Good morning, everyone, welcome to Honeywell's 2015 Annual Investor Conference. For those of you who I have not met, I'm Mark Macaluso, the new head of investor relations. Incredibly excited for this conference and look forward to meeting many of you today. Really had a tremendous turnout, even despite some continued crappy weather. I'd like to take this opportunity to also welcome the Honeywell senior leadership in the audience. For your benefit, they're all wearing white name tags with fancy red logos. I encourage you to seek them out during breaks and during our technology demonstrations for a discussion. Note there will be two breaks during the day. In addition to chatting with the leaders, I also encourage you to view and interact with the technology displays next door. Our subject matter experts from each business will be there to talk through the newest and coolest technologies with you.
For those of you listening via webcast, you can find today's presentations, including any non-GAAP reconciliations, on our website at www.honeywell.com/investor. You'll see today's agenda in the front of your books for reference. This is also a good time to remind you that today's presentation contains forward-looking statements. These statements are based on our best view of the world and of our businesses as we see them today, and we ask that you interpret them in that light. These elements may change. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other SEC filings. With that, let's get started. We're a little more than one year into our 2018 targets we set out last March. We have a lot of momentum across the portfolio and expect this to continue into 2016.
Today, you will hear from each of the business presidents speak about the strong organic growth and key inflection points over the five-year plan and how HOS Gold is driving growth and margin expansion through breakthrough initiatives and innovation. One of the common themes you'll hear throughout today is our great positioning in good end markets. Honeywell's performance track record and operational performance has been top-notch, but what's ahead as we move into 2015 and beyond has us most excited. Dave Cote will begin today with an overview of Honeywell's great positions in good industries, provide an update on HOS Gold deployment, and progress on our software and HUE initiatives across the portfolio. We'll also hear about the meaningful inflection points in our businesses we are expecting over the five-year plan, stemming from the seed planting we've done in the past.
We remain focused on the strong operational performance that we think differentiates us from our peers. As many of you have probably already seen this morning, we have several breakthrough innovations and technologies on display next door. Underpinning these new technologies is HOS Gold. Andreas Kramvis will discuss the evolution of HOS Gold across our 74 Gold enterprises and highlight how this is driving the next leg of growth and productivity across the company. After that, Roger Fradin will provide an update on the M&A program, highlighting the success we've seen over the past 10 years and how we plan to deploy that very same playbook over the next four years to drive $10 billion plus in acquisitions across the portfolio. Next, Shane Tedjarati will highlight our progress and successful playbook in the high-growth regions, or HGRs, as we call them.
Our East for East to West, One Honeywell, and Becoming the Chinese Competitor initiatives are working. We're focused on the right verticals driving growth in the world's fastest-growing economies. As always, you'll hear from each of our business presidents as they provide a roadmap for their 2018 targets, including the specific strategies for growth, an update on key end markets, and competitive differentiators that help us outperform. Finally, our CFO, Tom Szlosek, will wrap things up, provide an update on the first quarter and full-year outlook, and discuss the capital deployment framework we will employ through 2018, which we realize is at top of mind for everyone here. Overall, we have a ton of exciting content to share with you today. With that, it's my pleasure to introduce Honeywell Chairman and CEO, Mr. Dave Cote.
All of you have reputations for being astute investors. That wasn't a joke. It gets manifested sometimes by the interviews that you get called to do. Some of you have actually had an article written about you. Few of you, though, have actually been able to get your picture in the paper of a nationally recognized newspaper for your, let's say, general acumen, like this guy did. There's a picture of Bob Atchison from Adage Capital, USA Today, shoveling snow. Bob, did they ask you anything about what the stock market was doing?
No.
We got a big kick out of this, so we thought that you might want to enjoy it also. Separately, I was reminded by Dean Dray that it was probably important, given what happened with the Super Bowl and how I ended my fourth quarter earnings release, to say, once again, isn't it nice that we are all Patriots? Yeah. That's pretty good, isn't it? We do have a business purpose for being here, it's to tell you about how we're doing with Honeywell and how really excited we are about the future and where we're going. Now, outperformance is going to continue, we keep saying that, we keep doing it's going to continue to be true. Yet, as Tom Szlosek will show you, we're still undervalued when you look at us versus our peers and how we perform.
That performance is going to continue through this year, 2016, and achievement of that 2018 plan. I think you'll see from the business presentations that our businesses are in really pretty good shape to perform here. We have inflection points in both Aero and in PMT. In ACS, what you're going to see is continuing strengthening in their markets and in their performance. HOS Gold is a great example of the seed planting that we're continuing to do. It's taking some work to get it going now, but we've been at it for a couple of years, and you're going to start to see that seed planting starting to pay off. You're going to hear a lot about HOS Gold in the future.
Hopefully, you'll also notice as you go through the exhibits out there that we've done an even better job of displaying the impact that software is having on our company. Said this before, I think we're going to do a better job of displaying it this time. More than half our engineers are developing software today. You have a tendency to think about Honeywell as all our products ship in a box, whether it's a jet engine, package of avionics, chemicals, turbochargers, control systems, everything ships in a box. More than half the engineers employed are working on software. You'll see what we're doing there. Of course, we have a lot of cash. We're going to be a very good cash generator, and we're going to deploy it intelligently.
For me, this is all affirmation that our business model works. You've seen various versions of this over time as I make it either easier or cleaner sometimes to look at. Still has three legs to the stool. The first is having a superb portfolio to grow with. We've really worked on this over time with about 130 different deals, because I really do believe that if you're working in a good business and you have a great position there, then the tailwinds are with you. There's more room for error. You're more willing to take chances on things that end up paying off. If you're in bad industries, you can work really, really hard and still get bad results. You can be a really, really good management team, still get bad results. I think we've created quite a nice portfolio.
On the processes, you've heard me talk about this as just making sure the machinery works every day. How do you more effectively get your decisions implemented every day? How do you make sure that the processes your people are working with are better every day? I really do think this frequently gets forgotten by leaders who start to think that their job is just to make big strategic decisions and that somebody else then implements because they have to delegate. The reality is, we all have to own the machinery. We all have to be thinking about those processes that our people have to work with every day. HOS Gold, functional transformation, and how we develop software, especially with CMMI, are going to be great examples of that. On the left side, culture, that's where sustainability comes from.
You've been hearing me talk about this for 13 years now, culture makes a difference. That ability to evolve, staying customer-focused, recognizing the trick is in the actual doing, not in the talking about it, and that focus on One Honeywell and just innovation everywhere, understanding the customer, HUE. It really makes a difference when you're starting to drive a great portfolio with great processes. You're familiar with this one. This is our performance on that last five-year plan. Remember at the time, many of you said, "Great to see aspirational, ambitious goals, what you really think you're going to do," which I've said to many of you really kind of pissed me off at the time, because I thought, how often, how many times do we have to actually do what we say before you give us credit?
We actually did do it, despite the headwinds that we had to face on the sales side. Some would argue maybe that it was at the bottom end of that range, but remember, most of you didn't think we'd ever touch that range, never mind penetrate it. I think we did a pretty good job here, and that set us up to be able to establish our 2018 organic growth targets. These are pretty much the same. These are the same numbers that I showed you last time. You'll notice under the sales side, we talk about the headwinds that we're having to deal with just from FX and global GDP growth is a little lower so far. We're not walking away from the numbers. We're still staying committed to those global numbers overall on both sales and segment margin, and we think we can get there.
As a reminder on segment margin, because sometimes the question comes up about, when's the juice out of this lemon? If you take a look at the targets by business, yes, they're improving when you get to 2018. More importantly, each of the businesses has a long-term target that's not crazy. If you take a look at those numbers, those are not crazy numbers, which says even beyond this five-year plan, there's upside. Another way of thinking about the upside is on the right side of the chart, when you take a look at our margin rate versus some of what we would refer to as our high margin rate peers. Now you can see the red line clearly has a greater slope. We're clearly accelerating or improving faster than our peers.
For me, the big observation is that even in 2014, we're still over 200 basis points below where they already are. In other words, this is not untrod ground for a multi-industrial company. We can do this, and we're just getting to places that others already are. I think that should add greater credibility to our ability to do this. You've seen this chart before, but I always think it's helpful because it helps to show, break out our industries and how we're positioned within those industries. I think as you go around it, you'll say, okay, that diversity of opportunity that I talk about is real.
As you start to go around it, you'll say, "Wow, that's generally pretty good stuff that they've managed to position themselves in with all the acquisitions, divestitures, and the organic growth that we've done over the course of time." This takes that same chart, just breaks it out a different way in descending order by end market side. If we look at the homes and buildings side of this, we'd say the end markets, we think non-resi is starting to pick up. In addition, in the High Growth Regions, you still have this tendency to move from the country into the cities. Urbanization is going to continue, so we take a good trend. Our position, of course, is very good, just in all the homes and buildings that we're in, plus the connected solutions that Alex will talk to you about.
On the industrial side, the need for productivity is a constant. You're going to see safety standards improving around the world. Safety standards are going to always be going up. Nobody takes safety standards down. We're in a unique position to be able to take advantage of that. Commercial Aero, you're well aware of the OE side. Flight hours continue to grow, which is obviously a good dynamic. Tim will take you through how well-positioned we are on growth platforms and the new connectivity strategy that he has that we're already benefiting from. On the oil and gas side, I know there's a lot of questions on this one. Darius Adamczyk will be talking to you a lot more about it. Overall, upstream CapEx budgets being cut by a lot. Refining demand is pretty firm so far.
We have limited upstream exposure. We think that you're going to like our mid and downstream story and how we're positioned. Defense & Space, the U.S. defense budgets are stabilizing. International budgets continue to increase because of rising global threats. You'll see that U.S. DoD is only about 8%-9% of our total sales. The remainder of it is international, which is going to continue to do quite well. On vehicles, it's really turbo penetration. Turbos are going to continue to grow in penetration. It's only 33% today. I think it could be 90% someday because you get 20%-30% energy efficiency on an engine. It's not that hard to do. The whole world wants this. This is going to keep coming. We're uniquely positioned here because we have that Aerospace connection. No other company has that.
No other company that makes turbos has a jet engine business where things like material science and airflow handling can so quickly translate. As we look at each business, from Aerospace, you'll be hearing about all the program wins. Tim's going to take you through what's happened on integrated cockpits. Despite some of the stories you've heard, I think you'll be a little surprised at the kind of growth that Tim is experiencing there. What we're going to see. Share gains by Tim and his team have been substantial. Connectivity and how we're integrating across portfolios, especially with the best mechanical and electronics capability combined in a single company. No other Aerospace company has that. We're uniquely positioned again. The turbo market, as we just talked about, has been going great.
In ACS, you'll hear from Alex that macro trends are really working well for us. He's got a great organic growth story. Alex is connecting everything. Homes, buildings, workers, factories, everything's being connected. He's even connecting ACS within itself. You heard me talk in the past about the non-concur mentality that I thought existed in ACS. How much we needed to do more connecting. I think Alex is doing a great job of making that happen. From Darius, you'll hear a lot more about oil and gas. How we're still well-positioned with our strong backlog. We've got a wonderful inflection point coming in PMT with all the CapEx expansion that we're doing for plants that are full the day that we build them. We're in pretty good shape there. The HPS and UOP connection working very well for us.
From Shane, you'll hear more on high-growth regions. Now 23% of our overall sales, you can see at the bottom, continues to grow very well, and we're positioned in the right places. We've been very smart about how we've done this, focusing first on China and India a while back, then building our capability. You'll hear a lot about Becoming the Chinese Competitor. When Shane talks with our business leaders in high-growth regions, when Alex, Darius, Terrence, Tim talk to their business leaders in the region, they're not asking them, "How are you doing against the other Western multi-industrials?" They're asking them, "How are you doing against your local Chinese competitor? Who is your biggest Chinese competitor, and how are you doing versus them?" Those are the guys that we have to be thinking about beating.
China is now the number two economy in the world. We have to start thinking differently about them than we have. What we've done with Becoming the Chinese Competitor puts us in a hugely favorable position. HOS Gold, you'll hear a lot more about from Andreas. The way to think about this one is going right to the takeaway, is we're trying to take big company cost-effectiveness and technical and functional excellence, which is real. If you run a big company right, your cost position, both on purchasing and the leverage you can get on processes, is better than what you can get in a small company, which we do. We want to take that big company capability and marry it with small company speed and customer responsiveness.
One of the reasons we've gone to these 74 Gold enterprises is we're a much bigger company now than we were, say, 10 years ago. We used to have about $22 billion in sales, now we're above $40 billion. We used to have $20 billion in market cap, now we're above $80 billion. If you get to start to be too big, you start focusing on just the mean, the average. You're not really looking at the variation in all your businesses and the different competitors. You just focus on the big ones.
This is a way of getting down to the smaller enterprises where we want to focus on the customer, that market, our competition in a unique way, and make sure that we're doing all the right things to win there in understanding our market, getting all our best practices implemented, funding breakthrough strategies that will really allow us to perform well. You'll hear a lot from Andreas about his involvement in establishing all these breakthrough goals for all 74 enterprises. He's been personally involved in looking at them and helping them develop it, and I think you have the same respect for Andreas' business acumen that I do. I think everybody would say he's been quite helpful. This is the way we're starting to run the company. There's a lot of juice left in HOS Gold for a long time to come. Software growth.
You've heard me say many times that more than half of our engineers are developing software. You start over on the left-hand side. One of the things that's important to do is make sure that they have the right kind of machinery to develop software. Here's the way I think about CMMI Level 5. First of all, if you recall a couple, three years ago when I first mentioned it, most of you had to Google it to find out what the heck I was talking about. Here's the way I would think about CMMI Level 5. In the '50s and '60s, Edwards Deming was going all around the United States trying to explain product quality and how important that was for efficiency and better products. Nobody in the U.S. would listen to him. What did he do? He went to Japan, where they were actually interested.
All the auto companies picked up all those quality standards and then started proceeding with it. Of course, what happened is you got into the '70s and '80s, all those Japanese vehicles came in, nearly killed our own industry, who had to completely turn around, and as a result, we actually make pretty decent vehicles in the U.S. today. CMMI Level 5 does the exact same thing for software development, and that's why you see most of the company-- First of all, this was also developed in the U.S., Carnegie Mellon. If you look at who are the companies that are adopting it's generally Japanese and Indian companies. This year, when we become CMMI Level 5, we will be the first large Western company to actually be CMMI Level 5 across the board.
When you think about all the software we have to develop, this gives us a significant leg up on our ability to develop that software. We're also establishing centers of excellence around the world when it comes to things like mobile apps, making sure that our high-growth regions, especially China, have that capability, and that we drive a right and fast mentality, which CMMI Level 5 can help with. Now, all that stuff I just talked about says, yeah, you do a great job of having machinery to develop software. You still need good ideation. You still need to be coming up with good ideas. When you look around at what we've done outside in our exhibit, I think you'll actually get a pretty good sense for how software can really create wonderful HUE-enabled products for our customers.
I think our guys have been doing a pretty darn good job of this. One of the things we don't forget is the business model has to work. You've never heard me or any of our guys talk about how wonderful the Internet of Things is, so no matter what you do, as long as you're putting money into IoT, it's a great thing. You don't hear us saying that because you still have to be smart. You've got to make sure the business model works. I think we do a pretty good job of that. As I mentioned last time, our software capability is at 3 levels: simulation, product enablement, and then software as a business. Even something like simulation ends up being important. You look at that dual-stage turbocharger that we have out there, all done through simulation.
Other guys end up having to develop it, hog out the metal, test it, which means a month later, you find out, did my design work? Our guys can do this on the machine. That simulation program is a huge competitive advantage for us. The stuff you see on the right, you'll be able to understand more about when you go through the exhibits outside. The way I would think about it is just like the business model, we're taking machinery effectiveness, making sure the machinery works, combining it with smart ideation, and as a result of that, we do about $1 billion today just in software, and that's going to grow 15% annually over the next 5 years. HUE, we talked about a lot last time. It drives organic growth.
Some of you, when I discussed it the first time, said, "Geez, it sounds like common sense." To which my response is, yeah, it is. In business and in life, common sense is not so common. It's really kind of surprising. That stuff that you would say, well, that just makes sense. Stuff like engineering and manufacturing working together from the very beginning. Sounds obvious. It's amazing how often that does not happen. Same thing happens with HUE. We now have nine design studios worldwide, all focused on every NPI, new product introduction, have to think about the user, the installer, and the maintainer from the very beginning. I think as you start to go through the exhibit, you'll see nice examples of this, including those three that are on the right-hand side. Now, I've talked a lot about growth.
Growth is obviously important, we have never forgotten that income is sales minus cost. Cost is still going to be a focus. This is still Honeywell. We haven't lost our minds. We understand that we've got to focus on how do we leverage cost. The best thing we can do is the same thing we've done from the beginning, which is get sales growth and leverage fixed costs. You'll see from a census chart, I think we've done a pretty good job of that. Those process initiatives we're going to keep driving, and we still have funded restructuring on the books at the end of last year of over $300 million. Those are all projects to come that are going to be generating profitability for us. I mentioned census.
If you look at fixed costs, I keep talking about sales growth being used to leverage fixed costs. Depending on the business, 65%-90% of fixed cost is people. How have we done on people? We break it out between developed and high-growth regions. Over these last 10 or 11 years on developed markets, sales are up 56%, yet census is down 7%. If you take a look at high-growth regions, sales are up 334%, while census is up only 156%. The leverage you get from that sales growth leverage on fixed cost is monumental. It is one of the reasons we've done such a nice job continuing to grow our margins. Now, you notice we do it in a nice, steady, progressive way. There's no big disruptive, big bang anything.
It's just kind of nice, steady, keep it going, more ideas in the pipeline every year. I talked about cash. Pretty much showed you the same chart last year. We're going to generate a lot of it. First priority is high return CapEx, and Darius will tell you about the stuff he's got going in PMT. The dividend, we're going to continue to increase the dividend faster than earnings, meaning the payout ratio is going to increase. And I didn't get many nice notes back, but I'm hoping that you noticed the 15% dividend increase in the fourth quarter of last year. I thought at least somebody would call or write or do something. Anyway, it was 15%. It's not so bad.
Strategic M&A, I still think we're very good acquirers, and you'll hear Roger talk a lot about what he's doing to help drive bigger M&A in the company. Because now that we have greater capability, a lot more money, our potential has increased quite a bit, and Roger's track record is impressive as hell when you look at what he was able to do in ACS with M&A. Of course, that allows opportunistic share buybacks. Now, I'm also very mindful that last year I said, in addition to organic growth, that there was $1 of EPS upside from cash deployment. This is pretty much what I showed you last time, and this is new. Many of you have asked in the past, okay, how much cash is enough?
