Please welcome Mark Macaluso.
Good morning. Thanks, everyone, for coming again out to lovely Morris Plains, New Jersey. We're delighted again to be hosting everyone here. We appreciate everyone making the trip. Before we get started, if everyone could just please turn their phones to silent. For those of you listening via webcast, you can find today's presentation, including any non-GAAP reconciliations, on our website at www.honeywell.com/investor. I'd like to remind you that today's presentations will contain forward-looking statements. These statements are based on our best view of the world and of our businesses as we see them today. These elements can change, and we ask that you interpret them in that light. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other SEC filings. Let's turn to the agenda.
Similar to last year, we have enhanced the technology demonstration to provide a much more comprehensive and interactive demonstration of our leading-edge technologies and software across all our business groups. During the registration process, you hopefully signed up to see two of the four tech demos. Please check the back of your badge to find your assignments, and we'd ask that you adhere to your assignments and the times for each. At each tour, our business presidents and their teams will take you through an in-depth review, followed by a Q&A with their leadership teams. The sessions will last 30 minutes, and we ask that you quickly move in between the sessions to keep us on time. The tech demos will take place in the learning center across the hall, and in between, lunch will be waiting near the main lobby.
There will, of course, be adequate time for Q&A throughout the show. We ask that you wait until the designated Q&A times to ask your questions. We have a lot of exciting content to share in six and a half short hours. With that, it's my pleasure to introduce Honeywell's Chairman and CEO, Darius Adamczyk.
Good morning. Welcome, everyone. I don't know, nothing better than the smell of burgers frying at 8:00 in the morning. It's kind of my welcome in today. I think it's a very exciting time to be here. Welcome all of you to our 2019 Investor Conference. The reason I say it's an exciting time to be here is really entering what I call is the phase 2 of the Honeywell transformation. We marked the phase 1 completion by the completion of the two spins that we did in Q4 last year, that being Resideo and Garrett. We completed that in Q4. Although we're continuing to execute on our four key priorities, we are going to be supporting those four key priorities.
Just to remind you what those four initiatives, four key priorities are, which is enhance organic growth, continue to expand margins and drive cash conversion, transform to a software industrial, and more aggressive capital deployment. Those are the four things that I laid out a couple years ago. We're going to continue to be driving those same four things. Now they're going to be underpinned by five key initiatives. Some of these are new, some of those are not so new. The first one, following me, is going to be Que Dallara, who's going to be talking to you about the Honeywell Connected Enterprise, which is really our transformation to a software industrial.
The second one, which is industrial transformation, Torsten Pilz is going to be talking to you about that a little bit later this afternoon, which is really changing everything we do on the back end of the business, and I'll discuss that in more detail later. The third one being Honeywell Digital. Ken Stachurski is going to be up a little bit later. Honeywell Digital is all about making Honeywell internally a much more contemporary digital company. The fourth, something that I promised you a long time ago that we're always going to be doing, which is no matter when it happens, what we do, what we don't do, which is continue to optimize the portfolio. We're not done.
I would say some of the more major things that we're going to do were complete in Q4 last year, we're going to continue to add as well as subtract from the portfolio to make sure that we have the best set of businesses in the industry. I've always said, I don't want to necessarily run the world's biggest company. I just want to run the best one. Continuous portfolio transformation is very much part of that playbook. The last one, maybe as important as anything we're going to talk about, is innovation. Innovation is the fiber and heartbeat of Honeywell. You can't have an organic growth engine, and you can't have a successful company unless you drive innovation. We've, throughout everything we talk about, is going to be that common theme.
One of the things I really dislike that we get lumped into is we get lumped into, "You guys are an industrial company." We are not an industrial company. We're actually a technology company. If you look at what we do and the kind of solutions we deliver to the world, it's hard to argue we're an industrial company. We're much more of a technology company. All of this is underpinned by something else, which is our balance sheet. Obviously, the obvious statement is, yeah, you guys have a strong balance sheet, you have a lot of dry powder on the balance sheet and an underlevered balance sheet. Those things can be argued that they're probably true, there's a good reason for that, we're going to discuss it a bit later.
The other thing which is just as important is the change in the makeup of our balance sheet. Thing being the risk reduction, the much different liability profile that's now reduced, that being environmental as well as asbestos. Then the pension. I mean, our pension is now funded at 115%. Half of it is in fixed assets, which are matched to the liability. That may not seem like that's all that important right now because, in general, the economies are good, companies are generating cash, and it's not a big deal. Well, that changes. That equation changes when there's a recession. Now would you rather be investing in a company that has funding of 70, 80%, or one that has 115% and really has no concerns during a recessionary period? That makes a difference.
Last, and certainly not least, we're going to talk quite a bit about this towards the end of my presentation, which is, yes, Honeywell is a performance culture. We love winning, but we're also a company that brings great things to humanity, great things to the planet, and ESG is at the forefront of what we do. Those things are not opposed. You can be a tremendously successful company, a culture that is based on performance, but also focused on ESG. I'm going to talk about that and give you some examples a little bit later. A little bit about the new Honeywell after the spins. How does it look? How is it different? A focus on six primary end markets, so we're a much more simplified company. Which a company which is less cyclical rather than more cyclical.
As many of you know, Garrett was our most cyclical business segment. Also, it's one that's much more B2B versus B2C focused. We lost a lot of our B2C exposure, particularly with the Resideo spin. We enhanced our organic growth profile, streamlined our Honeywell Connected Enterprise to less verticals, continue to drive free cash flow conversion. I've always said that I like simplicity. Complexity is not necessarily my friend. Simplicity is my friend, having a much more streamlined and focused portfolio is certainly the direction that we've moved to, I think it's going to pay off. A little bit about the say do. I think all of you know me. I generally like to do what we say and vice versa, I think it's time to reexamine our scorecard.
If you take a look at the scorecard that we put together a couple of years ago, and you take a look at the four primary objectives that we're trying to do, let's see how we did. Take a look at organic growth rate. It's been about 1% from 2014 to 2016. 2017, we grew 4%. 2018, we grew 6%. Q1, we grew 8%. I'm not declaring full success here, but I'm declaring progress has been made on this objective.
Granted, the economies have been good, but I can tell you this, there's absolutely no way we would've grown at these kinds of run rates without some of the things we did on the commercial side of the business, whether it be innovation based, whether it be continued investment in High Growth Region, whether it's commercial excellence, and a lot of the other things that I'm going to be talking to you about today. I'm very proud of what we've been able to accomplish along this number key strategic objective. The second one, which is margin expansion. I think, frankly speaking with some of you earlier, I think some of you had the concerns that are you going to run out of room for margin expansion? Because history says we've been pretty good at this.
I can tell you, we're going to tell you how we're going to continue to deliver the 30 to 50 basis point expansion every year. By the way, we've done a little bit better than that, as you can see by the recent trend. Cash conversion, really nice progress on cash conversion, we did it the right way, which is through reducing our working capital. As you see, our turns are improving. We've just done a tremendous job there. Now, what I committed to is that we would get to 100% conversion sometime around, or roughly 100% conversion sometime in 2019. The good news is we got there about a year early.
We did it the right way, not by constraining capital, because that's kind of the silly way to do it, which is to constrain your capital investment, not invest in high IRR projects, we did it the right way. Becoming a software industrial, which is really all about what Q's going to be talking about today. We've kind of bounced around. We did 23, we did 14. But our overall long-term target is roughly a 20% compound annual growth rate. We are not changing that objective. I'm very confident we're going to deliver 20%. Q has the right strategy for her group. We've got the right passion around this, and this will be the future of Honeywell. Then last, certainly not least, we have deployed capital back to our investors.
Yes, it's taken more of in the form of share buyback than M&A, but I would tell you that's a function of the environment today. This is very much a seller's rather than a buyer's market. Greg will have a chart later on in the presentation, which will tell you the elevated multiples that are out there today. Frankly, the best investment that I could see is Honeywell, and it continues to be the best investment I can make. Having said that, we do want to do M&A, particularly bolt-on M&A, because it enhances our capabilities for the future. It builds technical capability, positions us better, and we're absolutely committed to doing bolt-on M&A. We're also committed to being smart with capital deployment, not overpaying.
You can see the kind of valuations that are being paid for today, which sometimes leaves us scratching our head. Next slide. I think there's only a couple of punchlines on this one. Whether you look at Honeywell in the short term, a one-year timeframe, five-year, three-year, 10-year, meaning short term, midterm, long term, we do one thing, which is we perform. Whether you look at versus XLI, whether you look at S&P versus our peers, we continue to outperform the markets. I think one of you, I can't remember who said this, it's your sleep at night stock. Well, I guess I take great pride in that. That means that this is a very reliable investment. It's one that delivers year after year. It's not based on CEO. It's not based on who's running what. We continue to deliver because it's never based on one person.
It's based on what we do and how we do it, and the culture and the innovation that we have within Honeywell. As you can see, the engine keeps going. I can tell you that we are far from done. We are just beginning. The future is just as exciting or more exciting than the past. Honeywell Connected Enterprise, I don't want to steal too much of the thunder from Q because she actually follows me. I do want to just go over a little bit of what this is, which is really, it's our play in the industrial IoT, which is a combination of our physical products as well as the software that's primarily developed by Q's group. It is not a broad industrial platform play.
We only participate in the markets that we currently play in, where we have a deep level of domain expertise, rich and deep installed bases, trust of our end customers. We build out these end customer-centric solutions on something called Sentience, which is our IT stacks that we leverage the common, but we have end customer-focused solutions around the aircraft, around the building, around the industrial worker, cybersecurity, et cetera. It always combines that strategy, which is we take the best of our hardware, we take the best of our software to create that hybrid solution, and I'm proud to say that this has been a really nice success. I can tell you today, I've probably been to see, I don't know, well north of 70 to 80 CEOs of various industries. We don't have a demand problem here.
Everybody understands that Honeywell can add tremendous value to their sites, their aircraft, whatever it may be. What we need to do is accelerate our own efforts. This is one of the most exciting things we're going to do for the next several years, and it's one of the key strategic levers for Honeywell, and Q will tell you a lot more about it in her presentation. The second one, supply chain transformation. Torsten is going to talk to you a little bit more about this this afternoon. As you look at what's happened with Honeywell in the last 15 years, we've had over 80 acquisitions, a lot of complexity, a lot of footprint, a very complex supply chain. He'll show you an unwieldy number of manufacturing facilities, warehouses, inconsistent planning structures, talent that's uneven throughout the organization.
What we're going to be doing here is simplification of that supply chain, a deep level of effort into consistent planning, enhancement, and investment in education and training of our workforce to not just save a lot of money, because you can see it's about a $500 million run rate savings, and benefits, particularly on the inventory side of things. Really, it's all about serving our customers better because we're going to be able to shorten lead times, improve our on-time deliveries, and get into the very high 90s where our customers deserve to be. Frankly, when we grew at 0% to 1%, not that hard to be in the high 90s. Given some of the strain on the supply chain, particularly in the aerospace segment, it's becoming much more difficult.
The fact is, this whole effort is really preparing us for growth at that accelerated rate. We want to be a world-class company when it comes to supply chain. Torsten and his team are well-positioned to do that. We don't think this is a short journey. We think that this is a three to five-year journey, but one that's going to generate IRR around 20%, half a billion dollars conservative in terms of fixed cost reduction, as well as nearly a billion-dollar savings in inventory. Some pretty bold goals that we laid out for ourselves in terms of doing this for the future. The next initiative, which is going to underpin our four key strategic priority, is Honeywell Digital. Honeywell Digital is fundamentally about three different things. The first one, and I think the most important, which is data governance.
Consistent data fields, defining the critical data elements, whether it's supplier master, the customer master, all the masters that we have out there. We're currently in the process of cleaning up all that work, all those data elements throughout Honeywell. A lot of heavy lifting, a lot of manual work, it's something that has to be done because without good data, you can't be a digitally contemporary company. The second element here is consistent processes across the six primary business models that we see across Honeywell. Last, it's all underpinned by consistent and common IT architectures. Those are the three things. It sounds easy, it's maybe not the sexiest work you have to go do, it's absolutely essential. We've quantified this for you in terms of some of the benefits.
We think it's about a $500 million potential run rate benefit in terms of both commercial and productivity side. There's something else that's much more important here, and I can't quantify it for you, but I'm convinced it's there. Honeywell is a company that's based on analytical and data-based decision-making. One of the fundamental things that Honeywell Digital is going to enable us to do, which is to make better decisions, whether it's the general managers, whether it's the functional leaders, making better decisions based on data is going to make us a much better company. What's that worth? I can't tell you exactly, but I'm convinced it's there. We've been on this effort for a couple of years now. We're accelerating now, and I think this is going to really transform, internally, Honeywell.
A little bit more of a scorecard to give you a little bit of an update in terms of how we're doing on the-- this is a little bit of the how when it comes to enhancing organic growth. Where there's High Growth Regions, Honeywell Connected Enterprise, new product development, breakthrough initiatives, we're performing well on those. You can see our performance in 2017, 2018, estimated 2019. We're making progress across all of those. I think it's really important when I say enhance organic growth, well, that's fine, but how? You have to have specific actions and the right metrics to really be able to measure it. The key point to emphasize here is the following. There's one thing in common across all four of these things. They're all underpinned by innovation.
None of this happens, we don't get these successes, unless we have innovation that's taking place. Even in, say, well, High Growth Regions, how is that innovation? Well, part of that innovation engine in High Growth Regions is our east for east and east to west strategy. There's a great deal of innovations taking place today in countries like China and India, which they're innovating for their local markets, as well as using a lot of those ideas for some of the other High Growth Regions. It's exciting. It's actually at arm's length from control by headquarters here in the U.S. Those teams have the freedom to develop and spend the money the way that they see fit for their local markets, and it's generating results. It's just tremendous to see. Breakthrough initiatives, maybe a little bit of a redefinition. What's a breakthrough?
Well, a breakthrough is a higher risk, higher reward initiative which bends the curve of growth for each of our Gold Business Enterprises. If you recall, we have roughly 40 Gold Business Enterprises within Honeywell, and each of them is required to have one to three of these breakthrough initiatives. I just want to give you an example of three of them. Quantum computing. Let's start with that one. That one is actually mine. I'm actually incubating quantum computing. I'm personally funding it with the help of Anne Madden, who's actually the co-sponsor of this thing. We're pretty excited. You're going to say, "Well, what is this thing worth from a financial perspective?" Right now, it's worth exactly zero, because it's pre-revenue.
What I'm very confident about is based on the trapped ion technology that we have for quantum computing, we have very unique technology that we believe is as good or better than anything that's out there today. We do expect revenue, by the way, from this effort late this year or next year. Based on all the research that I've been doing and all the time I've been spending on this, we have something here, and it creates a great option value for Honeywell. When it takes off, it's really going to change the vector of who we are and bring tremendous value to customers to solve some very unique problems that can't be solved with computing that's available today. The second one is in a different category.
This is a great idea that was really thought of by the aerospace team, which is they used a lot of their coating technology that they use to coat the turbine blades for their aircraft engines to now apply it to industrial applications. Why don't we take this technology and use it somewhere else? This is now worth hundreds of millions of dollars and growing at a double-digit growth rate, and it's something that basically was at zero as recently as two, three years ago. Really a nice one that's gone from zero to several hundred million dollars of a rich pipeline and backlog of activity. The last one, Peter Krynauw, who runs our Intelligrated business, couldn't be here today because he's got $100 million+ market opportunity on this very third breakthrough idea, which is the Connected DC. What is the Connected DC?
Connected DC is the continuum of the path for us to create the dark warehouse. Dark warehouse, meaning that you can operate without the use of operators. Which is, by the way, where a lot of the retailers in the e-commerce space and the people who really want to get much more into e-commerce, where they want to go. Whether it's through the use of robotics or software, which gives you a lot more capability in terms of knowhow about the assets, about the processing of what's happening within your warehouse, we're on a path to be able to create this. This is not embryonic. I mean, this is something that we have prototypes that are out there today, and we're offering to customers today, and we have literally a real opportunity that's about $100 million+ that Peter is trying to close. Segment margin.
I talked to you a little bit about maybe one word of caution. Talked to you a little bit about ISC transformation. I talked about Honeywell Digital, and you'd say, "Well, okay." Start adding up these numbers and say, "Well, wait a minute. That's a lot more than 30-50 basis points. It should be like 100 basis points." Well, I'm telling you a little bit about how we're going to get there. What we're committed to is the 30-50 basis points. I think it's important that our investors understand the how, not just the what. Based on what I'm seeing in our supply chain, Honeywell Digital continues to use of OEF, the productivity Power of One, the commercial Power of One. We have a lot of room to continue to expand our margins at that 30-50 per annum kind of array. We've been able to demonstrate that.
We've actually slightly exceeded the upper end of that margin expansion, we're far from done. As you can see, the targets for each of our businesses are substantially higher than where they're operating today. I can guarantee you even when we get to those targets, we're going to have some new ideas to go even higher. If you look at our overall gross margin rates, we've got a lot of room for improvement. I think overall, when you bench our gross margin and our SG&A, I think we're fairly efficient on our SG&A. Our gross margin rates have room for improvement, and that's our point of focus. Just to give you a very specific idea of a little bit of the how we're trying to drive it.
One of the concepts that I introduced to all of our business teams and area of focus is really a metric that I think is pretty interesting, that metric is variable contribution margin. Variable contribution margin is sort of the source of all truth, right? In your variable contribution margin, you have a reflection of your mix, you have a reflection of your value capture, you have a reflection of your direct material, direct labor productivity. If you do a good job managing that, which includes your mix management, you will be driving up your gross margins. We've made that a predominant metrics that we hold all of our general managers accountable for, we will as we move forward. I am not worried about Honeywell running out of runway in terms of margin expansion. Cash and working capital.
One of the things that I was a little bit concerned with, when I first took over as CEO, was that we were tremendous at having a focus on the P&L. Everybody at Honeywell understands the concept that we need to deliver, we need to deliver for our shareholders, we need to deliver for our customers, our employees, everybody's very P&L-oriented. That's good. To me, the balance sheet is just as important as the P&L because liberating cash, some of you use this term and I happen to like it, which is becoming a compounder, meaning generating cash to reinvest back in and provide to our shareholders, something I want to do. We've made really nice progress in terms of cash generation. We did it the right way, not by constraining CapEx and doing unnatural acts, but by reducing our working capital.
As you can see, we're already pretty good in terms of where we are versus our peers. We're number 2, which is we're 1 place off where we need to be, which says we've got room for improvement. Overall, I'm pleased with this progress. If you take a look at about a 1 point, roughly, improvement in terms of where we've been, in terms of working capital terms, when you're operating in the mid-sevens, I'm not going to say that's a world-beating number, it's also very respectable. We still have room to grow. We've shown good progress on payables and receivables, I can tell you inventory has a lot of room for improvement, I'm very confident with the efforts we're trying to do on ISC transformation and what Torsten is going to be talking about. We're going to make further progress there.
The how is we've got a lot of help from our legal team, in terms of relooking at our terms and conditions, making sure that they're consistent, that they're being enforced, we can actually do what our terms and conditions say we can do. It's not maybe the most work. It's really just heavy lifting is what it is. It's paying attention to the detail, making sure that we have the right metrics in front of us, and we're heading in the right direction. More work to go here, and I have further expectations that are going to be driving down our working capital. Cash deployment. I have a view for 2019. Greg has, I believe, a three-year view for a little bit later in his presentation today. A couple of the givens and the knowns.
As I committed, we're committed to driving down our share count reduction by another 1% this year. Why? Because I continue to believe that Honeywell is a compelling investment. I'll show you that that's just not me saying it. You'll see the kind of IRRs we've enjoyed in that investment in the next slide. We're going to do that. We're also going to spend roughly about $800 million further on CapEx, continue to pay out a compelling dividend, which gives us about $7 billion roughly to spend, hopefully, on M&A, both on M&A. That's our priority. The pipeline is rich, I can also tell you, so are the valuations. I think all of you see the same thing as I do, which is there's a time to be a buyer and there's a time to be a seller.
This very much to me feels like much more of a seller than a buyer's market. I think that's pretty much fact-based. Now, that doesn't mean we're going to stay on the sidelines forever and do nothing. I don't think that that's appropriate either. You can rest assured that the acquisitions that we make, we're going to have a high degree of conviction in, and we are going to do our homework and do the proper due diligence to make sure that they deliver for you, for our customers, and for our employees. Here's the slide I was referring to in terms of the buybacks. If you look at the IRRs, no matter what year that those buybacks took place, and as you can see, we've been investing in our own stock for a while, it's been a compelling return.
Whether it's the 2014 investment at 17 or 2016 at 22, when you can generate the kind of IRR which is high teens, low 20s, I think that makes for a pretty compelling investment in terms of buying back your stock. As I said, I have 100% confidence that it continues to be a tremendous investment because we're very bullish on our future. We have the right strategies in place, and we're going to continue to profitably grow the business while generating more cash. As I promised, all of this comes with something else that I don't think we spend enough time talking about, which is we're a great company for the planet, for humanity, and we do a lot of great things that maybe we don't talk about that much, and we take responsibility for our forefathers in terms of what's been done before us.
I mean, we've spent billions of dollars to clean up things like Lake Onondaga, like the Baltimore Harbor Front, to make this a usable asset for the communities and for the people. I'm proud to say these are places that are now being developed that were essentially unusable for many, many years. This has cost us billions of dollars of investment to go clean a lot of this up, and we're proud to do it. We take accountability for what we've done, and we've cleaned it up. ESG has to live at home too. We've enjoyed over a 90% reduction in greenhouse gas emissions since the mid-2000s, and we're driving down energy usage and energy consumption within Honeywell. We've got to kind of start and point at ourselves in terms of that responsibility. Furthermore, we're known for solving some of the toughest problems in the world.
