Honeywell International Inc. (HON) Earnings Call Transcript & Summary

[Presentation] Welcome to Honeywell's 2023 Investor Day. Please welcome Vice President of Investor Relations, Sean Meakim.

All right. Good afternoon, everyone. Welcome to Honeywell's 2023 Investor Day, which we're very excited to host here at the NASDAQ market site in New York City. It's great to see so many familiar faces. I don't know, we've seen all of you in one room in a number of years. So really great to see. Honeywell first listed our shares on the NASDAQ in 2021. This morning, Darius and Vimal had the opportunity to ring the opening bell along with their leadership team and group of 30, 40 employees of Honeywell. It's been a great partnership with NASDAQ. So I want to thank NASDAQ for their great partnership with us so far. We have a lot of great content to share. But first, you all just take a moment, just check your phones and make sure you silence them for us, please. For those listening on the webcast, you'll be able to follow along with the presentation as the slides are presented. And now with the required statement, today's webcast and presentation materials, including non-GAAP reconciliations, will be available on our Investor Relations website at the conclusion of today's session or about 3:30 Eastern Time. From time to time, we post new information that may be of interest or material to our investors on this website. Our discussion today will include forward-looking statements that are based on our best view of the world and our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings, okay? With the formalities out of the way, let's turn to the agenda. We have a combination of presentations and thematic panels lined up for you today. Given the condensed format, we don't have any official breaks. So if you need to get water, use the restroom, feel free to do that as you need to. I'll be the moderator of your panels -- of the panels for the discussions today. We have a wide range of leaders across the businesses. We'll leave time for some of your questions at the end of those panels. Following today's presentation, you'll have the opportunity to spend time with some of our leaders from Honeywell Connected Enterprise. We have several demonstration booths that will be available during the cocktail reception. Each station is equipped with a subject matter expert, someone running the business as well as one of our executives, and you got to see a customer -- a customer video as well. Honeywell's executive team will be available for continuing the discussion beyond the presentation. So looking ahead of the lineup today. You'll hear presentations from 4 of our key leaders and the governance room is pretty familiar with Darius, Vimal, Greg and Anne. And then during the panels, we get a chance to see more of the breadth and depth of our bench. As you see a number of our leaders across our different businesses and among the leadership team. And so with that, let's get the day started. To kick things off, I'll bring up Chairman and CEO, Darius Adamczyk.

Please welcome Chairman and Chief Executive Officer, Darius Adamczyk.

Well, good afternoon, and welcome, everyone. Just a moment of levity. Any succession fans in here? So I ever see how they did their Investor Day? I did not get inspired by that. I don't think that would be a good idea, but it was interesting to say the least, but nevertheless. Maybe a couple of things before we get on with the real content. And maybe this is a good thing, but we made 2 announcements this week, and I don't know if any of you noticed, but both of them really have the potential to impact the world for the long term. The first one being progress in terms of our Quantum computing technology. And this is the first time that anyone has been able to create natively fault-tolerant qubits. And that is a breakthrough that nobody, no one has ever been able to do. And we think about the future of quantum computing, NLP, natural language processing and AI, that's really what's going to enable it. And we are -- maybe all of us sort of who are not technology qubit may not understand, but I can assure you if you talk to anybody that's fully aware of Quantum technology, they're going to tell you that's real breakthrough. The other breakthrough that we announced this week. And when you think about green fuels and particularly SAF, one of the core key limitations is feedstock, which is used to be greases, oils and fats. And the real issue with green fuels is how are you going to get feedstock? Where is it going to come from? Well, we now came up with a new process [ e-Refining], which basically uses as green hydrogen and CO2 to create SAF, to create green gasoline, green diesel. That changes the game completely because you're not now limited by feedstock. And just to give you a statistic, and Vimal and I talked about it this morning. In the last 12 to 14 months, we've won 36 green fuels projects, and we anticipate 50 before the end of the year. So that's the kind of position, that's the kind of technology that we have in terms of positioning. So just kind of a little -- I didn't want that to sort of slip by because they were pretty -- 2 pretty important announcements. I'm going to spend a little bit of time talking about the period that I was CEO and Vimal will talk about the future and some of the great things that he's going to do. I think it's safe to say that during my period, we focused a lot on self-help and transformation of Honeywell internally because frankly, Dave did a great job bringing the company from what I call break-fix state to being a respectable company. But I wouldn't say it was a streamlined, contemporary, digitized, well-organized company. He did an incredible job in terms of the accomplishments that he did, but to position it to the next stage of growth and innovation, it needed to change, whether it's through our ISC transformation, whether it's through our Honeywell Digital, through the creation of the Honeywell Connected Enterprise, which is our software business that Kevin leads. And these things have successfully transformed Honeywell. Our Connected Enterprise business has grown 15% since 2019. Maybe we don't talk about it often not, maybe we should, but it's actually been a really big success and that kind of growth rate is accretive and it's margin accretive to what we do. We actually did 16 acquisitions, 5 divestitures or spins. We consistently beat our peers from a TSR perspective, we beat the XLI 5 out of last 6 years. I wish it was 6 for 6, but reality is it's 5 out of 6. And what I'm going to do next is, I'm going to be the Executive Chairman, which I'm actually very excited. I am going to add value to Honeywell. It's not -- it's not a Queen of England position. I am particularly going to be contributing and helping Vimal with lot of the BD work, a lot of work on strategy, customer outreach and so on. He's clearly going to be running the business. But I'm there to kind of take a little bit of the workload off and help them with some of the things and really assist them in any way I can. And then lastly, but maybe most importantly, hopefully, all of you get a chance to meet Vimal. He is a tremendous leader, he's got a great track record at Honeywell, 34 years at Honeywell, and I personally have known them for more than a decade, and he had a great working relationship. All of you have seen this value-creation framework, 7 layers. I'm not going to read this to you, but you should kind of take away 2 things from this framework. The first one is Honeywell is always going to be about health, self-help and transformation. Simple -- the reason is the investment returns on investing yourself when you know what you're doing is superior to anything else you can do. We compare that versus, let's say, M&A, the returns on that are substantially greater. They're not even in the same quantum. The second which is accelerator is the how. The 7 things are the what. And we're always going to enhance accelerator and make it better and more compelling and change it to keep the company a contemporary. It started out under Dave, he called it HOS or HOS Gold, which was primarily focused on integrated supply chain, transformed into a lot of other elements, I'll talk about in a minute. And then Vimal is going to take it yet to new heights. So how did we do? What was our performance? If you take a look at our performance, we kind of talk about the 3 errors, the break-fix error. We'll sort of a low single-digit growth rate, good level of margin expansion. What we've done is really changed that. If you allow me to exclude 2020, which I think should be allowed to do, it's grown mid-single digit every single year, and then we've expanded margins on a continuous basis. And then what Vimal is going to do is, he's going to take that out growth algorithm up from here, and he's going to explain exactly how. But this is a fundamentally different company today than it was in 2016. And it is significantly a much better position for the future. So let's talk about portfolio evolution. Probably the obvious things, Aero was a small part of our portfolio than it was back then. Performance Materials and Aero are about the same now and obviously, SPS and HBT, are the other segments. The other key thing here is that in some of our bigger acquisitions have actually done incredibly well, whether it be Intelligrated or Sparta, you see that 15% compound growth rate for Intelligrated. Just last year, we grew just about 50% in Sparta, so they've been really great investments and we've integrated them well. But maybe proactively, I want to address an