At what point have you built up enough cash on your balance sheet that you think you have enough to deploy opportunistically and can start returning the rest to share owners in a buyback or whatever? We're at that point. When we get net cash, what we're saying is that when net cash gets to $1 billion-$2 billion, and today we're at about zero, if you look at last year-end, we'll start using the amount above that for incremental share repurchase. Think of it this way. If we are able to do some smart M&A, and it'll still have to be smart, we haven't lost our minds when it comes to being disciplined, we're going to lean towards doing M&A. To the extent that we get above that number and we have the cash available, then we'll deploy it to buy back shares.
We think there's two advantages to this. The first benefit is it does limit cash buildup, we've got a certain number that we won't be going above generally. At the same time, it preserves firepower. We'll have a decent amount of firepower for doing deals that make sense, which of course, we're still going to do. I'm hoping, the reason I put new on there, this is my attempt at consumer marketing, was to have all of you go, "Oh, son of a gun." This is a pretty good idea. We like the approach they've taken, and they finally hit that point where they said, 'We do have enough cash to be able to add all the value we want.' Key messages today. People you're going to be hearing from. Some of this we already went through.
Andreas is going to talk about HOS Gold and how important that is to us for both growth and productivity and the impact of breakthrough goals. Roger is going to talk about acquisitions and how we've upped our game there, and it's required a lot of pipeline rebuilding in order to generate the ideas. Shane, you've heard a lot from in the past on high-growth regions. Story is still true. It's just the scale of the opportunity keeps getting bigger. With 20 years from now, high-growth regions representing almost 50% of the world economy, it's going to be really important for us to continue to be big players there and to become the Chinese Competitor.
Tim will tell you about all the wins that they've had in aerospace that we've been investing in for the last four or five years and now are going to start coming to fruition, along with the share gains that he's been seeing on avionics. Terrence will talk about Turbocharge. It's basically the same story. The significant wins we've had start ramping up. He'll have the EUR that he'll have to deal with, but still, when you take a look at the overall volume, his share gain and the kind of wins he's been getting is tremendous. ACS, just very well positioned. Alex making a lot of internal changes that are going to make a big difference here, and I think you're going to see nice organic growth coming out of that.
In PMT from Darius, the big growth inflection is coming, and I think you're going to like a lot of the changes that Darius has been making in the business, plus his insight on oil and gas, what's happening there, and how that's going to help us. Of course, from Tom, you're going to get our overall financial review and how we're consistently outperforming. I asked him just to take a moment to explain to everybody how undervalued we were so that if there's any message you take away, that might be one of them. We think this is an exciting time for Honeywell and an exciting time for our investors. I'll turn it over to Andreas to talk about HOS Gold. Andreas?
Thank you. Can I have the clicker? Terrific. Thanks, Dave. Good morning. It's good to be seeing familiar faces because it makes my presentation a lot easier. I know for the last few years, we've been talking about HOS. As I see around here, many of you have visited our plants and seen the effect it's had on manufacturing, product development. If you go and see what's happening in our showcase we have, you'll see the effect of software and user interface. I don't really need to belabor this too much. We have a terrific platform which has delivered and keeps delivering and is setting Honeywell apart. Let me just concentrate here on what is new in HOS Gold. What I'd like you to remember is a couple of things. In fact, three things, growth, and growth.
How we're going to achieve that is with breakthrough objectives, we have a methodology of doing this. It's already in operation, I'll go through and explain to you where we are and what is coming. Where did we start here? First, to get agility, to get growth, you need to be close to the customer. What are the criteria for being close to the customer? We looked across Honeywell and we said we have 74 units which have unique markets and technologies. Those two things go together. We're a technology house. We have extraordinary technology. To my mind, it's not yet fully exploited. In fact, a hell of a long way to go. We said we need to marry those things at the marketplace to get what we need here.
At the same time, if it's done in an environment which has the global infrastructure, the economies of scale of a large company, you got an ideal world. Who wouldn't want to come in as an entrepreneur to work in Honeywell to get all that infrastructure, the funding, the enablement, the global knowledge? All these things are working together. 74 units, 16 in Aero, 14 in PMT, 44 in ACS, which is a more fragmented business. Agility is the name of the game. Technology commercialization, which we have plenty of, is the other name of the game. Okay, just to review how the business was run before and is run now. Now SEC reporting is on the three legs that we report and you know about. Before we had 16 SBU presidents, strategic business unit presidents, who were making all the decisions.
Now we have 74 general managers at the interface of the market with relevance, making a lot of those decisions and increasingly more and more of those decisions. Objective setting was at a higher level. You heard Dave's analogy, the analogy of the mean. It's very true. Let's go to the specificity and the upside. We're now setting objectives, these are breakthrough objectives, I'll discuss what they are. Every single one of them is vetted. In fact, I go through every single one of them. They're real step-out objectives. Investment decisions before were at the top, now are at the specific level. Does it make sense? Where do we put our foot on the gas and where do we go? A lot more change here.
Of course, we're changing the thinking and the way the business is being managed, we need the talent to do that. The next thing we put in place is training people. They're being trained by courses, by mentoring, by meetings with senior management, by giving the space. We're developing business acumen, strategy development. How do you get things working at a new level as a CEO of a small business? Then the teams around them, the foundational skills, so they can be supported. Everything working together in a very clean way to get what we want. All these things have happened, are happening, they're going to keep improving. Let's see what we're trying to get at. Well, when we started the program, we set these high level objectives. We want to be growing twice the rate of our targeted segments.
We want to have a profitability which is 50% higher than any peer has in the same segment. We want to have great cash conversion, and we have metrics for all that. Just let me tell you something. The metrics are very important, and we're going to achieve them, and they're going to be the result of something. I want to talk about what that something is. That something is our ability to take this vast technology we have to establish, invent, create, develop, shape new markets. That's one of our key objectives, and this is what we have in train at the moment. The second one is to move to adjacencies, and we have a very good track record of doing that. Again, we have a lot of activities in that area.
The third one is to come out with products, processes, solutions which have clear economic superiority. Again, all these things are happening. If something gets done in a quarter, you know the competitor can cover it in a quarter. We need a bit of time, but we've stolen a march on everybody else, and it's in the pipeline. Let's see how the program is running. There are three steps to it. Does an individual unit have strong foundations in terms of the fundamental processes? If they are not there, you just cannot run it at a higher speed. The second step is, assuming that is the case, are we able to identify these breakthrough objectives and put the breakthrough projects in place, put the capability, put the money, put everything we need?
The third one, of course, is where we want to arrive, that we routinely achieve these things as a matter of everyday business. Where are we at the moment with the 74 units? Well, a few, we're still building foundations. The majority, and I'm very pleased to report that, are at the stage that the programs have begun in stage 2, and we will see results, and we have a few units which already routinely are doing that. I talked about breakthrough objectives and the word breakthrough. I just want to finish by giving you three examples of what does it mean. The first one is you're going to see connectivity. Of course, everyone is talking about IoT, but Honeywell has it now. If you take buildings, we can connect any building with Honeywell zone, Honeywell devices around the globe with our Tridium software.
You're going to say, what's the breakthrough here? You already have it. Maybe you're the only company on the globe that has it. What's the next level? Well Alex is going to talk to you in a while about how he's expanding that to really generate an enormous market. I leave that to Alex to expand it out. Next thing. What you're seeing here is three-dimensional radar. If you just look closely, the old radar on the top, you're seeing green blobs, you're seeing red blobs. You don't know where really the problem is in the sky. The third dimension on the bottom, and I'm not quite sure it quite shows that this guy is flying at 22,000 feet. If he goes to the right, he's going to run into that mountain on the bottom, which is bad weather.
If he goes to the left, he's flying over it. This is a great breakthrough. It's already in the market. We have the best unit. You're going to see what comes next. How about this one? We really have crowdsourced radar, which is connected to a satellite. It connects not only our own systems, but our competitor systems also. When you're starting in New York and you want to go to Europe, you have total visibility of the weather. It clearly saves money. It clearly is safer. You can go anywhere you want. This is a breakthrough. Again, I've been talking to you for the last few years about our low global warming molecules breakthroughs. I'm not going to dwell on them because Ken Gayer and Darius will talk about these breakthroughs happening and the terrific sales coming in and the business growing like that.
Did we stop there? We pushed our teams, our technology teams. What else can we do with this great technology we have? We've identified $3.6 billion of new markets, which are going to start happening in the next couple of years, and big sales coming in with patented technology from fluorosurfactants to fumigants to protective coatings. Is this a breakthrough? Absolutely, this is a breakthrough. Does it meet all the criteria? Of course, it does and exceeds that. Let me just close here. We have a system in place. We're getting the agility of small companies with the wherewithal of a large one like ours. We are running the robustness we have with the HOS system. We are really transferring this vast technology we have into new markets, and this is going to translate, and it's beginning to translate into superior growth.
With that, I'm going to ask Roger to talk about M&A. Thank you.
Good morning. Delighted to be here. We've generated a lot of shareholder value over the past 15 years with 80 acquisitions. Not only have we expanded and built it on to our good core businesses, but I think where we've really distinguished ourselves is moving smartly into some good adjacent markets. Whether it's gas processing, gas detection, gaining mobility, oil and gas storage and transportation, connected aircraft, industrial combustion, industrial safety, some really nice adjacent markets for Honeywell. To bridge today's comments, our focus on the M&A front is to add another dollar to EPS by 2018. That is incremental. That's not in our baseline plan. My new role at the company is to be a catalyst for more and bigger M&A. A few things have changed, but most have not, because frankly, we have a world-class system and process for prosecuting acquisitions, integrating them.
Some of the key things that haven't changed is Anne Madden, a world-class M&A talent, still owns the process. Our business leaders still own the deals and own the results of the integration. My goal is to focus on getting more originators in the U.S., in Europe, and in China to drive broader and deeper pipelines in each of our business, to look for larger transaction opportunities, to look for more adjacencies, and to do something I think as a multi-industrial, we have a few good examples of, but we're looking for more, and that is to find targets where we're uniquely positioned to create more value than other companies. Because of our multi-industry focus, EMS, for example, fit into ACS and into Aerospace, almost designed to be bought by Honeywell. Novar fit into five different ACS SBUs.
I'm encouraging a focus among our businesses to look for those kinds of opportunities, and there are plenty of them out there. Sure, I'm a bit frustrated. We were slow out of the gate last year in getting good deals across the finish line, but we've got a lot of irons in the fire and a lot of good stuff on the way. In terms of what hasn't changed, and this is a chart that you've seen similar versions of it before, is we buy what we know or know by analogy. As simple as it sounds, to use Dave's term, as common sense as it sounds, it has been core to our success. Now, because we're in 74 gold enterprises, there are a lot of businesses we know a lot about, either directly or by analogy.
Tightly connected to our strategy, I can't say never, never, but almost never does a banker come to us with a book and an idea on a target that, here's an idea, we ought to think about this. We generally have been connecting our M&A pipeline to our strategy over many years. Our pipeline and the targets we pursue very tightly knit to our strategy in terms of technology, globalization, channels, and brand. Big focus on pipeline building. A little subtlety in our process, and maybe we all tend to be very numbers focused, but this is an important one in terms of how we build relationships with our targets.
Even though many of the deals ultimately go to auction, by building a relationship over many years with the owners of target companies and the management team, it makes a difference in terms of Honeywell winning the deal. I can tell you personal examples at Novar, at Sperian, at EMS, at our oil and gas acquisitions. The personal relationships that we formed made the difference when the private equity firm who owns some of these companies would say to the management team, "See, the bids are roughly the same. Who do you want to work for?" If we built that relationship, we win the day. On the discipline front, hasn't changed. We're not backing off in terms of our financial metrics. All in accretive, no asterisk accounting in year two. Year five ROI all in double digit.
We have somewhat been maybe chided a bit for being too tough, but the toughness in our standards has allowed us to deliver terrific shareholder returns. 8% plus cost synergies. That's the secret sauce. I can tell you, and this is from personal experience, I think Andreas and I thought we were running a pretty good shop at Pittway. When we were able to leverage all the advantages that Dave talked about of a big company in terms of functionalization and processes, over the years, margins increased well over 10 percentage points, and that is typical of deals. We buy even very well-managed companies, leveraging Honeywell scale ability to extract value. We don't count sales synergies when we value a deal. That doesn't mean they're not important.
After the deal closes, we run like heck to drive sales synergies, but we don't tell ourselves a story because that's exactly how you get yourself into trouble in terms of how good sales could be. Couple other people secret sauces. Our best people want to work on acquisitions. When you think about getting great results, if you have great people working on something, it is a big enabler. Why? Because it's a well-known career accelerator at Honeywell. Our due diligence team is also the same. The integration team does the due diligence. Oftentimes you have disconnect in an integration process when the integration team picks up the integration plan and says, "Gee, what? That's not my plan. I didn't sign up for that." That happens at a lot of companies.
Doesn't happen in Honeywell because the same team is responsible for the plan and executing the plan. Maybe another subtlety when it comes to competing for deals and understanding the market, I think we're pretty much the only large industrial that has three members of the senior leadership team, Gary Zadomchek, Andreas, and myself, who all joined the company as an acquired business. We have a certain empathy for it, a certain understanding for it, and I think a good feel for how to keep that small company entrepreneurism while leveraging big company process. Some examples to give you some texture on what I mean by pursuing adjacencies. I'll start with the middle one. Back in 2000, a legacy Pittway business was a fire alarm business, a $400 million business, world leader in fire alarm systems and technology. Nice position in a relatively small industry.
How do we get bigger? How do we think about adjacencies? We said, "Gee, what other industries use similar technologies to smoke detection? What other industries are life safety focused? Highly regulated." Regulation is a big trend here. Lo and behold, we identified gas detection. Three acquisitions later, we're now number one in the world in gas detection, and that business, by the way, is on track to be one of the first gold enterprises in Honeywell. Great story. We said, now we're in fire, now we're in gas. Where else can we leverage channels, customer relationship, life safety, regulations? Same customers who buy gas detection equipment buy industrial safety equipment. Safety market is huge. Many tens of billions of dollars. Three acquisitions later, now number one on the planet in safety.
Taking a $400 million business to a $4 billion business with good, intelligent, adjacent acquisitions, 20-plus percent income, OI rate. Nicely profitable as well. On the gas processing side, I'm not just saying this because Dave's in the room, but maybe I am. One of the best home run acquisitions of all time was UOP. A gem of a business. I think it would all agree with. Andreas then takes responsibility for PMT and starts the same line of thinking. How can I grow and define my served market with adjacencies? Thomas Russell, another great acquisition in the packaged plant space, has helped double European size from $1.6 billion to $3.2 billion. Last but not least was a further adjacency, and I'll be the first to admit this than our typical adjacent deals, which was into the scanning mobility barcode space.
We proceeded a bit more cautiously here because it was a little further adjacency. We started out by buying a modest-sized scanning business, scanning handheld products, similar technology, similar channels, ability to leverage the brand, but perhaps not as tightly connected as some of our other deals. We liked the business. We then acquired the company that Darius was CEO of, Metrologic. That's how Darius joined the company, took responsibility for it. Metrologic was also a scanning company. We realized, mobile computers, same customers buy both, same buying decision. Let's step into mobile computing. Bought EMS, then bought Intermec. Intermec was in mobile printers. We now bought Datamax-O'Neil. That deal is closed. We've gone from zero to almost $2 billion, number 2 in the world in scanning mobility. It gives you a sense for how we think about adjacencies.
Typical of the results that we achieve are the Intermec integration results. Not only fabulous results on taking cost out, but growing sales. We actually have to share with you, we expected some sales breakage when we closed the deal, given that we had two mobility platforms between Honeywell and Intermec. Didn't happen. In fact, we went out and closed the biggest single mobility deal on the planet, worth hundreds of millions of dollars, U.S. Postal Service. Yes, we took that customer away from our number 1 competitor as well. You see the numbers that Alex has signed up for on the Datamax-O'Neil. We bought the company at roughly 11x earnings. Typical of our numbers that we've showed you before, the all-in integration is going to be more like 6x.
The betting at Honeywell is not whether Alex can achieve the 6x, it's through his terrific management, how much better than that he's going to do. I'm really looking forward to that one. The areas that we're focused on from an M&A perspective, on the Aero side, you saw in being able to connect the weather radar from this plane to all the planes behind it. Aircraft connectivity is a big deal and a major theme. Connectivity is not only a major theme in Aero, it's a major theme in ACS from an acquisition perspective. We love mechanical components on the Aero side, love other businesses that leverage turbo technologies. In ACS, we've done a great job with multi-brand, going to keep driving it from an M&A perspective. Data analytics capability as our systems are collecting lots of data in homes and buildings. How do we monetize that?
In PMT, continue building on UOP, continue looking for more process technology businesses, and in HPS, looking for more product lines to add to the business as well as build on our software capabilities. In closing, as Dave said, we're now a $40 billion company, not a $20 billion company. We've got bigger eyes in terms of M&A. We've had some terrific success with our larger acquisitions. Through great cash generation, we've got plenty of firepower, a world-class integration process, and hundreds of very experienced people who have led integrations on dozens of deals that we can pull from to do some of these bigger deals. Larger transactions, a focus on Europe where we've got a lot of cash, a focus on multi-industry capability. Looking forward to getting to that $1 incremental in EPS by 2018. With that, I'll introduce our high-growth region presentation.
Good morning. Delighted to be here to share with you an update on high-growth regions and how we're continuing to build value for Honeywell through our strategies that we've been putting in place for a number of years. These are, again, for your benefit, East for East, that will continue to deliver across all of our businesses. The East to Rest capabilities that I will update you on about what we're doing around the world with that. The One Honeywell approach that Dave has been talking about for the past decade, we're putting it in place in every one of these geographies and going to market by key verticals. I will give you an update on that. Dave talked about Becoming the Chinese Competitor. This has now become part of our fabric. We've been at it for a number of years.
Dave personally reviews it twice a year across all of our businesses, and it's become part of the way we do business. Finally, I want to also update you on Follow the Growth and some interesting new frontier areas for the high-growth regions. We have been growing double digits over the past five years in high-growth regions, and this will continue to be a good story for us and you'll see why when I present some of the more nuances. A nice balance between our businesses, ACS about a third of that, and Aero another third, and about 40% in PMT around the high-growth regions, and nicely balanced around the different geographies. China and the Middle East are fully more than half the area for the high-growth regions and really deliver about half of the growth of these regions as well for us.
When we look at 2014, we've had significant wins that give us a very good tailwind and a good push and a good pipeline into 2015 and beyond. Some of these wins are multi-year wins, whether in aerospace or in PMT, et cetera, and some of them are continuous daily wins that give us more confidence with this year and the year to come. When we look at the macro environment, there are areas of concern, of course. There's obviously concerns with Russia. There's obviously concerns with other places like Brazil. All in all, when we look at just our priority high-growth regions, which is about 10 major regions in the world, of four billion people, $20 trillion of GDP growing at about 5%.