It's even more exciting when you can solve those problems, and they're also positive for the globe and for humanity. Whether it's protecting passengers and pilots with our 3D weather system, whether it's protecting first responders and the military, whether it's providing energy efficient solutions, whether it's providing safety for our industrial workers, all these things Honeywell does today. Also having the world's friendliest refrigeration molecule is also something that we've brought back to the world, and now we're bringing it not just for mobile air conditioning applications, but also for stationary ones. Then ESG goes further. One of the things, if you remember, we have the eight behaviors for Honeywell, and we have the three principles. The three principles is something that everyone who works at Honeywell has to believe in, or you shouldn't work here.
Those three principles are integrity and ethics, respect for the individual, and being a proponent for diversity. Those are not negotiable. I'm proud to say that we're becoming a much more diverse company, particularly in terms of the participation of women amongst our ranks. Every year for the last 10 years, we've improved that rate. Yes, it's moving more slowly than I would like, but we're making progress. One of the couple of examples of what we're trying to do to make Honeywell a destination, career destination for life is this year, we've launched a program for 50 kind of mid-career women up and coming, so that we provide them the right level of training, development, access to senior executives for them to continue to build their career at Honeywell.
What we want to do is we want to retain these people for their entire career, not be able to bring them in later. We'd certainly welcome that, but the whole thing here is all about retention. We also have a rule that when we bring in somebody from the outside, it has to be a diverse slate. We will no longer entertain non-diverse slates. Our recruiters know that and something we're enforcing it. We will hire the best person available. Let's be clear. We'll hire the best person, but we have to have diverse slates, and that's the way we hire people. Then finally, diversity is not just within Honeywell. Our board has three Latinos on the board, which was recognized last year, a nice award we received. Diversity isn't just for our ranks, but it's also for the makeup of our board.
In summary, we've closed the phase 1 of Honeywell transformation. There's much more work yet to be done, but you see the traction that we're getting, which is reflected in the metrics I showed you. The second phase to support those 4 initiatives is going to be underpinned by 5 things: Honeywell Connected Enterprise, ISC transformation, Honeywell Digital, continued work on the portfolio, both pluses and minuses, and finally, maybe most importantly, innovation. That's going to enable us to continue to bring value. All of that is supported by a balance sheet that has a lot of firepower, and it's also the most de-risked balance sheet, I think, in the industry out there today. When we do go into a recession, which at some point I'm sure we will, there's not a lot to worry about in terms of funding the pensions and etc.
We do all of this while promoting ESG. ESG is part of the fiber of Honeywell. I'm very confident to tell you all that we've delivered results in the past. The best days are still very much ahead of us. In closing, let me introduce you to some others who will be following me today. Que will follow me directly and talk to you about Honeywell Connected Enterprise. Then you're going to have our SBG CEOs. You're going to have Tim talking about Aerospace, Vimal will talk about HBT, Rajeev will talk about PMT, and John will close with Safety and Productivity Solutions. Then in the afternoon, I don't know, Torsten, how you're going to hold out this long, but he's going to be talking to you about ISC transformation.
Ken is going to be talking to you about Honeywell Digital. Then Greg will wrap up with our financials, and we're going to do some Q&A in a couple of different segments. Maybe one last commercial, which is I'd strongly encourage all of you to spend some time with the tech demos. The teams have put together a tremendous. I actually walked through all of those last night, and I think the teams have done just a tremendous job getting ready for those. I think you'll find the kind of offerings, the kind of technologies that we have compelling. On that note, I'll close, and Que, if you could come up to stage.
Good morning. I'm really excited to talk to you about the Honeywell Connected Enterprise this morning. 3 core themes. One is to share with you a bit of context for why we created this organization and how it works with the SBGs. Second is to really give you an update on the progress that we're making, and in particular, share with you Honeywell Forge, which is our enterprise performance management software to help our customers achieve operational and safety excellence. The last part is to share with you the impact that the Connected Enterprise can have on the value creation within Honeywell. In 2018, we established the Honeywell Connected Enterprise organization to really accelerate the Internet of Things offerings that we have for the market, as well as build out our software development capabilities. This organization is 4,000 strong, with more than half focused on technology and product.
We commercialize our offerings through the SBGs. 2018, like following 2017, was a productive and pivotal year for us with about $1.5 billion in software sales, in total sales. The software growth rate for this business was 14%, but if you zero in on the recurring part of this business, the growth rate was roughly double that. Our SaaS part of the business is compounding quite nicely. Another $1.5 billion sits within the SBGs in terms of other software, and this is software that is very inextricably linked to the hardware solutions that we provide. The way that the Connected Enterprise supports these offerings is with world-class software engineering execution. That lets the SBGs focus on commercialization and future innovation for the customers. This market's very large. We're very excited by it.
On the surface, it may seem that the industries that we serve are very different in nature, but actually our customers have a lot in common. They're in critical industries. They invest $ billions in assets. They also employ a lot of workers that don't sit behind a desk. They run a lot of processes. We're one of the few players out there trying to stitch a digital thread across all three, across assets, process, and people. What we're trying to do is help our customers achieve three things. The first one is around asset reliability. How can we help our customers get more of their asset investment in terms of uptime, availability, and for longer? The second aspect is process optimization. Today in the industrial world, a lot of operational processes are optimized at a local level.
We want to give our customers an enterprise holistic view of their entire operations. Lastly, our customers deploy scores, thousands of workers that think of these as your people who have to interact with a physical good or material. They're your material handlers, your delivery truck drivers, your technicians and operators. These workers have a dearth of solutions available to help them do their jobs. We're bringing safety, proficiency, and productivity solutions to our customers. With Honeywell Forge, what we're trying to do is provide a comprehensive solution across these three value propositions. All of this is built on a very robust cybersecurity foundation. Already we have $7 billion in our sales pipeline. That's growing. Let me talk to you about Honeywell Forge, our solution for operational safety and excellence.
I think we've all seen what happens when you take technological innovation to the office. We see that in ERP and CRM solutions. What we're seeing now in the industrial and operations world is the same technological trend. When you look back in the last number of decades, this industry is littered with point solutions, isolated point solutions. We think about it in terms of the OT space, operations technology, as software that interacts with physical devices or events or processes that happen in a, say, industrial facility. All of these points tend to be isolated. What we want to do is bring them together. This OT technology was never built to talk to each other. As a result, customers have one of everything. They have multiple hardware and software vendors in their environment. This is very complex.
It's costly, it's inefficient to maintain or to upgrade if they want to produce more performance out of their operations. These disparate systems don't work together to give the customer one comprehensive view of their operations. The solution to this is Honeywell Forge. We want to bring enterprise performance management software to give our customers, for the first time, visibility across their entire safety and operational environment. We want to do this in a way that doesn't require customers to rip and replace legacy systems. That's a very costly upgrade cycle. We want to make these systems also open and extensible, meaning that it works together with third-party applications as well as our customers' own applications that they can build.
Whether we think about this in terms of asset performance management, or process performance management, or people performance management, or the confluence of all three, oftentimes the excellence that you achieve in operations is actually bringing all three together, Honeywell Forge is the solution that will help our customers achieve safety and operational performance. We created the Connected Enterprise because we realized that many successful companies that have been around a long time struggle to do two things at the same time. One is really optimize and run their core business well, the other is to innovate, and have a fresh innovation mentality, startup mentality to the business. We feel that the Connected Enterprise is a structured right balance between doing both. Harnessing the best of Honeywell paired with the autonomy of running a startup business within the company.
The Connected Enterprise works hand in glove with the SBGs in two primary fronts. One is with product integration. Every SBG continues to enhance our core offerings with sensors and software. It's hard to imagine anything we release today without those components as core to what we release. The Connected Enterprise works with the SBGs to bring these software solutions out to the market, but also focuses on the gateway all the way to the user application. In this way, both groups are bringing fresh innovations to the market. The second part is we commercialize everything through the SBGs, meaning that think about every business as a channel access to market. We've trained over 300 specialist software sellers to augment our existing sales force within the SBGs. We're already seeing a benefit from this organizational structure.
Today, when you see the tech demos in the room, you'll see a very consistent look and feel for how our customers are going to experience the product, that lowers the barriers to adoption. We're able to marry domain with the world-class modern software development. We're also able to build things in one way. We're able to spread our R&D investment dollars across all the verticals that you see here. The good news around customer adoption that we've seen is customers are definitely trying new technologies. That's good. What they're learning through this experience is actually they can prove maybe an asset can be made more reliable with software. That's good. What they're really realizing is that unless they can deploy at scale with a trusted partner like Honeywell, they can't reap the economic benefits of this transformation.
When you look at our install base, Darius mentioned we only focus on industries that we know, that we have customer access to. The big opportunity here is not so much competing with players like ourselves, but actually competing with the inertia in the market to convert from how they do things today, the old way, to doing things in a more efficient way in the future. Honeywell Forge is really focused on making it easy for customers to make that transition, a migration from how they do things today in the operation environment to the new way, which is much more efficient. Our strategy around software is really fourfold. We're very focused on the customer problem, operational and safety excellence. The first is, as I mentioned, the industry is full of point solutions. Very difficult to manage.
There's a deep degree of technical debt in the market. What we're doing is we're refactoring this into five core platforms that solve these problems. We do that with Honeywell Forge. I'm really excited to see your reaction and get your feedback when you see the tech demos today. We're reducing the effort for customers to make this transition, and we're also putting the control back into the hands of our customers. We're making it easy for them to take data from their core devices and being able to not just run Honeywell applications, but plug this into their own applications and third-party applications. When we do this, we're adding tremendous value. I'll go through some customer examples of where this value comes from. We extract a proportion of the incremental value that we create. We do this in two ways.
One is through recurring economics. When you deliver a customer extreme value, incremental value, they're willing to give you a share of that. That's an outcome-based, performance-based contract. The other way is we want to see recurring revenue sales in the form of SaaS licenses from these solutions. The second part is all around customer adoption. Whenever there's a new technology change, such as this digitalization trend. There's some adoption curve. Customers are jittery, understandably, around is the technology nascent? What does it take to deploy? What is the cost? How do I think about change management in my organization? We're working very closely with the customer when we build the product. We're building the product with them, for them. Every one of our five core platforms in Honeywell Forge has a customer advisory board that we work with in every sprint release.
We get feedback on how they use the feature, what they find valuable. We're pretty tough on each other because we want the best features to be released to market. The third part of our strategy is to make our platform easier to use, and we did two very fundamental things in 2018. We changed the way we thought about architecture. We're going towards an API and microservices approach. That's one. There's only one way to do that. We also changed the way that we deployed software practices. We call it DevSecOps. It's a way of delivering agile with modern software practices and test automation. These two things compound each other. You can't meet the tight commercial deadlines we set for the team without deploying this.
As a result, the time it takes for us to release a new product today is one-third the time it has taken two years ago in 2017. We have produced enormous productivity in our engineering groups doing this. Darius, of course, talked about the Power of One. Let me tell you what the Power of One is in the software business. We have one way to do an API spec, one user interface. You can see very common look and feel in the products that we produce. One way to commit records to a database, one way to deploy code, one way to log bugs, et cetera. Whenever we stamped out duplication in how we develop, we add to our margins. It is really that simple. That is the Power of One in software. The last piece here is foundational for us is really changing our software culture.
We have put scrum teams in co-location. Our headquarters in Atlanta has grown tremendously, that this software capability, has really reached critical mass in our core hubs. We have a very rigorous software quality system that allows us to check the architecture, common structure, and readability of the code that we produce. Our teams are really tough on each other in this process because we want to release only the most valuable features to our customers. Equally important is capability is that we are building our commercialization strengths in software selling, in how we design, in customer delivery, because to support a 24/7 software as a service business, this is the expectation. Let me give you some examples. We have, with Lufthansa, you know that a lot of customers buy airplane tickets based on fuel.
In the commercial airline industry, $700 billion was spent last year in the total industry on OpEx, and somewhere between 8%-15% of this is spent on fuel, depending on the oil price. While 1.25%-2% fuel savings does not seem like a lot for this customer, over 700 tails, and over $5 billion spent on fuel, this makes a big difference to their ability to deliver economic and value-added pricing to their customers. Crown Towers Perth is kind of like a mini Vegas, but in Australia. They have a convention center, entertainment, 1,200 room hotel, luxury hotel. Two business objectives that this customer has is guest experience, but also the energy footprint because they are running this facility in summer temperatures that exceed 90 degrees on a daily basis.
By deploying the connected building solution, Honeywell Forge, we are able to reduce for them within the first year a 90% reduction in electricity consumption, and then a 90% reduction in reactive work orders. This is fixing problems in air conditioning before complaints were made by guests and staff. There is a big deal when it comes to the guest experience. Lastly, Delek is an independent refiner in the U.S. They produce about 300,000 barrels of oil per day. We deploy the connected plant to help them improve reliability and profitability of their refinery. The customer has been able to see $10 million increase in output. We have deployed since then a second FCC unit, and the customer now is deploying a third unit in a NASA complex in another site. These are real outcomes that customers have.
When they have this is a chance for us to deploy Honeywell Forge, but also change the economics we enjoy. In summary, as a Honeywell shareholder myself, I am very excited about the creation of this group and how this team is working with the SBGs to really accelerate the IoT solutions that we bring to market. We are bringing safety and operational excellence to the industry. We have got great traction, as evidenced by our double-digit growth over the last two years, and we have plenty of demand, as Darius said. The issue is not demand. It is our ability to deliver and help customers through the adoption cycle. Honeywell Forge will help us continue this trend to grow at 20% compounded growth in the long term.
We also believe that the value creation impact of the connected enterprise is really significant in the form of higher gross margins and higher growth than the Honeywell average. Recurring economics is a big priority for us. As we introduce new products, we want to shift the economic model to recurring economics. We love the SaaS model because it compounds growth. It not only compounds growth, it builds a lifetime relationship with customers. We no longer have transactional relationships. We have something that ongoes for a long time. This cost model is much easier to execute on because it is much easier to renew a subscription than it is to resell a customer an upgrade cycle of perpetual software. We are very excited about the mix of recurring in our business and how fast that part of the business is growing.
If we do that, we are going to be building a book of business that Honeywell can count on in good times and in bad. Longer term, our target is to have our software businesses exceed 10% of Honeywell's sales mix, and the majority of this coming from recurring economics. I believe that Honeywell is well on its way to becoming the premier software industrial company. We are offering real solutions to real customers' problems. We are not talking about technology. These are real customer problems with real impacts that we can have. We are marrying the best of our domain expertise with world-class software execution. I look forward to updating you on this progress, and thank you very much, and I will hand it over to Tim Mahoney.
Thanks very much, Q. Little bit of inside baseball before I tell you about this business, which is at a certain point, Darius was giving me some coaching and he said to me, "Tim, investors like consistency and boring." I kind of lodged that away, and as I prepared for this presentation a couple of months ago, got all geared up for it. I provided it to him. I walked in the conference room on a Monday morning, and I am all pumped up, ready to tell my story, and Darius walks in and says, "Tim, you do not need to say anything." He said, "I read your deck this weekend. It is a major redo. And oh, by the way, it is boring and consistent." I sat there, and I looked at my CFO, Dan Satterfield, and said, "Yes. Yes.
It's boring and it's consistent." Darius said, "No, this is one of those times when it's supposed to be consistent and exciting." You've got an exciting business, you've got some exciting developments, I'm going to take the next 19 minutes and share some things relative to this exciting business. Oh, by the way, if you find this exciting, you can send him a note and send him a note telling him that it was exciting. All right, let me talk to you about three things. Let me look at this business through three lenses. One is our growth story, Secondly is our operating performance, and Third is an area of disruptive change. I characterize it this way: from a growth perspective, think about this as the growth is accelerating, we're building momentum, and it's going to deliver results both the near term and long term.
Short-term and long-term growth. Very good balance there. Moving into the improved performance drivers. Darius touched on one of the, I think, key elements relative to our change. We've had eight work streams relative to how do we improve our business performance from a segment margin perspective. I'm here to tell you that I think that the numbers that Darius presented relative to Aerospace are very achievable. Consistently, I would say over the last five to six years, there's been questions around, is there juice still in this lemon relative to operating performance? There's no question about it. The eight work streams that we've had continue to be maintained. In addition to that, our focus on flawless launch, which embodies the focus on growth margin and design to unit product cost, we're starting to see green shoots of that actually this year.
Of course, that's going to go and feed us for a long time relative to this. Then, of course, there's some disruptive changes. We're on the cusp of new changes. We're not sure when this market will materialize relative to urban air mobility and so on, but there are changes relative to business models, new platforms, et cetera. Of course, that's one of the areas that we're investing a lot of time and some investments relative to technology development and so on, and I'd like to touch on that. From a growth perspective, I would characterize it this way, which is 2018 was a good year. It validated a couple of things. One is we are on the right platform. The marketing excellence around investing in pursuit alignment with those platforms that are going to be successful, it's been validated.
Second thing is pursuing the right subsystems on the aircraft. Third is the fact that if you recall, the first week in 2017, we went through a slight reorganization where we had the three regions to liberate that capacity to have a dedicated focus on aftermarket. Right? That has been very successful. I would say that the 2018, in summary, has kind of validated or illuminated about how successful we will be in the future. This is less about looking in the rear-view mirror and much more about how scalable the things that we can do going forward. Darius touched on what we're doing with Torsten relative to the Integrated Supply Chain, which is broad. Think about supplier execution and excellence as that is muting our growth.
That's one of the key themes that we have relative to our growth projection, and I'll touch on that both in the AGR area, or the High Growth Regions area. 2018, a year of validation of some things. The industry or the market that we're playing in is all favorable, all three verticals. If you think about production rates. They're at a not an all-time high. They're going to continue to go up. This is about narrow bodies, this is about business aviation aircraft, and so on. Flight hours continues to grow. There's new city pairs that keep on getting added each week based on the airlines.
In upgrades driven by mandates and also some of the items that Q just talked about relative to, for the airlines to be able to operate more efficiently and so on, it all creates a very good palette and an environment for us. From business aviation perspective, we're nowhere near at the peak of what was how the flight hours and so on was in 2008 and 2009. If you think about the new exciting platforms that are coming to market, that we have a very enviable position on, both in the avionics area and in our mechanical systems area, both engines, mechanical systems, and so on, very exciting. I think the one area of uncertainty is around defense.
If we think about this, and I'll touch on the next chart, that environment, I think that that uncertainty is just a natural thing based on the fact of what happens in the U.S. DoD budgeting cycle. Overall, the market environment is very friendly. It's very encouraging for us. From a defense perspective, just to drill down a little bit here, I'd share three points. One is if you think about the fact that order fulfillment and order placement are not aligned yet. One, there is still a bit of a sequestration industrial base hangover, meaning that as we went through sequestration, the industrial base in the defense area atrophied a bit. It hasn't come back to fully healthy. Our Honeywell Aerospace's order intake is here, and order fulfillment is here.
The second thing is that if you think about the number of platforms and how diversified we are in this. Look at the number of platforms that we are on. As an example, just imagine the fact that every U.S. DoD air transport fighter and bomber aircraft, with the exception of one model, has a Honeywell auxiliary power unit on it. Think about that as cabin pressurization, oxygen systems, et cetera. Second point is an incredibly diverse portfolio of platforms. Of course, that lends itself for really three things. One is enhancements, two is technology insertions, where it can't meet its mission again, and then, of course, the third one is around creating, as retrograde comes back, creating the next level and required level of state of readiness. Those two, coupled with the fact that actually world peace has not broken out yet.
In some cases, a couple of our factories are actually at capacity. We can't fulfill all of the need that we have in demand. From a defense perspective, there is uncertainty, as there always has been relative to the budgeting cycle, but we have been very fortunate in the fact that we have a very good and very healthy order book. 2019, this is kind of one of the normal questions. 2019, we're fully booked for the entire business in the defense area, and we're actually measuring how much we are ahead for 2020. We're working on filling the order book for the 2020 and 2021 in the defense area. Let me move on. This is an area that has been incredibly exciting for us.
I mentioned the fact that we had a structural change that we made in the first week in January of 2017, where we had three regions that went into place, and some of you may remember that we invested in adding some salespeople. The exciting part about this is that there's really been a multidimensional approach we've had. One is sell the service, the aftermarket service, long before the customer gets the aircraft. You can imagine if we have a 777 customer, a customer that's operating 777s right now, we've been selling them 777X support already. One, sell the service long before the aircraft ever gets there. Get the customer to think through what their support is. Two is get as much content under $ per flight hour program as you can. Three is broaden the number of part numbers that is covered under those support contracts.
Historically, we've talked about auxiliary power units or engine programs. There's contracts that we have right now with prominent airlines where every Honeywell part number, both avionics and mechanical, is under a $ per hour program. That's expanding the part numbers. Lastly, extend the duration of the contracts. The new norm is between 10 and 15 years. Why are we doing this? Well, first of all, the aftermarket is a highly desirable place, and secondly is that we want to secure that business up front. We want to eliminate that anxiety and those choices that customers have to make relative to support. This has been a key area of focus for us, and of course, the organizational structure that we put in place has made this very exciting. This is a terrific success that we've had and very exciting.