elephant in the room because some of you will probably -- I'll save your time on a Q&A, which is, why didn't you do more acquisitions? And there's 3 reasons, why? Let me go through them all. The first one is, if we take a look at the multiples that were paid in the last 5 to 6 years, you can see that there's a significant difference in the multiples paid versus the past -- the prior 5 or 10 years. And what you have to do is you have to then work that math backwards to say, what would you have to do to actually generate that kind of a return? Well, even when our -- some of our competitors buy a company, we actually do that math. And sometimes, it really leaves us scratching our heads, are you really going to generate compelling returns for your shareholders? I know it gets a lot of headlines, but there's going to be time to pay back on that money, and you're not going to know it for 2 to 3 years, but it is going to show up. The second reason, we love our portfolio. We have a lot of confidence in the current portfolio. We just committed to you, we're going to do 4% to 7% organic growth rate, and we're not in niche markets. We're in big markets and that's a function of the fact that we've transformed the company. We're focused on innovation. We have utmost confidence in what we're going to do in terms of both productivity and top line growth. So when you're going to grow a company of our size at 4% to 7% in core markets, we don't feel like we have to do acquisitions. And the last and maybe as important reason as any, we're really focused on getting ourselves ready to do acquisitions because you have to be well streamlined, organized. You have to have a digital footprint, a manufacturing footprint that makes sense. We have to do a lot of work to transform the company to get it ready. The probability of having a successful post-merger integration once you do that kind of work is dramatically higher. When you integrate something into a mess, it doesn't -- it's not going to create great returns. So what did we do? Some of the transformation initiatives. These are maybe the 3 of the biggest ones we've done. These aren't the only 3 because we did a lot of work on breakthrough initiatives, innovation, commercial excellence and so on. But these 3, I think, really stand out. Supply chain, just to give you some statistics. We shut down about 38% of the sites in which we operate, and we improved our profitability per square foot by over 20%. And the ISC transformation is not just about footprint. We also digitized everything we did. We have a common platform. Everything is done through the use of analytics, KPIs. Torsten today can tell you exactly what's going on in any one of our facilities. We're doing our supply chain planning, are matching my supply of our demand, our [ SIA ] planning, the level of sophistication that's in our supply chain is exponentially different than it was 7 years ago. Honeywell Digital, probably our most ambitious initiative. When you can go from 2,800 applications, 1,700 websites, 160 ERPs, no data strategy, no data cleanup. No common processes. Every SBG, which is our business units had their own IT strategy and IT platforms that they use. And now when you can do that, it actually transform it. And everybody across the whole corporation uses the same thing and you go from 160 ERPs down to 10 or 12, whatever it is. That's a fundamental change. And by the way, all the data that we now use comes from one place -- our enterprise data warehouse. I mean I remember anecdotal when I first started -- and I well, it wasn't even with Greg then, but his predecessor, I'd say, hey, run me some analytics for some business issue would literally require 7 financial people. It will require 8 sources of data and then they would pull together 10 spreadsheets to give me an answer. You know what happens now? We go to one source. It's automatic, and we can pull information data in a matter of seconds, things that would take days to do. That is fundamentally a different business. Connected Enterprise continues to add value through innovation, through our installed bases that we have with our customers. And the results speak for themselves. The business has grown 15% compound annual growth rate, and at a margin that's net accretive to overall Honeywell. Vimal will tell you what he's expecting from HCE in the future, and I think you're going to find it. But we didn't just focus on the P&L statement. We're also focused on the balance sheet. So if we derisk the pension plan, we're now funded at 125%. We match the liabilities. We've effect fixed income stream. So the probability of us ever needing to fund our pension are very, very low and probably near 0, and we'll probably have a strong pension plan funding as any company in our space. The second part. We've also met some of our liabilities of some of the spins and they carry some of the responsibility for some of these liability agreements. So we were able to match the cash inflows, the cash outflows. And then lastly, but really importantly, we completely removed one of our liabilities from the balance sheet at the end of last year, that being NARCO, which removed a bit more than 1/3 of our overall asbestos liabilities. And for those of you that follow other companies and I won't name them, whenever you can remove a liability from your balance sheet, you should do that yesterday because you never know when it will actually implode and actually completely change the basics of the company. And I'm not going to name them, but I know all of you can name them. So here's a snapshot. Here's what we look like today versus 2017. And in fairness, we actually didn't look so great versus our peers from a -- organic growth perspective last year, we hit our -- but if you take a look at every metric, gross margin, segment margin, free cash flow, ROIC were better than we were and in most cases, widen the gap between ourselves and our peers. And that didn't happen by chance. That happened because we spent a lot of time, effort to transform the company. It's something that we worked on literally daily, weekly and it's something that we're -- I was personally involved along with all my business leaders, functional leaders, so we did it together. It may not be the most interesting thing to write about, but it does make a financial difference and it's probably the best return you can get on that time and investment. In every one of these presentations, there are charts that you should -- that I'm going to ask you to remember, this is one of those charts. Because if you take a look at our top line growth rate, just actually our peers are growing a little bit faster than ours. That's the bad news. The good news is, if you take a look at our segment profit growth, it's 2x our sales. And if you compare that versus our peers, we are significantly ahead of them. This is how you create value. You create value by growing your segment profits. You don't create value by growing your top line. We could actually grow a lot faster than this. But because of our technology and because we're very selective in what we do and what we don't do, and frankly, we don't take low margin jobs about an aftermarket component. We take things that either create a strong aftermarket or are profitable. And we can charge a premium because of our technology differentiation. I think that is one of the key punchlines in terms of what Honeywell is and why, hopefully, you're invested in Honeywell today. So a little bit of a review. We created about $56 billion of market cap since 2016, which I think is pretty good. Of course, I wish it would be more, but it's not a bad outcome because you actually -- if you take a look at the $56 billion created, if you look at the same number from 2002 to 2016, it's not much lower. So what we created was nearly the same thing in 7 years versus what we did in '14 or '15. And then if you take a look at our TSR versus the XLI, which is probably the best thing -- index we can compare it to, as I mentioned, we beat that index 5 of the last 6 years, and we have every intent to beat it again this year. So -- this is -- we changed our financial algorithm last year at Investor Day. We didn't do it because it was just a piece to investors. We did it because we have the utmost confidence in what we're doing and the transformation that the company has gone through over the course of the last 7 years. That's why we did it, both on the back end and the front end of the business, both on an innovation, growth side as well as productivity, digitization and so on. And we went from 3% to 5% top line growth and 30% to 50% margin expansion. And by the way, we are say matched our do, we exceeded that, we're at the top end of that. And from a margin perspective, we substantially exceeded that. We increased that last year from -- to 4% to 7% and then 40% to 60%, we achieved that last year. We're very much on track to do it this year. And looking forward to next year, it's looking like it's going to be another way where we're going to kick that field go right in the middle of that range. So we've got a great company and now as we deploy capital more aggressively, we've got a great foundation to build out. And then finally, just to kind of wrap up, a couple of words about Vimal. I've known him a long time, worked together a long time. He has a great track record. He's run some of the most complex businesses has been Honeywell. He's improved him under his tenure. He's certainly ready. He's a great leader who can take this company to its next stage and continue to create value and accelerate it. Great. That note, I say thank you and Vimal?