That still gives us a lot of opportunity, a lot of tailwind, and with our great positions in good industries, aligning ourselves to the macro trends of all of these places, whether it's energy, safety, security, transportation, things that they need in order to build, things that they need to urbanize, which is really the theme of these regions. We got to grow faster than that and really deliver not only 50% that they deliver for the world, but we also deliver a significant portion of the Honeywell franchise. Dave talked about the oil price. I know Darius will also be talking about it. Here's another cut, which is a geographic cut for your benefit for high-growth regions. Obviously, there are countries that are losers. Russia is one. Our exposure there is very measured and limited.
A lot of the countries in the high-growth regions are actually net importers. They actually benefit from a lower oil price. For China, for India, for Vietnam, and for some of these countries, there still is benefits. Although we do see some delays, we haven't seen any project cancellations or any significant impact. In fact, in some of these countries, they continue to be able to invest in other infrastructure. It's something that we continue to watch, but not a very big concern for the high-growth regions today for Honeywell. We talk about China. I know during the break in the morning, a lot of you came and talked about China with me and like to talk about what we see there.
The new normal, if you like, we see the new normal growth of 6%, 7% growth and more healthy growth rates that China has really been driving through the new government clampdown on corruption, clamping down on the environment and bad business practices and so on and so forth. We really do see that this new normal is actually fairly healthy because it's higher quality growth rates. It's putting money into urban infrastructure, middle class consumption. Private enterprises are being encouraged again and given the room that they need to grow. We know that when private enterprises grow, overall, the environment becomes much healthier. We see for the first time, really in the past 10 years, that more real money is being diverted into energy and environment, which is all very good for us, as well as to healthcare, as well as to productivity.
These are all good tailwinds. I know a lot of you have concerns about tier 2, 3, 4 cities. A lot of that concern is valid in terms of the high end of the market with empty apartments and so on and so forth. A lot of good stuff is also happening in tier 2, 3 cities in terms of middle class and lower middle class housing and infrastructure and consumption and all that. Because we've taken that to our core strategy nearly 10 years ago, expanding there with our East for East, where it doesn't give a tailwind to high-end apartment developers and so on and so forth. We still see a lot of good in China. This gives us a very good basis to continue to grow.
China is still our largest single contributor within the high-growth regions, and it is our second-largest geography in the world after the U.S. Our core strategy for high-growth regions continues to be the same. It's a proven playbook. We were measured at it. It was today's old adage of go slow to go fast. We are able to go fast today because we were measured about it. We knew that if we don't win in China, we really can't win in the rest of the world. We continued to do that, and with India. Then we took it and put it in a laboratory in the smaller countries. Then three years ago, we said we can go fast.
It's supported by these high-priority regions where we put all capabilities of Honeywell for East for East product development, that we've been at it now for 10 years. 2005 is when we started East for East. East to Rest, how to take these products and not just populate the world with them, but in a very measured fashion, find out what products are needed, what kind of certification, what kind of features are needed in different countries of the world, and actually put that capability in place. Follow the Growth, following the growth of our customers, our global EPCs, our major partners from China, from Turkey, and increasingly from other parts of the world.
I'll talk about Follow the Growth, why Honeywell is very well-positioned in that, and why it's not such a simple thing to just follow the growth of these people, because it's south to south growth, and we've been really at it to really be able to create a fabric that allows us to do that. How we go to market by different verticals in a One Honeywell fashion, in an integrated fashion. I'll speak to each of those. Dave talked about Becoming the Chinese Competitor. It's obvious that the onslaught has really hit the world today, from garage imitators all the way to global challengers.
There are hundreds of Chinese that have both the ambition as well as the capability now with the supply chain that's been developed in China, as well as the entrepreneurial zeal and all the other benefits that the government has been providing to really come up and quickly shed that imitation skin and become innovators and so on and so forth. Multinational companies have been slow in understanding and in responding to that. We have actually taken a very methodic response to it. For nearly 10 years, we've been at East for East, and five years ago, we said, "Well, we have to really benchmark ourselves systematically and methodically against the best Chinese competitors." We know how to compete with the multinationals. That's not the question. Here, the question is, how do we become faster, better?
How do we actually become better positioned in terms of the best products to market at the best price and still make better money than them? That's the name of the game. We have been at it. We are self-assessing ourselves twice a year, reviewing it with Dave twice a year in September and in March. We look at it saying, how are we doing versus these? There has to be results. The results are in the businesses that are Becoming the Chinese Competitor, and we have a few of them now to show. It's not just our fire business, that we grow faster than the market, we grow faster than the Chinese competitors. In many of those instances, those Chinese competitors actually stagnate.
With our better capability, better brand, and higher quality, and the same price or lower, we are able to beat them in the market. This is a big deal for us. Give you a couple of examples of Becoming the Chinese Competitor and East for East combined together, what it does. In light commercial vehicle turbo, for example, we knew that China does not use as much-- Most of their commercial vehicles are gasoline-based. Diesel is still not plentiful in China and very dirty. Our Generation 1 turbo for light vehicles didn't really meet the Chinese standards. Fast development in terms of localized R&D, localized supply base, redesigning that whole thing for China, it resulted in significantly improving performance and the user experience, 50% reduction of the cycle for development of the products, 17% cost reduction, and 65% sales up in 2014 for that one product.
Results are really there to show. We continue to do that in addressing different needs of the market, whether it's environmental needs for water or humidity sensors, whether it's in improving energy efficiency in turbo. Microturbo gas is one of the areas in which we have actually made China the world center for center of excellence for Microturbo gas. Enhancing user experiences, some of those things you will see outside. My colleagues from China, India, and the Middle East are here to also show you some of the products that are here. If you ask the average Chinese and increasingly people from other parts of the high-growth regions, "What's one of your biggest problems?" They will always say air, water, and food safety. We've taken to heart that air is not just air at home, it's air at home, on the go, and at work.
We're creating innovative products that are there for each of these areas. From conception to cash, totally designed and built and manufactured and go to market all in China. You'll see on the left-hand side here, all these products are out there for you to see. The product on the right-hand side is aptly called Mr. Big internally. It's the biggest vac in New York. You will read that its reading yesterday was reading zero for PM 2.5. I had to ask our engineers if that was wrong, and it was actually right. Today it's reading three. Don't complain about New York weather. It would be reading 200 or 300 if it was in China. You'll see that product. These are great products that we are responding to the reality of the market in China. East to Rest.
This is how do we take all of that capability and we become a real big force multiplier for us around the world? It's one thing to take a product and just put it in a market. Another thing to think about that market like Turkey or Russia or Africa, say, how do we actually address it? Does the product fully fit there? Is it a direct drop-in? Is there a change in, for example, certification or even temperature checks? For example, in Russia, everything has to be certified down to -50, not -30, et cetera. We've created this capability inside the company, and we've also shattered the myth that, for example, Russians don't buy Chinese products. In Turkey, you don't succeed with these kinds of products.
When we had our first seminar in Turkey, more than 300 users and distributors showed up to see what we have to say. Increasingly, we're able to tailor these products and create a much greater torrent of East to Rest products around the world. Urbanization is really the key, and you saw that in the last part of the slide, that drives a lot of this demand. 90% of the global new urban population, and 1 billion new middle class is coming online in the high-growth regions. When people move from the villages to the cities, they become greater users of Honeywell technology, whether it's for energy, for cities, for transportation, et cetera. This is why we've been winning and putting together vertical teams that can go to market by bringing all the capabilities of Honeywell, say, at an airport.
Whether it's in a building, it's in the air side, in the approaches, GLS approaches or runway lighting, or even docking and taxiing, we can bring to an airport a lot more than anybody else in the market today. For example, on the left-hand side, the Dubai Airport, delivering a complete new runway lighting system ahead of schedule and on time, while the other runway at any given time was hot during the summer at over 120 degrees Fahrenheit. We did that in record time, made very good money on it, and we can bring all the One Honeywell capabilities to the table. Follow the Growth. This one, we've been talking about it for a number of years. I know that many of you are familiar with the topic. Look at the Chinese EPCs. Over the past 5 years, they've been growing at over 22% CAGR.
They're growing 3 or 4 times, 5 times the GDP of these countries. This trend plus all the Turkish EPCs that have been growing across in North Africa and the Middle East and Central Asia. The trick here is if you're not local in their home country and you don't have capabilities in their destination, you're not going to be a partner with them. If you're not able to talk to them in their language in China and offer them Chinese cost and speed of products, and then offer them capability in Uzbekistan or in Nigeria, they will not be working with you. When you are able to, and you are a global brand, they prefer to go with a Honeywell as opposed to with a local brand there because it reduces their risk, increases their ability to be able to deliver superior capability there.
I want to leave you with a last little piece about a frontier, a new frontier for us. We've been in Africa for a number of years, but we haven't been there in a more methodic fashion, applying our High Growth Regions playbook to it. When we look at Africa, we see rapid economic growth across the continent, although from a very low base. Young and fast-growing population. Rapid urbanization is the name of the game. Massive finds in gas and in oil. What's also very interesting is increasingly, it's very much connected. For example, countries like Uganda have gone from zero connectivity a decade ago to more than two mobile phones per person today in the country. That allows a tremendous amount of new capabilities and new offerings that we can actually provide to Africa. We've just recently opened an office in Nairobi.
We continue to be very measured and apply the same smart playbook. Here's another one that we're seed planting that will give us much greater opportunities for us in the future. Great growth, double-digit to about a quarter of Honeywell's portfolio to date, driving more than half of the growth, and that will continue to be about a third of the portfolio, driving a significant amount of the growth of Honeywell franchise over the next five years.
With that, I'd like to invite Roger, Andreas, and Mark back to the stage so we can take some questions. Thank you.
Question. Good. Scott Davis. There we go.
Great. I wish you'd pass a beer down the aisle that fast.
Yeah.
Okay. Nice job. Thanks guys for the presentations. One of the things, couple questions with Andreas. Your example you gave on the integrated weather product seems very interesting, but have you thought about what the pricing model of something like that would look like?
Wow, that's a very pertinent question and very interesting question. In fact, throughout Honeywell, we're looking at different models of doing business, especially with the software capability we have. Of course, the pricing can go a number of ways. It's a SaaS model. There's also down the road, you got data coming in. How do you monetize that? How do you have other uses for it? Everything is on the table, and we actually have software courses and pricing, new approaches of how we look at that. This is really a question on the money. Thank you.
Okay.
Andy, do you want to add something to that? No. You're good.
Okay, Roger, the $10 billion of M&A by 2018, it doesn't seem that heroic given the context of the size of the company and the amount of cash generation. That's the same number you were using probably one year ago. Is that a target or is that just a placeholder and ideally you'd like to see something bigger than that? Or does it just reflect the reality that stuff is a little bit pricey right now and it may be hard to get the quantity of deals done that you want?
All good points. We have not, if you look at our history, achieved $10 billion of M&A in a, now what is it, a four-year period. For us, it's a step up from where we've been. Means we have to, as I was saying, drive broader and deeper pipelines to make that happen. Yes, things are pricier. Part of the reason that not only we didn't, but most other industrials didn't get deals closed last year. Discipline, I think, is the word of the day, and we're not moving from that. Was there another part to the question? I'm sorry, Jay.
Well, I guess my question is, you could knock that off in one deal, does that mean you do $10 billion and then you stop, or is there
I wish we could look at the. You can never predict. Getting deals done is like trying to close sales. You never quite know when the customer is going to say yes. You put a lot of irons in the fire, and you never know which one is going to come good. It could happen in one deal. That's not our focus. Our focus is, and our success has typically been more modest-sized transactions, although from our perspective, a $3 billion or $4 billion transaction would be a big deal given our history. One shot is not off the table, but that's not our focus. We have a lot of seeds planted.
Thank you. Good luck.
Next question.
That's done.
Here.
Roger, just following on to that about the, you mentioned you've really beefed up the deal origination team. Could you give us some more color, in terms of either, not number of people, but in terms of the scale of what you've done and maybe whether it was by region or expertise or anything along those lines? Thanks.
All good questions. No surprise, we have a lot of cash in Europe, and have had, if you look at our track record, First Technology, Zellweger, Novar, NRA, RMG, all European platforms we've done very well with. Sperian, done very well with them. Europe is an area where we beef up our resources. North America, still a very good market for M&A. China, which I have to tell you, despite a lot of hard work and personal efforts from a lot of people on the leadership team to get good deals across the line in China, just have not been successful. Don't have a lot to show for it. We added more origination resources in China, have reached out for some people maybe more connected to the local market to help us there. When we say expertise, a little more on the China side.
It's just we know we should be doing better and are frustrated with where we've gotten so far.
Next question. Andreas.
Over here. For Shane, please. Given the expectations that Southeast Asia is becoming the new China, I was interested in hearing you expand on your point regarding the go-to-market strategy in countries like Vietnam. One of the things I've seen is, and was impressed by is, UOP is being very helpful in the build-out of the refining industry in countries like Vietnam. A lot of people just have a perception that it's a catalyst business, and it's a heck of a lot more.
maybe just share with us a bit about the go-to-market strategy, how UOP is opening doors, and what the business model is.
Actually, Vietnam was the first country after China and India that we wanted to just do a little experiment with. Does this One Honeywell approach work in there? It's been terrific. We have nearly 10Xed our business in three years.
It's been terrific. It's really been led by UOP, but now increasingly the rest of our businesses. Our Aero business is doing exceedingly well in Vietnam, as well as our HPS business. We go together now in the market, we have an enviable position in Vietnam. I was just there a couple of weeks ago, and that position has been very good. We've been very nuanced about Southeast Asia. I'm not a big fan of big regions where you put leaders that become spreadsheet managers. We've put really a good team in Vietnam and Indochina, Vietnam, Myanmar area. We put an equally strong team in the rest of Southeast Asia, and we've even separated Indonesia from it. Indonesia is a big country. We don't want to just wash it in with Philippines and the rest.
In Indonesia, UOP, Aero, HPS, and the rest of ACS are beginning to really drive the market. UOP has been driving our business in Indonesia for nearly 20 years. We have a very solid team there. The rest of Southeast Asia, we look at as Malaysia, Thailand, Philippines, and Brunei and Singapore, and those are also big areas for us. We've recently also created a Connected ACS organization across Southeast Asia. We do see Southeast Asia as a major powerhouse. We just don't want to paint it all with one brush, different regions and different folks. UOP and HPS and Aero are major drivers in all of these regions.
Nigel.
A question for Andreas on HOS Gold . The 74 HOS Gold entities, is that a fixed number for now, or will that grow as the foundation to other businesses strengthen? It seems like Honeywell is getting more decentralized and that you're giving more power to the GMs in this role. On the other hand, we see more the One Honeywell vertical focus. More integration there, more centralization here. How do we interpret that? How does the role of the segment president change given this 74 GM focus area?
Very good questions. Let me just take them in order. On the first one, on the 74 units, we may be close to the final answer, but of course, as the business grows, circumstances change, and we will look at that again. That's kind of be about there. The issue of how the whole thing is being run, centralization and decentralization, I guess the effectiveness of a company like ours is how you integrate it and how you differentiate it. I think in terms of being able to put resources at the right place for the marketplace, not obeying the law of the mean, that allocation is getting done not in a decentralized fashion, but in an appropriate fashion to the marketplace. We're not ignoring things.
In terms of the control side of the business, frankly, it's tighter than ever because we're now looking at a deeper area, and we are achieving much tighter control in not only financial side of cost, but also not leaving anything on the table in terms of commercialization of technology and market reach. I think it's a strengthening of the overall Honeywell system and offers us a lot more of knowing. Controls is one thing, it's the measurements. Management control is knowing your environment. I think it's increasing our management control associated with the very strong financial controls we have. It's a much stronger whole.
Okay. Last question, Andrew.
Just a question for Shane. As you look at the high-growth regions, how do you balance, on one hand, you getting more scale, on the other hand, you need to invest, probably your SG&A costs are going up because the cost of balancing these places is going up. You're probably building up more sophisticated product. How should I think about the margin impact of high-growth regions just getting bigger and bigger as a percent of Honeywell?
Actually, last year, Dave asked us to do a deep dive on China and see what our overall margins in every one of our businesses are. The result of that study was that actually China is overall accretive to the Honeywell margin. The reason for that has been that we've been going at it with building a local business, local R&D, which is not just about cost. The cost of it is local, but also the speed of that R&D, speed of getting things to market, local manufacturing, and local channel development. Actually, we do have a lot of room to continue to invest and not be dilutive to the Honeywell margins. We have been in very high margin businesses in Middle East, in Russia, in India. We make very good money in India. That all gives us ability to be able to continue to invest.
As you've seen from the charts that Dave showed, we have not shied away from continuing to invest in both good times and bad times in high-growth regions. In fact, one of my slides a couple of years ago showed you that we've been investing ahead of growth in terms of people, but the payback time has come. We really have begun to get a lot of leverage on investments, on feet on the street, engineers on the ground, salespeople, and building the channel. We don't see any kind of major conundrums in decision-making in terms of balance between profitability and growth there. There's still a lot of room for growth, and we continue to invest it.
Okay, great. We've reached our first break. We're going to take approximately 15 minutes and start promptly at 11:45 A.M. Please be in your seats before then. Thanks.
Ladies and gentlemen, please take your seats. The program is about to begin. Ladies and gentlemen, please take your seats. The program is about to begin. Ladies and gentlemen, we ask that all cell phones be placed into silent mode during the program. Thank you. Ladies and gentlemen, please take your seats. The program is about to begin. Please welcome Tim Mahoney and Terrence Hahn.
Thanks very much. Thanks for joining us. I was doing a poll during the first break to find out what's the attendance like from those folks that are from Boston. I realize that it's 100% attendance based on the fact that the weather here is so tropical compared to what's taken place in Boston over the last couple of months. Welcome all of you, Patriots. All right, Terrence and I are going to cover the new Aerospace organization. If we refer to Transportation Systems and Legacy Aerospace, think in terms of Legacy Aerospace are the three legacy businesses that serve the three different markets. Air transport and regional, Defense & Space, and business and general aviation, and Transportation Systems. If we talk about the four different markets that we serve, those are the four.
Let me start off by saying that we've had a very successful year relative to additional wins. I'm going to touch on those. I'm going to talk about the growth and why those have thus taken place, and where this asymmetrical growth is taking place between now and 2018. The macros for us across the four market segments are more favorable than what they ever had been. Dave touched on this. One is sequestration. In the U.S. DoD base, it has stabilized. Two is build rates in the air transport space continue to grow, so they're up, and flight hours are growing. I think the last big point here is this is an industry that enjoys lower fuel costs. This has to do with a big impact relative to the airlines business and their profitability, which may be an opportunity.