As we've gone through this, you'll see that part of delivering the operating the segment margin is not about cannibalizing the future. We're making very conscious decisions, and I would characterize it this way. Working from the bottom up, one is we're making smart investments relative to our core business. Auxiliary power units, mechanical systems, all of the core business that we've talked about for years, we're making smart investment decisions there. The reason that we can do that without increasing the % of sales that we invest in R&D is because of what we've done relative to platform solutions. We've talked about core solutions where you develop something, whether it's a hardware or software once, and you apply it many times. We've talked about FMS system, flight management system, where we develop it once and we apply it to numerous aircraft.
That is enabling us in order to do that. Moving up, if you think about the decoupled and growth areas. This is about being entrepreneurial. This has to do with, if you look at what we've done relative to. We've talked about decoupled growth. This is discretionary spend that the customer can make because you bring the better mousetrap, an enhanced offering, something that they don't need to spend money on, but they will. This is in excess of $1 billion. Some of this is retrofitting ourselves on certain platforms. In other cases, it's actually retrofitting our competitors. Of course, the next one is those areas for breakthroughs. What is going to happen in the future?
How do we make sure that we are making the right decisions, both on short-term decisions that have effect the income statement, like Darius talked about as our coding business, and also around that next generation of vehicles? That we are relevant and in a very significant position for 25 years from now. If you look at this, I'd like to make a couple of comments. One is, yes, 70 OEMs. This is an area that we are spending a lot of time on. We are on the cusp of new platforms being developed. When this market will actually materialize, don't know that. I can't categorically tell you that. However, we will be positioned, very well positioned on those platforms and also being in the aftermarket stream relative to those platforms.
Carl's team has done a remarkably good job of working with a very host of. In many cases, it's a hybrid. There's the customers or the OEMs that we know, Airbus, Boeing, Embraer, then there's other ones like Uber, Pipistrel, names that you've never heard of that we've been spending quite a bit of time on. Really what we've been doing is trying to focus on, one is what's their platform strategy? Does it make sense? Two is what's the certification? Do they have a business model? Lastly, are they capitalized such that that product or that offering can come to market? We have not just been solely focused on the platforms and getting prototypes on them. We've been really focused on how do we get into the aftermarket stream? How do we have the same business modeling that we have in our core business?
Of course, the breakthroughs, Darius touched on this, but this has been one of the exciting areas and one of the findings that we found is where we have taken products that we know or that we have in our portfolio already, and we've adapted them to adjacent markets, that's where we've had the greatest success. It hasn't necessarily been about inventing something that's new for our market. To a greater extent, it's been associated with something that is a product that we adapt for an adjacent market. If you look at our industrial IMUs, okay, inertials, that's one of the highest growth areas relative to our breakthroughs, and we've never done this before. Very exciting from a business model perspective, platforms, and so on. Of course, Q's not going to be able to have just the entire corner on connected.
As we have invested both organizational capacity and investments from an innovation standpoint, we've been, I think, very thoughtful. There's been a lot of collaboration. This is a fun area relative to continuing to invest in our core business, which is shown in the blue outlines, and in the red areas, which is connected. Of course, there's a degree of segmentation around how we're doing this, but what's happening is some of the best practices that Q talked about that is in connected is bleeding into the blue areas relative to our development areas. This has been an exciting area for us relative to innovation, both software, hardware, and of course, services. We're very focused on the business model. Okay, for a High Growth Region, we've had a playbook for a number of years. I'll tell you briefly what's new.
One is you see expand reach of channel partners. There's two changes there. One, there's less channel partners. Two, is there's more channel partnering, meaning that the thesis has been that if we're not selling direct, every salesperson that works for Honeywell has an annual operating plan, and they also have a strategic plan on what they need to attain over the next 3 to 5 years from a sales perspective. Why wouldn't a channel partner have the same thing? We have thought about channel partners very differently for a long period of time until last year. Last year, we said, listen, one is we have too many of them. There's duplication here. We're selling direct in a particular place, so this is just dilutive. Two is we don't have the rigor around an annual operating plan and so on with that.
This has been actually accretive for us. Those are really the two changes. One is less channel partners, and two is that there's a degree of consistency, whether we're selling direct or whether we're selling indirect. Secondly is from a global source of supply. One of the big realizations that we've had is our underlying supply base cannot support us at the growth rates that we're going to have over the next 20 years based on what we've experienced over the last two years. We need to expand this geographically and also domestically here. As part of that, what we've seen is we've expanded the number of the spend SKUs and a number of the suppliers that we've done supplier development with over years has now moved up the bill of material.
Instead of a part provider, they're now moving up to providing an assembly. This has been very encouraging because we want to buy higher in the bill of material. This is very aligned and consistent with what we're doing with Torsten. Okay. On the left-hand side, here's our growth projection. I feel great about the positions that we have on the platforms. I feel great about our products. Feel great about the people that we have, and most importantly, the value propositions and the offerings that we have for our customers. I think that what you're going to see is the experiences that we had in 2018 and 2019 and beyond is going to continue for a long period of time relative to growth.
On the right-hand side, there's always been a perennial question, "Tim, do you think you can really get to 25% operating margin or segment profit?" I've consistently said, yes, here's how we're going to do this. We've had eight work streams. The big fundamental thing that's changed this year is those eight work streams stay in place, there's a ninth. It goes back to, we've talked about flawless launch. That we would import automotive practices in the design phase relative to early supplier engagement, new product introduction, and design to unit product cost. We are actually starting to see now, based on those developments, we're actually starting to see accretive gross margins compared to our core base of business. This is a very big opportunity for us. Darius touched on this. This is a very big opportunity for us.
As I'm standing here, I have just as much confidence or more than I've ever had relative to our segmentation. By the way, or the segment margin expansion, and that is continuing to invest in all the right platforms, technologies, et cetera. This is not about thinking just short term. This is thinking about the future and making sure that we get on the right platforms for the next 25 years. In summary, 2018 was, I would say, an exciting year. It was a defining year. We learned a lot. One of the key, I would say, learnings that we had was it really educated us on how scalable the foundational work that we had done for quite some time. If you think about it, I think that the growth is now, think about it as a flywheel. It's actually accelerating, and it has momentum.
It's both short term and long term. Of course, that accelerator for the aftermarket and the RMUs or the enhancements, that has all been institutionalized and is operating very well. I'm very excited about retrofits. This is a business where, in some cases, we retrofit ourselves, in other cases, we retrofit our competitors. Of course, getting into that business, then that's very accretive for us. Of course, shaping the future. We've been very active. I don't want to understate that. I would say relative to all of the next-generation vehicles and business models. Now, I'd say that there's one deviation from what I've consistently said, which historically what we've said is, from a marketing excellence standpoint, we need to pick the winners. In this case, we don't want to be too presumptuous.
There is so much ambiguity relative to this next generation set of vehicles and business model that what we are doing is we are actually segregating who we believe to be losers, that they won't, those vehicles, either the platforms, the business model, et cetera, won't work. What we're doing is aligning ourselves with the rest of those 70 OEMs in the future. With that, I'll turn it over to Vimal, who's going to get up in here and talk to us about business technologies. Thanks very much.
I'm going to walk you through the Building Technologies story for the next 20 minutes, not 19. I started this role about a year back, just going to complete a year a few days from now. I feel pretty excited about this business, and I hope you share my optimism and excitement at end of my presentation. The three key messages I have about the Building Technologies story. The first is probably what you know and what you shared with me that we have a great position in a good industry. Building Technologies is a very fragmented space. We play in a segment which is about $100 billion, and the segment grows nearly 4% for the last 10 years.
Honeywell, post-spin, has a pretty strong position in this segment, and I'll show you some of the segments where we have a pretty favorable position relative to our competitor group. This market continues to grow greater than GDP, as last 10 years have shown, and the current mega trends are only giving us tailwinds. Think about urbanization. Think about climate change. Think about more regulation. They're only getting more than what it was in the past 10 years, so there's no reason market growth will change. The first message is about the market itself, and Honeywell has a good position in that market. Second, we are really well positioned for growth. Post-spin, our portfolio allows us to focus on commercial buildings.
I'm going to talk about four key areas where we're going to have much more growth orientation, whether it's our new product strategy, which I believe is quite unique. When you come into the demo center, many of you today, I'll show you how unique we are building this whole edge to cloud strategy, which is differentiated in the market. Our focus on High Growth Regions. We have a pretty strong position, but we have lot of runway to grow. One of the reason is that High Growth Regions have far more construction activity compared to mature markets. So think about mature markets more as retrofit and HGR as new construction. Honeywell has a pivotal position in China and Middle East and India, and we want to build upon that because a lot of construction activity is happening there. The third one is monetizing on install base.
HBT has a significant install base, and monetizing that, whether for software or for services, is a key part of our strategy. Fourth is breakthrough programs, and I'll talk about it. Significant position for growth and of course, margin accretion, whether we focus on margin accretion through changing our mix more favorably, looking at our fixed cost, our gross margin expansion, and of course, transformation of our supply chain. When we look at our business, end of 2018, $5.4 billion was the Building Technologies revenue, $3.9 billion was what went with Resideo, and the combined margin for the combined business Homes and Building Technologies was 17.3%. Obviously, as we turn to Q1, you are seeing the margin accretion because of the portfolio mix has changed, and it's more favorable to us. The business mix, I find our business mix is pretty favorable.
We have the right mix of products and solutions. In fact, I would say within our industry, many of you do a fair bit of research. I will argue that Honeywell has got one of the best mix with more leaning towards product but have significant play in solution. This is quite a unique position to be. In geographies, again, we are very well-balanced, which allows us to grow on top of every platform geographically which is available. On the vertical focus, I want to call out your attention on one fact. Most time, Honeywell Building Technologies equals to commercial office. Well, that's true, but that's not the only vertical we serve. We are very diversified business. You can see the verticals we serve. Think about data centers, a massive space for us. Think about healthcare, think about hospitality, think about retail.
Commercial office is a big part of our business, this optionality allow us to grow in different directions as a business. I wanted to share this chart on, because there's obvious question, what is Honeywell Building Technologies? What is the main co after the spin, and what's left behind? The top half of the chart gives you a total segment size, which is $100 billion. As I said, grows little shy of 4%. If you look at last 10 years data of this industry, it grew little shy of 4%. That's the space we play in. Honeywell has got good position in four of the segments in this market. The first is a building management system. Honeywell is a premium provider of the BMS. Think about a BMS as a brain of a building.
That's where all the data comes in, we have been doing controls and energy efficiency in a building for many years. The second domain where Honeywell has a leading position is fire. Safety is a critical requirement in every building. It's regulated, Honeywell has a significant position in that market. Then you go to the extreme right, we have pretty good position in install and service due to our building solutions business, we can grow more and more of that by more recurring revenue models. Then software, interestingly enough, coming from process automation, as some of you are familiar, one thing which struck to me was in the building industry, there is no significant software player which is optimizing building in itself. There's a space in which Honeywell has a meaningful presence.
With the launch of Honeywell Forge, we aspire to take a pretty meaningful role in the software space due to relative less competitiveness in that space. Of course, there are adjacencies we can always expand where we don't have a meaningful play. All in all, if you look at in the segment, we have a pretty meaningful position and which makes me pretty excited about this business. Also, when I think about relative to competition, as I said before, I do believe we have a portfolio which is a right mix of products and solution, which shows up in our margin rates. Relative to single domain players, I also believe that we are very well-positioned. First is our scale, and secondly, think about it that if you have to solve critical problems in any building, you need cross-domain experience. What is cross-domain? The problems are interrelated.
When a fire incident occurs in a building, a building management system has to act upon it. If something happens on security, there may be interrelation with other domains. Multi-domain has a correlation. Being in a single domain is inherently disadvantaged. In any case, in both cases, it does position us very well from a portfolio perspective. I think another question on everybody's mind is all the problems of spin are over? Do we have stranded costs? Is it like a long time issue and where we are? Wanted to give you a preview of that. I would say the overall situation is pretty good. I won't say that such a significant spin activity which was performed, that will not have any stranded activity.
When we opened our books on January 1, there are a lot of things which were working for us right at the start of the year. Fire business did extremely well in 2018. It's a $1.5 billion enterprise. I continue to believe we'll have a pretty strong year this year, too. Our high-growth region performance has been tremendous. We have more than $1 billion sales in China, India, and Middle East last year. Double-digit growth. We see that trend continuing in 2019, and we did very well in Connected. We launched offerings, and I'll talk about it. We've connected nearly 400 buildings, and we're collecting data, we are optimizing, and that's building basis for us to launch Forge. That has been a tremendous success story for us. What will improve? Obviously, it was not a flawless glory in 2018. We have a few things to work upon.
I presume it's not surprising that when we did a spin of that scale, we did a major separation of our supply chain, and we got impacted on certain plant performances and some stranded costs. That's where it is really held upon. We exactly know where the problems are. It's not a mystery. We precisely know what the issues are to work upon. I have a high confidence as the year progresses, most of these issues will be gone, and we'll run as a normal business flawlessly across the board. The other two areas we're working on are project execution rigor. We have a pretty large project business.
We want to run it consistently, efficiently, and flawlessly. One of the things we are doing is running it more like a global business model, projects and service, something which Honeywell Process Solutions business did very well. We want to copy that model. That will be one of our priorities in 2019. Then a small portion of our portfolio, about 10%, is not working well, was not working well. We have plans for that. We'll definitely have recovery of that. All in all, I believe there's a case here for something which is transitioning from a separation year in 2018 to a growth platform in 2019. You will see some early results in Q1. They're pretty promising and will continue to maintain a growth momentum in the year to come. Let's talk about, okay, what's beyond 2019. Okay, that's great.
2019 is here and now. We all have to deliver numbers. What are our levers for long-term growth? Incidentally, it is the same four things which Darius talked about. Starts with the new products. The new products for us, we are taking a slightly different view. We are thinking about taking an architectural view on our overall portfolio. Smart Edge, every field device should be smarter. Any building can have 500-1,000 sensors. This building will easily have something like that. How do we make them more smarter by design so that they are easier to install, they provide better user experience? That is our first priority, and you will see that in the demo area. Second is, once these sensors are installed, they have to collect data so that the data could be acted upon. Traditionally, these were called controllers or panels. We have fire panels.
We have access controllers. We have BMS controllers. We are transitioning them to become intelligent or connected gateway. They become source of data collection and natively connect with cloud. That is a new architecture we are making in all our products. Once the data is collected by connected gateway, they become enabler for Forge. That is where now data is coming in. We can run applications and create value for customers. That is one of our benefit we have of a cross-domain edge-to-cloud company, and that is central to our strategy, which we are doing on our new products. Apart from that strategy, we are also looking at cycle time reduction on our new product launch. Really looking at 50% reduction. In my mind, we are targeting nine months from initiation to launch.
That is something which is not very common in our industry and can become a competitive advantage. We are on a path to deliver that. When we do this all together, we are looking at about 3% vitality improvement every year, so 12% over four years. Divided by four. That is kind of a map we are looking at, new product really becoming as a vehicle for us. I mean, this year we are going to launch 70 products. You can say, what is the big deal about it? That is almost two times of what we did, typically used to do. We are kind of starting with that momentum of new products really becoming heartbeat of how we drive our business. That is our first growth vector, which is central to everything. The second growth vector is high-growth regions. 28% of our revenue comes today from high-growth regions.
We believe it can really add five points over the next few years. Why? First is infrastructure build in the high-growth regions. Think about smart cities, like we are participating in Egypt's building of new capital. Airport expansion. If you have not been to Beijing Airport, if you thought it was smaller, they are adding an even bigger terminal, and Honeywell is automating that. That is kind of infrastructure build. On other side, thinking about the mass mid-market, creating right products for that, improving our distribution network to address these markets. One point which is not emphasized is that in these high-growth regions, reach is a big deal. These countries are not small, and distribution structure is not very matured. I spoke an example of India. Honeywell has 2,000 installers and distributors today, and we operate in 45 cities. Not in China.
China may even bigger, I wanted to give a different example. That's kind of a scale we are operating, and we of course, want to build upon that. Our primary model here is focus on five High Growth Regions, the three I spoke about and also Latin America and ASEAN. Have a more autonomous model. We have GMs for each one of them who report to me directly so that we have much more straightaway decision-making style and can act faster on that. I'm pretty upbeat about our opportunity in High Growth Region. That's the second growth vector. The third growth vector is services. We have a big install base. The way to think about this chart is think about our install base equal to 100.
60 is something which we don't serve today because that got created by our system integrators or our channel partners, in our mind, we thought we it's the market which they should serve. 40 is what we should serve because that's install base Honeywell created through building solution with a direct channel. About half of that is served today, which is 20%, and another 20% of that is under-penetrated. We believe that business can grow better by better customer service, more share of wallet by making new offerings, selling them more spot, but more importantly, changing our delivery model to cloud-based delivery model. This is something we have done quite successfully over the last 18 months. We are rapidly transitioning our traditional service contract to digitized service contract.
We connect a customer to our cloud, our ability to provide service have lower cost to serve, and customer gets higher value. It's a win-win for us and our customer, that gives us more service business, it's a compounding effect of that. We are taking that learning applying that to the balance 60% to say, "Wow, we never serve this install base created by our channel partners, now the cost to serve angle is totally changed compared to what it was in the past." We can serve much bigger install base at a much lower cost, new offerings are being launched to serve that install base, working along with our channel partners. It's not that we're going to eat into their revenue stream, new revenue streams are possible for us while we keep their revenue stream intact.
All in all, I see services being an important growth vector for us. The fourth growth vector for us is software. Software is not new to HBT, what has changed is focus of Honeywell on software and making it as part of our business model. What we did in the past was, the blue things we have been doing in the past. We have these products like Enterprise Buildings Integrator, Pro-Watch, BMS, Supervisors. We use them as a vehicle to earn more hardware, to sell more products. Sold a license and a perpetual license fee. We didn't think about that being a monetization of subscription model, Software as a Service. That's what we changed over the last 18 months as we created HCE. Outcome-based service was an offering we launched, that's what we have really completed 400 installs.
It's our ability now to collect the data from a building on top of Honeywell system, and on an average, we are able to offer anywhere from 5%-15% energy optimization on top of what customers are already getting with this technology. OBS also taught us something new, is that there's an unmet need in the market because One, customers had not only connected from Honeywell, they also had connected from different OEMs. You will hear a connected from a chiller supplier. You will hear a connected from an elevator supplier, many others. Who is going to create system of systems for our customers? Is customer going to embrace 15 connected offerings and figure it all out? That's the gap Honeywell Forge is committed to fill, to build system of systems and really take customer the whole portfolio strategy. We're building as a portfolio for them.
Like Honeywell has a very large portfolio of building. How do we manage those building in a more optimal manner and really take cost out of it? That's a promise of Honeywell Forge, and I'm really excited to work with Q, and we think that's a big growth vector for us. That's software. Finally, the breakthrough programs. The way I think about breakthrough program is slightly differently. Every breakthrough program should link to a growth vector, which is happening in our market, because that gives me a kind of sustainability of that growth program. I believe in the building industry, there are five macros which are occurring, which are not going to change for next 10 years. First is urbanization, the second is connected, the third is regulation, the fourth is climate change, and fifth is labor shortage.
We can argue there are other two, and we can argue about it, but these five are prominent, which are going to here to stay. If we carefully choose things which we do not do today, and these are transformational, either by product model or the problem we are solving, they clearly are new revenue stream for us. I'll take a couple of examples. Think about urbanization. The world population is aging, so hospitals are getting more aged customer, but hospitals are also asking us to get methods to reduce, improve patient safety. Now, patient safety is linked to infection, and we are all familiar that infection control in hospital has been a problem, and we all go and we see doctors should wash hands and nurses should wash hands. Say, what Honeywell going to do that? The another big enabler for reducing infection is air quality.
If you are able to move air in a certain manner with the positive air changes, infection reduces dramatically. When we launch that offering, it's a new revenue stream for us. By the way, it still pulls our building management system and fire system along with it. It's accretiveness of our core offering, and we add new value proposition as an example. Another example I will give you is small building. If you think about enterprise of small building, think of FedEx having multiple small offices or Bank of America having multiple small branches. They were never thought candidate of automation so far because their footprint was very small. With the connected, the paradigm totally changes because you can create more of a control center model to collect data from multiple small buildings and optimize them. Is people doing that? Not a lot.
Are we looking at it? Yeah. It's clearly a breakthrough because it's a new trend in the market. Thinking in that sense, give us accretion of our served available market and add more revenue stream for us. Clearly something, 6% of our revenue come from BT programs in 2019, and we think this can get to almost double it over the next couple of years. All this really comes together in our long-term framework. I do believe that we can drive low single digit to mid-single digit growth based upon these five growth vectors, but at the same time, also drive a favorable mix. Look at our mix today. You can see our mix is $3 billion products, $1.3 service, $1.4. It's illustrative to give you a sense of our mix today.
The way I think about it is grow products one and a half times GDP, grow software and services three times GDP, and grow projects at the market rate. That way, when we do that, not we drive the growth, but grow in a manner which is accretive and change our mix in a more favorable manner. Apart from that, look at other segment margin expansion opportunities, which is ISC simplifications, looking at our fixed cost Power of One, and our gross margin expansion with the smart pricing and direct material savings. All in all, those give us enough headroom to keep expanding our margins and get up to a level of 23%. I have a high confidence in that. Look, I do believe, as I said, I'm pretty excited about the business. I think we are started in the right trajectory in 2019.