Please welcome, President and Chief Operating Officer, Vimal Kapur.

All right. Good afternoon. So I think I'm in a very tough spot when every eye is on me on what he's going to say. So just hold your spot. But on a serious note, I know there is a -- expectation to what's in his mind and I'm sure at the end of 30 minutes, you will -- I'll get to know a lot more about it. But before I jump into that, I just wanted to start with the point which Darius made that I really feel I'm leading Honeywell at a time when our portfolio is in extremely strong position. I really feel excited about it. Because look at the macros where we play, be it air travel, be it energy transition, automation, digital transformation or digitalization. This is where we play at the center of Honeywell portfolio. And each one of them have a long growth momentum, 15 years, 20 years or even longer and having ability to lead a company at its time is a great opportunity. And the platform we have created gives us a strong runway. So I just want to start with that point that I really feel excited about this fact that how well we are positioned here. The question is now, where do we go from here? I really look at it from 2 sides of the equation. The first is, what are you going to change? And second is what are you going to do differently, right? They're obviously going to be 2 side of the house. So first, let's deal with the left-hand side, the first 3 things, which I believe should not change, which Darius talked about. The first is our financial commitment. There's obviously -- there could be fear that the new guy come on the block and he's going to say all the numbers were wrong. That's not true. I absolutely commit to the financial algorithm we committed last year in the Investor Day, Darius reiterated that, 4% to 7% organic growth, 40 to 60 basis point of margin expansion and mid-teens of cash generation. Absolutely. We're going to do that. That's not changing. So if that question was in your mind, please erase that question because we're going to deliver on that commitment. How we do it? That mechanism will change because we need to get better, but what is not going to change. So that's the first thing. The second is how do we preserve the Honeywell's mindset on execution, commitment to outperform in all cycle , say/do, and our execution mindset that we deliver on our commitment on what we say and absolutely want to preserve that. I feel really proud to be part of the company. We performed well during the COVID year where our decremental margins were way better than our peers, even though we got hit by very bad down cycle in Aero and Oil and Gas. We dealt with the inflation with pretty good outcomes in terms of how we dealt with our pricing. And that execution mindset to deal with very diverse problems, be it supply chain issue, inflation issue, the downturn cycle, that's the DNA of the company, and we need to preserve that. We cannot just let it go because it is a leadership change and certainly want to drive that. And third is our commitment to ESG. We, as a company, has a strong commitment to ESG, both internally on what we have committed, but also our portfolio that how aligned it is to the ESG trend. So those 3 things are working well. There is no need for me to change it or poke it, if any, just make it better and keep it running. So then sort of what am I going to do different? I think there are 3 opportunities I believe I can do differently. First is how we make the organic growth algorithm up from where we are 4% to 7% growth for a business like us is pretty attractive. How we deliver on the upper end of the equation and not on the lower end of the equation? Something has to be done to enable that. It's not going to happen because I want it. We need to do something about it. So I'll talk about that first theme, how do we accelerate organic growth with more innovation? So that's my first focus area you can also imagine that's a little natural, given my huge background in the company. I will offer a lot of point of view on where we should go, where we should not go and that's kind of a natural bias I'll have. The second is Honeywell Operating System, which we call Honeywell Accelerator. I believe it has more runway to add value to Honeywell. It's not that we are done. It's always you can be a bit speculative that all large companies will call -- talk about operating system, but we believe in it. We practice it. We're going to make it better and it's going to become another source of profitable growth of Honeywell. So that's the second theme, I'll talk about it. And third is a portfolio that the transformed Honeywell, which is more nimble, which is more digitized, how do we really leverage that and further improve our portfolio? We make our portfolio more in contemporary, and we deploy our capital in a smart way. So I'll talk about those 3 themes, and hopefully, you get more ideas about my thought. So let's move to the first theme. How do we grow better? What can we do differently? I think there are 4 things we can drive different to drive better organic growth. But it starts with a strong foundation. I cannot forget the foundation we have in automation and control, digitization and sustainability. We've got a great start, so we need to build upon that without distracting it. But the 4 things is, first is really driving our innovation playbook. I believe you can smartly invest R&D capital, and I'll talk about that in my chart that if you spend our R&D money differently, you can grow better, that's Idea 1. Idea 2 and 3 is really overdrive our focus on sustainability and software, something we do well, but this is a mega trend on which we want to ride building upon our strength and finally, we maintain our strong position in high-growth regions. When these 4 things come together, they allow us to perform at upper end of the algorithm of 4% to 7%, which we are really committed. So let's talk the first one. What does the Innovation Playbook means? What I'm trying to do differently here? If I look at this chart, the X-axis is offerings, the Y-axis is markets, our customer. And the bottom left-hand side corner, where you're serving your current offerings to current customers, you have to invest R&D dollars there because that's where our business is today. You can't say it's a bad idea to invest R&D dollars and keep your new product vitality -- NPI vitality. That's what we always have done well. That's why we keep our share that another evidence of that is that's how we got our pricing because we do perform better than our competition in our core products. So something we do well. What we're going to do differently is really invest into opposite end of the quadrant of this chart, building offerings for our existing customers by building new offerings. What are the examples of that? What are we going to do new for our existing customers? Selling more software. Our whole Etsy's strategy is primarily building new offerings for our existing customer. That's a very foundation of our software business. Are growing our sustainability offerings for our existing customer is a very foundation of it. So that's an example of doing new offering for existing customers. On the Y-axis, you sell your current offering to new customers. What are the examples of that? What are you going to sell? What do you have to get a new set of people? Sensors for the EV cars, new markets, but we have sensors today. Solstice for heat pumps, heat pump is a new category, but we have Solstice molecule. We can create application for that. Or as defense and space business is expanding outside the U.S., it's a good news for us, we can sell our products to them. So there's some work required there. The fundamental strategy here is very simple. We invest more money in those quadrants and increase your served available market in a very conscious manner. It means you really drive that spend tops down and make sure that you are having the constant impact of that year-after-year. And the way it works as I've seen in my earlier life is the compounding effect really plays. If you start with a new segment, you may start with $50 million. It grows to $100 million, it grows to $200 million, the compounding effect really makes it very attractive in year 3, 4 and 5. So really spending your money differently. One point I want to highlight here is we will maintain our percentage of R&D spend but as we grow, hopefully, we have more money to spend automatically. It's not that we're going to raise our R&D spend. So percentage remains more or less flattish, but we spend it more smartly. Before I walk off from this chart, the breakthrough initiatives remain important. This is where we are investing R&D dollars, new customers, new markets, new offerings. It's important. This is creating higher enterprise value. These play out in 5, 7 years' time from now. Quantinuum is going to play, Urban Air Mobility is going to play -- green hydrogen. We are investing in that because eventually, those trends are going to occur, and it's important to invest because Honeywell has to be good today, good in 2 years from now and good in 5 years from now, and we need to just play all those cards all the time. So that's point one, how we invest smartly in our R&D. The point 2 is, how we improve our position in sustainability? Now we already have a strong position in sustainability in our portfolio today. And the way to look at this chart is, start at 9:00 position in measurement and reporting. Every customer needs to have real-time measurement of emissions because of reasons of more reporting is going to come into the [indiscernible] very soon. And it's almost evident that you need to pay more attention to your true baseline. In emerging opportunity, some market which we are building and growing. So we really believe in that, followed by energy efficiency. Once you measure it, you want to reduce its consumption. There's a lot of discussion on energy transition but I always remind people, it's better to first reduce what you consume before you transition it. And we are really good in energy efficiency. Honeywell has been a leader in energy efficiency in plants, in planes, in buildings for years, it means that segment is naturally going to grow. And I call between measurement and energy efficiency, more of energy management business. This is not an energy transition business. Energy transition business really starts in the red box here which is really 2 components of it, electrification and net zero solution. Now when you think of electrification. The immediate point comes is Honeywell is not an electrification business. We are not in solar. We are not in wind. We are not in grid. So what's Honeywell going to do in electrification? We do use -- use cases of electrification. As electrification happens, there are new stuff, which is coming, and we can play in that, EV cars, for example, as I mentioned earlier, build more sensors in that. That's an outcome of electrification. Our energy -- as more energy is putting into renewables, you have to store it, energy storage requires controls. That's an outcome of electrification. So we are consciously improving our content, our focus on utilization of electrification. It's a smart place for us to be. We're really excited and you talk -- see us talking a lot more about is net zero solution. We have pretty strong conviction on how the world will need renewable energy -- renewable fuels, I'm sorry, carbon capture, hydrogen, that's something which is increasingly becoming an important for our customers, and we are going to improve our play in each one of them. Darius shared some stats with you on renewable fuels, carbon capture, we have made big successes. It's allowing us to take ourselves to the new segments. We talked about Sustainable Technology Solutions segment in PMT revenue in last Investor Day. We talked about $700 million revenue from that segment in 2024. You see a new number here. It's $1 billion in 2026. We really feel convicted about it. This is really working well. There's more and more spend in these areas. And we think we are on the right trajectory here. And my goal is to create more and more seeds of these sustainability-driven businesses in Honeywell, be it in buildings, be it in aerospace, be it in SPS. Every part of Honeywell is impacted by sustainability and really keeping our focus on the segment is going to give us higher growth rate because you are consciously investing where the growth is. So that's the second place to go. The third place is software. We started our effort on software in late 2018. We have stayed on it. This has been something which hasn't started -- stopped by many companies, but we have stayed on it. The fourth is put very simply, which is our IoT platform is operational system of record, and it really solves customer problems. It's not we want to be in software business because it's fashionable to do that. We do it because our customers have problems. We supply them a lot of products. There are some problems they can be solved because software can solve those problems better and that's the reason we are in the software business. So those problems are on asset utilization, they are on cybersecurity. They are on sustainability. They are on worker productivity. And those are the solutions which we bring through our software business. It's really in taking our know-how and building an industrial software business. We talked about building a greater than $2 billion software business, and we are on a path to that. We will absolutely deliver on that. You can question why $2 billion matter for Honeywell, you're a $35 billion-plus company? Why are you so -- I think there are a couple of reasons. I'll give you 3 reasons. The first is the growth rate for software business is likely in the ZIP code of 3x of our base growth. So it's going to grow 3x, which gives momentum to our growth. The margin rates are almost 1,000 -- 10% higher, 1,000 basis points higher from our current base. And when we do that, there are not many industrial software company of $2 billion size. We are not competing with Microsoft or Salesforce or SAP. We are competing with different peers and building a different segment for ourselves. So I think all coming together really gives us strong conviction. This is going to enable $750 million of growth over the next 3 years. That's the kind of goal and target I want to set for myself, and we want to deliver on that. And it's going to