We don't have that into our plans yet, but a thought process around whether they will deviate from some of the, let's say, spending profiles of what it had in the past. We continue to differentiate ourselves and win based on technology. Across all three Aerospace market segments in the turbo business, clearly, technology provided the greater value to the customer, whether it's associated with new carbon on wheels and brakes or whether it is connectivity. We're going to touch on a number of those. It is clearly an area where it's differentiated from a technological standpoint to bring greater value. On the left-hand side, that growth is all translating now to top-line growth. From a business distribution standpoint, we're very excited about the portfolio that we have here.
I'd say that it is structured in such a way that technology and information is able to flow seamlessly across the organization, meaning that there's things that were done in the development phase for the Orion, which just launched a couple of months ago, that is already translating to the air transport and business and general aviation sector. It will be in the products that we are delivering in a number of years. We're going to touch on this within Transportation Systems and Aero, I also want to highlight the fact that the way that we have structured ourselves, technology, as it relates to our products, is able to transfer seamlessly, and also from a resource capability standpoint and utilization across the organization, the big advantage that we've had.
The second thing is that, from a geographic distribution to change point, we are evolving, I would say, in that we are continuing to grow outside of the domestic U.S. and become much more of a global company. We don't know what the limit to that is yet. When I get to HGR and talk about that, I'll talk about the opportunities, more importantly, I think the lessons that we've had as an aerospace organization. On the left-hand side of the chart, you can see this is what our growth has looked like from 2013 to 2018, and on the right-hand side, the margins.
On the left-hand side, the message here is the playbook that we've had relative to marketing excellence, picking the winners, those programs, and those aircraft attributes that we believe are going to be successful, and then ensuring that we have a pursuit and investment strategy et cetera, in order to get out of those platforms, has worked for us, and we're going to continue to adhere to that. On the right-hand side, you can see that our margins are going to continue to expand. I'd say that there's two key elements here. One is pursuit and greater growth of high margin business, an area where it's greater value. The second thing is continuing to, on this path, of operating aerospace more efficiently. Scott asked a question earlier about our pricing model, and there's a couple of points that I want to make here.
On the right-hand side, some of that is price. Some of it is what I talked about as far as efficiencies. We have reorganized, actually, all the pricing organization that had been in different parts of aerospace under one person, Jeff Smith, who works for Carl Esposito. To your point, Scott, the reason we've done that is because our business models and our sales models, sales approaches, are going to be different than what they have historically been. We've done a lot of work, for instance, on the Electric Green taxi and how we sell that very differently than selling a kit to upgrade an aircraft or selling an option. It's tied to the value that's going to be delivered. We've been really thinking to a great extent around how we're going to do this from a connectivity standpoint. Bringing this into a center of excellence.
Okay, let's do a little bit of a dive here. From a growth accelerator standpoint, the reason I say acceleration here is you saw that for Aerospace, in totality, over the 2013 to 2018 timeframe, was going to grow 3%-5%. We've continued to tell Dave Cote that based on our wins in a number of these areas, which I'm going to touch on, it starts to accelerate. We hit this inflection point this year and next year, et cetera. We have a higher growth rate between now and the 2018 timeframe. When we take the 16 HOS Gold enterprises that Andreas Raps talked about earlier, they aggregate into these four, let's say, domain areas.
We think about the 16 on an everyday basis, but in order to convey how does Aerospace look and where are the intentions that we're providing and what is contributing to the growth that we have, really comes down into these four areas. First one is software and services. A lot of this has to do with Aero Services. It has to do with Mike Edmonds' group, where we are starting to capitalize on the installed base of aircraft and providing additional features and services to customers that we have not serviced them as well as we could. From an avionics standpoint, connectivity is a key element to that. I'm going to touch on that. Avionics. Our growth rate in avionics continues to accelerate in our integrated cockpits, in our FMS areas, cockpit systems, et cetera. I'm going to touch on that.
The mechanical area, I'm going to touch on that. The HTF7000 and auxiliary power units has been a tremendous area of growth in this time period and is going to continue on. Terrence Hahn is going to talk about the growth that's taking place in the turbo group. Let's just touch on commercial and then Defense & Space. I'll leave you with these kind of points relative to the commercial market. We continue to win and get on the right aircraft that we believe are going to have long legs and success in the commercial market space. That's true for the business and general aviation market, and it's true for the air transport market. We're not chasing every aircraft.
One of the reasons that we have adopted that a number of years ago was we found that we needed to be more selective based on what was going to be the success of those aircraft, and that has served us well. We're maintaining a strong win rate, 737 MAX, the 777X, the 500 and 600, some of the new platforms. We've got a number of aircraft that are unannounced that you'll see in one or two charts going forward. We have been capitalizing on, to a much greater extent, around our installed base. I want you to think about two things relative to the installed base. One is it's very expansive, and the second is that there's both a conventional and, I would say, a non-conventional growth quotient relative to installed base. Hold that thought until we get to software upgrades in the connected aircraft.
Okay. In the defense and space area, we're going to grow faster from a U.S. DoD than what the market is. The exciting part here is, I would say, twofold. One is very significant growth from an international market. On the lower left-hand side, where you see that the international spending of these countries that we operate in right now are growing, their budgets are going to grow about 3%, or that market is going to grow about 3%. We're going to grow 12%. It has to do with the commitment and the focus that we had starting a couple of years ago, and it's going to continue. I'll just rewind the tape here. Up till two years ago, we never sold space products outside of the United States. We have displaced a number of our competitors, providing reaction wheels around the world. Right. We were under-servicing.
You've heard me say this before. We were under-servicing certain customers and certain markets in this area, and defense and space has been one of those areas. This has been a real highlight for us. We expect that this type of growth rate is going to, again, it is going to accelerate over the 2018 time period. Very exciting. The headline here is that after a number of years in the defense space SBU, or the HOS Gold enterprises that make that up, we now return to growth in 2015. We're going to grow on an aggregate basis. Here are the platforms that we have won, and the content that we look when we sit down and look at the business case in pursuing these. I would make a couple points. One is, we clearly have been winning and winning in a big way.
Two is, we've been capitalizing on the portfolio that we have. Meaning that we need to gauge how many bites out of the Apple can we take, given the fact that we have small propulsion engine business, auxiliary power unit, mechanical components, wheels and brakes, cockpits, et cetera. This translates to a significant amount of development program that has been undertaken already right now. If you were to go and visit one of our facilities, you would see the production floor ramping up for the production rates in certain areas. Two is, if you went to the engineering COEs, you would find that there is a heightened degree of activity, significantly, relative to development programs, bringing these products to market.
Whether it's the C919, trying to make sure that we finish up the last load for the flight control electronic system for their first flight, or whether it has to do with the qualification, we're in the middle and on the tail end of, let's say, 737 MAX systems that are on that aircraft. Significant amount of new product development in Bob Smith's show. Very exciting. Let's talk about a couple of growth axes here. First one is, Dave touched on this, integrated cockpits. On the left-hand side of this chart, you can see a pie chart that shows that we are going to have 70% of new growth between 2014 and 2018, during this time period, compared to our next largest competitor, which is certainly going to have growth, but not nearly as significant.
You can also see the takeaway here is that for the installations of this year, we're going to have more value provided in cockpits than that competitor and the other two competitors. The Primus Epic, as an example, it's got 20 million flight hours on it. We're going to deliver the 5,000th installation this year. In February, we did 29 software upgrades. Of those 29 software upgrades, I would say is a new high watermark relative to sales and installations. When we talk about upgrades, we're talking about enhancements that will provide either a different Honeywell User Experience, but typically, it's been associated with greater features in providing that. When you look at the install base of those, the platforms that we are on, the high-value aircraft that we are on, we feel as though we're in the winning seat relative to cockpit and have been.
On the lower right-hand side, you can look at other systems that go into a cockpit, whether it's the flight management system, inertials, other solutions that feed or that run the machine behind the display. We have a very significant position and very significant win rates in those areas. Let's go on to the mechanical side. On the top, you'll see that we've won all of the medium and large business jet competitions since 2001. On the right-hand side, you'll recognize the business aviation aircraft that we are baselined on, meaning that every aircraft has got two of those engines that are sitting on. You'll also notice that there are some unannounced wins that showed up in the previous chart relative to engines.
This is a very significant challenge for us, in order to ramp up our factories, in order to deliver the product to Gulfstream, Bombardier, Embraer, and others that are going to be selecting the HTF7000. Auxiliary power units. I picked the air transport space here. We've won seven of the nine platforms for those aircraft that are in EIS right now. Today, we're going to deliver twice, or this week, we're going to deliver twice the number of auxiliary power units that our competitor is going to deliver. We have the largest install base, which we are capitalizing on, and two is, it is continuing to grow at that rate compared to our competitor. I think that if you looked at Shane's map, he had certain areas that he had just highlighted where we had had successes.
For instance, one of the areas was IndiGo in India, was a very big success where the customer has decided they're going to go to a Honeywell auxiliary power unit as compared to their previous configuration. Very significant growth relative to growth in the mechanical, and this is representative of what's happening in the components business. All of those are fueling that nonlinear growth rate. I'd like to leave you with two thoughts here, which is, we started this upgrades business in about 2006. That's when we started it, and this year, we'll be in the neighborhood of about $800 million. It's been growing 12% year-over-year. The exciting part of this is that it is starting to grow from a software perspective at a faster rate than we've been growing.
I think that we have thought to a much greater, I would say, extent around where does software apply. We haven't historically thought about auxiliary power units in software. Today we are, and the reason is the controller in there got software in it. The engines, those HTF7000s on those TFE731s, the thought process that has rejiggered in our mind is we need to be thinking about software upgrades for those engines. I'm going to get to that in a moment.
The second point, this is an unknown at this point, is as fuel costs have gone down, fuel cost, as everybody knows, is a significant driver of the income statement for airlines, will the airlines start to make different decisions if we're creative relative to our business models to be able to make discretionary spends on things that are going to make their airline operations more efficient, where they have not made those decisions before because they're going to be more solvent and they're going to be able to make discretionary spend decisions. The connected aircraft. I'm going to try to contain myself here. I want you to think, I do think that we had a day in Morristown at the hangar last year at a certain point. I think we need to do a refresh on that, and here's why.
Three years ago, we talked about, there was an announcement with Inmarsat, that there was going to be a constellation. Honeywell was selected as the exclusive provider for all the mechanical equipment. A lot of things that have happened since then, this is the year that it happens. There's 3 satellites that make up that constellation. Two are already in orbit and operating. The third one gets launched in May. It gets operational in the fourth quarter of this year. We're delivering equipment to the OEMs now that are going to go on those aircraft. This is the year. The latter part of this year is when this comes together relative to the connected aircraft, where the speed is going to be 100 times greater than the conventional network and half the cost. I think that we need to come back together.
We need to have another one of those days in the hangar to be able to paint this picture. The first part of this is the equipment. I would like for you to think in terms of the fact that Honeywell is in a very unique position compared to others. The reason is that we're working across the entire value chain. Think of this as a circular revenue and income stream. Starting from the top, exclusive provider for the equipment, going to go on air transport aircraft. Okay. Cha-ching. Second one is we develop apps and services that utilize terabytes that are on the aircraft, between aircraft, and on the ground. Third one is data and service subscriptions. This is our services business that you saw is growing at 20% year-over-year, is accelerating though in that area. The last area is an airtime distributor.
For the business in general aviation, we are an airtime distributor. For the announcement that just took place relative to OneWeb, we are the exclusive airtime provider for that constellation when it is live in a couple more years relative to that. We look at ourselves as being in a very unique position in order to enable this, and this is one of the reasons that a subset of those 16 HOS Gold enterprise leaders are thinking, to a great extent, how do we connect systems that have never been connected on the aircraft, because they haven't been able to be connected? How are we going to connect that information to another aircraft? How are we going to connect that information from the aircraft to the ground? Carl has a master plan, and we are on this path in order to realize this gain for us. Software growth.
Dave talked about the capability that we have within the company, and I would just tell you this, the one epiphany that we have had since we saw you last year was that we have traditionally thought about software associated with avionics, FMS system, something that goes in the cockpit. We have opened up our aperture. We are thinking to a much greater extent around the entire installed base. As an example, for every engine that is out there, it has a FADEC system. It has a digital signal. Connecting that information from the FMS, flight management system, to tell the engine something ahead of time, there is significant amount of value in that. You can multiply that by a number of systems.
The point here is capitalizing to a great extent on the install base that we have, the fact that we have developed a capability to develop platform software, meaning develop it once and apply it many times, and then how do we do this in a larger way on a broader scale relative to that install base. Very exciting. From a Honeywell User Experience, this has clearly been an area of focus that we have had. I think that our history has been that we have focused to a great extent on the pilot experience, and we continue to focus on the pilot experience. However, I think we have opened up our aperture in a couple of ways. One is, how do we think in terms of all of the other personas that are in the value chain, the maintainers, the installers, people that are at the MRO?
Second one is, how do we monetize this? We are starting to be able to recognize that we are able to monetize this from a pricing standpoint and be able to differentiation. From a high-growth region standpoint, Shane touched on this. We are all in on this. This has been one of the areas that has served both our commercial business and our defense business very well. I would tell you this, which is, this has been opportunistic for us. It is also been a lesson. The lesson part is actually how many markets are we underserving to the extent that we were underserving those that we are serving better now? Now, I don't know that for sure, but all I know is that we have a very different growth projection for countries That 2 years ago, we had a flatline or very anemic type of growth, right?
We need to make sure that we're very, very thoughtful about those territories, regions, et cetera. This has been an area of key focus for us and excitement. Andreas talked about the Honeywell Operating System and the 16 Gold enterprises within Aerospace. I would ask you to think in terms of, this is not an initiative. This is the framework in which we run this business. It is our management operating system in which is going to drive the strategic view and the day in, day out performance of the business. Aero and TS unification. Earlier in about mid-2014, you understood that the Aerospace organization, the legacy Aerospace organization, and Transportation Systems were coming together, and there's going to be unification there.
What we talked about was the big benefits that will be derived here was the technology differentiation that has been originated, or the technology that's been originated in the Aerospace group, having that transfer to the Turbo group, or having it transfer, I should open up our aperture, to the Automotive group, right? That's being realized, and you got to recognize that the first turbo was developed by Garrett in 1949. You can think about things like air bearings that are commonplace in the Aerospace organization and how that could be a disruptive change in the Turbo business. We knew that that was going to be the case, and we're going to realize that. The big bonus, the other bonus, though, that's coming out of that is that the Automotive group has what's called flawless launch. Think about this as incredible efficiency relative to industrialization of products.
From the point of focusing on design to unit product cost, the manufacturability, interacting with suppliers, sourcing, footprint management, resource management, et cetera, the team or the unification team has been focusing in that area to a significant extent. I think that this will have a big impact over years or accelerate on things that were already underway. Mike Owens, who's in charge of the supply chain within the legacy Aerospace group, had already been adopting automotive industry principles within our factories. This is going to accelerate. Here's, I think, a very representative example. On the left-hand side, you can see where gas flow modeling and high-temperature materials, tribology, high-speed rotors, et cetera, have originated in their table stakes within Aerospace.
Having them go into the Turbo space certainly has been a differentiator relative to the advantages that the Honeywell, sorry, I almost said APUs, turbos have brought to the automotive industry. With that, I'll turn it over to Terrence Hahn to talk about the Turbo group.
Thanks a lot, Tim. Hopefully, everybody picked up on the subliminal subtle message of TS has a great insight as to what's going on with Aero. That's the reason I was standing up here next to Tim as he went through this. In a very serious way, I want to share with you the technology advantage that we get from being part of Honeywell and being part of Aerospace is significant. Some of you may have had a chance to walk through the demonstration area on the way in. You saw an award-winning turbo that we have in place that has ball bearing technology that came from an Apache attack helicopter, and our dual boost dual compressor that has come from aerospace jet engine.
We're taking advantage of that and delivering on it. Now we're just looking at ways to further accelerate that and move it in both directions in each of the areas that Tim had mentioned. It's a great opportunity, and now is the time for us to do this within Transportation Systems because we are all now in the golden age of turbos. This is a great opportunity for us to continue to deliver and for 2015, and all the way through this planning cycle and beyond. The three things that I'd like to leave you with today and provide additional proof points are really how our turbo market is growing, what are the tailwinds behind that, how they're advancing. I know some of this is items that we had shared with you before. The opportunity for this to get to a $20 billion industry at maturity.
Dave shared earlier the 10 points in turbo penetration that are going to occur over the five-year period. The Honeywell advantages. We spoke about technology. I'm going to share with you more about footprint, where customers make decisions around their powertrains, and how we're there with a full set of capability, and then how we're using the Honeywell operating system and HOS Gold, all of that to deliver results. The results are measured in our win rate, again, greater than 40% and accretive to our share. Winning in the right places. 75% of our growth coming in two major growth areas because of regulation in the U.S. and in China. With gasoline, again, everybody knows the strength of our business within the diesel footprint, and for gasoline now growing at greater than 20% on a CAGR basis.
Those key areas, I'm just going to share with you some proof points across each one of those. One, what continues to drive the demand for turbochargers is increases in fuel economy. They're happening everywhere around the planet, and it's a step change. It is a significant increase. If you look at what opportunities, what options does the auto OEM have in front of them to provide that solution? They got to get the biggest bang for the buck, right? How can I get the most MPG, miles per gallon, savings and do it with the lowest own cost? On the right-hand side, as you compare that, turbochargers for both gasoline and diesel provide that biggest bang for the buck. We've got the most cost-effective solution, and we're applying it in what is a significant long-term trend.
Let's break both of these spaces down a little bit, what's happening around gasoline and in diesel. Now we are really experiencing a significant growth rate in gasoline. Again, 20% CAGR, well above the industry growth rate. How we're able to do that is making sure we're winning in all regions. We're deploying the technology and leveraging it across our footprint. Our customers want to make sure that when they are designing a new platform, they want the best technology, which Honeywell has, but they also want it to be able to be deployed globally. I'll share with you a little bit more about how our footprint gives us that advantage. On the left-hand side, significant growth in gasoline. On the right-hand side, another way to be deploying technology, that's making sure that diesel technology today is at parity with gasoline.
What we've seen is significant improvements. Significant improvements that allow decisions. You may have seen some countries, particularly in Europe, London and Paris, concerns around diesel vehicles. That's not with today's technology. Those are with legacy vehicles. If there's any changes there, they'll both be to the benefit of us and to our customers. What we also see is if there's changes in regulation, moving from a single point in the cycle to real-world driving conditions, we also have additional technologies that can help aid and drive that. Again, we've got the ability to grow as the world moves to more gasoline technology, and we've got the right technologies to ensure the continued fuel advantages and CO2 emissions reductions that come with diesel. If there's any slide I want you to put up on the refrigerator, it's this one.