In Q1, as you saw the results, they look pretty good for us. What I'm really focusing on, me and my leadership team, is the middle segment. We have pretty capable leadership team in HPS, combination of industry experts and Honeywell, and really focused to create a strong delivery engine, strong innovation engine, and strong sales engine, because that's what really drive a business like us, and it's going to keep us humming. We are focused on shaping our future with software, services, and breakthrough programs. I'm really excited. I hope we'll continue to deliver and look forward to more conversation during the breakout sessions later today. With that, I think we're going to go for a break for 10 minutes, and we'll be back here after that. Thank you very much.
Ladies and gentlemen, we will now take a 10-minute break. Please be back in your seats in 10 minutes. Ladies and gentlemen, the Honeywell Investor Conference will resume in five minutes. Please take your seats. The Honeywell Investor Conference will resume momentarily. Please welcome Rajeev Gautam.
Good morning. I am really pleased to be here this morning to talk to you about how at PMT, we continue to drive growth and profitability. Let me begin with a few key messages. We have a strong 2019 outlook. We ended 2018 with a backlog up 10% organically. We are getting some great growth from our breakthrough initiatives, which are growing 40% year-over-year. All this growth has positioned us well, and a lot of it, as you will see in the presentation, coming from acyclical parts of our portfolio. It helps us perform through all the oil and gas cycles. All this because we have a portfolio that is really positioned for growth. HPS, as many of you know, is transforming the automation market with digital offerings, which is helping us win and gain market penetration in the automation space.
UOP has a lot of unique technologies that are helping them position and grow in the fast-growing petrochemicals, natural gas, and clean fuels markets. Honeywell Advanced Materials continues to grow with its new molecules, with its Solstice molecule, besides being in the automotive space. They are now growing in the stationary, but also personal care space. That is one of our fastest-growing areas. They are also finding applications for Aclar, which is our fluoropolymer films that go into medical packaging. They are using them now for new applications because they have some unique properties. I will talk about that some more. Along with that, we are positioned well for a long-term segment margin expansion. This is based upon our improving mix as we expand our high-value connected and outcome-based solutions. I will talk about that more, and you will see that more in our tech demonstrations.
Our growth in the aftermarket and services, this is basically monetizing our very big and growing install base in both UOP and HPS, and our continued supply chain productivity and fixed cost optimization. A quick overview of our business. Over the last three years, the business has grown mid-single digits. In 2016, if you are doing the math, that has Honeywell Resins and Chemicals in it. If you take that out, it is mid-single digits. Good margin expansion, 160 basis points over the last three years. Besides the growth drivers you see on the right, our growth in automation, our high-growth region performance, Solstice, and so on. Really, one of the things I want to highlight is our new product sales vitality. 37%. 37% of our revenue comes from products introduced in the last three years, and this is what is giving us growth, giving competitiveness.
We are continuing to transform our portfolio to improve its exposure to acyclical elements, that is, more OpEx-related sales rather than CapEx-related sales. We have grown that to 62% of our sales come from OpEx-driven sales. You can see that in this chart. Since 2013, regardless of the price of oil, it has gone up to $109, down to $44, we continue to grow our segment profit. Why do we do that, and why will we continue to do it? The same themes, expansion of the aftermarket, increase in recurring software and services in HPS and UOP. We are participating in very secular growing mega trends. Environmental regulations are driving investment in clean fuels, low global warming potential solutions, and renewables.
Continued petrochemical growth, we are well-positioned to participate in that, which is, of course, driven by the middle class and will continue to be so for many, many years to come. Honeywell Advanced Materials continues to grow, adding acyclicality to our portfolio. I want to take the next few slides and go through all the things that are driving our growth. One of the key components of this is our breakthrough initiatives. These are growing at 40% year-on-year. A good example of it, this is helping us, for example, enter new adjacencies and verticals. A good example of that is pharma and specialty chemicals. Here, we are growing at 25% year-on-year.
We are doing this by improving operational performance and regulatory compliance through some innovative batch control technologies and software. Basically, we are taking capability and technology we have in the process industries and applying it innovatively to batch and pharma space that is allowing us to grow in this space. In addition, I think you've heard this before, but it's going really well as renewables and distributed assets. Our software and control technologies for this area for distributed assets has got some really good traction. In clean fuels, our hydrotreating catalysts that I've talked about now for a few years has really grown to a really good business for us, and all of this will grow to $560 million by 2023. An area that we've been emphasizing and we are growing, especially with our software solutions now, are outcome-based services and new business models to monetize those outcomes.
Now, things like plant and personal safety, this is growing at 20% year-on-year. Here, we are centralizing customers' safety control systems, but we are also adding real-time data to improve worker safety and to reduce their operational risk. In the past, that data wasn't always available to the worker, but by centralizing it and connecting the worker, this information is available on demand to the worker in the field today. That's really improving our worker safety and operational risk reduction. We, of course, you know we have a very big catalyst business, but now we are supplying catalysts more on an outcome basis. It's in its initial phases, getting good traction on that. The reason we can do that is that we can monetize that with software. We can monitor and provide solutions based upon software.
As you know, probably most of you know, that we have a very large Honeywell UOP equipment aftermarket. We have really not monetized that to any significant degree, we are driving that now. Of course, we continue to drive innovative technologies and products, which will amount to about $380 million in 2023. These are things like our unique Uniflex bottom-of-the-barrel solutions. This is for upgrading really heavy end-of-the-barrel converter refinery to a highly efficient small refinery, which can be a feedstock prep unit for petrochemicals. That is, I think, where the future is headed. We believe that, we have solutions like this. Good uptake in this. We have already sold this in these design and construction. Alkylation platform. An important part of the gasoline pool is alkylate. Currently, today, it is made using HF and sulfuric acid. We have come up with a non-acid-based solution.
Already sold two of these units. I think this is going to be a big breakthrough in this area. Stationary refrigeration that we have talked about before, you will see that in the technology demonstrations. We are growing into new growth verticals. These are verticals, some that I'll talk about we are in already and have been growing, others that we have just entered, we have big pipeline behind that. Healthcare. As I talk, we have Aclar. We are already in medical packaging. This is a $5 billion market that we don't participate in hardly to any degree, we are able to, because we can, with the help of Aclar, with its unique properties that it has, in combination with other packaging materials, delivers value to new drugs, the biologics and so on that you were not able to do before.
Of course, in pharma and batch automation, we are taking a solution into this space. Decarbonization of fuels and sustainability. It's a big trend, and it's an area we are well-positioned to participate in. The global regulations are driving this transition, right, to low carbon and sustainable solutions. You have heard of our low global warming potential solutions for automotive, we are not only doing the for stationary. Really, one of the fastest-growing segments we have, LGWP molecules for personal care solutions. Very nice traction in this space. There's a new emerging area that you all know from the electrification trend with electric cars coming along and 5G networks proliferating. There is a lot of heat released in these transmission of the signals or in the electric car.
We have some unique molecules that we have already commercialized for the 5G networks, and we are working on the electric vehicles to create some unique refrigerant solutions for this business. When you look to new energy verticals, this electrification is, of course, driving a big change in the energy mix with a lot more natural gas being consumed and a lot more renewables coming on stream, both wind and solar. We are, with our control systems, cloud-based control systems, we are participating in renewables, solar, and wind. Of course, we have a renewables business in UOP. In the natural gas space, with the Ortloff acquisition now, we have a very big play with high ethane recovery. More and more in the U.S., customers want high ethane recovery and not just leave them in the natural gas.
The next piece where we are getting growth is innovation that is driving our software services, and this is driving growth. Again, on the left-hand side in the red, you will see Honeywell Forge solutions that we are providing. Blue is where we're monetizing an install base with software. Let me just take that. I think you saw an example, and I'll show you some more examples where our Honeywell Forge Industrial solutions are helping improve asset reliability and efficiency. This is basically doing that so that you can improve throughput and yield. We also have state-of-the-art world-class cybersecurity solutions that defend the availability and safety of control networks and plant operations. We are also using the Honeywell Forge solutions to improve skills and competency.
There is a consistent theme that is occurring in the industry as the aging workforce retires and there's volatility in the workforce, there's more and more demand for how quickly can I bring people up to speed, how can I make information available to them real time so they can actually operate like they were more experienced than they really are today. We are providing skills and competency management online with software. We can actually monitor the competency of the worker through certain KPIs and metrics. We also have worker productivity solutions and workflow solutions where we have automated the procedures, and the procedures and information is available online, real time, to the worker in the field.
When they walk up to a unit, they actually know real time, through connection to the central system, what they are dealing with and what kind of designs and diagrams they need to be able to service that. On the right-hand side, in the blue boxes, are things that we're doing, enabled by Honeywell Forge, to monetize our install base. I think you have heard about our process control and systems Assurance 360 Program. We are using software to provide outcomes to our customers, uptime on the control systems and so on. Now we're taking the same set of software to other adjacencies. The primary one I mentioned was pharma and batch chemical and renewables, where we're taking the same approach to quality, safety, and risk management and providing solutions to them that they value, just like they value them in the process industries.
The outcome-based solutions and connected services. These are outcomes, whether it's catalyst performance, process performance, or worker performance, we are providing outcomes. The only way you can really do that is connecting with them through software, collecting the data so you can monitor and provide them instruction. Another exciting area is monetizing an install base using software to provide connected services. Let me give an example. In our Thermal Solutions business, where we sell burners, they're highly desired. They're in every possible burner installation around the globe, whether it's in paint booths, curing cars, in pizza ovens, they're everywhere. Industrial and so on. These were all managed by the local burner expert, right? Bob used to go and service these things, and he worked it for 40 years. He really knew how to do this. Well, Burner Bob retired and wasn't replaced.
That's actually not a joke. This is true across the industry, and they need support in optimizing those. We are connecting with a Thermal IQ program and providing the service today. You can see how we can multiply this across a system. These solutions are getting a lot of traction, and you can see on the right-hand side a small sampling of customers we have around the globe who are using it. Let me give a couple examples. Q already talked about Delek Refining. We had sold them the FCC, then the second FCC, the Naphtha cracker, and this has been a great success story. Wherever we install this is a success story. Here's a good example.
Independent oil and gas company, which was having a lot of equipment issues, which was causing slowdowns and shutdowns. They always struggle with, should I take a shutdown to service it, or can I use a process turnaround, take some loss, and just keep on going? Tough decisions to make. We installed the Honeywell Forge Industrial Solutions, which monitor over 100 assets, the performance and the equipment health of over 100 assets. This reduced unplanned downtime by 2%-3% with predictive analytics and reduced the asset energy loss by $3 million per year. Another great example on the right-hand side, a very large aromatics complex in the Middle East was having problems running their system. These are complex operations. They had a high turnover, and that problem is not going to solve itself anytime soon.
Having difficulty running and getting the production they wanted out of the facilities. Of course, as the complex ages, there is more and more help required because there's more maintenance, and so on. We installed the Honeywell Forge Industrial Solutions. First of all, it went from, "Okay, what's broken, let's go fix it," to actually proactively providing process reliability. Literally with data, we helped them see a problem before it occurs, or as soon as it occurs, well before it actually shows up in their product being off-spec. We see it early. We helped them do that. Then with the help of digital twins, we improved their overall throughput and yield by telling them how they could improve it. This uncovered over $10 million per year for the customer on an ongoing basis. Two great examples.
Let me with that, move to the next growth vector. This has been a really good growth vector for us, growing in the High Growth Regions. 37% of PMT's revenue comes from these High Growth Regions. We have been growing and will grow, we estimate about 8% per year. 11% of that coming from China, about 8% coming from the Middle East, and 7% coming from the other High Growth Regions. So far, we have grown just by expanding our sales footprint, our sales support footprint, and service footprint. Now we're going to the next phase. We are localizing our supply chains, manufacturing East for East for West products with local partnerships or in our own facilities. Things like catalysts, refrigerants, waxes, fiber. We are doing new product development so that we can fuel and support our mid-market growth.
This means things like locally sourced meters, thermal solutions, new blends for additives and chemicals. Yes, we will continue to do sales and channel expansion. We will do what we did in China and India. Now we're going to do it to the other HGRs, same expansion. Going to China tier 2 cities. We are building now, increasing our capability and footprint, increasing the size of engineering Centers of Excellence, that we can support this growth in the mid-market and in local market. We are growing a presence in India, we're growing a presence in China, adding a presence in Kingdom of Saudi Arabia, and in Eastern Europe. We'll continue to do that to support our growth. Maybe the last piece in our growth story is our comprehensive gas offering. This is an area that's growing rapidly.
Yes, it has its ups and downs, but the macro trend is going to be that gas will continue to become a bigger part of the energy mix. We have a very comprehensive set of offerings in this area, not so much in the upstream, but in the midstream and downstream. We have gas treatment, gas processing, we have pipelines, we have terminals. We have LNG liquefaction treatment, as well as natural gas liquids recovery. Then downstream, we take those natural gas liquids and convert them into petrochemicals. A complete set of offerings over here. It's a $30 billion market that's growing about 6%. We already generate $2 billion from this space, and we'll grow at 1.5 times the market growth rate. We have been, and this is what we expect to do. Across the portfolio, we have growth.
In UOP, our technology is enabling the energy pivot for the customers through petrochemical growth, digital transformation using Honeywell Forge offerings, participating in the energy mix to renewables and natural gas. AM is expanding its Solstice platform, giving us 15% growth. In healthcare packaging, that I mentioned, we're getting high single-digit growth over here. HPS is using digitization to unlock value. Digitization of services that you will see in the tech demo, where we'll talk about how we have digitized the life cycle of the industrial plant. We are getting 25% growth year-over-year. Providing customer outcomes that I mentioned, 20% growth year-over-year. Then of course, digital migrations using our Experion LCN framework and software is giving us high single-digit growth. Long term, I feel pretty good about our forecast, based upon things that I mentioned, Solstice, petrochemicals, software.
I feel good about middle single-digit growth for our revenue and good strong margin expansion. The highly accretive aftermarket and outcome-based services. Our ISC productivity and optimization of footprint, improved mix through our new high-value offerings. I feel very good about our 25% margin long-term forecast. With that, let me conclude by saying that we are accelerating our growth in 2019. We have double-digit orders growth in Process Solutions the first quarter, also UOP. Their licensing engineering business is up. That portends well for their total cycle. This has resulted in the backlog, actually, at the end of first quarter, growing to 12%, and it was 10% at the end of the fourth quarter. We look at the drivers for growth, digital migration and services growing at over 10%, petrochemical and refinery of the future sales growing high single digits, and Solstice sales growing at 15%.
When we look to the future, as we shape our future, we seek how to grow. Good news is we have 25% sales from those breakthrough initiative programs I talked about, 15% growth from the Connected Enterprise, CAGR, and the segment margin expansion I mentioned of 25%, along with reduced cyclicality. When I look at this robust plan, I feel pretty good about our 2019 forecast, as well as about our future. Thank you.
Please welcome John Waldron. Please welcome John Waldron.
Wow. Thanks for being here today. Thanks for giving me a few minutes to tell you about how excited I am about the Safety and Productivity Solutions business. We have a terrific portfolio I'm going to tell you a little bit about in a moment. We have a very positive outlook on our opportunity. We have a billion-dollar backlog in our long cycle business, largely the Intelligrated platform. We have positive tailwinds in all of our segments, I'll tell you a little bit about the macros we've talked about before in our businesses. I'm going to give you a bit of a deeper dive into the Productivity products business, because we have some work to do there, but I do feel good about the outlook for that part of the portfolio. Our portfolio is positioned for growth in our markets.
We do have a huge opportunity to connect to our devices, our products, our tools and technologies, and deliver software outcomes, as well as services for the long run. We have a pipeline of exciting offerings we'll talk to you about, and you can see in the demo room as well. We have what I'd say is an unlimited amount of opportunities around M&A. We're not going to talk about those targets specifically today, but we have a really broad array of opportunities available to us. In terms of our outlook, our long-term outlook for the business, we have a great long-term sales growth outlook around our core business, our connected solutions, and breakthrough offerings.
We have the opportunity to really grow margins over the long term around our productivity initiatives, our fixed cost management platform and programs, and then continuing to manage the OpEx profile of the business. Let's get in and get started and tell you a little bit about the business further. We've had a good run over the last couple of years in this business. This business has really matured to the four platforms you see there around automation for warehouses, safety solutions, our sensing business, and our productivity solutions platform. We've been able to use the tailwinds at our back to grow this business as well as drive margin growth over the horizon. Our business is broadly exposed to many different vertical markets. That puts us in position to engage end users across these markets and really deliver value from our four business platforms.
When we formed this business, we had the opportunity to call it safety or productivity solutions, but we chose to call it Safety and Productivity Solutions. That is important. I think you will see that when you look at our solutions today. We are starting to bring those together, and that really is the basis for the next phase of growth in our business is bringing those outcomes together for our customers across verticals. Then, as you can see, increasingly, we have a long cycle mix in the business underpinned by the Intelligrated platform. Let me give you a bit deeper view into each of those business platforms. All of our businesses participate in very large markets that we address some subset of. Safety solutions today is a terrific business where we have leading positions in fall protection, hearing protection, respiratory, gas detection, and many other protective technologies.
We participate in, as you can see, a $50 billion market. It is a huge space, and we have a very small share of that space. We have a tremendous opportunity for growth both organically and inorganically in this business. Productivity solutions is that business where we deliver productivity tools to our customers, barcode scanners, printers, mobile computers, increasingly software, where we help make the workers in the workplace more productive. Sensing and IoT is a terrific business. We deliver high-value sensing technologies for smart devices, whether those devices fly or whether they are medical devices that help you as a consumer. We have high-value content that increasingly makes those devices perform better and make them smarter for the companies that use them and make them.
Our warehouse automation business, I will talk about this in a bit more detail, but what an exciting business we have put together that has just a tremendous amount of growth opportunity ahead of it. In all of these cases, as Q was describing earlier, we are delivering connectivity technologies and solutions around the distribution center, the worker, and increasingly around logistics. This space around the factory, the distribution center, and the consumer are converging, and we have to deliver connected technologies to make those things more efficient. Those macro trends that I talked about, e-commerce is a phenomenon that everybody knows and loves. We are right in the thick of this.
E-commerce is going to continue to grow, and while we talked about 20% sustained growth rates 3 years ago, those growth rates are muting a bit, but still strong double-digit growth rates in e-commerce, and e-commerce is changing shape a bit. It used to be about the giant fulfillment center. Increasingly, it is going to be about the more highly automated fulfillment center that is actually going to be closer to the consumer. Because the next war that is waging in e-commerce fulfillment is around time to deliver. You have seen this in the public domain. It used to be 2 days, and then now it is 1 day. Increasingly, it is moving to the number of hours it takes to get to you as a consumer or even as a business. B2B e-commerce is also emerging as a great trend and opportunity for us. I mentioned sensing. Devices are getting smarter. What does that mean?
That means they have to have more sensors. We're right in the middle of that marketplace, I think we're going to benefit from it tremendously. Safety is increasingly more important in the workplace. Darius talked about it in his opening presentation in terms of how we are behaving in our communities. All companies like to be known as good operators for their employees and the communities that they serve. Regulations are moving to match that phenomenon, and we're right in the middle of that while we have great solutions to play to deliver on that macro trend. With that, let me talk a little bit about the platform that we put together in warehouse automation, because we talk about this sometimes like it's just Intelligrated.
Intelligrated is a huge part of this, and as you can see, I think will turn out to be a terrific investment for Honeywell and our shareowners. We've delivered 18% or so return on investment so far. It's really been a nice platform for growth. We've more than doubled this business since we bought it. That's not the only thing that we've done. We've actually brought together with that core platform we bought some exciting organic and inorganic investments. Lux Technologies is a Chinese warehouse management company that we've invested in and partnered with to bring software technology to the platform. Transnorm, we acquired last year, is a European footprint for this platform that we're expanding from throughout the European marketplace as well as around Asia-Pacific.
We've partnered with Carnegie Mellon to invest in our robotics initiative, where we're leveraging their capability and their expertise, our ideas about how to innovate for growth, and we're moving those initiatives forward. Last, but certainly not least, we've brought together our voice-guided work platform together with this business, which has more than a million warehouse workers every day touching our platform and system. Together, we're able to bring this legacy business, we bought at Intelligrated, with some terrific organic and inorganic investments to form the basis of a really exciting global warehouse automation player that has a lot more opportunity for growth beyond this. With that, I'd like to talk a little bit about the productivity products business, because Q1 was very challenging for this business.
We had some short cycle challenges in terms of delivering pipeline conversion and growth, and as such, had to make some decisions around inventory levels in our channel. As we've gone and done our diagnostics on this business, we've come to realize a few things. One is we have great technology. Our customers tell us we have the right technologies, we've developed the right platform investments to deliver on the value propositions that they need. What we have to do, though, more importantly, is we have to make sure we are going directly to the key end users in those vertical markets, where those opportunities are happening. We have to capture sales at the point of attack, and we have to do a better job engaging our channel. We're launching new platforms and technologies to add on to what we've already done in warehouse automation as well as healthcare.
Those are two very important high-value markets that we have to engage through this business. We have to continue to innovate and deliver on next generations of technology in this business, as well as deliver on software content to connect to our devices, as well as deliver value with our independent software vendors. You'll see some of those examples in the demo room, where we're bringing those together to really bring a broader value proposition to the market. As I mentioned, we have to make sure that that terrific technology value we have can translate through our channel to get to the end users.