come on from new products. This is all from new products. We are not on an acquisition mindset here. We're going to go and acquire it if there's a tuck-in, we'll obviously do it, but it's very organic growth-driven model. And the part of our excitement here is that's the reason you will have demos here, right after 4:00. So please have some sneak peak of some of our new stuff, which is out there. And the last and not the least is Honeywell focused on high-growth regions. We always have done well in high-growth regions. It's $8 billion of Honeywell revenue last year. We will maintain our double-digit growth in high-growth regions. The construct here is also very wide. We have a portfolio in which we have a pretty balanced revenue across multiple regions, Middle East, India, ASEAN, you can see the list here. So we are not really dependent on one geography. There is a concern that as China saturates and geopolitic dynamics will do what. It will do what it wants to do. We will focus on growing our overall portfolio in emerging regions from our well-tested strategy, local products, invest more in local products, invest more in local leadership, more localization. That's really has been the name of the game. So all those really come together and really give us confidence on this 4% to 7% algorithm. It's smarter investment in new products, continue on the path of sustainability software and high-growth regions. And another lens I look at the business, how we should spend money is this another lens for you is, all businesses are not created equal. There are segments in Honeywell, which are growing or will grow double digits or double-digit plus. They are going to be in our software business, they're going to be in our sustainability business. So obviously, we should invest more there. That's a natural bias anybody will have. Then there are businesses which are growing GDP plus, so they should get the full care and attention and finally, the rest of the portfolio. So this is another lens. When we look at the growth model I presented with a careful selection of what you do, you really end up having a strong conviction on that 4% to 7% organic growth, and hopefully, we deliver on the upper end of the equation in every year. So that's the first part of the story that how we drive and focus on growth better. Let's move to the second theme now on Honeywell Operating System. What I'm planning to do differently here? The Honeywell Operating System is not new. Dave started it in 2005, heavily focused on supply chain. He did a great job to make our supply chain look consistent. Our plants were using Kaizen, Lean, Six Sigma, all those tools so that we are more productive. And it was shown up in the productivity in Honeywell P&L. That was a 10-plus year of great run. Darius added the scope of it. We added commercial excellence processes, customer experience to it but we heavily invested in digital in that time because writing process is step A, when you digitize this, the repeatability improves dramatically because you have less point of people not using it. And where we want to go really is the step 3 is end-to-end business model standardization, we see there's more value to capture there. Now that sounds a mouthful. Looks like I'm -- presented a new thesis, but it's more than thesis. I think it's a reality. We look at Honeywell and 4 business models. $6 billion of Honeywell is projects businesses, spread over multiple segments. They are in Aerospace, they are in PMT, they are in HPT. They're in SPS. $7 billion of Honeywell revenue, and these are rough numbers, but pretty accurate, close to accurate, $7 billion of Honeywell is services, about $21 billion of Honeywell is shipping products and about $2 billion is software. Now if you are able to run this business consistently with the best practices, having a consistent global design model, you create incremental value and that incremental value shows up in 2 places. It shows up in terms of various foundation for profitable growth, but also lifting the margin of underperforming businesses. So it's basically -- it's a 2-way game, that you are able to run everybody at the same momentum, but lift the people who are moving at a lower speed. So GDM means what? Let's drill into it. What does this Global Design Model, things like a lot of process works, Six Sigma type of work, it's much bigger than that. Of course, there's a process work. You need to write the process map, but you also want to go way beyond that. You want to see how you want to measure the success of that type of business model. What does it mean to run the good projects business? Means what? What should you measure? What good looks like? What it is to have a good services business? So defining those KPIs, clearly writing roles and responsibility of the people, that's where the heavy lifting happens. And then you step from jump 1 from 1 to 2, which is digitization, you digitize that with a software platform. And many times, we are not buying the platform, which is available, we are really going to the platform what we want and encouraging the software providers to change the platform to our GDM. We are providing the voice of customer and they need to push their platform towards that, and we do that quite frequently. Then, of course, we deploy it and then sustain it on a long-term basis. So this is how the cycle really goes. And if you see the bottom example, this is a real example, the bottom right-hand side, we have deployed this in one of our 4 business models. The left-hand side, where you see that red dot and black dots are different businesses performance at the start. The black line is the average margins of those businesses. As we have deployed our Honeywell Accelerator, we are able to move up the black line to the red because everybody performance starts moving up, so that gives us margin expansion opportunity across the portfolio. So this is not a hypothesis. This is motion item in practice. And we're going to do this across Honeywell by end of the year, really making it a next move of our margin expansion. So you always thought of Honeywell have 2 tricks for margin expansion, productivity and price. Think about we have 3 tricks now. We have productivity, we have price and we have Honeywell Operating System. I don't want to leave the impression that Honeywell Operating System is only for margin expansion. It also enables growth but margin expansion is the easiest place to pick up because it's unquestionable in that case. I also want to point your attention to the last piece of M&A integration. We believe that Honeywell Operating System will become the basis on how we look at acquisitions. We have a standard against which we will look at an acquisition, how far they are from our standard? The more far they are, actually, it's a good news because you can add a lot more value. It's very clear we can lift them a lot more up by our own model. And if we are very close, we should not go too aggressive in our valuation because we are probably being -- overcommitting ourselves. This is how we will add value in our M&A. So it's a structured model rather than coming with our own conclusion on different deal valuations. So I'm really excited. I think this is going to add a lot more value from a margin standpoint. Last is now, the third theme is, how I think about the portfolio and what I intend to do there. Before we jump into specifics, I -- having grown in the company got me a benefit of looking at a portfolio with a different lens. And I look at each business or segment of business with certain parameters. I talked about NPI vitality. I believe a good measure of our business is, its vitality has to be high. And it's different in each segment. If it's in aerospace, the cycles are low, but vitality still has a relevance. If you're on a tech business like PSS, the vitality has to be high because you're always competing with the next handheld communicator all the time. So -- but -- vitality matters. Software, orientation matters. Honeywell has HCE as software business, but we have a large amount of our business which is software-enabled. So that matters. High-growth region sales matter because it shows your diversification. You're not really tied to one geography. You have roles to play if things go wrong in one place, you have more cards to play. So high-growth region diversification matters. The gross margin is something which also is important for me. We are sitting at 37% gross margin in Honeywell right now. We -- I want to put action in place, both organically and inorganically to move it greater than 40%. I think there's a clear opportunity for us to do that. Recurring sales is important. It by default, makes your business less cyclical. 1/3 of Honeywell sales is recurring today. I obviously want to work to make it higher than number. And then ESG orientation is important. No it's -- no one business will have all these characteristics but I need to have a guide post what to look for. And if you are generally holding true to these, it gives me a higher confidence. This is a business in which we can do better, we should invest more and things of that nature. So that's always my starting point. And this is going to be like, I would say, the broad rule set on which you look at current business, future business. So that's the first way to think about it. The second way to think about -- the way I think about Honeywell portfolio is rather than wearing the lens of SBGs, aerospace, SPS, buildings, PMT, I wear the lens of macros we serve and Honeywell serves 4 macros. It serves the macro of air travel in aerospace business. Large part of Honeywell is automation. Energy transition is a significant part of Honeywell, and Honeywell is increasingly becoming relevant in digitization. How do we really build Honeywell around these 4 macros is another way I look at the portfolio. What it means is that we may have to do some pruning, which is not a lot, but whatever it is, whatever little it is, it helps me to get faster to that theme is something I'd like to do and then do bolt-on acquisition to get faster towards that path. So combine the 2 that the metric I looked at the previous page and these mega trends or these macros drives the whole mindset on how we should look at the M&A framework. And I talked about some of the targeted portfolio outcomes. I want to really look at it, higher recurring revenue, higher gross margins and operating income target of greater than 25%. So really want to push the margins to that rate. Now when you want to do that, the obvious question is M&As will be required. Answer is, yes, to a certain degree, M&As will be required. We want to stay in the zone of bolt-ons. Anywhere in the enterprise, that's like indicative from $1 billion to $7 billion, if anywhere in between probably is a likely scenario. Now when we look at acquisitions, we look at industry characteristics, which are high growth, large TAM opportunity. And then the target companies, which are within that segment showing the characteristic of above-industry growth rate, higher gross margin, less cyclicality and technology differentiation. And this is not something we created this chart for the sake of this Investor Day. This is what we have been practicing for the last 2 years. Look at our 3 acquisitions we made over the last 2 years, Sparta in our software business, a U.S. digital design in Building Technology, which was a property acquired in our fire business and now compressor control. What is common in all 3 of them? It's the middle black box. They are above industry growth rate. They are all high gross margin, higher than Honeywell's gross margin. They are all less cyclical, and they're all technologically differentiated. They're not large, but they are very thoughtful and that's what you can expect the trend line. It's going to be thoughtful. It's going to make our portfolio better and that's the path we're going to keep going forward. So I can commit to you that I would not do any acquisition for sake of doing it. That's -- there's no such plan that I have a target we are going to transform Honeywell and we're going to do -- I'm not really married to some big idea. But what I'm married to is making our portfolio better and making our businesses more profitable. From a capital spend standpoint, we are reaping our commitment of capital to $25 billion. Last year, we mentioned $25 billion spend over a 3-year period. We are reiterating that now from $23 billion to $25 billion. You can see the split of that between dividend, capital spend and share repurchases and M&A. Now $13 billion, obviously, is flexed. Again, we don't have any target that within $13 billion we should spend x in share repurchases or y in M&A. I think you've seen the thesis on M&A and will appropriately adjust based upon opportunity. And our limit is we can spend more, if necessary, we have enough position in our balance sheet to go and get more cash depending upon the opportunity here. So that's another focus area. We certainly want to pay attention to. So that's kind of how I will summarize on those 3 priorities, really looking at organic growth, looking at Honeywell Operating System and constant look at our portfolio. And really, I want to leave this last chart with you again, stating the obvious that the long-term targets remain intact. We really are in a space which is our macros are pretty strong. So I really feel confident on delivering 4% to 7% growth, 40 to 60 basis point of margin expansion and mid-teens of free cash flow and then, of course, deploy $25 billion of capital in a 3-year window. And look at our results in '22 and '23, we have recently given guidance and guidance of '23 is this is kind of a summary of that, how we will perform. So we are performing in that algorithm. And my job is to stay consistent or make it better. Look, I mean, I've been here for a long time, many of you have seen, and I'm passionate performer. That's how I always -- so if history is an indication. What's going to happen? I can commit to you that I'm going to work very hard and continue to deliver results for Honeywell. I truly believe in Honeywell story. Not that I didn't get opportunities to work at different places, I did, but I always said no to my phones because I really believe in this portfolio, and we'll absolutely work hard to deliver good results for our shareholders. So thanks again for listening and look forward to connect with you guys after 4:00. Thank you very much.