This is your mental screensaver relative to turbo penetration and growth. You can compare it to last year's curve. The same thing, we are moving up and moving up to the steep end of this curve. The 10%, the 33%-43% penetration, we're seeing that happening in terms of orders that we're receiving. Really the right-hand side of this slide sends the message. Geez, do you really think you can get to 70% or above in turbo penetration? What it's showing is those companies that have adopted the technology first, those early pioneers, are already at the high 60s or 70. Okay? This next wave that's coming, the followers that are going to be moving from low 30, 50%, just over the five-year period, our planning period.
Beyond that, again, we've all got the opportunity to get to this maturity level, then the next wave of folks are starting to put increased amount of turbocharger technology into their powertrains. We see the ability for this theme to be a long-term growth opportunity, our differentiated technology, along with our footprint, the ability to make it happen. Again, having great technology is important. Being able to deploy it around the globe is as well. On this slide, you see in the blue and the red, that is region by region, country by country, where powertrains are produced. Automobiles are produced everywhere, powertrains in these major seven areas. What you'll see is significant growth in each, the U.S. and China being both of our emerging markets, the U.S. because of the CAFE regulation.
You also see in Europe, still growth even at a very high % of penetration. Again, that 70% is achievable. What you also see on those maps are places where Honeywell has infrastructure for design, engineering, manufacturing, and applications engineering. We're able to deliver global solutions and then being able to implement them in each of these key regions for our OEMs. In doing that, what does it mean for Honeywell? Again, big takeaways. In each vertical, light vehicle, gasoline, diesel, commercial vehicle, on-highway, and off-highway, we're winning at greater than 40% of the amenable market, and that's all accretive to our share. We are clearly in the right places where growth matters geographically. The U.S., China, Brazil represent 75% of our growth over the period, and we're winning in gasoline and winning in a big way. Again, 20% CAGR as we make that happen.
Just jumping back a little bit, hopefully the thesis that we've laid out up front, you've got the proof points and enough to get a refrigerator magnet to keep that current. Looking at turbo growth, great tailwinds in the industry. We've got the advantages, technology footprint, and our operating system, and we're delivering on that. What we're doing in terms of wins, in terms of where we're getting wins, and how we're making it happen is becoming significant. With that, Tim, I'll put it back to you to wrap up.
Thanks, Terrence. Thanks very much. I'll just summarize by saying that we've won quite a lot of business. We have significant wins. They're very, very exciting relative to product development and bringing these new products to market. We plan on doing that as we continue to capitalize and innovate, I would say, in our business model and our pricing, those areas relative to the installed base. You can see here our plan from 2013 through 2018. Our confidence continues to grow, both from a sales perspective and from an operating income perspective. I think that I would represent the aerospace organization as saying that I think that the group feels as though based on the opportunities that we've realized and those that are ahead of us, there is still a lot of lemonade in this lemon.
Favorable market in summary, the environment is clearly more favorable markets that we talked about and that Dave touched on before. We are clearly very, very excited about the broad and connected portfolio, given the breadth of our portfolio and our very unique position relative to connectivity. Large program wins. Now we've won those, we've got to bring those products to market, continue to expand the margins as we go through that, and innovating in very new and exciting areas for us. With that, I'll turn it over to Alex Ismail is going to host the Automation and Control Solutions module.
Good morning. I'm delighted to update you on ACS. What I'd like to do, as we exit 2014 on a very strong performance, like to leave you with four messages on our five-year outlook. The first message is that our portfolio continues to be well-aligned with favorable macro trends. We're seeing pickup from our non-resi business, specifically in the Americas. Our resi business benefits from retrofits and smart homes. High Growth Regions continue to be the fastest-growing economy where we have much more to do given our market position today. The second message is we're positioned to outperform. Our market and technology leadership is sustainable. We are accelerating NPI, leveraging HUE, and we're differentiating with technology, connectivity, solutions, and software. The third message is I really believe ACS has runway for margin expansion from sales growth, obviously, as well by leveraging much better our fixed cost.
Factory HOS growing from 50% to 100% silver will enable us to yield better productivity. We continue to spend a lot of time driving our business to a cost leadership position, maintaining a very strong cost discipline around the business. Finally, we do have in ACS additional upside. You've heard from Dave, we've launched a new initiative called Connected ACS. This is about better integrating our businesses, driving synergies across our portfolio of businesses within ACS. We see upside as well from HOS Gold and smart M&A. I'm going to come back on all of this today. Let's get going. We're really well-positioned for strong sales and margin growth. Quick overview of ACS. We're about $14.5 billion, 15.2% in segment margin, well-balanced across technology and portfolio. We win in the marketplace, leveraging technology and leveraging our multi-brand, multi-channel strategy, which is pretty unique in this space.
The two businesses that we've reported over time, at the bottom of the chart here, are Energy, Safety, and Security, or ESS. This is about 67% of our sales. Building Solutions & Distribution, or BSD, is about 33% of our sales. Note, please, that BSD pulls through about $1 billion of the product sales from ESS. Overall, strong franchise of global businesses. Let me spend a few minutes talking about our position and how we line up with our end market. When Dave talks about great position, what it means in ACS across the seven businesses that we have is that we're basically number 1 or number 2 in everything we do. We're well-aligned with good industry. 45% of what we do is in buildings, non-residential, institutional, and infrastructure. 35% of what we do is in industrial, [non-res], manufacturing, processing.
Note here that two-third of what we do is really about worker safety and productivity. Finally, 20% of what we do is in homes. Overall, well-aligned to favorable end markets. Let me double-click a little bit more on our end market alignment to explain deeper our portfolio. What this chart is meant to be is to split how our businesses are lined up with the macro drivers. Let's talk about building at the top of the chart. Our ECC business, our HSG business, our HFS business, and our HBS business are well-aligned with the building macro trends. We're seeing construction pick up in North America, the Internet of Things, automation, energy efficiency, and infrastructure projects in High Growth Regions are very favorable to building. Same on industrial, where productivity, performance investments, tightening regulation, and increasing standards around the world drive better compliance and helps our business.
Lastly, on homes, you could see the split of our businesses across homes, but basically technology and connectivity as well as convenience and [AGR] urbanization is really driving growth in our business. Overall, very favorable global driver and a well-balanced portfolio with end markets. What's new in ACS? We call it Connected ACS. You've heard Dave talk about this. This is about becoming a better-connected enterprise for internal customers as well as external customers to drive accelerated growth and margin expansion. Let me give you a little of background here. ACS has, until now, very successfully operated with fully independent businesses. With independent businesses, you do not necessarily leverage as much as possible your fixed cost, and that's what we're trying to do. Today, across ACS, we have limited factory in common, limited logistics in common, limited Center of Excellence in common, limited common processes and systems.
Connected ACS is about doing this. It's about creating Center of Excellence in marketing, in engineering, in supply chain, driving better integration of our businesses across the world, but specifically in High Growth Regions. Leverage breakthrough objectives across ACS. Leverage our technology and platforming across the business to do more connected solutions, more high-margin software, and really drive better integration of our businesses in High Growth Regions and specifically in China. With this comes a margin expansion. Footprint consolidation, supplier rationalization, incremental productivity and OEF reduction coming from Connected ACS, and with my automotive background here, we do have some low-hanging fruit implementing our [AutoBlave] group and looking at core versus non-core across the portfolio. This is a big transformation for us. Think of it as driving big company scale, big company efficiency, and maintaining small company entrepreneurship. Another big change that you've heard about is HOS Gold.
Think about HOS Gold as the next evolution of our culture and our business processes. Andreas spoke about this. It is driving for me and for my team as a leader, a different management operating system. From watching the 7 SBUs to being much more granular at the level of the 44 small-cap companies, where we're trying to drive better goal setting, better investment decision, better people management, and it's a powerful combination. You can see on the right-hand side of this chart, some of the results that we've been able to drive with one of our business, which is the closest to an HOS Gold status today. This is my gas detection business. You could see in sales, in profit, in cash, in NPI impact, wonderful results.
It is coming from a continuous improvement culture that we've been able to drive from the facility to the office, relentlessly focusing the team on commercial excellence and the customer, driving breakthrough objectives. What does it mean? When you think about breakthrough objectives, these are some of the results that came back from many of the 44 CEOs that I have leading those small Gold entities across ACS. Ranging from software platform to data monetization, new markets in industrial, new channels to consumer, intelligent sensors. This is more than $15 billion of growth opportunities that we're pursuing across ACS. It's making a big difference, and we're leveraging HOS Gold to drive this in the next years to come. Let's talk about organic growth. Connectivity is the next mega trend. It is driving a fundamental shift in customer experience, driving growth in buildings, in industrials, and in homes.
This is an example from our homes business. On the left-hand side of the chart, what you see is a % of smart connectable thermostats as a % of the total industry. What you're looking at is only 15% of the industry is penetrated with smart thermostats today. What it means is that we're facing the steepest part of the curve, an explosive growth out there, and we're very well-positioned to win. In 2013, our smart thermostat business was up 60%, six zero. You can see on the right-hand side our position in the marketplace. We are very well-positioned to benefit from connectivity. Remote access, operational efficiencies, new data-enabled business models, that plays to Honeywell's strength. We're leveraging here unique capabilities that we have in software, in wireless, and we're here in a position to win. Talking about software is really a cornerstone for growth in connectivity.
ACS has all the building blocks to be successful here. We use install base with connected sensors and edge devices, wide channel coverage. You've heard from Dave that more than 50% of our engineers are devoted to software and operating at the highest level of capability called CMMI. We're unlocking the value of data through software, developing a large community of developers, leveraging HUEs to deliver a five-star customer experience through software, and delivering customer insights to our customer base, and leveraging data and analytics to drive business models. I got three examples for you in homes. That's our Lyric platform. I'm going to talk about it a little bit more, but you've seen some of the products next door in the meeting room. We have Niagara in buildings, industrial, and data centers, and obviously our software and voice-enabled solution and our mobility business for workers.
All of these solutions, all of these software solutions, will drive a lot of growth for us in the next five years and have high profit impact. Let's continue to talk about organic growth in buildings. It is about 45% of what we do in ACS. We are differentiating with a large install base. Over 10 million of buildings are equipped with smart Honeywell devices, and we're seeing connectivity and software being a key driver of growth here. We have, as you've heard from Andreas, a unique position to win, and we have the industry-leading open software platform enabling data integration and building integration. It's called Tridium. You haven't heard a lot about it, and I'd like to spend a few minutes on it because it's going to be a key competitive advantage for us going forward. What is Tridium? Tridium is the open software for the Internet of Things.
If I had to use an analogy, I would say Tridium is Google and Niagara, our operating system, is Android. Obviously not for phones, but for buildings. What Tridium enables to solve is very complex problems for building owners, for our manufacturing footprint of airports. What it does is when you think about an operator today, he's facing huge legacy systems, hundreds of protocols, thousands of edge devices and sensors that are not talking to each other. Rather than forcing one standard, Tridium enable all these devices to speak together and provide data analytics and enable the building operator to drive efficiency and obviously make the right decisions. We're in over 500,000 buildings. We are developing it in manufacturing footprints. You could see a few example of Tridium in action here. Manitoba Hydro Place in Canada, Tridium has enabled to drive $15 million operating costs per year.
CAP, and more recently, Ford, are using it for over 1,000 software work centers, and the airport, such as the Minneapolis Airport, is using it to control over 250,000 devices over the airport. Tridium is the industry standard open software platform for us and will really enable us to differentiate for the long run. Let's talk about industrial. It's about 35% of our sales. We provide intelligent product, delivering safety, productivity, and performance solution. Just as a reminder, this business was created mostly through acquisitions, and you've heard Roger talk about it. What we do is we provide end-to-end solutions for connected workers and facilities, differentiating with wireless, voice, mobility, and data analytics. One example of how we're doing this is connecting workers in our scanning and mobility business. We've been very successful doing it in transport and logistics. We won 24 of 30 postal deals lately.
Over $300 million of lifetime value. We won the latest and biggest deal in the history, that was USPS. We're doing the same in grocery and retail, where 84% of the top 25 food retailers, 90% of the top 50 U.S. grocers are using our software and voice solutions called Vocollect. The exciting part here is that we're expanding in attractive adjacencies. Tim Mahoney, in his business in Aerospace, is now using our solution and really driving about 25% productivity in his operation using our Vocollect solution. We're winning here with great technology and user experience and continue to do so. Finally, in homes. As you know, we are in 150 million homes globally. We are the industrial leader in comfort and security, which is what matters to consumer when you think about connected home.
We're seeing connected homes driving double-digit growth for us through software and devices. We're differentiating here with edge devices that are on the wall, on the ceiling, under the floor, in the basement, and really are providing software and ecosystem partners to be able to differentiate and win. We sell nine times more thermostat and 2.5 times more security system than our nearest competitor. We're expanding globally, pursuing multi-channels, whether it's the traditional channels or the e-commerce. We are present in China, in Europe, obviously in the U.S., and we're bringing an innovative product roadmap here to make the difference. You've seen some of it, called Lyric. This Lyric platform that we're displaying next door is really, for us, a great platform for growth. It all started with a thermostat that we've talked about. We're adding this year, cameras.
We've added early in the year an indoor air quality solution in China. We're building sensors, smoke detectors, and home security systems that we've unveiled in Vegas last month. What this platform enables us to do is to develop new software-as-a-service offering for the homeowner, but as well for the contractor. We have, along the way, developed world-class partnership. We are part of the Apple HomeKit, and we expect from this partnership a great pool of our devices on a global scale. We're not only partnering with Apple, we're working with everyone. We're working with Samsung, and we're working with big names, in lighting, in locks, to create an ecosystem to be able to make a difference here in connected home. As we do this, we're developing new channels as well. This is just two examples.
One from China with JD.com, the other one from Europe in the utility channel, where we're very successful with connected home. We're seeing this as a double-digit vehicle for us in the years to come. Another example from our European business, where we're differentiating with home controls, leveraging HUE. You've heard me say that we are, in the next five years, going to drive better impact from our NPI, leveraging HUE. This is just a good example of how we're doing it. You could see how we're contrasting the before and the after features and user experience. The most important part of it here is that we're really driving incremental growth leveraging HUE. This product line has grown significantly higher than the previous generation, and we're doing this across the 500 to 600 new product that we're bringing to market in ACS every year. High-growth regions.
You've heard from Shane what our playbook is. It is a very successful playbook. What's new here is that we've established a new organization in China, driving greater integration across the ACS businesses to grow faster. 100% local leadership, targeted at the mid-segment market, as well as pursuing vertical market strategies. You can see how successful we've been with our fire business on the right-hand side of this chart. Really outpacing the growth of our Chinese competitors by being the number one fire company in China, 100% localized, end-to-end capabilities, cost and technology leadership targeted at the mid-segment offering. What we're trying to do through connected ACS is doing what we're doing with fire across our entire portfolio in ACS, really winning in China to win in other HGR and accelerating in fast-growing markets. Another example of how we're doing this leveraging HUE.
This is a very successful product that we, in six months, brought from concept to commercial success. It is one of the fastest-growing product at JD.com right now, the e-commerce partners that we have selected in China. You know how much China air quality is a challenge. We've been very successful with this product and differentiating, again, leveraging HUE. Finally, I'd like to spend a few minutes talking about margin expansion. You've heard me say that in addition to organic growth, we have a lot of runway for margin expansion. Two key drivers here. One is factory HOS, and the second one is connected ACS. Factory HOS, by pushing our silver certification from being 50% today to 100% tomorrow, we're very confident that we're going to be able to drive substantial improvement in productivity, delivery, and working capital, while driving better customer satisfaction. We know this playbook.
As a reminder, October business is 100% silver. We validated the benefits of greater productivity and better delivery becoming 100% silver. We will do this in ACS. The second lever of margin expansion for us is connected ACS. Again, driving better integration and synergies across our ACS businesses. Building COEs to leverage scale, lower fixed costs, better leverage, better global RD&E platforming, including reuse, common processes, OEF savings, footprint reduction, lower logistic costs. That's the playbook. In addition to that, obviously, we see some low-hanging fruit applying our auto playbook, whether it's ship cost and taking a look at core versus non-core, specifically in our electronic COE. We're driving here a huge transformation agenda, and we're confident that some of these initiatives are going to enable us to reach our long-term margin target of 20%.
You could see what it means, the building block of our margin expansion, very consistent with what I shared with you last year. In gray are basically the initiatives from last year. In red, you could see the contribution of Connected ACS to what we've committed to you. We are confident that these new initiatives are going to enable us to deliver our five-year outlook and drive upside beyond that to reach the 20% long-term targets that we've set for ourselves. Before I wrap it up, I'd like to tie back to what Roger was talking about earlier. As you know, we have closed this week our Datamax-O'Neil acquisition. I am standing here on this stage to reinforce our commitment in ACS to drive acquisitions for the next five year. Our playbook is successful. We have a very disciplined due diligence and valuation process, integration excellence.
We've created, through acquisition, great growth platforms such as our scanning and mobility business. We are seeing mergers and acquisitions as an opportunity for us to drive upside to the five-year outlook. Our pipeline is rich. We have new and attractive adjacencies to serve. We're targeting, obviously, building industrial and homes. As I wrap it up, I'd like to tell you that we feel very confident about our market position. We're here positioned to outperform. ACS has one way for margin expansion. Connected ACS, HOS Gold, and M&A will drive nice upside for ACS. We have a very high confidence on our five-year outlook. Thank you very much. I'd like to call back Mark and the Aero team for Q&A, please.
Okay, thanks everyone. First question, Joe.
Thanks, Mark. I've got two questions for Alex. Alex, first, can you remind us, as a factory goes from bronze to silver, what is the plateau change in margins for that specific facility? Secondly, I wanted you to talk a little bit more about Tridium. How are you going to market with it today? What does it mean from a product pull-through perspective as well as a margin opportunity, given that you're going to be selling more software through that channel?
Just to the first question, right? As you move from a maturity level of bronze to silver, it is clearly greater productivity, better working capital performance, better OTTR, and it translates into, obviously, better margin expansion for us. There is no question there is a benefit that you will see doing that. The challenge for us in ACS is that we are only 50% silver today, and we are going to be driving the footprint to 100%. We have seen those benefits in Turbo, and we expect to see them as well in ACS.
Oh, sorry. Just, is there a quantifiable benefit?