Over the course of the next several months and quarters, we're going on a campaign to engage our channel partners, make sure that they have the messaging, that they have the playbooks to help us increase our win rates and convert our pipeline in the market. More to come, but that's the game plan we're executing. We think we have a positive outlook on this business and a great opportunity to drive growth in the second half of the year. With that, I wanted to lay out the landscape as we see it in terms of our opportunities for growth. We see ourselves participating kind of at all points along this value chain in terms of the industrial manufacturing and supply chain landscape, all the way from source and manufacture, through distribution, on to the consumer or the business user.
As you can see, we have current offerings along this landscape in many different areas, many different technologies, many different plays that we run all around the world. You can also see below that where we see the potential growth opportunities, organically or inorganically, for this platform and this business, where we are investing in some of our breakthroughs, investing in some of our software efforts, and then exploring the M&A landscape for opportunities. With that, I want to talk a little bit about some of our growth vectors that we have in the business, in our current portfolio. I won't touch on all of these because most of these you can see in the room around the corner, but we have some terrific investments going on to connect to some of our core platforms.
One of the exciting ones on this chart is in the connected hearing space. Hearing is the number 1 safety problem that puts people out of the workplace. Hearing loss is a chronic problem in industrial environments. Being able to connect to somebody wearing hearing technology and then give them feedback, give their manager feedback on when they should come out of the workforce, or when they have given too much dosage of loud noise is a tremendous amount of value that you can deliver. I've talked about warehouse automation. We are delivering on the connected distribution center. Darius talked about that as one of our breakthrough initiatives, and we have many different investments going on around this area.
One of the most exciting is being able to go into our install base or the install base of one of our competitors and instrument an older system to show its owner and its operator where the challenges are in operation. From that, we can decide what to replace, where to service. We can show them where bottlenecks exist. That outcome-based service opportunity is a huge growth opportunity for our lifecycle service business. Our breakthrough initiatives, you'll see some of these at play as well. Darius mentioned robotics. We've got a lot of exciting opportunities there and some very specific IP that we're developing around machine vision and machine control. Biosensing is a new one. This is an exciting one because we acquired some technology that allows us to monitor workers' health in the workplace.
Think about heart rate, breathing rate, oxygen levels being monitored directly from the industrial worker or from someone being put out on an oil rig all by themselves, and being able to bring that data back through the cloud so that you can remotely monitor things about them that they themselves don't even know. We have this technology. We're deploying it in many of our industrial safety applications in our Connected Worker Platform, and more to come. Of course, we're investing in machine learning and artificial intelligence. We are deploying this today with customers. There is now more computing horsepower in your hand with some of our mobile computing technologies that you had in the server room 10 years ago.
There's tremendous power at our disposal, we're deploying machine learning algorithms to detect things like misbehavior, to detect things like out-of-specification usage, to detect things like safety labels put in the right place. Those things, while they might not seem like they're earth-shattering ideas, they're tremendously valuable to our customers that we're engaged with. With that, we'll talk more about connected assets in the demo room. We have this live connected to an actual customer site here in Morris Plains, which is exciting. Another one we're working on is in that logistics space. Our China team has developed, in partnership with some Chinese manufacturing and supply chain companies, a platform that allows us to broker shippers, 3PLs, and drivers, actually bid out to the drivers the work that they want on a real-time allocated basis. We have 40,000 drivers every day using this platform in China.
We're equipping our own supply chain to use it, we'll be globalizing this offering in the year to come. A very exciting effort by our China team. As we've talked about, we're bringing all these initiatives, whether they're through Forge and our Connected Enterprise, whether they're some of our connected IoT-based solutions, or whether they're our new product breakthroughs, we're driving them through the SPS selling team, which is about 2,000 sellers around the world, to our large end users and our small and medium business end users. We think there's tremendous opportunity to bring this software innovation and technology and value to our customer base. The next vector that is extremely important to us is high-growth regions. High-growth regions today in the SPS business is about 16% of the total, this has the opportunity to be far greater.
Our internal target for this is about 25%. We really are trying to take from our playbook in China, where we've built a very significant, very sophisticated business that's entirely localized. Six years ago, we committed to developing our own engineering teams, our own product roadmaps, our own budget control. That has worked out tremendously well by delivering continuous double-digit growth by that team across our businesses. We're taking that playbook to India. We're already delivering on growth in the local market, and we're investing in local roadmaps with that team as well. We think by taking that playbook to our other High-Growth Regions, whether it's East for East products, our products made local for local, or whether it's East to rest, taking those solutions from China and India and globalizing them to our other High-Growth Regions or developed markets.
This is a playbook that will work for SPS and continue to drive growth around the world. With that, our long-term framework is relatively simple. There's three real primary top-line growth vectors here. Our core innovation growth vector around our platform businesses, reinventing and reinvesting in those businesses, making them more software denominated. Our High-Growth Region businesses, we think we can grow in the 15% range over the horizon. We think there's tremendous upside and opportunity in all of these regions around the world. The big bets that we're making in connected solutions and breakthroughs will pay off. We've got some exciting opportunities. We think those will play through for our customers, and we're getting a lot of tremendous feedback from the engagements that we're already driving. On the margin expansion side, we've got a lot of opportunity here.
When Torsten tells you about what he's working on in the connected supply chain, we are a terrific partner for his effort. We have a huge opportunity in our supply chain, whether it be for OpEx management, indirect management, or in some of our Power of One initiatives around fixed cost management. We've got just a tremendous opportunity and think we can deliver 50 basis points of margin expansion over the horizon toward our long-term margin target in the 18%-20% range. With that, I'll summarize. We have to deliver in 2019. We've started with a relatively strong first quarter. We've driven growth from our important platforms. We've got some important work to do in productivity products to right that ship and bring it back to growth. Our growth drivers at our backs are clear and compelling. E-commerce is a phenomenon that is not going away.
Our participation in that market is still largely limited to the U.S. and North America. We've got a lot of opportunity to globalize that. Industrial automation, smart devices, what a great trend that's also driving growth in our businesses. High-Growth Regions. At only 16% of our portfolio, we can grow that part of our business tremendously to be a much more significant part of SPS. Shaping our future is exciting. It's the thing that gets me up in the morning. It's the thing that keeps me engaged. We have so many exciting technologies and opportunities to innovate. Those innovations, those connected solutions, those breakthroughs, are going to deliver $1 billion or more of growth to the platform over the modeling horizon. We're excited about our future. We appreciate your time. At this point, I'll ask the other CEOs to come back for questions.
Okay, let's start with Stephen Tusa, JPMorgan. Right behind you.
Thanks. Just looking at the Building Technologies outlook, if you do the math on the spins and the stranded costs, you're getting to kind of just above 21%-21.5% on margins alone as kind of a starting point. Is there some reason why you can't get beyond the 23%, at least in the intermediate term? Are you investing more in this platform than we kind of see? Also, I think if you add up the breakthroughs and stuff and the market growth, you talked about a 4%, you're guiding to low single digit to mid-single digit over the long term. You're inherently saying that there could be an outcome in a base case that's below the market rate, but it seems like you got some interesting new products coming out. Is there any reason why those can't be a little bit better over the intermediate term?
Okay. Well, first of all, thanks for your optimism. I share that. I would say that 2019 is a transition year for us. We don't want to run out of the gate with massive commitments and not able to deliver. 2019 is a true first year Building Technologies, learning. We are kind of a new business, if I can put an analogy. We need to understand our cost structure, our business model, and our growth vector. I won't disagree with your point of view that we probably have more runway than what we are suggesting. Let us deliver 2019 and then probably outplay subsequently. Can we do better than what we are committing? Probably yes, but I think it'll be too early to commit that at this point.
Then just on the PMT side. When we hear about all the trade noise coming out of the U.S. and China, everybody kind of lumps China into one bucket as kind of monolithic, but clearly there's kind of something in your business from an energy infrastructure perspective that's maybe decoupled from that. Is that the right way to look at it? It's more driven by oil price, and they're very strategic about those investments. What feedback do you get on the ground as far as any impact from these trade concerns has on your specific business in China?
Yeah, you're right about the macro picture. That's determined by long-term view of people have on investments based upon the price of oil and gas demand and so on. That, we don't see changing unless it causes any slowdown in the overall economy. Then it'll be a different issue. It's too early to tell if that's going to be the case. We have other impacts, both positive and negative, that we have mitigated, based upon just supply of catalysts and products and HFCs. We have managed that, so our exposure at this point is fairly minimal in that regard.
Next question from Nicole DeBlase, Deutsche Bank.
Thanks. Right here. Hi. I just want to start with Intelligrated. I thought it was interesting that you put up a chart that said you can continue to grow double digits through 2023. Comps are getting tougher. If you could talk a little bit about what you're seeing in the project pipeline to give you the confidence to put a target like that out there.
Sure. We definitely have a long-term view of that business that's positive and optimistic. Clearly, there's lumpiness that happens in any given period, month, quarter, whatever. Our customers are continuing to invest. We see the outlook as being positive, both in terms of digging into our install base, where we're pretty under-penetrated on our LSS business, our voice technology business, as well as pulling through some of our productivity product offerings into that install base. We also have a very U.S.-centric portfolio today. We're investing heavily for the European opportunity as well as the Chinese and Asia Pacific opportunity, which have, in some cases, higher penetration rates of e-commerce, but lower levels of automation. As those labor bases continue to inflate, time to deliver, the cost of a defect become bigger and bigger problems that they're trying to solve.
We still view the opportunity ahead of us as pretty positive. That's why we've targeted ourselves to grow at double-digit rates over the next several years.
Okay, thanks. Just following up for you as well, John, on productivity products, if you could just talk a little bit more in detail about what you can do to improve the performance there. It seems to me like it's about talking to the channel and improving the partnership with your distributors, anything you can provide there would be helpful.
Sure. The way that I break this down is to pretty basic fundamentals, it's really around sales execution. First, you have to test for, do I have the right products for the market? The answer to that is no. Well, you've got some long cycle work to do. Well, the answer to that is yes. We have great solutions, great technology for the markets that we serve, it's not us making that up. Customers tell us that. It's about sales execution and really looking at, do we have the right opportunities in the pipeline, and are we closing those at an adequate rate? We have work to do on that front. We do.
Part of that is ourselves engaging the end user, and part of that is us engaging a channel to educate them and compel them with the same passion that we have to take that then to the next level in the market. That's really where the work is, which is already underway. We've got a full team, full-scale effort around making sure that we're engaging that channel, engaging that end user base, and then continuing to deliver new products into that pipeline as well. Next question, Andrew Kaplowitz, Citi .
This is for Tim. Obviously, a lot of exciting things going on. Darius, I thought it was exciting.
Andy, thank you.
Yeah, sure. Look, decoupled growth and connected growth you said were sort of high single digits as a possibility, and mid-single digits as your total guide. The obvious question is, you've been growing at sort of high single digits to 10% over the last many quarters now, and it seems like growth is actually accelerating in those sort of decoupled areas. You talked about aftermarket growth. You did 8%, which is the best we've seen. Why couldn't you grow higher than mid-single digits? I know you don't want to guide to that. Over the next couple of years, given the visibility you have in defense and also in the aftermarket, again, assuming the MAX is okay.
Is there a question in there? All kidding aside, I do think that that's within the realm. I think that if we think about the four axes of growth, which is it starts with getting on the right OEM platforms, and in particular, with the right subsystems. We're there. We've got that in spades. It's about the aftermarket, the conventional aftermarket. This is coupled growth. Coupled growth is tied to some utilization of the aircraft, whether it's spares-
Repair and overhaul or a service type of contract, power by the hour type of contract. We've been really focused on that area. In the last 2 years, we have started to take white space back. This is business that was ours to capture from the beginning. We didn't years ago. We're recapturing it now, either indirectly with channel partners or via our folks. Decouple growth, it's on the path that we've talked about for the last 2 years, which is the RMUs or the enhancement COEs have excelled. They exceeded in 2018. They're on a run rate to exceed this year. Now it's a matter of, I think, the double-digit, it really comes down to that fourth quadrant, which is the breakthrough. I think that it will end up in, I would say, Andy, in 2 areas.
One is it will either be fail fast, which is, that's okay. That's a success. Explore something. If it doesn't work out, button it up and move on to the next one. Like the coatings, like the industrial IMUs, I really think that is the element, that's the plus, which brings us to consistent potential double-digit growth.
Just a simple follow-up for Rajeev, actually. Backlog growth at 12%, obviously, you've got some short cycle businesses in PMT. When do you think the growth of PMT catches up more to the backlog? UOP in particular has been a little sluggish. Why has that been, and when do you think that sort of catches up?
UOP's order rates are really up. Think of UOP as the licensing and technology business, and then the catalyst business and equipment business. That comes more with the APC cycle and the licensing business at the front end, actually ahead of most people, right? That thing has been very strong, growing tremendously. We expect to see growth coming out of that and translating into growth as we go to the future. Will we see the 2006, 2007 type of growth or maybe 2012, 2013 type of growth? Probably not. I think we'll see very robust growth out of there.
Good. Go to Deane Dray from RBC.
Thank you. Back over here. Couple questions for Vimal to start with you. You mentioned that 10% of your businesses are below plan. Can you take us through what the issues are and if you could size those? For Rajeev, I don't know, this sounds like a high-quality problem when you say you have 37% new product vitality. Is there too much of a good thing? Are you cannibalizing any products? What do you feel is optimal for your organization?
I think what I was trying to say was if you take a stock of last year due to the spin, one of the reason was that we were so much focused on business separation. Some of the segment which were not performing well, we could not pay attention to that. Thankfully, that segment revenue size is about 10% of the total revenue, now we have a plan in place to recover them. Those recovery action could be sales growth focus or supply chain operations or whatever it is. It's already reflected, as you can see in the trend line, as you see our early results in Q1, we directionally see those plans are working, but we have work to do here. I'm not claiming all that work is done.
I'm pretty confident that underperforming portfolio or supply chain related issues which started will be behind us during the course of 2019.
Good question, really. Actually, we have to manage that very closely. We actually monitor, I didn't say that as there's not enough time, but as of now, we monitor what we call new revenue that we get out of the new products we are introducing. Again, as you say, 37% of all of the new revenue, while that would be great, we will really become non-competitive in our existing spaces. We really have got to manage that. We do that very carefully because as competition has heated up, and we have good shares of demand, and we do that because we continue to innovate. Yes, we are replacing products, but almost always in those cases, we'll get some price and some margin expansion and some share gain. If we are just maintaining share gain, we'll at least get the price.
We do get value out of even the replacement portfolio, we monitor very closely what part of that is generating new revenue. A piece of our growth is coming from the new revenue that we are generating through new growth.
Good. Okay. Let's switch sides. Go to Scott Davis, Melius Research.
Thank you, good morning, everybody. Tim, the elephant in the room in your business is obviously the Boeing challenges that are out there. What are the learnings, I guess, from a Honeywell perspective? Is there a change in maybe how you bring technology to market? Is there a risk that new technologies are slower to be adapted?
Yeah. I think that there's two challenges. One is already here and one is coming. The one that's here is to reexamine, I would say, the organizational capability in the technical area to make sure that you don't have single point failures. Not that Boeing experienced this. I don't know whether they did or not. Having the organizational capability in the technical community and in the program community is vitally important, right? If you go back to when I was the CTO, I found that we didn't have adequate, in that case, architects. We had people that were doing, as an example, doing a great job of doing coding as in software, but software architects, we were pretty light on, right?
We looked at that and said, "That could be a single point failure, so therefore, we need to double down in being able to attract that talent." I think that part of this is if you are going to have differentiated technical products, and technical is part of it
You've got to make sure that you have the right people with all of the different skill sets. Somebody that's just a coding person, if it's enabled by software, you've got to make sure you've got to start with the right architecture, and then you have to have the right capability relative to coding, and you have to have the right people relative to testing, et cetera. I would say that, Scott Davis, looking at this, it really comes down to a very fundamental system safety approach to this. I think the challenge that is ahead of us is that the industry as a whole, including Boeing, Airbus, ourselves, et cetera, a number of us have gotten a very high accreditation relative to delegation from the regulators. For instance, things that were reviewed by the regulators 10 years ago are no longer reviewed by the regulators.
Us, as a company, have a very high degree of delegation from the FAA, EASA, ANAC, all of those. What we're going to need to do is work very closely with the regulators going forward to make sure that that capability still resides within our companies. We have the right system safety analysis capability, et cetera. Therefore, there's going to be a contraction, and we need to avoid that, because that's one of the enablers that we've had relative to development program performance, is the fact that we have decreased our cycle time because of the degree of delegation that we've had.
Just a quick follow-up. I feel like other than 2008 and 2009, we've been talking about supply chain problems in your business, Tim. What is the common issue? Is it lack of capital? Do they just not believe the growth? They just don't put the capacity in? Is it just limitations on rare earths and stuff? What is the common challenge that your supply chain seems to have?
Yeah. I think if you were to characterize it into one or two answers, it would be for those parts of the supply chain that have a very high fixed cost element versus variable cost, they've been through this industry, the air transport market, has gone through three cycles, or we're in the third cycle. Therefore, investment in fixed cost is something that they haven't done. If you think about the casting area, forgings, tribology, bearing areas, that's a very high fixed cost. It's like a foundry. There's been an aversion to making those investments. Of course, what's happened now is this cycle, structurally, this is very different than any other cycle, and it's going to be. That's what's affecting us, Scott. Yep.
Great. Go to John Inch, Gordon Haskett.
Good morning, everyone. Darius' opening pitch on the cost side talked about simplification, too many plants effectively, redundant systems and so forth. Could each of you talk about those opportunities specifically in your business? Tim, you just touched on supply chain a little bit, but it's not really clear to me why would PMT have too many plants, for example, or even the SPS businesses. If you could just touch on that.
Okay. We do have too many plants. We have 85 of them. Our goal is to reduce that significantly. There's no reason for that. The supply chain is spread out all over. Procurement is spread out all over. Logistics. I mean, it just doesn't make any sense. Yes, we have opportunity to simplify and reduce our footprint. We plan to do that over the next few years.
I think from HBT's standpoint, a lot of simplification came due to spin. I would say that probably footprint is part of our opportunity, but much bigger opportunity is process maturity. How we become world-class in planning, how we become world-class in automation and how we produce goods, how we become world-class in lean or HOS in Honeywell language. That's a massive opportunity for us because that's a sustainable cost out, versus taking one time to move this from X to Y. Probably, I see that the process maturity is a far bigger opportunity in terms of ISC transformation compared to the footprint. Footprint is reality, you deal with it, but the process maturity is a much bigger part. That's why it's 3 to 5 years, because it's a new capability creation, which is different than just taking something and moving it around.
I would answer that in two ways. I mean, we certainly have our share of opportunities relative to the overall footprint simplification. What really struck me was when we did some analysis around how things move through the supply chain, whether it's from our suppliers to us or from us through our own distribution network. We have 70 factories and 30 distribution centers or something. We will often move things two or three times before they're ready to then go into a distribution mode. That's just the way that the supply chain has been structured and has been set up over time. There's a big opportunity to simplify that from a cycle time, from the number of touches, which then leads to quality opportunities. To do all of that, we have to do Honeywell Digital.
You can't really even begin to understand it until you can digitize it and model it. That's, for me, kind of where the excitement begins, is bringing together this digital idea with the supply chain transformation idea to get to a common understanding of what we're doing and what's possible, then move through that transformation.
John, I would say a couple things. One is this isn't just about footprint reduction relative to our factory. A couple years ago, we did what was called core non-core. We defined those processes and those manufacturing process capabilities that we should have that would be non-core and core. Core would be something that would fall into two categories. One is something that was a distinguishing or differentiating factor that we wouldn't want a third party to have. The second one was best value. We could do it either from a cycle time perspective or from a cost standpoint better than those that are in the market. We established a core non-core roadmap both from a process standpoint and from a factory utilization standpoint. We've been on that process.
I think that what's happened since Torsten has joined us is we really opened this up and looked at it and said, "What are we doing in the planning area?" Like for instance, MPS planning, what are we doing in the MPS planning area that we shouldn't be doing? What are those things that we're doing with supplier development? What are we doing relative to vendor-managed inventory that we shouldn't be doing, that suppliers are doing? Let's just think of this as not just about our factories, but the entire valuation from the point of demand planning all the way to logistics. I think that's what's really opened up our aperture.
Just as a quick follow-up, Honeywell Forge, Vimal, you actually have it as part of your pitch. Does it apply to the other businesses? Actually, do you charge for this? Sort of how big do you think it could be?
No.
Who do you?
You can take one. It's lying outside. Not really. It's a big part of the new subscription model. The point I was trying to make was, our culture was, we always develop software, and software was seen as a means to the end that, okay, we're going to sell a project, we're going to push a product out. We never thought software as a monetization model, as an income stream. What Forge does is really forcing us thinking about subscription model, Software as a Service, and that sort is different than from earlier generations. The value creation is also different. You will see in the demo area on each of the four businesses, the value which are being created is a different set of applications in the plant area or in the aero area and worker and buildings. That was the point I was trying to emphasize.
John, it does apply. Two is, yes, we do sell the service. There's two things that happen from a monetization standpoint. One is we actually have standalone contracts relative to Forge and services that you'll experience them. Ben will provide an update. The other thing is it creates a high degree of stickiness in services. Think about this as, this is kind of centering software and services. We see this as a key element to the next degree of aftermarket services in this area, and that's the adoption that's taking place.
Great. Our last question for this session will come from Jeff Sprague of Vertical Research.