Please welcome, Senior Vice President and General Counsel Anne Madden.

Hello, everybody. Welcome. So happy to have you here. I thought what I would do -- thank you, Vimal, for the great M&A to you. I appreciate it. We've had some recent investor interest in what our M&A process looks like. So I thought I'd spend a little bit of time with you today making that more transparent to you, so that you can understand what it is that we do. What I've set out on the right-hand side of this slide is what we look for, both in terms of industry characteristics and target company characteristics, but also the process that we use to generate high-quality acquisition pipeline. And Vimal mentioned many of these characteristics just a few moments ago. So I'll go into some examples in a bit. But in a nutshell, we're looking for above industry -- above-average industry growth, high gross margins, low cyclicality, attractive cost and/or revenue synergy opportunities, reasonable valuations and the ability to leverage our Accelerator Operating System. So we are looking for a lot. A lot has to come together for us to say good go. But as we curate our M&A pipeline, we focus first on our deep domain knowledge in our core businesses and in our close adjacent markets. All of that informs our strategic plans. We then focus on taking that strategic framework and translating it into M&A targets. So our M&A targets, in other words, are always aligned to our strategic plans. The strategy has to come first. There's no such thing as free range ad hoc pipeline creation. We don't allow it. If it doesn't already comport with our business growth strategies, it doesn't go on the pipeline. So let's turn to what we actually do. Our M&A approach from an organizational perspective is what I like to call a hybrid approach. We have dedicated strategy and business development resources within our strategic business groups, our SBGs and they're focused on M&A. And we also have dedicated transaction execution expertise at the corporate center focused on M&A. So together, these teams work together in a one Honeywell way to approach our M&A aspirations. So on the business side, within the SBGs, they're very much focused on the front end of the M&A process. So think about people working on the market-back approach to identifying the most attractive spaces to grow, whether that be organic growth or inorganic growth. That body of work informs all growth, inorganic and organic. They study the markets, they study the technologies, they study the profit pools and then they gauge strategic fit. This front-end work is what forms the translation into a broad screen of potential targets that we then formally evaluate and curate into a broad and deep M&A pipeline always tied to our growth strategies. So this then includes biweekly reviews with our corporate deal review Board. This is a formal body that Greg Lewis and I chair and monthly pipeline reviews with our CEO. This feedback loop for M&A enables us to prioritize very, very carefully how we spend our time and our resources and make sure that we're focusing on what we deem most important. Formal pursuit of a specific target company flows out of the senior team review and approval process. We leverage our M&A execution expertise at the center to drive best practices. So think best-in-class due diligence, valuation analysis, scenario analysis, integration planning and deal negotiations. And then post-closing, we deploy our integration playbook, leveraging our Accelerator Operating System. We appoint a full-time integration leader and dedicated business and functional expertise to the integration plan. And so we're super excited. I mean, Vimal said it so well. Accelerator is a back -- fundamental backbone for us to be able to do this better. So let me walk you through some data around what I've just described. You'll notice the funnel. We always start, as I said, with spaces and targets that align to our growth strategies. That's an inviable principle. So in 2022, and year-to-date, through year-to-date 2023 through today. We've screened over 200 public companies, about 6,600 private equity-owned assets and over 100 other privately-owned companies. And from that very broad funnel, we've evaluated some 500 potential targets. And from that group of 500, we further prioritized down to about 90 targets that we use -- that we put through our defined acquisition criteria. We utilize a scoring framework to measure each target based on strategic fit, on its growth and gross and operating margin characteristics, it's potential valuation. And importantly, it's actionability. Not everything is actionable when you want it to be. We then rank the pipeline opportunities based on -- by SBG based on the scoring outputs of this defined framework. Once we've distilled the ranking down to the top 10 by SBG, we then put those through our formal review process with our Corporate Development Review Board and ultimately with our CEO. As we prosecute the chasing of specific targets, and we learn more, we either gain conviction that we want to proceed and then we deploy resources there or we call the target from our pipeline. We don't want deadwood. We don't want that hanging out as if it's something that we would pursue or we place the target on what we call our milk run list. And this is something that we'll pursue purposefully, but over a longer period of time. The goal for us is to be very comprehensive and broadly situationally aware of all the moving pieces in our competitive landscape and in our target company universe. So that we can always be cognizant of what's happening in our spaces and things that relate to our strategic growth aspirations because we want to be aware and agile but we also want to be super prioritized and super focused. If we aren't focused, then we're not deploying our resources to what's really going to matter, what's really going to be the best opportunities near term and most needle moving for our shareholders. And then we wash, rinse and repeat this process and do the next top 10 and the next top 10 and so on. The reality is there's a lot of rejection and a lot of failure in the world of M&A. You can't be sensitive if you work in M&A. We reject a lot ourselves and we tell our businesses, thank you for trying, but we don't like that one. And we get rejected a lot ourselves. We try to pursue target companies that we think meet our criteria, and we often get rejected. So we can't transact with them if they don't want to transact with us or we lose on price to a competitor because they were more risk-loving than we were on the valuation measures. So you need a tough skin, but importantly, you need a big pipeline of ideas. If you only have a pipeline of 10 ideas and those all blow up, you have nothing left to do, right? So it's important to start really broad and have a well-informed current view of the targets in your M&A pipeline so that you can be super choosy in what we pursue and what we spend our time on and have enough there that we can withstand the internal rejection, the external rejection that is just inherent in M&A. I'd like to say you got to kiss a lot of frogs. We also spend a lot of time cultivating potential targets, oftentimes over many, many years. These are our milk run targets and we want to get to know them. We want to allow them to get to know us and the value that we can bring to them, bring to their technologies, channel to market, opportunities for their employees and then we'll work really hard to transact unilaterally with them before they're attempted to launch a competitive auction process. That's nirvana when we get that to happen. Those opportunities are hard to get to and far and few between. But when we do that, that makes us very happy. In terms of the types of deals we look at, we tend to focus on 3 primary deal types. One is strategic bolt-ons to our core assets, strong core assets. Second is close complementary adjacencies. And these are adjacencies that are identified in that market back work that we do to support our strategic planning process. So preferably in those complementary adjacencies, we've landed upon an opportunity where there's some fragmentation that allows us to do follow-on acquisitions. And then lastly, what we call growth plays. And those enable us to tap into a new capability or perhaps fill a gap in our technology road maps that allow us to serve our customers better. These are the opportunities that enable us to best deploy our Accelerator playbook to create value. You can see on the right-hand side of this chart, some illustrative examples of deal models where Honeywell can add a lot of value when we onboard an acquisition. So let me step you through 2 recent M&A transactions Vimal mentioned them as Sparta Systems and Compressor Controls Corporation. One is an example of what we call a growth play and one is a classic strategic bolt-on, but both serve to strengthen our automation portfolio. So in 2021, we bought Sparta Systems, a leader in quality management system software, which serves the life sciences industry. We deployed $1.3 billion of capital there. We were attracted to Sparta based on the nature of the space that it plays in. We tend to really like regulated and compliance-oriented spaces for software applications. We like Sparta's growth characteristics, especially at SaaS growth. And our ability to help Sparta, what we brought to Sparta was an ability to help it grow through our connected enterprise and our ability to help it grow via geographical expansion. So Sparta has been a great example of our strategic acquisition thesis and our integration execution, driving sustainable outsized growth for Honeywell. It's really been a home run. So we couldn't be happier with how that's going. And then as Vimal mentioned, just a couple of weeks ago, we announced our -- the agreement to acquire Compressor Controls Corporation, which is the leading provider of LNG and carbon capture controls for critical equipment, the purchase price there, $670 million. This is a space we know very well. We have deep process control domain knowledge in Honeywell Process Solutions. And so this one was really hand in glove for us. We are super highly confident that we can drive profitable growth for CCC in services and through leveraging Honeywell Forge. We also have the opportunity there to add new verticals and to drive geographic expansion. We have compelling cost synergies with CCC, which will buy down the EBITDA multiple we paid by 2 turns, but we also have attractive opportunities to drive revenue synergies there as well, which will further buy down that EBITDA multiple and makes the all-in price that we're paying extremely attractive. So we love CCC. It has attractive gross margins, attractive operating margins and will be immediately accretive to Honeywell. We expect to close that deal by year-end. So right down in the middle of the fairway and like Sparta, we're highly confident we'll generate attractive returns for our shareholders. So let me wrap up the M&A discussion with a couple of observations. I think it's well understood. For those of you who traffic in owning corporations, I think it's well understood that many companies do not do M&A well. The rate of failure for acquirers in general is pretty humbling. And it's something that we at Honeywell never want to lose sight of. So we always want to stay careful. We want to be vigilant, and we want to be highly selective about the deals we choose to do. I have long said there's no such thing for Honeywell as a must-have deal, and Vimal just said it, too. We really believe it. Our organic opportunities are immense. So we don't ever have to do M&A. So maintaining our deal discipline is super critical. We only want to do deals if we can do them well and we can create value for our shareowners. So we do them when we achieve a high level, high degree of confidence in our ability to deliver against our commitments and our ability to derisk and defend against a poor outcome. So we're never going to do M&A just for the sake of it. Having said that, we do like the current M&A environment. The interest rates, the increased financing costs, the tighter lending conditions all mean Honeywell with our fortress balance sheet has a competitive advantage. Driving rich pipeline allows us