I am not necessarily in a position to share a specific number because it differs across the world and across footprint, but you should see it accretive to margin, no question. This is exactly why we have confidence on our five-year outlook, and we have a greater confidence that moving from 50% silver to 100% will yield the benefits that I am talking about. With regard to Tridium, we are basically channeling Tridium through the ACS channels, and Tridium ends up being a key enabler of building integration for us, right? Think about it as a high-margin software business that we will, I would say, grow from being historically in building to being now in manufacturing in data center. As Tridium grows, think about the growth rate in Tridium here as a double-digit growth rate.
We expect a large contribution from software and the Tridium-like business, whether it is in homes or obviously with workers in our scanning and mobility business to our overall margin profile.
Great. Steve
Alex, can you just talk about how the non-resi recovery you're talking about plays into actual organic revenue growth? Sometimes it's kind of hard because you have the solutions business and be lumpy, and it was good a couple of years ago-
Right
it was weaker today. Maybe just talk about how those on the aerospace side, kind of the same thing where your core growth doesn't look like it's really keeping pace with others at a high level optically. Maybe just talk about the mix and at what point should we see maybe a little bit of an inflection in your organic growth in aerospace as well.
just to address your question on non-resi across ACS. We're seeing it picking up clearly in the U.S. U.S. construction is helping us. as you think about the product solutions that we're offering across ESS, they're all up in buildings. Our fire business is doing well, and we're putting more solution as well from our security business. ECC is doing well, and we're seeing the benefits across the product businesses mostly right now. it's a good trend for us, and we expect to see that in a much more, I would say, impactful way going forward.
Steve, from a legacy Aerospace perspective, I would say that the inflection point is 2016. There's a couple of drivers that drive that. The first one is that the rates relative to gas turbine engines goes up pretty dramatically over the next couple of years, but next year is another inflection point. Two is auxiliary power units. Those two are in the mechanical area. Third one is cockpit growth. Fourth one is connected systems. I touched on the fact that the GX constellation will be in place by the end of this year, so that therefore the year-over-year rate of deliveries. The fifth one is the Aero services group. The software. That's a small business unit right now, but it's got 20% year-over-year growth. Those would be the five areas that contribute to the kind of the inflection point going forward.
On the 1Q slide at the end of the presentation, it has a line that says commercial OE shipment timing. I would assume that that's in Aerospace. That was kind of a new nugget on the first quarter guidance slide. Is there anything interesting going on there in the first quarter that you're seeing?
No. Order intake is, I would say, as expected, both from an OE side and an aftermarket side.
Howard.
Thanks, Tim. To follow up him a little bit. There's a lot of good things that you're doing in terms of growing business, primes always don't like, but get a lot of profitability over time, and saw some of that quarter with the $13 million. How do you change the model a little bit that in fact you can capture some of these profitability targets that you want, especially in light of the fact that there's a lot of new product that doesn't sell at great margins to start with?
I'll handle the D&S side first and then the commercial side. On the D&S side, we've clearly been very focused on having the commercial item justification. We've had a substantial amount of our business that there's no question about it's a struggle, in order to ensure that we have commercial item justification, which then allows you not to have plan-based or cost-based costing in that area. That's been a clear focus for us for the last couple of years, and we've been successful in that area. From a commercial side, it really is about selling on the value, and it's also about looking at this as far as not only the original installation, but how do we continue to, let's say, bring more value with the upgrades.
One of the things that we've come up with is, here are the baseline features that will be delivered. If one wants additional features, that's going to be an option, or it's going to be a feature that will be provided in the upgrade. That's why I was bringing up, for instance, in February. Software upgrades, I think that probably almost anybody in our industry could say that they're providing additional features relative to upgrades, or they would, whether they are or not. Having said that, I think that once you have a very significant install base, then how do you capitalize on that to the greatest extent, and how do you architect it at the front end of what you deliver, which is acceptable from a new platform perspective, but has a roadmap going forward.
We've had success with some OEMs of recognizing that and in some cases sharing with it, and in others, just thinking in terms of, I need to deliver an aircraft versus the life cycle cost of the product. Yes, Chris.
Can you talk a little bit about, particularly in commercial aerospace, how you're going to not be part of a traditional problem, and a traditional problem won't affect you, which is that everybody buys everything from the same supplier. When the build rates go up in every other cycle, the supply chain is choked. I've been frankly surprised we've gotten this far up without more dislocations. How are you making sure that that's not a problem, either on your deliveries or your intake of components that you need?
Yeah. Multi-sourcing. Multi-sourcing. One is clear validation, that there will be a problem if we don't go in and multi-source relative parts. I can tell you that, for instance, on the HTF7000, there are a number of parts already this year that have been multi-sourced, that we've gone from one source of supply to three of them. Quite frankly, it has nothing to do with the original source of supply being bad. The quality and delivery is good. They just don't have the capacity to stay up with that. There are particular suppliers that Mike Owens and the manufacturing engineering team have put together, and that we've been multi-sourcing products that's going into our engines, auxiliary power units. Those products, particularly on the mechanical side, that have high rate increases, or that are going to have high rates, we've been multi-sourcing them.
We haven't experienced it to the extent in the avionics area, with the exception of when that supplier is somebody who is also driven by the telecom industry. We haven't experienced that in the last couple of years. It's a trade-off, right? If the supplier is not able to I use something called a front frame for the HTF7000. It's a relatively complex part to produce. The supply base that we have, good supplier, they're not going to be able to develop the capacity. They have the capability. They're going to stay as one of our three suppliers. Right now, they're our sole supplier. By the end of this year, we'll have three suppliers on that. Cliff, is it actually more complex? The answer is yes. Mike Owens struggles with me a little bit on it.
Mike is in charge of the integrated supply chain because, on a quarterly basis, I want to see how many fewer suppliers we have. Of course, this is contrary to that, right? It's exactly opposed to that. However, in contrast, we've got to make sure that we have a robust supply base in order to deliver this with the right quality.
Yeah, sure. Okay, last question. Shannon?
Yeah. First one's for Tim and Alex. We've heard a lot about CMMI in both of your industries. A lot of people are trying to do things with software. Can you give us a little better sense of how that really separates you from what other people are doing?
You want to go ahead?
Yeah, come on.
Well, CMMI in general, so this is generically true. CMMI has got a process such that you're able to, when you develop code, and as it goes through the entire process all the way through it, over on this end, Shannon, you're coding, and on that end, you're validation and verification. Well, CMMI has this closed loop process, I think in the most simple form to think about it, in terms of going back to the point of defect generation, right? You go through this process, and when that code is near the end of its, let's say, validation and verification process, that feedback loop comes back to the point in which those defects were generated, and requires root cause analysis as to how to prevent them from going in the future.
Oh, by the way, it's not simplistic, because think in terms of, in some cases, some code is just hand generated. In other cases, it's model-based development, right? It goes back to the generation of your model that may have emulated your system wrong. Think about it in the most simple terms and most effective terms, though. It's a way to look at your tap time, all the same parameters of software development and defects in a closed loop process back in order to continuously improve that process. In one regard, it is at the component level, and in the other regard, it's at the overall system level, right?
Now, within Aero, as we were progressing through the different levels of CMMI maturity, up to CMMI Level 5 for all of our sites, we established a center of excellence of software with a common set of metrics, regardless of where that code was getting developed, such that we're able to plumb that information back to the origination point, and then the performing organization, not the COE, but the performing organization is responsible for making improvements in their process and being able to demonstrate that on the next code that's coming forward. In our regard, we think that there's a cost of poor quality of somewhere around $30 million around code generation. We have not only codified this relative to defects and tap time, but also what does this mean from an accretion standpoint?
I think, Shannon, from an ACS standpoint, the benefits are the same. The way I would describe it is, it's capability, agility, and innovation. That enables us, whether you use Tridium, as an example, to grow faster. I should have said to the earlier question that not only are we growing with Tridium through the Honeywell channel, but our competitors are buying it because it's seen as the industry standard. We're doing the same with Lyric. We're doing the same with Vocollect, leveraging those CMMI capabilities to build the building blocks of our success, in addition to the edge devices and those smart products that we have across the world.
Just one quick one for Terrence. I didn't see a 15%-18% CAGR for your business. What is that, and what are the kind of sensitivities, upside, downside to that?
Two things. Obviously now in our reporting structure with three SBGs, all of our results roll in what Tim had laid out. Last year, we had made a commitment for this business for a 6%-9% top-line CAGR and associated margin expansion, we're delivering well within those commitments that we've made.
Thanks everyone. In order to stay on schedule, we're going to shorten lunch a bit, if everyone could be back in their seats, we're going to start promptly at 1:45 P.M. with Performance Materials and Technologies. Thanks.
Ladies and gentlemen, please take your seats. The program is about to begin. Ladies and gentlemen, we ask that all cell phones be placed in silent mode during the program. Thank you. Ladies and gentlemen, please take your seats. The program is about to begin. Please welcome Darius Adamczyk.
Good afternoon. Pleasure to be here. Good to get out of the bullpen and share with you some of the exciting things going on in PMT. In terms of 2014, PMT, another terrific year for us. 5% organic growth rate for the business margin expansion, that's not the best part of the story. The best part of the story for PMT in 2014 is what we did for our future. When you look at the fact that we expanded our backlog by close to double digits, secured over $2.3 billion in the low global warming molecule we call Solstice. That presents us in a terrific position for our future, you've heard Dave talk about the kind of CapEx commitments we're making to this business.
As we bring those plants online, many of them are either completely sold out or nearly sold out, and they're not even coming online for another year or two. There's a lot to be energized about when it comes to this business. Furthermore, one of the new things that happened to PMT this year is HPS was brought into the portfolio and it's already exceeded our wildest expectations. Just in under a year, we've been able to close nearly $100 million of incremental orders for the two businesses. The best part is, we have a pipeline of half a billion to go. There's more upside to come. We're just not selling together, we're also innovating together, and I'll share with you some examples of that. HOS Gold. HOS Gold is revolutionizing Honeywell today, and PMT is very proud to be part of that.
Maybe I'll use another term, the way I like to think about HOS Gold. It's growing from what I call incremental thinking to re-anchoring around a whole new financial future. It's not going back saying, "Well, I grew 3%-4% a year, now 3.5% is pretty good." No, it's thinking 10%-15% is pretty good and a whole new different margin profile. I'm so proud that PMT has really embraced this in a very short period of time, identified over $300 million in incremental segment margin in the year 2018. Terrific progress. I'm sure none of you are interested in this topic, but I'm going to talk about it at length anyway, which is our oil and gas segment, which is a big part of the business. Certainly, it is a challenging year. Frankly, I'd rather have the gas at 80-plus.
It's a very quickly changing environment out there. What I thought two days ago is different than what I thought 120 days ago. We're monitoring. We're making sure that we're prepared. A couple of things to note. One, we are predominantly a downstream, midstream business. Only 10%-15% exposure across UOP and HPS in the upstream. Number two, 60%-70% of our backlog for the year is already secured. Lastly, we have the kinds of solutions that our customers want in this environment. What they want is they continue to ask us for is, "Help me maximize the output out of my assets." That's what they need. Our portfolio of software solutions and services does precisely that. In terms of PMT overview, over a $10 billion business, nearly 18% segment margin, three core businesses. UOP, you know the UOP business very well.
Gas business has had a terrific run, especially last year, over 200% rate in bookings. Our refining business, our petrochemical business, processes, equipment, bought another platform, the catalyst business. Think about the catalyst segment as kind of the aftermarket part of UOP because it's recurring, and depending upon the type of catalyst it is, it either happens every year or every two, three, or four year cycles. HPS, think beyond just automation. Think about HPS as a software business because that's what's at the heart of what HPS provides. Much more than automation, it's also field sensors, it's the optimization software solutions, and to interface all the way up to the ERP system. A terrific business. I'm going to skip advanced materials for now. Ken Gayer is going to come up after me and talk to you about some of the advanced materials businesses.
In terms of the attractive markets we play in, we have availability to play in over $60 billion of market space. Very large markets. We're very well aligned with some of the key mega trends, whether it be clean energy and efficiency, urbanization, or population growth. We have solutions for all those that align very well with those segments. I want to give you a specific example as to as you look at these market growth rates, our growth is projected to exceed that in every single one of them. Why is that? The reason is our innovation and differentiation from the next best alternative. I'll just give you one example. We talk about five bottom of the barrel upgrades. We call that product Uniflex out of UOP.
What that does is it minimizes the waste or the coke in a refining operation. For a 300,000-barrel refinery, the savings there, just in one year's time, $300 million. It's a dramatic payback on that kind of an investment. That's just one example of the kinds of paybacks that we offer our customers today, that is exactly why we're going to grow faster in the markets and take share. CapEx investments. You've heard this story. We've started this program back in 2013, accelerated in 2014. 2015 is actually the peak of our CapEx investment, it's going to start tailing down a little bit. The really important thing to note is take a look at this nice inflection point that's coming in our planning period, particularly in the 2016 to 2017 timeframe.
Most of this investment is in two primary areas of the business, Solstice and the catalyst business. Why is that important? It's important because those are some of the most profitable and accretive segments that we play in, we're making big bets on them. As I talked about at the beginning of my presentation, many of these plants that are coming online in the 2016, 2017 timeframe are already nearly sold out. That's a terrific story, we're going to secure those 30%-40% IRRs, which are inherent to all these projects. Just a terrific return for our shareholders. Margin expansion. I call it growth, but really it's all about mix change because a lot of our growth is going to come from three primary components. I talked about Catalyst, I talked about Solstice. The third piece, a very important piece, is software.
We're doubling down on software, investing in engineering. We're also leveraging a CMMI5 capability and bringing many more solutions to the industry. HOS Gold, another 150 basis points, I think we've just scratched the surface. We're only beginning, I already told you the kind of segment margin that we identified as incremental to our plan. On top of that, we continue to have opportunities to drive repositioning and restructuring as we re-look at our fixed base, as well as making sure we're allocating our investments from some of the developed market to the emerging markets where the growth is. More opportunities there. To oil price. Obviously, an important topic. We're taking it very seriously and monitoring very closely because it is evolving. Few things to point out on this slide.
Number one is, if you take a look at our total backlog, only 4% of the total backlog today is in the upstream. As you know, that's the segment that's being impacted the most. We're primarily a midstream, downstream business. Just about everybody's making CapEx reductions. At least the smaller to medium-sized players, the independents, their cuts are a bit more drastic than some of the bigger players, but just about most players out there have announced cuts. There's something else that's very important to notice. If you look at the total CapEx budget of $715 billion, that's still extremely large from a historical perspective. There's plenty of space for us to play. 60%-70% of the backlog secured, and we've seen minimal backlog cancellations to date. That's the current status.
There's another way for you maybe to think about this, and I wanted to give you another view of the market. If you think about the life cycle of a customer and the way we think about the customers, we kind of go through four life cycles or 4 stages. The first stage being conception and design, that's stage 1. That's about 10%-15% of our revenue. The second stage is construction, then ongoing operation, then finally upgrade. As we map our revenues against those segments, 85% plus of our revenue is not in that initial design phase. That's where you're seeing the delays. That's where we're seeing postponements. We actually haven't seen any complete project cancellations.
We haven't had anybody come to us, "I'm just going to take this project completely off the shelf." We have seen delays, and it's not so much whether the oil is $60 or $70, it's about stabilization and some predictability over a sustained period of time. Our customers are just holding back. Again, we're talking about 10%-15% of our overall revenue. In summary, what are we doing? We actually see a good future in terms of upside for the petrochemical segment, refining segment. As these prices drop to the customers, there will be greater demand for their product. We haven't seen a dramatic impact yet, but we expect one as these prices drop and stabilize. Secondly, we have a terrific portfolio of aftermarket products and service. I'll just give you two examples.
One, our Assurance 360 program, which is basically a performance-based service agreement, which aligns our objectives with that of the customer. Powerful and growing double digits in terms of bookings for the last three years. The second one is advanced process control. Again, an example of the HPS business. On average, that project gives you a 3%-5% gain in yields, about a $30 million-$50 million annual savings. It depends upon the size of the plants and so on. Good projects, great payback, and help customers maximize their profitability on their current asset base. That's exactly what many of them want to do.
Lastly, I think this is just the way we plan, this is just the way we do things, which is we always hope for the best, we hope $80 oil will return next month, but that's not how we run the business. We plan for the worst, and we've already taken some actions back in December and earlier this quarter, we're watching the situation very cautiously and making sure that we anticipate and act ahead of any further changes. We've taken actions, we're monitoring it, and we're taking the current situation very seriously because frankly, I'm not sure if anybody has a clear picture of exactly what's going to happen in the oil and gas industry. There's a lot of theories, but we're watching a lot of different signals. In terms of UOP demand.
I showed you a 2% compounded annual growth rate in terms of refined products. The way we see the market, it's actually better than that. It's actually 5% because you have to think about the turn that happens, which is some refineries close, other open. There are projects such as clean fuels. There's refurbishment. We actually see this as a very attractive market. Another example in the petrochemical segment. Very nice growth rate. Maybe one specific example, the paraxylene offering that we have in UOP. Think about that for PET bottling as maybe kind of the most common application. About a 6%-8% annual growth.
What happens in that market is you'll kind of see this capacity expansion cycle that roughly happens every four to five years, which is the demand exceeds capacity, everybody reinvests, and we make very nice returns because we have a really nice market position and a terrific offering. We just had that cycle occur in the 2012, 2013, and kind of stopped more or less in the 2014 timeframe. We anticipate it will come back in the 2017, 2018 based on our analysis. Terrific story, about $100 million per project, but very nice catalyst stream thereafter. That's coming in the second half of our planning period. UOP innovation, I could talk about that for probably months, not seconds or minutes. I'll just give you one powerful example of the way UOP innovates, and we'll talk about modularity.
Whether it's modularity as it applies to refining facilities or gas processing plants, bringing on these projects one year earlier, like in a refinery, that's worth $70 million-$80 million of incremental value to customers. For a gas plant, even at today's gas prices, which are obviously low, a $20 million savings by having it online six months faster. Why are we unique to do this? We're unique to do this because we have the process expertise and we have the equipment expertise. There are other players that either have process or equipment, but nobody else has both. That's why we're uniquely positioned to do this. HPS demand. The global projects, very closely tied to growth in HGR. We're continuing to see good activity there as these growing countries need more energy, more petrochemicals, and chemicals in general.
We're continuing to see great demand in terms of projects. The area I want to spend a little bit more time on is the software and services. What is becoming much more important in this industry is helping our customers with their installed base, whether it's optimizing that installed base, whether it's giving them real-time visibility, or whether it's protecting those assets, whether in a physical manner, protecting them, and we do offer those set of services, but also from a cybersecurity perspective. You saw the cybersecurity dashboard out there. That business has been growing at a rate of over 50% in the two years ago since we launched it. We anticipate even more accelerated growth as we bring new offerings such as what you saw next door. A terrific story.