Thank you very much. I got one for John and one for Rajeev. First, for John. Darius mentioned this potential $100 million opportunity in Intelligrated. Not expecting you to name customers by name, but what would an order of that magnitude look like? We're talking single customer multi-site, or we're talking some kind of next-level lights-out type of opportunity. Just give us a sense. That's obviously a mega order for what you have.
Given that that meeting's happening at the moment, I'd probably need to not dimensionalize that too far. The way that I would describe the answer, Jeff, is that increasingly these programs are more integrated. Increasingly, they are more software-denominated. We're being asked to basically take over the building and install in it everything that's going to be used, whether it's a crane and a set of robots for depalletizing, then a storage array for keeping slow-moving inventory, then some sort of sortation and mixing array for the outbound. Those can be 1 million, 2 million sq ft, 40, 50 ft high. Think about these as enormous investments by their operators that have to work 24/7.
They have to perform at peak periods, they want us to own, obviously, the installation and the commissioning, then in some cases, operation and maintenance on an ongoing basis. Just one of those can be in the hundreds of millions of dollars. If you want more of them, I'd love to sell you four or five. Every customer has a slightly unique circumstance. The reason we brought it up is because we have a number of those engagements going on at the moment, they are very sophisticated. We talked about kind of the need for this connectivity and software world where to achieve the outcomes that we propose to customers, we have to own the entire design. To do that, as Tim was describing, you have to have the right architects.
You've got to have the right design methodologies, that's why, in this particular case, Peter's engaged with the customer in question.
Look forward to the press release on that. Rajeev, I was wondering if you could provide a little bit of additional context on LNG in particular as it relates to your set of business opportunities and, I don't know how best to frame it, maybe in MTPA or some kind of framework, but kind of legacy process versus gas processing side versus maybe the UOP pull through that would happen, just help us kind of get our head around the overall Honeywell opportunity there.
LNG is one of the opportunities in midstream that is finally beginning to happen. That's the good news. Though I'm pretty sure many of you know, as I do, that a lot of those projects will not go forward. But there's enough going forward that there is pretty good excitement around that. What we don't offer is the liquefaction cycle in the back. We offer everything upfront of that. You take the gas, you clean it up, you remove the sulfur, you remove the CO2, you remove the moisture, you remove the mercury if it is present. We remove everything. We remove the natural gas liquids because you don't want them freezing inside the cycle. There is pretty substantial part of the plant along the control.
We do all of that. In the past, the trains used to be very large, and they were all stick-built, and we would license this technology, and we would compete on each of those. For the first time, we are now able to offer that whole thing as a modular design. What that does is modular means that we fabricate it in a shop, and we deliver it to the site. While they're doing that, they do all the foundations and so on. Let's say it takes two years to do. They do their stuff, we do our stuff, we plop it in. It reduces the overall project cycle, which is pretty exciting for the owners, pretty exciting for us because we need [Kelsella] technology as a complete modular solution. That's the thing that is exciting for us as we go forward.
In terms of MTPA and so on, I don't have the numbers handy, but I'm sure we can work with you to give you that.
Thank you. At this point, we're going to stay on time and move directly to the first technology demonstration, which will start in two to three minutes. All the Honeywell people are going to walk there with you, and there'll be lunch after the first demo before our second rotation.
Your attention, please. The technology demonstrations will begin in five minutes. Once again, the technology demonstrations will begin in five minutes. Your attention, please. The technology demonstrations will begin in five minutes. The technology demonstrations will begin in five minutes. The technology demonstrations will begin in one minute. The technology demonstrations will begin in one minute. Your attention, please. The technology demonstrations are about to begin. Ladies and gentlemen, the Honeywell Investor Conference will resume in five minutes. Please take your seats. The Honeywell Investor Conference will resume momentarily. Please welcome Torsten Pilz.
Well, thank you for being here. Thank you for giving me the opportunity to talk about the wonderful world of supply chain and how we're going to transform supply chain here at Honeywell. You heard, I think, a lot today already from my colleagues that we're doubling down on the so-called IC transformation. That's the Integrated Supply Chain transformation. I hope that I can give you some more details about how we're actually going to go do this, and what does it mean for us, and what kind of value we believe this will create for the company. The IC transformation, supply chain transformation program sits on five different pillars. First, we're going to talk about how we're going to simplify the way we operate. The next pillar is that we really want to invest and build out a world-class planning and execution engine.
Procurement for us is a huge value driver. We have room for improvement, how we execute procurement, how we strategically go to the market. I'm going to talk about this, what this actually means for us in the future. You heard a lot about data and supply chain also today is nothing without data, correct data, right master data. All is very, very important for us. Not only to run our operation for today, but also to prepare the organization for Supply Chain 4.0, for the next generation of supply chain, for a really true digital supply chain. This all requires a team that is actually capable of executing this. This requires different skill sets, other types of skills, and different types of capabilities. Hence, I'm going to introduce to you what we think about talent upgrades and talent transformation in our program.
First, let's take a look at the Honeywell network. We've talked a lot about footprint. This is actually our current footprint. We have more than 240 factories across the globe, and we have more than 160 distribution centers. That is, to some extent, a result of acquisitions over the past couple of years. Of course, there's opportunity for us to simplify that network. It's not only about simplifying production or distribution center network. When we think about supply chain, we think it end to end. It includes the way we produce, where we produce, the vertical integration that we have in our factories, how we distribute to the market. We see, especially in the distribution center world, we see a lot of opportunities, especially across different SBGs.
We have situations where we have multiple warehouses of different SBGs in very similar locations, and we believe there is opportunity for us to do this. There is this entire simplification of how we execute production, actually. We have hundreds and hundreds of different applications, actually, in supply chain. Manufacturing applications, distribution, handling, everything. We are on a pretty radical path to simplify those applications and to decommission a lot of those. We'll end with way less, probably less than 50% of the applications that we had in the past, going forward. All of these things will help us simplify the way we operate and how we operate. The next topic is planning. Planning for us is like the brain of a supply chain. In the end, what we do is, as supply chain organizations, we balance supply and demand.
In a world where your growth is probably 1% or 2% and you have a very stable supply chain, that's actually not super difficult. When you grow 6% to 8% and you have capacity constraints at some areas of your supply chain, it requires a different level of sophistication when it comes to planning. That's all what this is. What we're going to create, and we are already rolling this out, is a standardized way, a standardized set of records for Honeywell planning. That's one way how we want to do planning and how we want to connect demand with supply, and how we want to connect our Gold Business Enterprises all the way down to the plant level and to the distribution center level. The result of this is not only a better capability, it's also true performance, you can measure this.
We are very customer obsessed. You heard Darius talking about this earlier today, that our goal is actually to be really, really excellent in how we service the market, and that's why we have a goal out there to be way more than in the upper 90s in delivery performance. It also will help us to free up cash through better inventory management. When it comes to procurement, the main shift in how we think about procurement is we used to go to the market like 4 different companies, we really want to consolidate this. The rationalization of suppliers is at the forefront of what we think we need to do. At the same time, we have to manage our supply base in a way different way. It's way more strategic than it used to be. It's tactical buying.
The way we do this, or we're going to do this, is we launched a significant program for robotic process automation in procurement that helps us streamline the way we operate. It also helps us to be able to rebalance our portfolio in terms of who does what. I don't need as many tactical buyers. I need more strategic buyers that can shift my resources. This is what it actually helps us doing. All of this will result in a significantly higher productivity going forward, and we are very dedicated to doing this right now. We're already in the execution phase of this. Data and analytics. I think there is no way a supply chain team can actually operate without the correct data. It is a roadmap. It's a journey. Right now we do many foundational things, fundamental things.
Which means taking care of our master data, putting the right controls in place, creating right governance structure. Those are things that are necessary for us. We are actually able to do this because we are on a good path to reduce our ERP systems. We have a good roadmap to simplify our ERP landscape, and that enables us to be actually very thoughtful about our data and how we manage our data. The next generation is what we call Supply Chain 4.0, this is the real connected supply chain.
I think Honeywell is in a very good spot to be able to do this because we are not only a tech company, but we also are a company that is very good in sensors, is very good at software, and if you connect all these dots, then we are actually one of the companies that is in a prime position to execute a true Supply Chain 4.0. It is a roadmap. It's a path. We're currently building this roadmap. 2019 for us is a foundational year. Going forward, 2020, 2021, I think you'll hear a couple of really cool things from us. I already touched about that a true supply chain transformation is not possible without thinking about the capabilities that you have in your team.
We made this a very foundational building block of our supply chain transformation to increase the capabilities of our teams. We've been doing this in many different ways. One of these ways is that we launched the Honeywell Supply Chain Academy. In this academy, this is a learning platform where we actually define certain modules. Planning could be one of it, procurement another one. Where we very structurally improve the capabilities of our teams through learning experiences, real experiences in the workplace. That already launched two months ago, and we've seen very good pickup and tremendous interest in this. Our teams are really eager in learning more and going to the next level.
It also means that we will become a way flatter organization because the way we think about this is that we really have to connect leadership with the workforce in factories and distribution centers. We do this with leadership Kaizens. HOS is at the forefront of what we do. All these lean principles really are helping us to understand really what's going on the shop floor level, and that's the foundation for us to become better. After this, overall, the supply chain team will be equipped to execute the ISC transformation, also to be one of the best supply chain teams there is in the industry or there is in the world. If you summarize this, our supply chain transformation has started in this year. 2019 for Honeywell is the year of ISC. We actually call this the year of Integrated Supply Chain, 2019.
This is the year where we in the company made the decision that we will focus a lot of effort in improving the way we operate, that's called ISC transformation. It has five different pillars. We want to simplify our operation, we want to be world-class in planning and procurement, we want to take care of our data, tools, and systems, and we want to build a world-class team. Those are the five pillars. The result of this will be that we not only have way better performance. This can be, in supply chain, very well be seen in KPIs, metrics. It's very measurable in supply chain. We will also be equipped for the future. We will have a team that is actually able to execute real transformation into a real true digital supply chain in the years to come.
Not only are we fixing some of the things that we see right now in our supply chain, we're also preparing the company to execute a real transformation into a digital supply chain going forward in the years to come. With that, I'll hand it over to Greg.
Well, big thanks, Torsten. In the next 15 minutes, myself and Ken Stachurski are going to just take a few moments and talk to you about how we're going to create this digital transformation across the enterprise at scale, it's really going to build on a little bit of what Torsten had highlighted. First, let me just kind of ground you in where we began. We've had capabilities across different parts of the company to be able to do some of the things that Torsten spoke about, but doing it across the enterprise is really the big pivot that we've made. In order to be able to execute this at scale, Q talked about the software Power of One, doing things one way.
That's a really important thing for us here too, because we're going to have to transform our process, our data, and our technology in such a way that we can scale this capability to be able to build these data-driven insights, make data accessible at the point of use for all of our employees. The only way we're going to do that is to create consistent touchless processes across the company. We talked about poor data governance, I'll speak a little bit about that in the context of where we jumped off in 2016 to start getting that squared away. Torsten mentioned it as well, having high-quality governed accessible data is key to being able to make great decisions. It also has to do with the IT landscape, and we've talked quite a bit about the ERP, it's actually much more than that.
If you think about 2016 as our point of departure, we had about 2,200 applications in 2016. We've made a lot of progress. We're already down to 1,400, but we're on our way to 750 across the enterprise. We had 1,500 websites. Imagine trying to manage 1,500 websites in 2016. We've made a big push on that, already down to 421 in 2018, and on our way to 25 in the longer term. We've talked about this quite a bit, we had 148 ERP systems at the end of 2015 going into 2016. We've now cut that over in half. We're down to 71 at the end of 2018, and on our way, as we mentioned before, to 10 core ERP systems.
Really simplifying that landscape, and standardizing both process and data is the only way that we're going to be able to create this capability across the company. What I want you to take away from this slide is this is not new for us as Honeywell. We started off in 2003, a $23 billion company at about 11 points of margin, and over the 15 years, we've always transformed. That's part of what's allowed us to be able to create the kind of operating leverage and growth that we've enjoyed, and you can see the gradations along the way where we improved our margin percentage. In the 2002 to 2016 period, it started with HOS, and that was a focus on the factory with lean principles.
We've been doing transformation in functions, mostly in the back office, finance, IT, HR, legal, that was really heavily based on creating COEs and moving work to emerging markets. We really didn't do the hard work around the systems that we're talking about here, and it was really focused on the back end. Then HOS Gold came along, and we tried to build a common framework for all of our businesses or our Gold Business Enterprises to operate with a real focus on breakthrough growth. Then in 2017 and 2018, the two big changes that came along was really this portfolio transformation, where we've now spun 3 businesses, 2 in the last year alone, and Ken Stachurski led the spin of both Garrett and Resideo during last year.
Then enterprise information management, which was what I kicked off in early 2017, which was really that pivot to transformation with a focus now on the front end, things like the integrated supply chain, things like customer support, things like sales management. Really the single biggest thing that we were changing was standing up an enterprise-level master data management capability across the company. That's the one thing that had always been missing as a company. If we do this right, and I know we will, what we're going to get through this digital transformation is a differentiated experience for our customers as well as our associates. We are going to get data-driven decisions, as Darius mentioned, that is going to help us drive operational efficiency across the enterprise.
With that, I'd like to turn it over to Ken Stachurski, the Vice President of Enterprise Business Transformation, to tell us a little bit more about how we're going to go do this and what it might mean for Honeywell.
Okay. Thank you, Greg. As you said, I'm Ken Stachurski. Just a brief introduction. I've met many of you actually during the spins, but my career with Honeywell came up through the PMT ranks. I was running the catalyst business in UOP for a period of time, as Greg mentioned, the spins last year. It's my honor to be here today. I'm really excited about talking about Honeywell Digital because it truly is going to help transform what it is we're doing as a company, and I believe it's very exciting. Let me share with you our approach.
It'd be easy to stand up here and give you a couple of just examples. I am going to go through some examples of some of the great results, but I think it's important to understand how we're doing this to make sure that it's clear that this isn't an action that we're taking, actually is fundamental to how we're changing how we do our work. First off, we took an approach across our 35 GBEs and looked at the various business models that we have as part of our company. As you can imagine, they vary quite differently. We came up with six different business models that are predominant across our organizations.
Product services, you've heard a lot about software, projects businesses, that's how we're fundamentally focusing the work that we're doing to make sure that we're honing in and we're able to rapidly scale these digital capabilities across the company. The second piece that we did, you've heard it a couple of times, Darius started with it is our master data management, fundamental to any digital transformation, but it's about having that data governance discipline. Yes, that's not really sexy work, but at the end of the day, this is the foundation of any digital transformation. It's really about getting data as an asset, as part of our culture, crucially important. The third piece is deploying global design models. What that means is that this is where that non one point solution comes in. This is crucially important because it does a couple of things for you.
Our businesses, although they're very different, they have a lot of things in common where we can scale these processes very quickly. By having this global design model approach, it helps us to make sure that we've got an optimal design and that we can scale it across our enterprise quite rapidly, as well as we continue to learn, as we continue to advance, we can scale those things across the organization as well. The fourth piece is, of course, the connected IT systems. I'm going to talk just briefly about the ERP consolidation, but you've heard about that. It's really about the rest of the technology stack and how that all comes together so it's an end-to-end look at our processes.
All of this enables that digital capability to differentiate, at the end of the day, the experience for our customers, the experience for our suppliers, and for our employees. What does that mean in terms of financials for Honeywell? I've bucketed into three groups, sales growth, cost productivity, and working capital. Sales growth, first and foremost, for a very purposeful reason. I'm going to share with you one of the examples, but our primary focus of our digital transformation is first and foremost around that customer experience. We believe wholeheartedly that with the processes that we've got in place and the ones that we're continuing to work to roll out, that we're going to really be able to differentiate this in our B2B market, and I'm going to talk about that more here in a minute. Cost and productivity.
You heard from Torsten about some of the great things that he's got going in the ISC. You've heard from our business presidents about the Power of One. This all comes together and actually becomes even more real with the digitization efforts across our ERP systems, the sourcing system, and our planning systems. Last but not least, is the working capital. Again, the ERP systems, the planning systems, but also the customer to cash. The faster that we can turn those orders into cash back for the company gives us an opportunity to go take that cash, obviously, and reinvest it in more aggressive ways. We're excited about the opportunities. In total, greater than a half a billion dollars we expect to be able to bring in for these programs across the digital transformation. ERP reduction. We touched on this enough. You've seen the numbers.
What I want to talk about is, what's different? We have been on this journey. We have been working on reducing our ERPs over time. This isn't new. What's different is we've centralized this organization. As you can see by this slope, this isn't just continuous improvement. This is very rapid change. By centralizing the organization, we were able to learn from our past ERP deployments. We were able to shrink that cycle time, do it faster, do it for less cost, and as you can see, we're on a path to get to 10 ERPs across our core. Why 10? It'll help improve our system resiliency. It helps scale for future growth both organically and inorganically, as well as reducing our maintenance costs to keep these systems in flight.
We believe that when we have this in place, we're going to have the right core structure of our ERPs. That coupled with our data standardization to really create some firepower for our businesses to make really informed decisions. Let me share with you an example on the customer experience. This one I'm very excited about. Happy to share with you. If you think about how we interact these days on a personal level, that B2C experience has changed, and it changes so rapidly. We heard some examples today about the expectations on delivery times. Think about how you place an order 24/7, 365. You can place an order online. You can track that order online. You can even get a mortgage, they claim, in a matter of minutes these days, right?
All of these things are now starting to transfer to the B2B world, and we believe that this is going to be a differentiating experience for Honeywell. How do we do that? We started first with defining the personas across our customer base, as well as in mapping that against every one of their touchpoints internal with our sellers, our customer service reps, and our technical support people to make sure that we understand end to end how are we touching our customers in each and every way, and make sure that we understand what their needs are and how to make it feel like one seamless experience. From awareness on the digital end, you can see the five stages here around the circle. The five stages of that customer experience from beginning to end, from the digital demand to the personalization.
When you contact us, we want to have that feeling no matter which business you're connecting with, that it's one Honeywell. To the transfer and the self-service, how do we make sure that when somebody goes in online, it's that one feel, that one touch, that one Honeywell? Advocacy and support, leveraging virtual reality, augmented reality, not just to train our own, but to train our customers who actually are utilizing and want to extract as much value out of the great technology that we have. Lastly, how do we close the loop? How do we make sure that we've got our aftermarket life cycle ready to go with auto replenishment, contract renewals, and the like? This is a very powerful tool, and we believe is going to be a huge differentiator for Honeywell going forward in the B2B space.
Let me share with you a couple of real examples of some of the results we're seeing. In our customer contact center, initially, we were unable to recognize even when a customer were to call, or they'd have a different experience if they were to call one of our businesses versus the other. It didn't feel like the same Honeywell. We consolidated, used the COE approach. We now have 4,000 customer service reps on one contact call center, all standardized with automated history pop-up. You can call any one of them, and they will know real time what's happened with your last phone call, order status, and be able to give you that one touch feel across Honeywell. So far, we're seeing improved customer satisfaction score already by greater than 20%. We're very excited about this impact across that customer experience.
We've coupled that with the seller experience because we think that's important as well. Why? When we started, we had 120 very complex different sales incentive plans disconnected to that customer experience at the end of the day. Very important to make sure that those things are aligned. We aligned to one plan, around 6,000 different sellers, all through a COE. What does that do for us? A couple of things. One is it aligns their incentive program to making sure our customer's experience is a positive one, and they're feeling that end-to-end one Honeywell, but it also frees up their time. The value of that is really being able to have them spend more of their constructive time making that personal touch with the customers.
In total, we've reduced their average payout time by over four weeks already, and with the goal that we believe wholeheartedly that we're going to be able to reduce that total by 75%, which is a great step forward for our salespeople. We get the two of these together, our sellers spending more and more time with our customers, and for a great relationship with Honeywell. Let me talk to you about the roadmap and where we're going with this. So far, we've been able to create a really strong digital core. We're pleased, but certainly we know that we're at the beginning of this journey.
We have a very aggressive master data management and governance process to be able to make sure that these gains that we put in place are sustainable, as well as focusing in on differentiating that customer and seller experience without ignoring the fact that we know we're going to gain significant efficiencies in our internal core processes. By 2020, we're going to have our Customer Relationship Manager fully complete NPI enablement underway, as well as that frictionless sourcing and digital ISC that you heard from Torsten. By 2021, the ERP roadmap will be on our 10 core ERPs, as well as have our contract end-to-end lifecycle management in place. As you can see, the digital ISC well underway. We're very excited about what this is going to bring, both in efficiency and that customer personalization for Honeywell.
I'm excited about the opportunity to lead this on behalf of the company, and I look forward to coming back again to share with you our great results going forward. With that, I'm going to turn it back to Greg Lewis for the finance section.
Good job. Thanks. We're down to the last mile. In the next 20 minutes or so, I just want to talk to you through a few things. We'll talk a little bit about the 2019 outlook. As you've seen already, we're well on our way relative to the guidance that we gave for the second quarter. The macroeconomic concerns that we did talk about in our earnings call, they're very much there for us to be considered. We are going to talk about some of the changes that we made, and Darius referred to them in our balance sheet, in our portfolio, and how that set us up to be able to perform over the next period of time in any economic environment.
I'll update you on our long-term financial framework, which by the way, is very well intact with all of the specifics that you would expect from us in terms of profitable growth, strong cash generation, and very strong capital deployment, all building a strong foundation for long-term outperformance as we go forward. Let me just start off with the 2019 outlook for a moment. You know the numbers, what we guided for the second quarter, 4%-7% organic growth, 20.8%-21% segment margin, and $2.05-$2.10 from an EPS perspective. We're six weeks into the second quarter, and so far, we're seeing long-cycle strength continuing to be a bulwark from us. Business aviation, OE, U.S. Defense, warehouse, and process automation as the teams talked about today.