to prosecute the very best deals for Honeywell, and we intend to do that. We've earned our right to add attractive bolt-ons to our portfolio that will enable us to supplement our strong organic growth with inorganic growth and drive that algorithm higher. Our track record, I think, speaks for itself. We know how to execute an M&A program. We've done it. We've demonstrated we can do it. Over the last 20 years, we've done over 110 acquisitions, deploying over $24 billion in capital to M&A, and we hold ourselves accountable. We -- our say/do is high. We deliver against our commitments. We execute against our M&A process playbook. Again, Accelerator is going to help us take that to the next level. This approach has earned us a best-in-class track record of acquisition performance with the vast majority of those deals over this period meeting or exceeding our goals. We've also been proactive portfolio pruners and that's important too. So we'll continue to take an unemotional critical -- clinical approach to what comes out of our portfolio. And this is something that we review very proactively. Every year, we review it with our Board of Directors in July. As you can see, we've divested over $18 billion in noncore revenues over the last 2 decades, including our spin transactions. And so this clearing out of what's no longer core has enabled us to really reposition the portfolio for better growth and better performance, and we're going to continue to do that. Over the last few years, the work we've done to transform and streamline our company, including importantly, our Accelerator Operating System will enable us to achieve even better results as we acquire and integrate new assets seamlessly into our portfolio. So we're super excited about the prospect of doing M&A in this environment, but it's going to be smart and it's going to have rigorous execution associated with it. And if we can do that, it's an important tool for us to be able to create outsized shareholder value. So let me now turn to the topic of sustainability, if I can. So our progress as a leader in sustainability is not only a key tenet of our strategy as a company. It's long been a part of our DNA as a technology company and as an innovator. We've made sequentially aggressive commitments, but our say/do remains pristine. I am super excited to reveal that our greenhouse gas emissions reduction targets, which include our Scope 3 greenhouse gas emissions have now been officially validated by SBTi, the science-based target initiative. So we're excited about that. You can see it today. It was published for the first time on the SBTi website. So that is cool news. For each of our commitments, we have execution plans with milestones, ownership, accountability, there is rigor and detailed behind all of our execution plans to meet our targets. We've never missed a target since 2004 when we first formally stood up our program. We've always met or exceeded our goals. So we have a high degree of confidence that we will meet or overdrive our more recent ambitious sustainability commitments. As we innovate and learn and deploy our own technologies to support the achievement of our sustainability objectives, we're able to support our customers by providing solutions that they can use right now to achieve their own sustainability goals. And that is super exciting. That brings us smiles to our faces every day. We are really proud of our program overall, not just on the E portion of things, but also on the S and the G portions. And I can say unequivocally, Honeywell truly is a sustainability leader. We wanted to show you some evidence of our high say/do in terms of accomplishing our commitments. You can see on the left-hand side of the chart that we've achieved on time or exceeded the time frame to achieve our public commitments. We're in great shape on our 10-10-10 goals, which we committed to achieve by 2024. The first 2 of them have already been achieved. And the third one is in great shape and on track to be completed this year. Next up, we have the commitment we've made to the Department of Energy Better Climate Challenge, and that requires by 2030, that will further reduce our U.S. domestic greenhouse gas emissions by another 50%. And -- and these are our Scope 1 and 2 emissions. And we have a detailed plan to execute against that commitment. And then I just mentioned the SBTi formal validation of our GHG emission reduction targets. So that now includes our Scope 1, our Scope 2 and our Scope 3 or value chain or indirect emissions. And so those targets are now in place to be delivered by 2037. So great news there. I just would want to point out for those who don't traffic in Scope 3 emissions. When we make a big commitment to reduce our Scope 3 emissions, that means by definition, it's an innovation unlock. We must innovate more to be able to put in the hands of our customers, better tools for them to reduce their own emissions. So it means innovation unlock and further collaboration with our customers and co-innovation oftentimes with our customers. So it's a very virtuous thing. Our track record of meeting or exceeding our targets gives us really tremendous confidence that we're going to be instrumented the way we need to be fully operationalized that we need to be in terms of our -- achieving our goals. We've completed over 6,300 projects since 2010, and we've beaten every single one of our public targets. And once again, we're pleased to highlight that over 60% of our 2022 sales were comprised of ESG-oriented revenues and about 60% of our R&D spend were also ESG oriented. And so we're driving innovation for ourselves. We're driving it for our customers. We're using our own technologies today to support the achievement of our goals. And so are our customers. So as I said, it's very virtuous. This chart maps our targets against what we've achieved and where we're tracking against our global U.S. domestic GHG emissions. Our execution plan includes the use of our own technologies. So when I think of the buckets of where we need to further focus, we have electricity, we have combustion emissions. We have process emissions. Those are really the big 3. But we use our own technologies to achieve and ideally overdrive our goals. And a great example of the use of our own innovation is the carbon capture technology and the emissions monitoring and detection technology that we have installed in our Geismar, Louisiana site, so that's absolutely exciting for us. I can never really resist showing the green wheel. I showed this last year. I lovingly refer to it as the green wheel. But we keep adding to the green wheel in terms of ESG-oriented innovation and you're going to be hearing more about these innovations in the upcoming panel on sustainability solutions. But I just want to say so that you don't forget it. Our solutions today are helping to solve the world's most complex sustainability problems. We are not just helping you with your behaviors and your procedures. We are doing the hardest possible problem solving. Honeywell's technologies address well over 50% of the global greenhouse gas emissions today. So whether it be carbon capture or ethanol-to-jet or low global warming refrigerants, we are contributing to the reduction of millions of metric tons of CO2 emissions. So Honeywell really is on the cutting edge of innovation, not only for our environment, but also for safety and our security and what we like to say if you were outside and saw the big marquee for NASDAQ earlier today, we're making sustainable attainable right now. I also wanted to spend a little bit of time on corporate governance. Corporate governance, we take very seriously from the Board all the way on down and transparent disclosure to our shareholders is very important to us. We devote significant time and effort to delivering transparent disclosures to all of our stakeholders across all of the elements of the E, the S and the G. Our emissions data is third-party verified. We have had it third-party verified since 2011. So you really don't have to take our word for it. It's been attested to. Our disclosures comport with TCFD, SASB, CDP and so much more, and we hold ourselves accountable to an extremely high standard. But we're not just disclosure focused. We are substance focused, first and foremost. And what we actually do in the practice is of the highest quality. I mentioned our greenhouse gas numbers have been third-party verified. They're also audited. They're measured, they're tracked and they're reviewed at the senior most levels of our company, indeed with our Board of Directors. I really encourage you to take a look at our ESG report. We're -- our '22 ESG report is out there on our website. We're about to go into the throes of our 2023 report. And I think if you take a look at it, you'll be really amazed by some of the problems that we're solving and amazed by what we're doing to contribute to a better world. We also launched a few quarters ago, our Environmental Sustainability Index. And this surveys and takes the temperature of about 700 sustainability professionals to understand what the key indicators are of sentiment, it goes to their progress and their own sustainability initiatives, their strategies, their budget deployment. And this is a really interesting and, I think, insightful way to help our customers benefit as they get to tap into this huge swath of sustainability professionals, seeing what the opportunities are, the challenges and their successes. The data that we saw in our most recent quarter points to the need for much more advanced technology to support achievement of more ambitious sustainability goals. The low-hanging fruit has been behaviors and process changes, procedural changes, but it's really not enough. So our customers are now turning to innovation on green hydrogen and carbon capture and storage and improved renewables infrastructure, battery energy storage, et cetera. These are the problems that Honeywell can help them solve and they cannot meet their goals without these higher-order advanced technologies. So let me touch for a minute on the S and the G. We're super proud and excited about the progress that we've made in inclusion in diversity. In the last 3 years, we have made substantial progress. I'm really excited to say that our I&D data, which we publicly disclose, puts us at the top of our multi-industrial peer group in terms of women and those who are racially or ethnically diverse. We also stood up recently 9 employee resource networks that have almost 12,000 of our employees belonging and these networks are focused on driving employee belonging and inclusion, but also work to support attraction and retention of our diverse talent. A few years ago, we stood up what we call our diversity of slate initiative, which requires that our slate of job candidates for bands 3 and above roles include diverse candidates, unless an exception is approved by a senior HR leader. And I'm thrilled to say that we've also now deployed that same strategy and that same concept to our succession planning process for that same population. We're not just focused on bringing diverse talent in the door. We're also focused on making sure that our people, leaders are proactively identifying and developing diverse talent so that they're ready now when there are opportunities to advance. And on governance, let me just quickly point out, world-class diverse Board of Directors, 4 of 11 of our directors are women, 5 of 11 are ethnically and racially diverse. This diversity of thought and diversity of opinion in the Board intercourse really, really drives better decision-making. And it's super important for us to have active engagement with our shareowners so that we can hear our shareowners' feedback directly. We're in the throes now of the proxy season engagement. We invite our top 100 shareholders to have a conversation with us. So that we can hear directly from them. And we often have 1 or 2 of our directors, including our independent Lead Director on the phone leading those calls with our shareholders, and that feedback is brought back to our Board of Directors into -- and fed into their decision-making process. So let me leave it there. Thank you for your attention and for the shareowners in the room. Thank you for owning Honeywell.