As I mentioned before, software is going to become such a preeminent part of what HPS is and what HPS does. Another great example. A global refiner last year, we gave them a dashboard that enabled them to see in real time the performance of all their asset base across the world, a $30 million project, with a dashboard all the way up, literally up to the CEO, down to the plant operator with their respective KPIs. Just a terrific offering and the customer is ecstatic, so much so that they want to go out with us and help us pitch it to other large global refiners. Just a terrific story. HPS innovation. Dave showed you some of our SmartLine, a terrific story there, especially around modularity again. I'm going to talk about the left side, which is the control room of the future.
You saw this theme reflected both in Alex's presentation as well as Tim's presentation in terms of how we're rethinking this whole queue, this whole Honeywell User Experience. We're changing the way our customers interact with the equipment and the products and services we sell. This is another example. You go into a typical control room today, it looks like that thing on the right, which is screens all over the place, keyboards, confusion reigns. If you look at our approaches, it's touch, it's mobility, it's voice, it's gesturing. Why is that important? Well, it isn't important just because it looks cool, although it does. It's important because the training time required to get operators fully capable is reduced by 20%-30%. The younger generation tends to want to interact with their machines in this manner rather than keyboards and screens.
Maybe the most important component is that error-proofing is critical for industrial assets because still the number one cause of industrial accidents is human error. With this kind of an approach, we can help reduce those errors. A very powerful value proposition. Just a couple of notes on this one, which is leap project execution. We're revolutionizing the way projects are executed today because we're taking steps that were done sequentially and enabling the customers to do them in parallel, principally the configuration and test step. Now we can drive a 20%-30% reduction in terms of the overall project execution time, while, and this is very important, allowing late design changes. If you believe that replication is the best form of flattery, a lot of our competitors talk about this.
Well, there's something very unique about the way we do this through two Honeywell technologies, virtualization and Universal IO. We're the only player in the industry that has a software configurable Universal IO. That's why there's a very big difference in our approach versus our competition, because their approach requires manual intervention. For us, it's full software configurability. That's a big difference. HPS has been just a terrific story. As you can see once again last year, leading the industry in terms of bookings growth, the margin expansion story continues. Since Q1 2012, more than a 400 basis point improvement. We anticipate, despite some of the challenging environment, this business is going to have another terrific year in 2015. Really nice progress. UOP and HPS selling together. I should discuss a glass of water before I continue this story. Again, it's been a terrific story.
Dave, for a long time, anticipated that there was a lot there, he was right. I talked about $100 million already secured in incremental projects, it's either UOP pulling in HPS, which is the more typical way you see it, UOP typically sells at earlier in the cycle. They're the first interface with the customers. When customers think about investing in a petrochemical plant or a refining, they talk to UOP, HPS gets pulled in. We've had the opposite instance. The example on the right there, the large Middle East gas field. That's actually HPS pulling in UOP, terrific sales synergies. It goes beyond just selling. The really exciting part is, how do we take what UOP does and HPS does and add incremental value to our customers?
This is not about bundling, we're never going to require UOP customers to buy HPS automation. That just doesn't make sense and takes optionality away from customers. What we do want to be able to do is say, if you use UOP and HPS automation, you'll get incremental yields, you get risk reduction, you get shorter project execution. Those are very powerful drivers for our customer. We're also applying some of the lean concepts I just talked about from the UOP process. I want to just spend a minute talking about the business that we've just created on the right. This is a brand-new software business, let me just give you a very brief description of what it does.
It will take and implement sensors into a customer's process, feed the data from those sensors through HPS automation, in real time, let them know in terms of how are they running versus their optimal yields. That's extremely powerful nobody else can do that. The only way you can do it today is somebody comes in, takes a look at the last three to six months worth of data, they generate a report say, "Make these tweaks or make these changes." Well, think about being able to do that in real time the kind of impact that can have on the yields, particularly in large industrial plants. A very powerful story that nobody else in the industry can do, nobody else is a process business an automation business. Software.
I talked about this being an incredibly important thing for us, whether it's advanced process control, whether it's cybersecurity, whether it's alarm management. Helping operators be much more effective in, let's say, respond to alarm management. For any of you that have actually been in a control room, a lot of these operators see something like 60 alarms per hour. I mean, they don't even know what to do with this. We have specific software solutions that help them prioritize and say, "You have to take action now versus this can wait." Extraordinarily powerful solution. We're going to grow the software business over 20% over the term of our planning period. Exciting growth story, and there's much more to come here. I'm going to turn things over to Ken Gayer, who'll take you through the Fluorine Products story, as well as advanced materials. Okay?
Around the world, countries are phasing out high global warming materials for lower global warming alternatives. Honeywell is well-positioned with a complete line of Solstice products. Honeywell Solstice products replace existing refrigerants, foam blowing agents, aerosols, and solvents used every day. They have global warming potential 99.9% lower than the products they replace and are equal to or lower than CO2. We estimate that use of Solstice materials will eliminate more than 350 million metric tons of CO2 equivalent by 2025. That's like removing 70 million cars, or all the private cars in China, from the road for one year. Honeywell and its suppliers will invest more than $900 million in the Solstice platform in the coming years. Solstice products will provide significant revenue growth and margin expansion well into the next decade. Simply put, Solstice products are among the many reasons Honeywell's future is bright.
That bright future is happening now, thanks to the low global warming products that we've launched and also more certainty around regs that I'm going to talk about. In addition, this is the other side of the oil story because we get a tailwind from lower cost raws and we get higher demand for the end uses that we're in. Fluorine Products invents, makes, markets, and sells patented materials into a range of applications that you see on the top left side of the chart. We've been a leader in this space for 100 years. Customers love our solutions because we give them a great value prop on energy, safety, environment. We make it easy for them to use our products with virtually drop-in replacements.
I think what's maybe more interesting for you on this slide is what's on the bottom, and that's where we're seeing terrific demand growth globally. Even in Europe, which isn't normally known for growth, we're seeing double-digit sales and margin expansion, and that's in US dollars, so with the weaker euro. In local currency, the story's even better. Fluorines is a great business because we anticipated regulations and the capabilities that we would need. We invented and patented the right solutions, and we planted and nurtured the seeds to bring the innovations to our customers when they needed them. Intellectual property and regulations is huge for this business, and you can see what that means over the long term in the bottom right chart.
Since 2013, when we fully launched Solstice, we've seen excellent sales growth. We know that that's going to continue because the other major driver, regulation, is having an impact. For example, you see it on the chart, in 2017, the European Mobile Air Conditioning Directive requires that all new cars have a low global warming refrigerant. Virtually every car manufacturer in the world has adopted the 1234yf product that we sell under the Solstice brand. This is one of the things that is going to drive the inflection that Dave and Darius have talked about. It's just one example of the kind of regs that we're seeing worldwide that drive demand for Solstice. The industry has been shaped by waves of regulation, the ability to adapt and innovate has always been critical.
In the 1990s and the 2000s, Honeywell scientists pioneered the development of non-ozone and low ozone depleting replacements to help customers comply with the Montreal Protocol, because it was banning CFCs because they were depleting the ozone layer. We had the privilege of helping the world solve a serious problem with ozone depletion. At the same time, we sold billions of dollars of patented zero ozone depleting replacements. Even though the HFCs that we launched to do that didn't deplete the ozone, they had high global warming potential. We recognized this early on. Began patenting a new family of products that would deal with the global warming issue, those are called the HFOs. Today, we've got three unique molecules that we patented. We're selling into that range of applications that I showed you earlier under the Solstice brand.
To supply these three unique molecules to our customers, we and our suppliers are investing $900 million in world-scale plants that are, as you heard from Dave and Darius, fully loaded the day they come on stream, because we're selling to contracts that we've already won. You've heard a lot about the PMT investment program. This business is a big part of it. To make sure that we get a good return and you get a good return on that capital, we contract with customers in advance because these regs don't happen overnight. We know they're coming. The customers know they're coming. We contract in advance to supply them with what they need on time. You heard earlier in the presentation, the $2.4 billion of Solstice deals, that's one of the ways we're loading these plants. We've got another $1 billion under negotiation.
This year, 25% of sales are Solstice. In 2018, that grows to half of our sales. Gives us very nice margin expansion. It also contributes to this inflection that we've been talking about. The story on fluorines is only going to get better. You heard from Andreas this morning on the breakthrough objectives we're working, which aren't built into Darius' numbers. That's upside for us when we get those. Even in applications where we've already got a strong position, like the wins that you see on the board in front of you, there's a lot of room to grow. It turns out our three molecules can be blended into high performance formulations that can help customers solve problems in different geographies and operating environments. Lots more to come on this.
Before I turn it back to Darius, I wanted to highlight two of my sister businesses in advanced materials. Resins and Chemicals is an integrated nylon producer with the lowest cost position in the industry that serves end uses in food packaging, wire, automobile, some of the common products that you see on the screen. Here we've got a two-pronged strategy around growth, operational excellence and movement into higher margin resins. The second sister is Aclar, which is a clear barrier film that protects medicine from moisture. Pharmaceutical companies love Aclar because it allows them to move to smaller packages, and they can also display their branded pills in a clear barrier package. To get this kind of a barrier protection from another product, you'd have to go to foil, which obviously it destroys the ability to visually display the pills in the pack.
Here we're pursuing high growth regions where there's increasing pharma usage and also heat and humidity we can help customers solve. We're fully using the Honeywell User Experience here to improve pill pack design and then movement into adjacencies, a theme that you've heard earlier, where we can use these products in industrial barrier films. To summarize advanced materials, great positions, delivering results today and in the future, and it's only going to get better as we apply HOS Gold and the Honeywell User Experience to everything we do. Back to you, Darius.
Thank you, Ken. Just to wrap up, just to give you a quick update in terms of our five-year drive to exceed our 2018 targets. We had a very good year in 2014. We grew by 5% organic growth rate. About 30 basis point expansion, slightly behind, but we're more than going to catch up this year. I'm 100% confident of that. You can see what's going to happen at the out years of our growth plan here. The best days are certainly ahead of us. This is really an important slide because it gives you a perspective what HOS Gold and how it's transforming PMT, but also the entire Honeywell enterprise. You can see that we've already identified $300 million-$400 million of incremental segment margin in the year 2018. We've only been a year into this HOS Gold story.
I think it's really re-anchoring around a whole new bright future and enabling us to break out of our past financial performance. Think about this as upside to our plan for 2018. In terms of just a quick summary, PMT is an absolutely terrific franchise. It has a demonstrated record of organic growth, of margin expansion, yet we have so many more things that are going to happen to this business that are going to enable us to grow at a faster rate and even more profitable. Whether it's the UOP and HPS cooperation or integration, whether it's the CapEx expansion that's taking place right now, and it's going to kick in even more of that inflection point coming in the 2017, 2018 time frame, or HOS Gold really taking hold of the organization and delivering those incremental margins and those dramatic cost savings.
HOS Gold is not just about profitable growth, well, it's a big part of it's also about driving productivity. We will always do both. Lastly, I know oil and gas is a headwind for us this year. We've planned for it. We've accounted for it. We have most of our backlog secured. We have the right services and products to help customers in this environment. Our exposure to the upstream, which is the most impacted, is small. In summary, PMT is off to a terrific start in our five-year journey. The best days are yet to come. Thank you very much. Before I get too excited, let me introduce Tom Szlosek, Honeywell CFO.
Thank you. Boy, we're in the process of setting 2016 targets, if you can believe it. Darius just gave me a lot of notes to take down in terms of where I should be looking. Thank you for that, Darius. Okay, got it. In terms of the key messages that I'd like to deliver, first and foremost, I'd like to talk about our evaluation in terms of where we are, Dave mentioned it, versus the track record. That's going to be the first thing I'd like to talk about. Secondly, I'd like to talk about the 2015 outlook as well as the growth plan. We're confident in both, we're on track for both, and we feel good about both. Third, I'd like to talk about the capital allocation.
Dave mentioned it. I'd like to give you a little bit of color. We'll have some time for Q&A afterwards. In terms of how we performed, I just want to give you a little bit of a message that we feel like we've delivered on a consistent basis. I'll show you some information on that. 2014 is a good example of that. We did 3% organic growth. We hit sales of $40 billion for the first time that we can remember. We overachieved in terms of the guidance that we had provided at the beginning of the year. That's with some significant second half headwinds. We had $300 million or so of FX headwinds in the year. We achieved the target. Growth in all businesses, organic growth of 3%. Segment margin was up 70 basis points.
Again, ahead of our guidance range. The high end of our guidance range was 16.9%. We hit 17%. Really strong. You heard the story on sales conversion from all the businesses. In terms of earnings per share, our guidance was $5.35 to $5.55. We ended up at $5.56, $0.01 ahead. 12% EPS growth, fifth consecutive year of double-digit earning growth for Honeywell. Pretty good. We raised our guidance three times. In terms of free cash flow, right on the mark, came in at $3.9 billion, right in the middle of the range. That's with a 16% increase in CapEx. You heard Darius talk about the high IRR CapEx that we're dealing with, the ROIs. 2015 will actually be the high watermark in terms of CapEx investment. We'll get close to two times depreciation rate. It starts to come back down.
The investments, as you can see, are in projects where the output is already spoken for. A year of exceeding commitments. Can I get the next slide? There we go. Most of you know that for those of you that have children, school-age, college-age children, this is like the mid-year report card timeframe. We gave ourselves a report card here. What I looked at is our organic sales, as well as our EPS. Organic sales and EPS. What I'm comparing here is our original guidance in the December before the year started to what we actually delivered. I've given ourselves a single check mark if we met the guidance and a double check mark if we exceeded the guidance. You can see from the chart that 90% of the cases, we're meeting or exceeding the guidance.
The message here is that we set targets and we stick to them each year. Every year, we're working hard to achieve what we committed to. That also applies to our longer-term targets. Dave showed this chart before. On a longer-term basis for the five-year plan, we met the targets as well. We generated $10 billion of incremental revenue over the five years through 2014. I know the plan called for $11 billion, we had some headwinds. We had some FX headwinds. We had GDP growth headwinds, $10 billion of incremental revenue, fairly impressive, especially when you're looking out a five-year window. In terms of segment margins, also very much in line with the targets. In fact, we exceeded the minimum.
330 basis points improvement, 65 basis points a year in terms of segment margin, you can see the impact that that's had on the margin rate. Again, meeting our annual commitments, meeting our five-year commitments, we're also performing well against our peers. You could look at a number of different periods in time. You could pick a number of different peers. I've got four peers here. We've got Emerson, GE, 3M, and UTX across the four peers there. This is EPS over the five-year timeframe, so it's our pay here. If you look at the line that you see, that's the EPS itself. 16% for Honeywell against the group. You can see the 6%-11% in the group. Secondly, the net income itself.
Excluding any impact on EPS of share buyback, you can see that Honeywell is at that 17%, outperforming, again, that peer group. The message for us is this has been operational outperformance. We've not done it with any sort of leveraging of our share count, we feel like this is a track record we can sustain. What does that mean for our shareowners? That means this TSR that you see here. Almost two times the market, almost two times our peer group over that five-year timeframe. We feel like we're outperforming. When you look at what we've done relative, the annual performance 2014, the five-year performance, the five years through 2014, the performance versus the peers, we feel that kind of maybe would justify a valuation that would be in the upper quartile.
When you look at it, this is against our eight peer group companies that we traditionally compare ourselves to, you can see we're at third, fourth in terms of P/E, the PEG ratio, and free cash flow. In terms of the P/E, you might have seen a report that one of your sell-siders issued a report this week. It was one of the smarter guys here, one of the more handsome guys, I'll leave it at that, but had 26 companies listed in an exhibit. The average P/E ratio for the group was 18.2, I believe. Honeywell's at 17. If you cut the group in half, the P/E ratio for the upper half was 20.7. If you compare Honeywell, we were in the second half of the group at our 17.2, but 17.2 versus 20.7, there's some attractive upside for you from a valuation perspective.
We look at that, and that's what kind of fuels all the energy we have around creating the growth, creating the cost productivity that we have. We feel like there's more upside to the valuation. I'm going to leave the valuation point there and give you an update on 2015. Let me start with some of the parameters that we talked through in the earnings calls that we've had. First off, Darius talked about oil price declines. I have a page on this. The bottom line is in the last six weeks since we talked about this, the story hasn't changed all that much. There's been a few developments. Darius mentioned a couple of them. I'll talk about them as well. In terms of currency, foreign exchange, I also have a page on this. We feel like we got at this pretty early.
We made a call on the EUR, stuck to it, have a hedging plan in place, and I'll explain that to you as well. In terms of the other ones that aren't highlighted, high growth regions, you heard Shane talking about the scale that we're developing in places like India, China, Southeast Asia, Latin America. Very excited about the platforms that we have there, and we have been outgrowing, and that does contribute to significant organic growth for Honeywell. In terms of non-resi, Alex talked about the momentum we've got. That's more than 75% of the ACS portfolio is on that non-resi side. Really exciting market momentum for us, Alex talked about all the products and offerings that we've got to take advantage of that. In terms of pension, think of this as a non-issue.
I've got a slide on pension, for us, it looks like there'll be pension income upside, as I explained on the outlook call. Any upside that we do have, we'll offset completely with the likes of repositioning. We feel like that's going to help us again for the future. Oil price, Darius talked about the impact on PMT, so I'm not going to get too much into the upstream, midstream, and Resins and Chemicals pieces. The story definitely is that this is a new phenomenon for everybody. We're learning, like everybody else is learning, in terms of the impacts. We've not seen this before. Darius gave the update. It still holds true that our exposure is limited to upstream, but developmental-wise, we have seen some slowdown in budgets that extend more to than just the upstream portion of the market.
We're watching that closely, as Darius said, to the extent that that issue, we've got contingency plans in place. We feel like we're watching it closely. The big point is that 2015, we've got good line of sight in terms of the commitments that we're making, which I'll share with you. In terms of other impacts on Honeywell from oil and gas, operating expenses is definitely something that we've highlighted, and we're starting to see it. I'll give you an example. We just finished negotiating our heavy air freight contract. This is about a $100 million spend for Honeywell. We ended up getting a 15% savings year-over-year in that contract alone. There's a lot of things like that that we look at.
We try and find where the residual impacts are going to be on the cost side from what we're seeing in the marketplace. In terms of the second derivatives, I've listed the businesses there. Tim mentioned potential impacts on the airlines, which might be good. We're not necessarily seeing a spike in demand yet, but to the extent that they make decisions to keep their fleets in place longer, that definitely is a help for our aftermarket businesses there. I mentioned foreign exchange and the approach that we took. First of all, there's a couple changes here. First, we broadened our approach in 2015 to the way we approach hedging. Traditionally, we've just done hedging of specific transactions, foreign exchange exposures in the functional currencies of the businesses that we operate in. We've extended that through a creative approach that now incorporates the translation hedging.