We also are continuing to see strength in our short cycle commercial aftermarket and our building products businesses. As I mentioned earlier with the news out last week from U.S.-China trade relations, we're staying close to our short cycle businesses to see how things are going. We talked a little bit about the challenges that we're having in productivity products. We signaled that in the earnings release. We're also on track for the full year as well. As we sit here today, we feel very confident that the framework that we laid out for the full year incorporates many of those areas.
3%-6% organic growth is what we had shared. We still expect 20.7%-21% margin for the year, $7.90-$8.15 from an EPS perspective, which is 7%-10%, ex the spins from a year ago, with $5.5 billion-$6 billion of free cash flow, or 95%-100% on an adjusted basis, given our strong growth and our working capital improvements. Very much on track for the second quarter and confident for the full year. The portfolio has changed, as Darius mentioned. As we think about it now, we've taken some of the cyclicality out with the removal mainly of the automotive exposure in the end markets. Now we're 60/40 short cycle and long cycle. Again, as you look at the short cycle part of the portfolio, very strong across the commercial aero aftermarket.
Defense remains strong, as I mentioned, Solstice and Commercial Fire. Feel very good about that with some of the challenges in productivity that we spoke about. From a long cycle perspective, the visibility at this point remains very strong. The momentum Tim spoke about in the deliveries in the aerospace side. Warehouse automation, John spoke about it, with $1 billion backlog. Certainly, the comps start getting tougher, and that is going to happen here in the second quarter as well. Building Solutions, Vimal talked about the demand, particularly in the High Growth Regions, and you heard from Rajeev about the strength that he is seeing in UOP. Overall, the market dynamics for us remain very positive, and we feel very good about the balanced portfolio that we have. From a High Growth Regions perspective, this is about 25% of our portfolio.
It has been a key part of our playbook and will continue to be so during the course of the year. Some of the key items that you heard from the teams today was really around a focus on the mass mid-segment opportunities in China and India, particularly with SPS and HBT, then a focus on connected in China, Middle East, and India. Q and the SBG presidents I know have been working through some specific key account approaches there to try to capture some market share. We know, as Darius mentioned, there is a lot of demand. Demand is not our issue. Everyone is looking for us to come in and play a role in delivering the outcomes that they want.
The proven HR playbook is going to continue to drive significant growth, and we expect that to be a double-digit outcome for us for 2019. I do want to spend a little bit of time on this chart. We have gotten a number of questions about whether our track record of margin expansion and now most recently, free cash flow growth is at the expense of investment in our business. What this chart is meant to show you is you are looking at our R&D investment, both Honeywell funded as well as customer funded, and our CapEx over the course of 2012-2018 with an estimate for this year as well. It is represented as a percentage of sales. What you can see is we are investing 9%-10% of revenue pretty consistently over this time horizon. That line that you see is our peer group.
We feel like we are investing at a fairly healthy level. Darius talked about innovation being the lifeblood of our company. We feel like we are absolutely putting the right amount of money to work to continue to drive that innovation pipeline. We have continued to invest in capital for plant and capacity expansion, for new growth opportunities, and also for repositioning. I think here it is a good proof point that our performance has actually been both short and long-term focused, driving the margin expansion and free cash flow, but at the same time, reinvesting for the future of our business. Now I am going to talk a little bit about cash and our balance sheet strength.
Here again, you can look at our free cash flow performance over this same 2012 to 2018 period. I hope the message that you see here is a lot of momentum that we've built over this timeframe on free cash flow performance. There's really three key points I'd like to make. Number 1, Darius has made this specifically an important emphasis and effort for management. You see that through some of the things that you've heard from the teams today, as well as from the amount of our management compensation, which is tied to our cash flow and working capital performance. The second is the things that we're doing are working. If you look at the last two years, we've improved from a % of revenue perspective from 11%-14%, and from a free cash flow conversion perspective from 86%-100%.
The things that we've put in place are having results. I guess the third message that I would share with you is we're not done. You heard from Torsten with the Integrated Supply Chain transformation. There's still a lot of opportunity there, particularly on the inventory side. I know that he's putting together a lot of the simplification. He talked a lot about planning. When we really get the digitization of the supply chain going, there will be waste that will come out of that system. There's going to be a help here in free cash flow and working capital. Now I just want to spend a minute and talk about our balance sheet strength. You can see the numbers for both our net debt as well as our leverage ratios. They're very healthy.
We have ample liquidity in order to navigate whatever comes next in terms of market volatility. We've got significant cash mobility, better than we've ever had post-tax reform. We repatriated over $5 billion of overseas cash in 2018 back to the U.S. The weighted average cost of our outstanding debt is the lowest in our peer group. We've continued to have a premium credit rating, which I'll talk about in a few minutes because that was a competitive advantage for us, particularly as we went through the downturn in 2008 and 2009. In the bottom part of the slide, this is what Darius mentioned earlier around our pension plan. The actions that we took in early 2018 to go and actually de-risk the pension plan are going to be incredibly helpful to us as we go forward.
We're now about 50/50 in terms of risk-seeking assets versus fixed. The reason it's up to 53 is because the stock's performing really well, so I'll take that problem all day long. What this means for us is really there's no significant pension contributions going to be anticipated in 2019 or beyond. When you think about it, our balance sheet strength really is world-class at this stage and is going to be helpful for us no matter what environment that we face. If we turn to capital deployment, I know this is obviously a question for everyone. I would look at our capital deployment. I would call this pragmatic and consistent execution. When you look from the left-hand side, from a capital expenditure perspective, we've consistently reinvested back in our business.
The 2016 and 2017 timeframe was the end of a long investment cycle in PMT. We're deploying more than $800 million of capital this year in 2018, continuing to reinvest back in the business. Our dividend policy has been very consistent. We've always grown dividends in line with earnings. In 2018, we increased our dividend again by another 10%, despite spinning about 20% of the company. Showing you a lot of confidence in our ability to deliver free cash flow. From an acquisitions perspective, I'll talk a little bit about the environment that Darius referred to in terms of the sellers' market and show you some of the numbers. We did deploy a half a billion dollars last year into both the Transnorm and the Ortloff Engineers acquisition. Again, we're pursuing a very disciplined acquisition approach.
Lastly, from a share repurchase standpoint, you can see that we accelerated our share repurchase program last year from the $2 billion-$3 billion range up to $4 billion. We've taken our share count down from 775 million to 753 million. As Darius showed you earlier, those are very high IRR repurchases that we've made over that timeframe. We're executing on that capital allocation strategy. When we talk about the availability of cash and what do we have to deploy, Darius showed you the 2019 numbers. We're going to have between $28 billion and $30 billion of cash available to deploy over the next three years, 2019 through 2021. Again, the math is fairly simple. We have about $11 billion of cash on the balance sheet today. We keep about $3 billion of that just for liquidity purposes.
With the operating cash flow that we expect to generate over the next three years, which is call it between $20 billion and $22 billion, that's where we get our $28 billion to $30 billion. When you take out dividends and a reasonable amount of CapEx over the next three years, that's going to leave us $17 billion to $19 billion, a substantial amount of capacity to deploy to both M&A and share repurchase. As we spoke about, though, our top priority does remain both on M&A, but we can continue to generate strong returns through our share repurchase. We took share count down 2% last year. We committed to an additional percent this year in 2019, and we're well on track to doing that. Very very strong balance sheet, significant firepower in order to add to our value creation story.
Let me just step back and talk a little bit about the business development framework that we do have, and I use that phrase for a reason I'll come to in a minute. When you look at the environment in the, call it 2010 to 2014 timeframe, you can see the multiples were in, call it the 9x to 12x earnings, and this is Barclays research numbers. These numbers are not mine to make. That clearly had a tick up in that 2015 to 2018 timeframe, where now many of these deals are going from 14x to 15x or even 16x. If we just pull this out and talked about software deals, then you're even getting into much rarer air of 17x, 18x, and more.
What that means for us is we're going to continue to be disciplined in our screening approach, make sure that our valuations are solid and that we're convicted in the things that we are going to go about, because as we've said many times, you build a reputation over a long period, and you could lose it very quickly. The good news is when you look at our pipeline, and that circle in the middle is just really meant to represent the amount of deals that we're looking at for each individual business, that each of the 4 SBGs is open for business. There is no business that we have now in our portfolio remaining that we're not willing to invest in.
A lot of potential opportunities exist across all regions and markets, and we're looking forward to deploying capital into each one of these businesses. We're going to do that the way we always have, which is making sure that we stick to our knitting, and that means when we look at the kinds of businesses that we want to own, they're going to have to be technology differentiated with low cyclicality and aligned to mega trends in our strategies and also have some self-help that we think we can provide as a management team. That discipline process is going to be something that you're going to continue to see from us. Really, as we look out there's no must-have deals for us in the market.
We're also looking at business development beyond just traditional M&A, and what I mean by that is doing things like joint ventures, minority investments, and partnerships. I think particularly in the area of connected, developing strong partnerships is going to be helpful to accelerate not only our capabilities but the capabilities of others. One of the ways in which we're doing that is through our Honeywell Ventures operation, and I'll talk about that in a minute, but that is something that we've been doing since 2017. What you'll see is obviously the prices are elevated. It is a seller's market, as Darius mentioned. We do feel good about the pipeline that we have, and we're taking a very broad-based approach to try to drive growth across the company. Let me just step back and talk a little bit about Honeywell Ventures.
You may know we launched this in 2017 with an office that we established in Silicon Valley, led by Murray Grainger, who's in the room here with us today. This is really not about making a financial investment just solely for a return. This is about investing in early-stage high growth companies who have emerging or disruptive technologies. These startups are strategically aligned to our portfolio, our software capabilities, to our Connected Enterprise strategy, also to our Honeywell Digital strategy that you heard Torsten and Ken speak about before. The whole premise here is we think that investing in these companies, we can help them scale faster. They can use access to our customers, our channels, our intellectual property, and even our manufacturing capabilities and our global presence. We think this is a smart way to go about it.
We feel pretty good about where we are. We've been at this for about 18 months. We've already done 11 deals. We've invested about $30 million. I feel like we're making some nice progress. What you see on the right-hand side of the slide are six of the deals that we have announced and made public, a couple of which are actively involved in some of our business pursuits today. You may remember seeing FogHorn on one of John's slides for SPS, but we're using FogHorn's technology and IDEMIA's technology in some of our connected offerings and our smart edge device offerings today. Soft Robotics, for any of you who were at the ProMat show, you may have seen I was partnering with the Intelligrated team and showing off some products and offerings in the warehouse automation space.
I feel like we're driving real commercial and strategic value, and this has been a nice success story for us and another one of the levers that we have to drive growth, and we've got a nice pipeline here as well to take advantage of. Now just let me pivot over to our long-term financial framework, which is very much intact from what we talked about previously, and I'll start with segment margins. As you can see, I showed you in some of the other slides, we've had a very strong track record of margin expansion, as you know, 130 basis points over the last two years, and we're looking at 20.7%-21% in our guide for this year as well. Our long-term target remains at 23%, which is really delivering that 30-50 basis points per year.
How are we going to do that? Darius highlighted in the beginning. We've got a lot of levers that we can use in order to deliver that. Whether it's Honeywell Connected Enterprise and Q's discussion around outgrowing the rest of the portfolio at accretive margin rates. You heard Torsten speak about the supply chain transformation, which is going to drive productivity both in direct materials and our network. Honeywell Digital, as Ken mentioned earlier, as we transform and drive better decisions across the portfolio. It's also more than that. As he highlighted, it's also going to be improving our user experience, and capabilities both for customers and for sellers, which I think you're going to see is going to generate growth from that perspective. All of that will wrap into our Power of One.
Darius calls that our commercial Power of One and our productivity or fixed cost Power of One, which is every year, we commit ourselves to trying to drive out 1% net fixed cost. Our continued focus on expanding margins is here. We've got a lot of levers to drive to 23% over the longer-term horizon. We feel very confident in the 30-50 basis points improvement and with the ability to continue to invest back in the business, which is really important for us overall. We talked about some of the things that we've changed from a balance sheet and from a portfolio perspective, and that really has prepared us for any environment. You may remember in the 2008-2009 timeframe, Honeywell weathered that storm fairly well, and you can see that from the rise in the share price over time.
You can see the numbers in the bottom left. Sales were down 15%. We managed to hold margins flat over that time horizon. The TS business was the most impacted by this. Their margins were basically cut in half or more over the 2007-2009 timeframe, and our pension took a big hit. We lost 29% in our pension plan. We took some big actions, both cost actions and balance sheet actions. From a cost perspective, we took over $1 billion worth of cost actions, some temporary, because we wanted to make sure that we preserved our industrial base, and some permanent. We also made some balance sheet actions. We contributed over $5 billion to shore up our pension plan in both cash and stock. When we think about where we are today and with the change portfolio that we do have, it's better.
We're in a better position than we were back in that timeframe. We don't have material exposure to cyclical industries like automotive. We have increased our long cycle exposure from 30%-40%, which gives us more visibility into our demand on a go-forward basis. Our balance sheet, as I mentioned earlier, you saw the numbers. We've got very low leverage, and we're in very strong position as it relates to our credit rating to access capital should things go south. We talked about our pension health. Having a 113%-funded pension plan at this stage with a roughly 50/50 risk profile means that even if the market were to go down, call it 20%, we'd still be very close to 100% funded and would not really require any meaningful contribution.
You take all of that into effect, and we know the playbook that we need to go deliver should we see tough times ahead from a cost perspective. We are very equipped to manage in any macro as we go forward. Let me just wrap that up into what it all means for our long-term financial plan. As I mentioned earlier, our long-term targets are intact, 3%-5% organic growth, 30-50 basis points of margin expansion per year, and I showed you the areas in which we're going to focus on making that happen roughly 100% free cash flow conversion. Again, you should think about that as between 95% and 103%, say, depending on what's required from a capital perspective at any given point in time, and our dividend growth aligned with our earnings growth.
We're going to continue from a capital deployment perspective to prioritize higher ROI investments. As I mentioned earlier, we're not going to constrain financially compelling internal projects. It's always good to invest in your own business first. Our top priority is going to remain both on M&A, but as necessary or when the opportunity strikes, we will be able to generate strong returns through our share repurchase program. From a balance sheet perspective, it's important to us that we do maintain that premium credit rating. It's been conducive for us to weather storms in the past, and we want to do that here again. We're going to target 2.3-2.5 of gross leverage for the Moody's calculation as we go through this period. What all this means is we really have strengthened the foundation for long-term value creation.
Let me just wrap up by saying, I hope that our messages today are very clear. We're going to continue to invest in both the short and the long term. Our businesses continue to generate outstanding results. We're better positioned than we've ever been. We have a strong balance sheet with ample capacity for capital deployment, and we're very confident in our long-term financial playbook and that framework. When you think about everything we spoke about today, whether it is Darius' four key objectives, all underpinned by the three transformations, the continued portfolio optimization, and importantly, investments in innovation, we feel like this is a compelling investment thesis, and we're very well-positioned for growth in the future. The future is what we make it, and we intend to make it great. Thank you. Now I'd like to invite Darius, Q, and Torsten up for the final Q&A session.
Okay. Let's start with Josh Pokrzywinski from Morgan Stanley.
I think so. Question for, I guess, just about everybody up there, and some of this will relate to itself. On the long-term margin targets, I think what you outlined on supply chain kind of gets you to the lower end of that range, really without a lot of revenue growth. Can you maybe talk about how that relates to some of the investments you're making, particularly on Forge, which got referenced in pretty much everyone's breakout presentations and presentations up front, how some of the supply chain investments maybe just get invested and how much of that margin expansion is true operating leverage, because it seems like there's some natural conservatism there.
Well, perhaps, obviously not everything that we're going to be gaining that margin favorability is going to be dropping to the bottom line. What we showed you is kind of the net impact, because any given year, we could be performing much better. I don't want to be into the short-termism because all these numbers that you see are net. Yes, Honeywell Connected Enterprise requires a level of investment, although I can tell you it makes money and it's accretive to our overall margins, but it does require investment. Certainly, a lot of the things that Torsten talked about are going to require investment. Some of that we already funded and some we're restructuring funding back in 2018 and Q1 of this year, but we're going to continue to fund it.
Yes, the last thing that we've done in all of this is we have accounted for breakage. Breakage is you set a goal of $1 billion in, let's say, inventory reduction. That's the way I always do planning, which is I generally like to build a plan for 2x of what I'm hoping to accomplish. Some of these are sort of your gross numbers. Net may be a little bit worse, but all of that is reflected in our margin commitments and so on. If we overachieve, well, we'll all be happier.
Just a question for Q on Honeywell Forge. I think anyone who's in this room who's walked a trade show in the past couple of years, every single booth has predictive analytics, this software that, and maybe some of those companies don't really have a channel to market or the right technology. Can you talk about how that interacts with some of the third-party folks out there, and their acceptance or reluctance for those folks to want to partner with you? I know it's very early days, but it seems like that space is becoming a bit democratized. How does Honeywell Forge stand out in what is kind of a crowded landscape now?
A couple of ways to address that. One is we're really focusing our investments in areas that we believe Honeywell has a competitive advantage. One of the constant pieces of feedback that customers give us on their hesitancy or apprehension to adopting the new technologies, because they can see the impact, is just the cost of deployment, the effort on the organization, the change management needed. We focus a lot of our investments on let's make things easy to install, make it easy to use. That becomes a differentiator. We partner in areas that, frankly, partners have a better investment profile and roadmap in that area. Microsoft is an example. We partner with them on the Azure platform. We're not going to try and rebuild infrastructure as a service. We're building on top of that, as an example.
The other thing is in our strategy, we're fundamentally starting with the customer problem and our install base. We know that really well. That's a competitive advantage. And we see a significant opportunity taking our customers from point solutions today to a much more comprehensive offering. We have an alarm management application in the connected plant, for example. We don't use that data anywhere else, we're actually stitching the digital thread through the operations and delivering greater, more comprehensive value to the customer. Customers are willing to pay us more for that because they're getting a greater benefit than they do today.
Let's go to Sheila Kahyaoglu from Jefferies.
Thank you. Darius, one for you. In terms of capital allocation, I know multiples are elevated at the moment. John mentioned M&A about three times in his slides. Tim didn't mention it at all. How do you think about aerospace? That competitive landscape has changed. Do you get bigger to win more the next cycle? How do you think about the competitive landscape, I guess?
Do you mean in aerospace specifically?
Just aerospace in particular.
Yeah. I've always said, I don't think we necessarily need to get bigger in aerospace to continue our successful franchise. To me, it's never been about scale. It's been about technology and being able to differentiate versus some of our peers. Having said that, Tim, you have to mention M&A more, okay? That your presentations aren't boring, jokes aside, as Greg pointed out, we're interested in expanding each of those platforms. I can tell you that I think Greg mentioned that our pipelines are up to 80, 90 companies that we're looking at. There's certainly a fair portion of those are in aerospace, and we're interested in investing any of those four platforms. I would say this is true of any of our businesses.
I don't feel like I need to make an acquisition in any one of our businesses because we're somehow behind, or we're getting way behind on our technology, or we can't catch up on market share. That's actually, not too many CEOs will admit that they have to make an acquisition, but in many cases, they do. We're not in any of those spots where we actually have to do it.
Maybe one for Q as a follow-up. Q, in terms of how you think about Honeywell Forge, given its official launch today, what are the sales? How do we think about that growing over time?
Look, we've got a long-term target of 20% compounded growth. We're starting with our customers. The good news is, as we built this product, we involved customers very early on. We have customer advisory boards on every single one of these verticals. We already have beta testers. We're getting constant feedback. What we're trying to do is have a fast start program on taking those beta customers into a full-scale deployment. That's how we're getting going. So far, I think the signs are building. We'll go out, I think, officially end of this month with the general availability product. We're very excited about the traction we're seeing so far in the pipeline.
Let's go to Christopher Glynn from Oppenheimer.
Thanks, Mark. Q, you talked about in your explanation of Honeywell Forge and HCE, in particular Aero Defense and building solutions and process markets. The Aero Defense and process strikes me as very rarefied domain expertise. With building solutions, you did have a list of single domain players, maybe a little bit more of an egalitarian domain expertise across that spectrum. Wondering if that introduces a build-and-buy dynamic because some of those smaller players have built some nice install base, and they might even serve as an incremental channel for you.
I think Greg said it right, which is that we have a general partnership approach to the market. In some cases, it makes sense to have a commercial relationship. Sometimes that's with our customers, particularly since some of these migrations take a lot of effort on their part. We're partnering with customers, we're partnering with technology companies. We're obviously also open to acquisitions, and we're looking at areas. I think the key thing is we are very confident in our organic plan. We can develop software fairly quickly, and unless there's something on the target landscape that has a software application that can be applied to across our industries, it's a lot more effort to actually integrate them than it is to build on our own.
Great. Let's go to Julian Mitchell, Barclays.
Thanks. Maybe a first one for Darius. You'd mentioned it's a seller's market. You'd also said at the beginning that you want to run the best company, not the biggest. When you're looking at the portfolio today, I guess how tempting is it to potentially exit some further businesses, given the spins went pretty well late last year?