[Presentation] Please welcome our sustainability Panel, Senior Vice President and Chief Technology and Innovation Officer, Suresh Venkatarayalu; Aerospace President and Chief Executive Officer, Mike Madsen; PMT President and Chief Executive Officer, Lucian Boldea; HBT President and Chief Executive Officer, Billal Hammoud; SPS President and Chief Executive Officer, George Koutsaftes; and moderator, Vice President of Investor Relations, Sean Meakim.

Thank you for that wild applause. We're really excited to kick off these panels that are focused on some of the key themes when you invest in Honeywell. So we're starting with sustainability. And let's start with Suresh. Suresh as you're Chief Technology and Innovation Officer, so you oversee a lot of what we're going to talk about today. In Vimal's prepared comments, he talked about doubling down innovation, particularly in the area of sustainability. So you're at the center of these efforts. We often like to say that we're trying to solve the world's most complex problems, particularly as it relates to sustainability. So can you maybe just provide some context for us of what that means? And then critically, you lay out the road map for how that's going to drive acceleration and innovation will drive an acceleration in our top line.

Sure. Vimal shared the innovation playbook which I think extremely clear, crisp about how we think about the portfolio. If you really look at our long-range technology plan, that's what I pretty much own for the company to really fuel the innovation playbook, first from the 3 broad themes: sustainability, which is a topic that we have right now; second, autonomy and controls; third one is software and digitization. Approximately 60% of our R&D spend is focused around sustainability. Now I really look at sustainability, if you really double-click and zoom in where do we invest all together, it falls into the 4 or 5 broad themes. It falls under the energy transition, primarily in our PMT business solutions business. We invest around emissions. We invest around energy management, energy storage. For Mike's business, it's all about sustainable aviation, electrification. In our sensor business, we are going to be hearing a little bit more from George. It's all about electrification, sensors, emission management. And then in Billal's business, it's all about sustainable building portfolio. So it's a wide variety. What we are pretty excited about is these are net new. You may fall under net new products or net new breakthroughs. You'll see some of them later today as part of the discussion. What are we doing little differently this time around? We knew that these things require co-innovation with our customers. I think that's something that we are primarily focused right from day 1. Second, we are deploying them in our sites, plant, buildings. And what we are pretty committed is, it fits into a sustainability and ESG report that Anne talked about. But what's also very, very important is it also fits extremely well into our growth metric that Vimal talked about. So in a way, our road map for the company, 60% of it falls into the sustainability for the future. That's where I'm excited about driving innovation, core invention, co-partnering with external world.

Thank you for that. So now, Lucian. You're relatively new to Honeywell. It's about 8 months. And given your background in material sciences, great to have someone come in and take a fresh look at the portfolio. So maybe just tell us what you learned so far? Well what's your size on the portfolio look like? And then what does that mean in terms of the long-term potential for PMT?

Sure. Thank you, Sean. So if I look at the PMT portfolio, it's certainly an extremely exciting portfolio, and I'll tell you why I'm so excited about it and why I think it's so unique. So if you think of the intersection of material science, which is what we have in our Advanced Materials business, process technology, engineering and the ability to scale up, which is what we have in Honeywell UOP and then the digital capability that we have in our HPS businesses, that intersection of those 3 capabilities really doesn't exist in another company. But having 3 things that nobody else has is not inherently valuable. What is valuable is that you can bring these 3 things together to solve some of the world's most challenging problems. And when we talk about what the world is trying to solve today around energy transition around sustainability these 3 tools are really invaluable to really drive that growth. Now couple that with many, many decades of experience and credibility around each 1 of these 3, and it really gives us a unique seat. So before I get into medium term and long term, I can just give you a few proof points from just the last few months. So for example, not too long ago, we announced the largest carbon capture project ever done. It was done with one of our very valid customers, Exxon in Baytown. So we're capturing 7 million metric tons of CO2 in that. That's the equivalent of taking 1.5 million cars off the road. So you can imagine a very serious societal impact in a single project, making 1 billion cubic feet of hydrogen every day out of that project. So this is the largest scale so far of blue hydrogen that's available, will be online 2027, '28. And it's really a proof point and I think an early adopter, frankly, in that technology with many more of those to come. If I shift the lens over to Advanced Materials. In Advanced Materials, we have a long history of investing in refrigerants. We've invested almost $1 billion between capital and R&D in the last 10 years on inventing -- really reinventing this category and looking at refrigerants from a low greenhouse forming potential impact. And so we have the best portfolio of essentially zero GWP products in here our Solstice line. But we didn't stop at refrigerants. We looked at what other applications are possible with these. So in working with AstraZeneca, we looked at meter-dose inhalers, for example. Those use a propellant today that does have GWP impact. So when compared to the legacy material that uses a propellant, we can reduce the impact by 99.9% and still have a nonflammable alternative and would really, as Honeywell are the only ones who offer a nonflammable zero GWP impact propellant for an MDI. So that is another example of an innovation. If we go on to our HPS businesses, we've worked with KORE Power, that's another example. They're a leading producer of lithium battery, both for mobility and also for energy storage. So we've delivered our manufacturing excellence platform that really creates the first digital end-to-end solution battery technology. So you might ask, was that just developed for that? Technology is adapted to that. But technology is proven technology. This is something that we've used in life sciences and in sheet manufacturing, we've brought that together and really delivered the solution. So these are just some recent proof points, but I think what has me most excited is if you look at these 3 businesses and we start looking at the convergence of the activities, and I'll give you a medium-term example around battery and energy storage. So we have electrolytes that we're working on that are based on our chemistry that we practice in advanced materials. We have membranes for batteries that we're developing for long-duration energy storage in UOP and then we have the control systems that I talked about for core power and also modular better energy storage solutions that we offer in HPS. So you can see how even on energy storage from end to end, we're starting to really fill in, in a very nice solution or something that will be very useful as the world transitions, the new way of consuming energy, new ways of storing energy. So definitely very excited about the portfolio, definitely very excited about the capability. But again, I'm even more excited by marrying that up with all the credibility and all the investment that's already been done and bringing it forward to today's challenging problems that customers truly care about.

That's great. No doubt there's a tremendous amount of opportunity for PMT. And that's maybe you just take an opportunity to think about it in a way in which you kind of cross SPG. These often come together. So Mike, thinking about your aero customers, sustained aviation fuel is a big focus for them and trying to figure this out, how does it plan their business, how to help them achieve their goals. Can you maybe talk about how that's unfolding from your customers' perspective and then how having PMT as a partner has been helping enable you to drive deeper relationships with your customers?

