometimes we go through dry spells. It depends on what's available in terms of when we want it and what the pricing is.
Christopher Glynn - Oppenheimer & Co. Inc., Research Division
Did you care about it a little less in the past when you were more focused on bringing HOS, DPD, et cetera, to a more mature run rate in the company?
David M. Cote
No, no, that's never been a driver. It's really been more a case of if we thought strategically something made sense, we could afford it, and we could really drive some good dough from it from it then we do it.
Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division
Either Dave, I guess, in terms of this decision to add margin expansion into the compensation, how did you come to that decision? I mean, I noticed on your tracking to the 2014 targets here, a little bit ahead on sales relative to margin. Was this an attempt to kind of rebalance that out a little bit and harvest some of the recent investments or how do think of those? And what kind of behavior do you expect that to drive?
David M. Cote
Well, actually this is a case of knowing your customer. And I've always kind of viewed it as at the end of the day if we were steadily and quickly increasing earnings and cash flow that, that would be the driver and that's what, if I was an investor, that's what I'd be interested in. But I don't know if you've noticed, but we've gotten a lot of questions in margin rate over time. So we said, "Well, it's important to understand your customer base. If that's what they want, then we're going to make sure that we deliver it to them not just by talking about it by actually putting a compensation plan behind it so that internally, it gets everybody's attention. But hopefully, externally, it also gets all of your attention, and you say, "Geez, they must be serious about it based on the fact that they're actually going to pay their people on it," and that was the rationale behind it. I feel very confident about our ability to deliver those margin rates, but I thought this was a very good way of conveying that confidence externally and making sure internally that it actually happen that way.
David James Anderson
Dave, maybe I could just add one quick thing to what you just said just because I think this is also an important historical perspective. When David came into the company, I mean, clearly to say it was in disarray, I think is pretty accurate. One of the things that you did was you designed and implemented pay programs that have done 2 things. One, they really driven the right behaviors internally; and two, they've aligned with shareholder interest. We're absolutely committed and convinced of that. The growth plan is part of that and the organic growth Shannon coupled with ROI, what a nice complement to the, if you will, the ITP. And then, if you will, the equity portion of our compensation. It's worked. It really has successfully both motivated and retained key leaders in the organization. By adding margin, we've now got this opportunity to really, if you will, enhance the focus and the execution around one of the key variables that we think is going to continue to drive top-tier performance and hopefully multiple expansion.
Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division
A couple of things. One, Dave, when you look at the -- looked at everything you've learned over the last 10 years here, the size of the company, at what point does size start to influence your -- the growth that you can achieve in the company off a larger base? And you keep you talking -- you talked about great positions in good industries for the last decade. I've never heard you change the good industries to great industries although you've changed the portfolio pretty dramatically in that time frame. The question is why not as you look through that?
David M. Cote
I'd say on the first one when we get to $100 billion and we can I'll make sure I'll address the question then. In the meantime, I think we've got plenty of room to go. If you go back 10 years ago and see one of the first investor presentations I ever did, it was, great position in great industries, but I was too concerned as I looked at it and I started getting questions from people about, "Well, do you really think this is a great industry?" And I thought it's not worth it. I'll just go to great positions in good industry, deliver the numbers and then 10 years later maybe somebody would ask me that question.
All right. John Inch.
David M. Cote
No, no. But seriously -- I'm joking, but at the end of the day, that's what it was. Because I started off there and I've got too many questions from everybody in the audience about, "Why are you in Honeywell, is that really a great industry? Well, no, probably not. But it's not worth arguing.
Those are gone.
David M. Cote
Yes, those are gone.
John G. Inch - BofA Merrill Lynch, Research Division
GE is $100 billion.
David M. Cote
John G. Inch - BofA Merrill Lynch, Research Division
David M. Cote
Okay. So we have ways to go.
John G. Inch - BofA Merrill Lynch, Research Division
No comment. So if you sort of listened to today and you listened to all your presentations and all of the stuff going on here, and I think if you poll people in the room, most people I suspect would probably believe you're going to hit your margin targets and other targets in '14. It almost seems I don't know want to put in this way, but that a lot of this may be almost on autopilot. And my question for you, Dave Cote, is do you have something up your sleeve to kind of kick the organization up a notch? I don't know. You tell me. I mean, it's -- is your job becoming easier or what?
David M. Cote
There's no doubt it's easier than it was before. That's a joke. No, at the end of the day, I think it's important if you go back to that one of the early slides ahead in there and I had to kind of takeaways the kind of stuff that's going to stay consistent. And I had in there, "stay hungry," because I think that's one of the key things for any kind of organization whether it's an institution, a company, a nonprofit or whatever it is. But that having that hunger is important and, I'd say it was one of the questions about myself even coming into this job 10 years ago was up to that point I'd never been in a job more than 3 years. So I kind of looked at it and you got reinvigorated because you moved and had to do something else. So I wondered about myself as to whether I'd be able to do that. Well, after 10 years, I think, yes, I can. It's -- you keep seeing more new stuff to do or more stuff where, "Okay, we've gotten this far with an initiative, oh, my God, look at what we've learned and how much farther we can go." And I've really gotten my jollies out of growing something. If you go back 10 years ago where we were, it wasn't the -- expectations were pretty low. We had to really dig ourselves out of lot of issues. But even then after having discussions with Roger and some of the other guys about -- we've got to create growth culture we've got to start doing the stuff geographically and with new products, the stuff when we brought Shane on board, and that's really gotten pretty exciting and that from where we've grown, the higher up we've gone, geez, it gets pretty exciting to think about where you're going to go next. So kind of the new hurdle for us as we want that multiple premium, and by God, we're going do -- we're going to get there.
All right. On that, in the interest of time, I will turn the conference over to Dave Cote for your closing remarks. And I want to thank everyone for your attendance and participation today.
David M. Cote
Okay, just to recap the day, you're not going to learn anything new in the summary slide, but what we're doing is building off just an incredibly robust foundation. And if you take a look at what we have to build off of, whether it's the portfolio that we have, the One Honeywell culture, the performance drive that we were just talking about and what that does for us, the geographic growth that we've made great progress but we see how much more we can do when you consider 55%, 54%, 55% of our sales are outside the U.S. but 2/3 of the world's GDP is there, plenty of room for us. We're building off a great foundation. Most importantly, though, we're going to keep evolving. And I think this is an important organization dynamic because it's linked to learning. Can you learn and grow? And evolving isn't just a matter of taking what you're already doing and doing just a little bit better every year. It means being flexible. It means being able to adapt, but it also means being able to pick the right direction. It's one thing if we were as a leadership team and we were saying we're going to evolve. We're going to keep changing, but you picked the wrong direction. That's not so good. For 10 years though, we've been able to show that we can evolve and we picked the right direction, and I think from what you've seen up here, you can say over the next 5 years, we're picking the right direction still. And that commitment to shareowners isn't going to end. It's one of the things that we've always talked about. We just discuss it a lot ourselves that management team is highly incentivized given the high options component to drive shareowner value because at the end of the day, if we don't, there's nothing. And I think that's an important thing to consider when you think about do you want to invest alongside us, if you will, when you think about Honeywell. We think we're at that point now where we should be considered for a multiple premium. We're the guys who deliver consistently, constantly. We've done it for 10 years. We're going to do it for the next 10 years, and we really think the best is yet to come. And as I've said in every year I think for 10 years now that despite the shortage, you should buy now while supplies last. So thank you for coming.