I would tell you that some of the more obvious things that I wanted to do in alignment with our board, we did. I would say kind of that phase one is complete. As I said, it's an ongoing process. My strategic plan is due to the board in July, we're kind of in the middle of doing another reassessment. It's not annual, it's actually more frequent than that. I don't think that there's anything that I feel like I've made up a decision or our board has made a decision that it has to go. I can tell you everything is under review, nothing is ever safe because we have to continuously look at whether the businesses that we currently have are aligned against those Honeywell criteria. As you know, that can change.
That can change based on what's happening in the markets, can change based on what the growth trends are, mega trends, how they're performing, competitive intensity, all those things. It's always tougher to subtract than add, right? There's something mentally that says-
Gosh, it's tougher to subtract than to add. Adding feels good, subtracting feels bad. I don't know if that's mental, I can commit to you that we're going to have the discipline to do both, because I think doing both is a healthy thing, that's the way.
Thanks. Just a quick one for Torsten. You've been at Honeywell the best part of a year, a lot of experience at other companies before that. Maybe explain what surprised you most in these sort of 9 or 10 months that you've been live and active at Honeywell. Which segment, in terms of the 4 reporting segments, do you think offers the most scope for the improvements that you're aiming for?
I don't think there were some real major surprises. There was a reason why I joined the company, and it's been a really nice journey here. I don't think there was anything that really kind of surprised me negatively. Probably to the positive side is that it's really a high-performance culture, and there are a lot of smart people working in this company, which I really loved. There's also not 1 single segment that I could kind of take out and say, "These are really very good in this, and these are very bad in this." I think what you've seen today is we do a lot of foundational things to kind of prepare the entire enterprise for the future. That's true for all segments. There's different focus areas here and there, but in the end, it's true for all of them.
Great. Let's go across here. Joe Ritchie, Goldman Sachs.
Thanks. Good afternoon. The working capital improvements have been really encouraging. You've called out inventories as still a pretty big opportunity for you. Maybe just kind of talk about that opportunity a little bit further. I think you call that even vendor-managed inventory as a possibility as well. Just a little bit more color around where the working capital improvements can go.
To Torsten.
Whoever wants to answer.
I'll start, let's maybe Torsten fill. Yeah, sort of the metrics speak for themselves. We made progress on payables, made progress on receivables. In terms of DOS, we're kind of treading water. That's one issue. Part of it, you could say, well, you're growing, so obviously, your inventory should grow. I don't buy that argument at all. I think we have to be much more efficient with our inventory. I think VMI is a tool. It's one of the tools that we're going to be using. I happen to like it, because it makes actually life easier for suppliers and makes life easier for us. It takes a lot of pressure off of planning. There are many other tools, planning being at the forefront, and consistency, discipline, improved demand profiles, and so on.
Yeah, for us, it's actually a way to even simplify further for us. Darius mentioned VMI is a relatively simple strategy, but we really want to go into more exception-based supply chain management. That means the majority of the network needs to be somewhat on an autopilot. Inventory is actually a representation of waste in that system. The lower we are able to have this inventory level, the more agile we are, the shorter our cycle times. It has a lot of operational advantages to control inventory very well, but it requires a certain level of sophistication how we manage the supply chain.
Just my one quick follow-up. It's interesting in this, what's become a little bit more of a volatile macro backdrop, that your High Growth Regions are set to accelerate this year, expecting to grow 10%. Just curious, 75% of your business, I think, is PMT and Aero. Is it predominantly your longer cycle businesses where you feel good about the backlog to get to that type of growth, or are we going to need to see some help in the back half of the year from a short cycle perspective?
Yeah, listen, I think what you heard today, not only PMT having strength there, but also Vimal with what he talked about from a Buildings perspective with all of the new construction that goes on. Just our strong positions in China, in the Middle East, and India. I think all three of those places in particular, as well as some of the other High Growth Regions that may be having a little bit of a rebound, I feel like we've got a lot of opportunities, and it's not really concentrated just in one business.
Great. Let's go to Nigel Coe.
Thanks, Mark. Greg, you mentioned the balance sheet's in great shape. Your pensions and you're very clean. Your liabilities have more or less gone. How do we think about the management of the balance sheet from here? The leverage is obviously very low. Are we now at a floor on leverage, and therefore, maybe buybacks would keep the leverage here, and then you lever the balance sheet through acquisitions? How do we think about the way you think about that balance sheet?
Yeah, as I tried to articulate, I think we want to keep our leverage ratio in the neighborhood of where it is today. If there was a reason for us to lever up for a particular opportunity, I'm sure we would go ahead and do that. With $8 billion of surplus cash on the balance sheet, I'm not sure that that's going to be happening anytime soon, because we've talked about the fact that we're not interested in bet the company deals at the moment. I would just say it's an opportunity for us, but it would only be if there was something really compelling to cause us to want to go do that.
To Darius, breakthrough initiatives are an increasingly important part of your future growth plans. How do you incentivize your business leaders to drive more growth from breakthroughs going forward?
I think it's twofold. The first one is, maybe it's threefold. Number 1 is the way we align our incentives for our executives in terms of a much greater level of growth and orientation.
2 is by inspecting. It's what you expect, it's what you inspect. Part of our operating systems, including my own, really dig into the breakthroughs. Frankly, sometimes we throw some out. We keep some, we throw some out. By the way, that's expected. About half of them or what we're finding about, it's a little bit worse than I had hoped, but that's okay. 60% of them fail so far. 40% of them are quite good and survive. I view that as very, very healthy. I think it's, again, having that discipline. Back to Julian's question, sometimes you got to just say, "That's not working," and have the courage to say, "That business isn't a Honeywell business," or, "That breakthrough isn't working." It's very much reinforced through our operating system. I have my strap reviews with all the GBEs coming up in July.
They're also expected to present what they're going to do with their GBE strategy. We reinforce it both with incentive as well as how we operate the business.
Let's go to John Walsh, Credit Suisse.
Hello. You provided a lot of metrics around the internal digital roadmap. I just was curious about the impact it's having on potentially fixed CapEx avoidance. I mean, the ability to kind of drive productivity and prevent having to build four new walls or expand out a plant. Any impact there you're seeing?
Yeah, that sounds like more of a manufacturing angle to it. I would tell you that what we're trying to drive from a digital perspective certainly has got a specific and an intentional productivity aspect to it. To the degree that that's going to allow us to constrain the requirement for space.
Sure. There are actually two levels of waste in the system. One is inventory and one is underutilized capacity. With a digital transformation, we attack actually both. Yeah, it will be a positive driver.
Got you. I guess a follow-up on tariffs. You noted how you were watching the short cycle businesses. Obviously, you had contingency plans in place for the escalation. There's a lot of questions around the duration, and how the resolution could look to the current tariff situation. Are you changing or throttling back any of your purchasing at all because of that? Is it you're running the plan in this kind of new normal?
Well, we've been working on the tariff mitigation strategies and the potential impacts for that for some time now. Probably, I don't know, six, nine months maybe. As we entered into 2019, we had already dimensionalized what each of the individual lists may be. We'd already had plans in place on the shelf ready to go. As list three has now gone from 10%-25%, we've certainly enacted anything that we had that was waiting in the wings. List four is in, I think, a bit of a quiet period. Could take 30 to 60 days, I think, from what I've been reading before, perhaps that may come into effect. We have the plans and strategies aligned to how we're going to combat that. In fact, many of those things we put in place in anticipation of that happening.
As we highlighted in one of our earlier discussions, we don't see that as a material negative impact to our guidance. How long does that persist? That's a very different question, and we'll have to see how that plays out.
Yeah. I think my concern is a little bit broader than that, because individual tariffs, whether it be list three or potential enactment of list four, we have a path to deal with that, and we've been preparing for that path. Granted, if list four gets enacted, we've got a little bit more work to do, but I'm confident we're going to be able to mitigate those. I'm a little bit more worried about the global economic environment, and is that vector going to change? So far it hasn't. We're not seeing any dramatic changes in economic conditions throughout the world. Dealing with the tariffs that we actually are either visible or potential, we have a path. I think a little bit more about what's going to happen to global economy.
Is that going to continue going, or are there going to be some potential a cold or even worse a flu? If I have a concern, it would be that.
Yeah, that's why we highlighted it's the U.S., China, U.S., Europe, Brexit, all of these things. It's just more than we've seen in quite some time to consider.
Go to Cliff Ransom.
Thank you. First time, I can't wait to have a conversation with you about VMI as you can probably imagine. Darius, all of this, everything you've talked about today relies, and you talked about talent. You didn't give us very much detail on how you think about that. What kind of metrics do you use for employee engagement? How do you feel about them? How do you think you can amp that? You're in a process, I've said to you before, this is a revolution at Honeywell over the last 15 years, going from basically either discrete or process to what's much more like flow and continuous. That requires a very different mindset from everybody that works there. How are you dealing with that issue, and how do you measure it?
That's a good question. I think, first of all, one of the things that we want to make sure that people understand is our eight behaviors are in three principles. We didn't talk a lot about that today. I talked about the three principles, which I think are the ticket to entry to work at Honeywell. If you don't believe in those three principles, you simply can't work here. The eight behaviors are important too, because although I don't expect everybody to excel on the eight behaviors, these are the kinds of things that we value at Honeywell. I'm not expecting everybody to be perfect and proceeding in that direction, I want everybody to make some progress every year. Frankly, I don't pretend and say that Honeywell is for everybody. It isn't. It's for the people that can identify with those eight behaviors.
I can assure you, as Torsten, who came in and joined us last year, he looked at all that and he said, "That's me. I like that kind of culture." There are others that may say, "That's not me." Both of those are okay. We're totally comfortable with that. People have to make their own decisions. In terms of talent and skill set engagement, we measure that. We do want to give more back to employees when things allow. We want to provide careers for employees. We're passing that aligned with benefits that I think fit that desire. For example, last year, we extended our maternity and paternity leave. Why? Because we want to make sure that during the ages where parents, both mothers and fathers have kids, they have some time to spend with their young ones.
We're trying to align with this mindset that I want people who reflect Honeywell values and behaviors and are excited about winning and doing great things for the world to be here for their whole career. That's the real objective. Yes, we measure things like employee engagement and attrition and so on. All those things are the basics. Then also in terms of recruitment, I can tell you. I'll give you Torsten as an example. He knows this. I looked at 32 people before we actually made an offer for an ISC leader. That's not an exaggeration. We're extraordinarily selective when we recruit senior executives. You have to have the right skill sets, the right intellectual curiosity, wanting to make a difference, and fit with our eight behaviors.
All those things combined is kind of how we're trying to manage our most important asset, which is our employees.
Thank you. Just one quick follow-up, if I may. Have you ever talked, even if just intellectually at the board level, what you would have to do differently to grow at 5%-7% organically as opposed to 3%-5%?
Yeah. Well, I'll go back to the human capital, which is, part of it is a lot of what we talked about today in terms of the actual what and the how. I think your question refers back to the human capital, right? Because those skill sets are a little bit different. Honeywell has always been a company that promotes from within, and it's going to continue to be that way because I always want to promote from within and make sure that our people have a career path for the future. Having said that, I also felt back in 2016 when I took over as COO, that we needed to bring in some external talent into the organization, into leadership roles. You look at this stage, you have kind of two and two.
You have two people that are a little longer term Honeywell, two that are relatively new. I think that creates the right mix. I can tell you, and Mark's in the audience, he's been pretty busy in terms of augmenting the great people that we have at Honeywell with some new skill sets, whether it be digital skill sets, whether it be ISC excellence. I think that's a very healthy part of our process, is to not have the arrogance to say, "Well, we do everything the best." I think we want to grow from others. We want to learn from others. I personally spend a lot of time reading things about how other CEOs do things, the successful CEOs. One of the things we want to continue to be is a learning organization.
This is Martin. Thank you. Neuberger.
Thank you. My question is, today's presentation is permeated with Honeywell Forge and Honeywell Connected Enterprise and the benefits it derives to the customers. Honeywell builds, makes chemicals, Honeywell operates buildings. How have you all adopted these tools internally, and what benefits are you seeing, and maybe have the business leaders speak to that? In other words, are you eating your own cooking?
We are eating. We have a term for it. We call it eating our own dog food. Just as an example, Vimal can maybe add a bit more color to this, we have 200 buildings within our portfolio, we've deployed on 16 large campuses, the Connected Building Solution, this one being one of them. That's helped us drive up to 20% energy savings within our portfolio. We work directly with our corporate real estate team. We go through their procurement process. It's legitimate. We've got to have the best solution at the best value for our real estate team to actually adopt the solution. That's one example. We've also deployed Connected Plant solutions in our own chemical facility in Texas, and Rajeev can talk to that and the impact that that's had on our own operations. Torsten, of course, is deploying.
He talked a bit about data analytics. We're deploying our Connected Plant solution within part of his ISC transformation. We absolutely believe in our own cooking. If we couldn't talk to a customer legitimately about the benefits that we think our solution can bring, we won't deploy it ourselves.
Yeah. I totally agree with Q. Just to reinforce it is, I think we would lack credibility. In [SECCO], we have all these Honeywell Forge solutions, whether it's be for aircraft or for industrial facilities. Say, well, any given customer should ask, "Well, where are you deploying them?" within Honeywell? The answer is nowhere. We kind of lose all credibility. We're very much our own kind of test cases, and it's the right place for us to learn, because I would rather learn of our own installations than necessarily be doing a lot of that learning of our customers. That's part of the requirement.
Yeah, Darius, maybe I can add a couple of examples. We've had both point solutions and entire factory IoT applications. If you were to go to our Greer facility, from the front door to the back door, we took existing sensors that were in the system and capitalized on that from an automation standpoint, and actually had less than a one-year payback. As far as the connected aircraft, you can only imagine that Darius, I hear occasionally from Darius when the high-speed internet is not working on the aircraft, on his G650. There's lots of applications that we've used from an aerospace perspective.
Okay. Where's Jairam? Jairam Nathan from Daiwa.
Torsten, just as you kind of try to consolidate facilities, distribution centers, how do you balance that against the risk of tariffs? You want to build to avoid the tariffs, or you want to build everything locally. How do you kind of balance those two?
I think the strategy is more to really have a simple supply chain as much as we can. It's not so much built around tariffs. Still, we will have a pretty diverse footprint, so we will never put all of our eggs into one basket. That's not going to happen. There is opportunity in many areas of the world where we have four or five warehouses in the same place, and maybe two would do. I think that's the level of simplification we are thinking about right now.
The other question was on pricing. You guys mentioned margin expansion would come more from the gross margin side. Where do you see the most opportunity in pricing, or is the margin expansion mostly coming from more software mix and things like that?
Well, I think it's certainly software mix is going to help in terms of margin expansion, but pricing opportunities come from innovation. This is all about innovation. It's a very simple formula, which is the more value you can create for customers, the more value you can capture for yourself. That's why, for me, innovation is the lifeblood of Honeywell. Once we stop innovating, we're going to have a problem, and that's going to be at the forefront of everything we do, because it drives organic growth, it drives margin expansion, it drives an R&D team. I would say that that's critical, and that gives us the license to capture more value.
Yeah, we don't want to over-function on just one area either. We want to do pricing. We want to do direct material productivity. We want labor productivity. We want to tackle this on all those fronts. I don't think we're really going to angle into one and forget the others.
Okay. Let's go back to Scott Davis.
Darius, you have, I think it's slide nine, you have these three breakthrough things that you mentioned. Quantum computing was one. I don't recall you ever talking about quantum computing. I noted it says $50 billion opportunity next to it or something, which is a little eye-popping. What does quantum computing mean for Honeywell, why are you even positioned to participate in that world?
Yeah. We've actually been incubating this one for a while. I mean, this actually precedes me. Dave has been funding this. It's been sort of incubated and sponsored by Anne and her team. It's sort of become mine. It comes from the fact that we've had a lot of great innovation, which is differentiated. We had an R&D lab that it was part of ACS, that it came up with some really interesting technologies that we believed were differentiated. Frankly, I believe that we can monetize this. The reason we haven't spent a great deal talking about it is because we're pretty far away from revenue. The only reason I brought it up today is that I actually see a path to revenue within 12 months.
Once we get to see a path to revenue within 12 months, I think it's time to kind of bring it to the surface. Now, is this going to be a financially curve-bending thing for Honeywell in the next 12 to 24 to probably 36 months? No, probably not. Do I think it has the potential to access a very large and growing marketplace and solve some unique solutions that no other computing platforms can solve? I do. That's why we're investing in this thing. We're investing at a rate that's modest. This is another example that if we just stopped investing in this and brought that money back to the bottom line, our marginal rates would look even better. You've got to seed for the future, you've got to invest in your future.
The level of investment is such that it would hurt if it doesn't work out, but it's not going to kill us. That's sort of the mentality around breakthroughs in general.
At the risk of showing how little I know about this topic. Can you just give us an example of a type of a product you envision within the Honeywell product line that relates to quantum?
For example, for a lot of the molecule research, for a lot of catalyst work that's done in PMT, and especially UOP, that's a classic application where we have a lot more computing horsepower to do in hours or days what takes months or years and the kind of computing power needed. From an external perspective, probably some of the more interesting potential customers are going to be pharmaceutical companies, which really need that computing horsepower, and they need things to be done, again, in days or weeks, not years. That's why I'm optimistic we're going to see revenue, because we're getting that kind of interest proactively. As you know, we've been relatively shy about this offering. We've just slowly started bringing it out. Others have been much more aggressive with what they have, but I'm pretty confident that what we have is differentiated and interesting.
Okay. We have time for one more. Let's end with Steve Tusa.
A lot of the commentary in the slides was about downside protection, whether it's the balance sheet. Have you thought about, whether it's sales growth or profit or however you want to define it, what you could do in a downturn? If you go into a downturn that's half as bad as 2008, 2009, what are the levers that you can flex at to potentially hold things flat? It's hard to, you'd obviously have to have various assumptions around how bad the economy gets, but I'm just curious as to maybe put a finer point on that messaging. Clearly, the macro's gotten a little bit weaker here, and who knows in 6 to 9 months where we'll be. It seems to me like you guys are in pretty good position to kind of sail through.
Yeah, no, I think that's right, Steve, because my view is the time to prepare for down cycles is in an upcycle, right? Once you get to a down cycle, then you start operating in a panic mode. If you recall, I had the pleasure of going through the oil and gas cycle in 2015 and 2016 when I ran PMT, and that was a lot of fun. I know Rajeev was there with me. He enjoyed it daily. I think we know the playbook, and we have people in Honeywell that know the playbook.
I think that it made me appreciate the issue of cyclical versus less cyclical businesses, and then really being prepared from a balance sheet, from a pension funding perspective, so that when tougher times do hit, we don't necessarily have a problem, because then you don't have the option of where you direct your cash. You have to direct your cash to either some of these liabilities, you have to direct it to your pension, and I want to be prepared. Also, I don't want to take such a huge dip in our revenue that now we're going to create a problem. Some of the productivity things we know how to do. We've done them before. We've done them in 2008, 2009. I would tell you that the recession we saw in PMT in 2015, 2016 was dramatically worse than the 2008, 2009.
As you can saw, and I think it was in Rajeev's presentation, we actually grew our margins despite actually a revenue base which disappeared, which was negative. We know how to do this, and hope we don't have to go there, but we're prepared.
Would you need to take a, like last cycle right before the downturn, you guys took a lot of restructuring. Would you need to take, you think, if you saw a recession on the horizon, a significantly bigger bite of the apple when it comes to restructuring? Or you think your businesses combined with your balance sheet, combined with what you've already done, gives you enough to kind of defend?
I would tell you that restructuring is part of the playbook. We've funded, we've been fortunate. We've got some income coming through below the line, which frankly, if we have good restructuring projects, we fund it. We can fund it even at a greater level. We're always looking for great projects, I think we probably would have to accelerate a little bit, but not dramatically.
Yeah. I would agree, I would just say that in our financial framework, we've retained capacity for repositioning. Should we have to pivot it more towards short-term cost reductions versus some of the longer-term cost reductions, we could do that. I think we're ready should that happen with capacity in our financial plan to do so. Good. All right. We made it. I'll allow Darius to make closing remarks.
Well, this will be relatively short, but maybe one commercial before my closing remarks, which is, I wish we could have timed this better, but due to some time challenges, we're actually doing a brand relaunch tomorrow. I hope all of you keep an eye out for that. I think it also positions Honeywell into what I call kind of the phase 2 of the transformation, you're going to see a lot more press about that coming out tomorrow, then for really the next six months or so. We're still going to be called Honeywell. Just not to spell the surprise, but we're positioning the brand a little bit better.
Just in terms of a summary, as I outlined, we've made good progress on the four key strategic initiatives, whether it's organic growth, continue to drive margin expansion, cash conversion, transformation to a software industrial, as well as more aggressive capital deployment. Those four things are now going to be underpinned by phase 2 of the transformation. Phase 2 of the transformations are Honeywell Connected Enterprise, Honeywell Digital, ISC transformation, continued work on the portfolio, and certainly the most important element, which is continued focus on innovation. We're very confident in our future. All of that is also supported by an extremely strong balance sheet, which we have a lot of firepower left, but it's also what I call a safe and recession-proof balance sheet, such that we're not going to have to worry about it during a downturn.
Then last, but certainly not least, although we're a performance company, we're also a company that's very much focused on ESG, and we bring a lot of great things to humanity, bring a lot of great things to the planet. We want to have people stay in Honeywell for their whole career, and we have a very diverse workforce. On that note, I'll wrap things up, and I'm very confident in saying, although we've done some good things in the past, the best days are still ahead of us. Thank you.