We're focused on protecting income, not necessarily sales or sales revenue. You'll continue to see top-line volatility for Honeywell. The way the hedging works, the operating income is largely protected. We're about 80%-85% hedged across all the currencies. I think it's important to understand that you look at the circle of currencies there, the euro is our biggest exposure. That's our biggest long exposure, about 45% of our total foreign exchange exposure. The other thing to take note of is that we're short in a number of currencies here that are actually where we source from. You can see Mexico, you see India there, you see the Czech Republic. We have significant assets on the ground, manufacturing generally, but other parts of the supply chain where we actually benefit from that depreciating currency.
The other point to mention here is that we're looking at 2016 now in terms of a hedging approach or how that would factor into our planning decisions. We move on to the financial guidance or the financial summary for 2015. Nothing really has changed on here since we first provided the outlook. Organic sales up 4% and really leveraging that strong backlog that we have across the portfolios. Darius mentioned what he's got. Tim's got a lot of good aftermarkets going, really encouraged by what we're seeing. Segment margin up 100 to 130 basis points. If I back out the AeroOEM setup transaction that we did in the fourth quarter, that really is 60 to 90 basis points. In line with what we did in 2014, we did 70 basis points improvement. Our long-term targets are to improve 45 to 75 basis points.
We feel like that's a representative planning approach there. From an EPS perspective and from free cash flow, we're in that range that approaches double-digit growth, and overall, we're very confident in the outlook that we're providing here. This is a first quarter update. The only thing that's changed on first quarter since we last talked was the reported sales. Because of the foreign exchange, reported sales has gone from -1% to -2%, to -2% to -3%. The biggest impact is FX. There's no change to the organic growth rate, so you still see between 3% and 4% organic growth. What that means is, because we're not changing our income, is that our margin rates are going to improve. Top line will be lower, margin stays the same. You'll have an impact on the margin rate.
The EPS stays the same, $1.36-$1.41. We're still affirming the guidance, again, no change to the organic sales. In terms of our growth targets for 2018, Dave shared these earlier. These are identical to what we showed you last year at this timeframe. Not a lot to talk about other than 4%-6% organic growth. We did about 3% in 2014. The thing to remember in 2014 is we saw a nice escalation over the course of the year. It was 1% in the first quarter, 3% in the second quarter, 5% in the third quarter, and 4% in the fourth quarter. A nice ramp-up. We feel like we're creating some momentum as we head into 2015 and 2016. In terms of segment margin, we're confident on that.
We did 70 basis points, as I said, in 2014, targeting another 60-90 this year, well on the way to that 45-75. In terms of the growth factors, I won't belabor these, we're really encouraged by everything we're hearing from the businesses. You heard Tim talk about the platform wins that he's got, the new offerings that he is creating, the business is creating in Aerospace, and connectivity is big. As well, Terrence continues to get 40% win rate on all the new business opportunities that we get. He was probably a little modest. That supply chain that he's running is probably the best in Honeywell, close to the best in the industry in terms of customer on-time delivery, quality defects, and innovation. Really happy to have that, great working capital as well.
ACS, Alex talked about connectivity as well, software, the verticals he's in are in an upswing, we've got really strong positions to attack those. We're really excited. In terms of PMT, you just heard Darius talk about his backlog holding up very well. He's got growth inflection from Solstice that Ken talked about. Those factor into our 4%-6% organic growth rate, as we think about for the remaining four years of our five-year plan. We didn't forget about the red caps that we put on top of these bar charts last year, Dave reiterated that. We remain fully committed to the incremental dollar of earnings per share. That leads me to my third topic, which is capital deployment. The deployment priorities really haven't changed in terms of the four areas.
CapEx, you heard Darius talk about the smart decisions we're making. We really feel like even though we've ramped up on CapEx, we're going to get some nice returns on that. Remain committed to the dividend. I'll take you through that. I'll take you through M&A, but Roger did most of that already. Then, of course, I'll talk about this idea that we've got on share repurchase. By the way, the backdrop on pension, which always kind of comes up in some of these forums, is not an issue at all for us. We've got no contributions required to our pension plan, U.S. pension plan through 2019. We anticipate on the foreign side that we're not going to have any blips in terms of required contributions as well.
We're very conservative in terms of the accounting. We feel like our funded status is upper quartile and near the top from a quartile perspective. Pension, not something that we're too worried about. In terms of CapEx, you can see the trends. You can see the spikes in 2015 and 2016. Those reinvestment ratios, we hit the peak at 1.9 in 2015. Then kind of ramped back down to around 1.15 over the five-year plan. The projects are on track. All the projects that Darius talked about, some of them are highlighted here. You've got the IRRs there. There's a couple interesting projects to point out that aren't in PMT. There's one in HTS, so that's Honeywell Technology Solutions. That's the engineering back office that Krishna runs in India. We've got 8,000 strong engineers there.
We're consolidating campuses and creating further capacity for them to grow and to contribute to that organic growth. We're going to get a great return on that project as well. Then you see the corporate spend. Just to preempt any questions on why you're spending CapEx on corporate, some of you know we're exiting our corporate campus. We're actually moving about five miles down the road to a more modest facility. We can consolidate from seven or eight buildings into one building. It's already built. It's been a shell for maybe five or six years. We're in the process of filling it out or fitting it out. We'll be in there by September. It's going to give us a nice return of 15% IRR.
We'll save over $10 million of operating expenses a year, not to mention being able to clear the whole campus of all the buildings and sell the land for a nice tidy profit. We'll get some nice cash out of it too. A little bit of a harvesting the balance sheet, making it a little bit more effective. Dividend. Our communicated strategy is to grow this faster than our earnings per share growth. Dave mentioned the 15% dividend increase in December. We grew earnings per share 12%. You can kind of see that gives us a little bit of an inflection point there on the upper right of the slide. Over the five years, we'll pay over $10 billion in terms of dividends.
If we continue on this pace of 15 versus 12 or 15 versus 10, we should easily be at a 40% payout by the time the five-year plan is through. In terms of M&A, you heard Roger talk about this. I won't belabor it other than to say the things that could change. For us, definitely it's the deal size. Average deal size could get bigger and should get bigger based on what we've communicated to you in terms of targets and spending $10 billion and creating that incremental dollar per share. You're going to see more action outside of ACS. I'd say 75%-80% of our deals have been in ACS, but the pipelines that Roger talked about extend to all corners of Honeywell. We're excited about that.
Obviously, we have an incentive to do deals outside the U.S. a little bit more strongly than inside the U.S. We wouldn't turn either down, but just given our capital position and where our cash is located, those are the best opportunities for us. Stage is set. What's not going to change is we're going to stick to our discipline. That includes needing to get at least 6%, if not 8%, in terms of cost synergies for these deals to work. This is share repurchase. Dave talked about keeping our cash and our net cash, so that's cash net of debt, at between $1 billion and $2 billion. You can see where we were at the end of the year. We were pretty close. Dave showed you, I think it was $300 million still in net debt.
By the end of this year, we should be crossing or getting close to that $1 billion to $2 billion. Our preference, of course, remains M&A. We could reset ourselves at any moment in time and get back to a net debt position. If that doesn't materialize, if we have another year like 2015 or 2014, you should think of this as your insurance that we're committed to that dollar a share. To get to that dollar a share, if we're not able to do meaningful M&A by the end of this year, we're going to need to work on other ways to do it, and this is the way we'll do it. Before we do anything, and take any action on this, obviously, there'd be more of a communication, and we'd be very clear in terms of our approach to it.
For now, we'll continue on the basis of buying shares, doing repurchases to keep our share count flat. That's it from the finance guy. I just want to reiterate those three themes. We feel like we're an opportunity. We're a buying opportunity. We make commitments. We make annual commitments. We make long-term commitments, and we meet those commitments. Those are aggressive commitments, and we meet them, or we exceed them. We've got strong outlooks for 2015. You heard from the business leaders. You heard from me in terms of the earnings per share. You heard from Dave in terms of his optimism. The rest of the plan, the rest of the five-year plan, including 2016, very encouraged by what we're seeing. The third message is we've got more opportunity on our balance sheet.
Obviously, the preference is M&A for us, we're committed to the dollar per share, and we're going to do what it takes to get that. With that, I conclude my remarks, and I'd like to have Darius and Dave come up and join me on stage. Questions. Mark.
Okay. Chris Quinn?
Thanks. I had a question about the 5%-8% aerospace CAGR coming off the 2015 base. The high end seems kind of lofty. What could put you there? How grounded is that high end, and where would kind of be the base case within that range?
You meant aerospace, Chris?
Did I say Aerospace?
Yeah. You meant PMT?
No, I meant Aerospace. There's three of you up there.
Oh, sorry. Okay, got it. Sorry. Thought you were talking about Darius. Well, first of all, we've got a big inflection point coming, as Tim alluded to. He's got that working for him in terms of 2016 and 2017 based on the platform wins. I think if you think about the other things that he said about the offerings that they've got in software and connectivity, I think that's where the upside comes, as well as potentially from the factors that both Tim and I mentioned that aren't showing up yet necessarily in terms of more demand or longer service lives for aircraft that we had assumed would be coming out sooner rather than later based on the oil prices.
Joe?
This question's for Dave or Tom. The $1 billion-$2 billion in net cash. First question is, how did you think about that number? Why is that the right number? Secondly, Dave, how are you thinking about your earnings stability through a cycle? There was a chart up there that showed Honeywell relative to competitors in the five-year CAGR far up speeding the other competitors on that page. I'm curious how you're thinking about your balance sheet as a way to potentially have a more stable earnings stream over time.
For the net cash, I guess I viewed it as I had two choices, $1 billion-$2 billion or $10 billion-$15 billion, that you'd prefer the $1 billion-$2 billion. You got to pick something. We were at zero, I said, okay, $1 billion-$2 billion seems like a reasonable number to say there's some urgency to this, and it's coming. If we can't do good M&A, we're not going to lose our discipline on M&A. We're significantly increasing the pipeline, we're not going to be silly about this just because we feel forced to do something. It's just not who we are. On the stability side, actually, the stability of our earnings is pretty good. If you take a look at how we performed in the last recession, for example, versus others, depending on who's doing the work, it's anywhere between top quintile, top quartile performance.
I think the stability there is. That's without doing any kind of buyback. If you say, "Geez, you've got some powder dry in the event that something like that does happen," yeah, that significantly contributes to the stability of your earnings because that is the absolute right time to buy, of course, because then you can be sure that you've bought at that sweet spot. Does that address your question, Joe?
Yeah.
Dave?
Not that I'm expecting one, by the way. I'm not. Is this going to be a tenure question, Scott?
Yeah. Well, since you brought it up- Is there a plan to talk about succession at some juncture over the next couple of years? Are we stuck with you for a long time?
You might be stuck. No. Of course, it's something that I've thought about for a long time. You don't start planning for succession two years, three years before you're going to go. Succession is important. I like what I'm doing, but by the same token, I know you always want to leave people wanting more. We're going to do it thoughtfully, and I can promise you that there's a lot of my time that goes into this, my HR guys, and our board.
Okay. You're punting. I still have the microphone. I'm going to sit here. I'm going to beat the clock for the rest of-
Cooper, get over there.
Bring the mic.
As long as you're not advocating that I go, like your article sounded.
No, I think you're doing a fantastically wonderful job. Don't let the door hit you on the way out. I mean, you did just sell $30 million of stock, didn't you, Dave?
Well, I earned it.
Can I have a cut? Dave Cote, what's not working? We know when you came to the firm, there was a laundry list of stuff that you needed to fix that was pretty daunting, really. Most people in this audience felt like it was too hard. You've kind of made it, and you've come a long ways, there's got to be stuff that you still think is there for the fixing and things that you can really make a difference on. I'll pass that to them.
Actually, all the stuff that we talked about today, Scott. I'd say it's one of the things I like is that with all the time that, as a team, we've been running this place, we haven't run out of ideas. You take a look at just everything that we're discovering through HOS Gold, for example. That's all upside because it's just making the place better than it was. The stuff we're doing in software, you probably heard me say, I wish I'd started CMMI Level 5 10 years ago. I didn't. I should have. I knew about it, but I didn't really push it and start it till five years ago. We're going to get there. Same way with HOS Gold. As we look at all these breakthrough ideas and say, "God, why weren't we pushing this more before?
We could have been using these today." There's still a lot more for us to do. All the stuff that we've talked about during the course of the day. Okay. Howard?
Well, first, Dave, I was really impressed that your answer was again shorter than Scott's question.
Was what?
That your answer was again shorter than Scott's question. It's very key to be succinct.
I like this guy.
The second thing is that, a little bit to follow on, Scott, though, there was always points where there were questionable differences that you had. Now, can't really find them. What do you tell the guys at the bottom 5% or 10% of the rung, and how are you helping?
Yeah, it's interesting because, yes, there is always a bottom 10 in anything. It's funny you kind of used that vernacular because that's something we use a lot, talking about the bottom 10 on anything, including at our senior leadership. I don't do the, "Look, you've got a problem. You're the worst. If you don't do something, I'm going to sell you." By the same token, we're pretty direct with businesses about here's what we need to see, and here's why we like you or here's why we have a concern, and this is where things need to go. I can promise you that we're still constantly evaluating the portfolio. As like anything else, there's an evolution to things. Just because we're in a certain position today doesn't mean that's what makes sense five years from now. It's a constant process of evaluation.
Okay. Andrew?
Yes. This is a question for Darius. The Wall Street Journal recently published an article about Saudi Aramco just going through the entire supply chain, I think even including their phone operators, asking for significant price cuts. Not asking about Saudi Aramco, but it just seems this price decline gives the entire oil and gas supply chain to go and reprice pretty much everything. How do we think about that?
I've seen the same articles, it's very much happening. I think it's probably a little bit more directed to some of the oil and gas services firms. By the way, they're the ones that you've probably seen the press releases in the last 60 days, especially. I would say it's much more pronounced there. To be honest, we haven't seen those. We haven't had those kinds of unpleasant discussions, let's call it. Certainly, it's like I said, nothing is out of bounds in this kind of ever-changing environment. We haven't seen sort of a reshuffling of the deck or repricing that we've had these discussions. By the way, the other thing is that we have a lot of the relationships based on sort of long-term contracts.
There's always going to be the pluses and minuses in terms of the oil and gas markets, we don't go back and ask for price increases when it's a plus. I think we have long-term relationships, there's a recognition that there's going to be gives and takes.
Just in case of Saudi Aramco, they probably have two guys. It's not like there's a massive list of suppliers, they can go and play one against each other.
Sure.
How do you deal with a customer like that? Have you had any discussions with anybody outside of our team at this point?
The other thing to keep in mind, although we're a very meaningful part of a lot of the projects that are going on, but if you think about a project, a typical big, let's say, petrochemical refining project, if you add in process and automation, you're still only talking, well, it depends, but anywhere from 2%-4% in that range. We're probably not the primary place to go in terms of whether it's CapEx or OpEx. Like I said, in OpEx, it's got a lot of terrific stories in terms of immediate returns. The short answer is we haven't seen it.
Okay, we have time for one last question. Steve, you?
On the chart, the PMT incremental new sales chart, billion dollars or something in 2017.
Yeah.
It seems to me that the majority of that is not only contracted, but it's also somewhat recurring in nature. These aren't the most cyclical products that are going out the door. Not only do you have contracted visibility, but also just in regards to the cycle and the macro-
Yeah
at that stage of the game, the visibility on that is pretty crystal clear.
It is very clear because it's predominantly in two segments. One segment is the Solstice molecule, and we have a terrific booking years. I think Ken is selling himself short when he says it's only $1 billion. I think we're going to get a lot more than that this year. That's very high visibility, and that's, by the way, 2017 is tied to some regs kicking in, too, so we're going to get a nice tailwind there. The second part is, and you're right, it's part tied to catalyst. As we sort of populate with our UOP play in terms of new projects, we can pretty well predict exactly when those catalyst refills will happen.
We have a very high degree of confidence that those investments that we're making are going to be fully utilized, and we are going to get those IRRs in the 30s and 40s.
Right. To the extent that any of the oil and gas stuff is maybe a little bit worse than you expected over the next couple of years.
Yeah
certainly seems like there's a material offset that you have visibility on.
Absolutely.
In this instance.
Absolutely. I think that catalyst segment, you can delay replacement, but you can't push it or postpone it forever. It's just a pushback. You can't cancel it unless you want to completely shut down the plant and that's unlikely to happen.
Just one more question for Tom. What would be the 2016 ForEx dynamic today without further hedging? Just to make sure there's no gains from the real estate you're selling.
Corporate
in the numbers. We always have to ask that question.
No. As you know, we do a remarkable pattern of being able to offset gains with non-operating kinds of things. Dave would never let anybody take credit for that.
It was kind of a joke.
Yeah. On the foreign exchange, as you know, we got after 2015 pretty early in September. If you take the euro as an example, I think on my slide I showed a $0.10 hit year-over-year. That took the euro from rough order of magnitude around $1.30 all in for 2014 to something like $1.22, $1.20-ish for 2015. You can kind of apply that same math in terms of the headwind that we're facing looking at 2016. Now, if nothing happened from today and the exchange rate stayed exactly the same, we would have that EPS impact. We wouldn't have any top-line impact because of the way we hedge it, as I said. We've contemplated that, and we're contemplating that in terms of our guide for our planned construction for next year.
Five-year plan, we're committed to the annual improvement year-over-year that you've seen. We don't think it's a ginormous obstacle that's going to be a problem for us.
Thank you, everyone, for your questions. I'd like to turn it back over to Dave for some closing remarks.
To go back to the beginning. There you go. Our outperformance is going to continue through this new five-year plan, where all of you probably heard all the stories today, I hope you did. Everybody gets it. This is not just kind of putting numbers on a page. There's substance behind it, and we have a way to get there. Positions between the seed planting and the leadership that we have in the business is now clearly committed to growing and are going to make this happen. HOS Gold is a game changer, and I don't think too many people out there are doing it, and you're going to see nice effect from that. Same thing with software. I really think that software is going to be a big differentiator, and hopefully you liked what you had a chance to see today.
We have a lot of cash to deploy, and we're going to deploy it smartly. Hopefully, you like that I pick one to two instead of 10 to 15 as the net cash balance that we'd want to have. I think it's a smart way to keep dry powder because you just want to be opportunistic, while at the same time returning cash to shareowners. I've given you great advice for 13 years at the end of these sessions, let's make it the 14th time. Buy now while supplies last. Thanks.