Certainly. Well, first of all, why sustainable aviation fuel? From our perspective, it's kind of the no regret solution for carbon neutrality in terms of jet fuel replacement. Fits right in, in terms of the combustibility of it, can tailor the properties you need to have, presents really no logistics solutions. It's here now. And what's really incredible for us is sustainable aviation fuel reflects the power of Honeywell. When you think about end-to-end [ solutions ] business in mind. We work, by the way, very closely on this, the ability to produce sustainable aviation fuel using our ethanol to jet infrastructure that's already in place. We already use ethanol to produce gasoline. We can produce jet fuel from ethanol as well. The e-finding technology that Darius and Vimal talked about, the ability to convert carbon dioxide to jet fuel using green and blue hydrogen. There really is not a challenge even in terms of feedstock availability. You combine those technologies with fats, oils and greases, waste biomass, there's not really a challenge there. And from a technology perspective, using it as a fuel is simple. So we view that as kind of a no-regrets decision and our devices will all be SAF compatible, 100% SAF compatible within the next couple of years.

And then let's think about the future of air travel. We have our Advanced Air Mobility business, $7 billion of orders. Of course, that matters quite a bit. But let's talk about not just our position in helping to create this burgeoning industry, but also some of the learnings that have come out of that process that will help feed back into the core business as we think about the electrification of air travel in the decades to come.

Yes, certainly. And just to close out on the prior topic. Hydrogen, we like hydrogen, I think, as a fuel cell, driver for fuel cells. I think hundreds of watts to tens of kilowatts, it's a great replacement for a battery. The energy density is much better than a battery. So we sort of see this bifurcated as hydrogen and fuel cells for smaller aircraft and SAF or larger but back to your question around Advanced Air Mobility. Yes, we're really proud of the fact that in the last 2 years, we won $7 billion of real business in that space. But the other thing that's really exciting and one of the reasons why I love this business is every one of those technologies, whether it's electromechanical actuation, fly-by-wire flight controls, power generation and distribution, I think e-motors and generators, every one of them has applicability in regular way aviation. We have one applications for every one of those products in other types of aircraft. And so we're helping bring this new way of flying to the market. And at the same time, we're developing products that are making their way into a regular way existing aircraft. So again, it's a great way for us to reduce the risk of that investment and to leverage it.

That's great. So turning to SPS, George, the SPS portfolio is levered to the industrial IoT. One of the verticals that gets a lot of investor attention is e-commerce automation. So we do spend a lot of time talking about that. But you also have a $2 billion sensing portfolio that doesn't get as much airtime with the investors. Maybe can you talk about that portfolio? Why sensor technology is core to a control as an automation company and ultimately why we have a path to win in the long term in that business?

Yes, sure. Thanks, Sean. So first of all, the world of digitization and the growth of is ubiquitous. We all know that. And what we always need to know and understand is that sensors play a central role in making all that happen. And why is that? Because sensors are cost-effective way to measure various parameters simultaneously to help keep people and assets safe and to make industrial environments more productive. And we're proud to have a very broad portfolio of capability that's able to do that, and we've been doing this for decades, helping to make the process automation, industrial manufacturing and health care industries be safe and productive. And we do this because we have the capability to measure various parameters, whether it's temperature, humidity, flow, pressure as well as being able to detect toxic and flammable gases. What really excites us, though, is that this technology is now evolving even further. And Honeywell is at the forefront of that. We're making sensors smaller. We're making sensors that consume less power, and we're making sensors that can even detect even more parameters. And what that's doing for us, for you as investors is expanding our addressable markets. You heard Vimal talk about one important aspect of innovation is driving addressable market expansion. We have over $2 billion of more addressable markets we are addressing today because of our sensor innovation. A couple of examples are in health care. We are already in 70% of the world's medical device companies and critical applications, but the driving growth towards at home and in physician office, safe and effective and cheap medical diagnostic and diagnostic applications is critical, and it's a high-growing opportunity. But in this topic of sustainability, we're really excited about the world of electrification. Electrification and the demand for energy through -- the electricity is going to double over the next 2 decades. And we need sensors to make that happen both safely and effectively. And one example of that is electric vehicles. Lithium-ion batteries are inherently unsafe. We know this. They actually have thermal runaway. And today, there's a 5-minute early warning signal for drivers in a car that their battery is unsafe before they can get out. The oil industry does not want that. They want earlier warning detection capability. And in collaboration with Lucian's team on chemistry with electrolyte detection and gas detection, we're developing sensors today in collaboration with automotive OEMs and battery OEMs to give them better early warning detection for thermal runaway. The second thing that excites us is around thermal and gas detection. We know that the semiconductor industry is growing immensely their investments to diversify and make their supply chain more resilient. They need toxic gas detection to be more finite, more discrete -- smaller micron levels. We're using light-based technology to enable our ability through technology through our aerospace business to actually do detection of micron level particle detection. And when you think about the world of semiconductors, they're growing their manufacturing capacity on smaller node technologies. That demands micron-level detection, gas detection, and we're able to do that. This is, as I said earlier, over $2 billion of addressable markets we're growing. The EV sector alone is over $1 billion. And we're also working on detection methods for hydrogen technology and also in partnership with both Billal and Lucian on battery energy storage. They need switches, they need current sensing. They need battery flammability detection capability. And we're partnering with a prototype solution we're working out for them as well. So -- it's a really exciting time. And for as investors, you saw in Vimal's investment framework, he wants businesses that have 40% plus gross margins. We're well above that already. We're in one of the crown jewels of profitability in the portfolio. So a $2 billion business is highly profitable and we'll grow double digit because of these investment initiatives. And we're really proud about that opportunity while making the world safer, more sustainable and more productive.

That's great, George. Thank you for that. Let's turn our attention to Building Technologies. So Billal, you're relatively new to the role leading HBT, but you're not new to Honeywell, a long time, Honeywell leader. HBT is somewhat unique in the portfolio. You've got the highest mix of HGRs, highest software uptake among with HCE and sustainability is pretty much embedded throughout the portfolio. So maybe you could just talk about your assessment of the business thus far, where you see the most opportunities and thinking about that inherent overlapping and somewhat conflicting 2 goals that your customers have, which is trying to enhance upcoming experience while also reducing energy costs in a rising energy price world.

Very good. Thanks, Sean. First, I'll start by saying how excited I am to be leading Honeywell Building Technologies. It is a strong business. It has a truly global best-in-class global footprint. And yet there's so much room to grow organically. When you think about all the new growth opportunities to create value for customers, and indeed, sustainability is one of those key growth factors. When you think about sustainability, it provides a new opportunity for us to help customers solve for complex goals. And the complexity doesn't just come from having to meet opposing goals, occupant experience and energy efficiency, but it also comes from the infrastructure that the customer has to deliver these goals in. If you think about an institutional investor like a school district, for example, you have multiple buildings. Those buildings are used for different purposes, different work schedules and most importantly, that infrastructure isn't necessarily all the same age, and they're not necessarily of the same capability. So entire Honeywell Forge Sustainability Plus solution, a ready now all-encompassing solution that is able to continuously and autonomously monitor what's happening in these buildings in order to optimize occupant experience and energy efficiency. What we can do there in that specific example for the school customer, we can do across multiple other verticals, whether it's critical infrastructure, whether it's high asset commercial buildings, et cetera. So now what you have in Honeywell Building Technologies with the strong global presence with the new exciting offerings such as the [indiscernible] Forge solutions, we are actually able to follow the money. Whether following the money means that there's geographic growth that we can go after with our strong and scalable global footprint, we're able to follow the money if there's a growing vertical or if somebody looking for improved energy efficiency or following the money where the government incentives are. So this will help us accelerate our top line growth with additional focus and it gives us confidence in delivering on our mid- to high single-digit growth commitments.

Very helpful. Let's come back to energy transition, Lucian. Maybe we could talk a little bit about some of the technologies that we have embedded, particularly in UOP across our Sustainable Technology Solutions business. I think investors maybe don't fully appreciate at times how much our core portfolio is going to be able to not only sustain energy production today, but a lot of those core technologies map quite nicely to the new emerging energy verticals like carbon capture, hydrogen, a lot of the ones that you spoke to earlier. Let's talk about maybe how that portfolio will help us bridge from today to where the world is trying to go.

Absolutely. So when you think about energy transition, it's the mega trend that's here in front of us and that really is extremely well suited for us to address in PMT. So if you look just at the world of emissions, we are able to address with our technologies today, not tomorrow. Today, we're able to address 2/3 of the emissions out there. So that is something that no other company really can state very easily. So it's really a unique position that we have. But what's even more important is, I mentioned earlier, in the portfolio and the decades of experience and the credibility, energy transition, it's the word transition. It's going to happen over time. It's going to happen at some pace. Yes, IRA and other regulations are going to accelerate it. But we will live in the world of end for some time. And what that means is we need to do a few things. One is, first and foremost, we need to improve what we've got and really improve that efficiency, improve that carbon footprint and then ultimately transition towards some kind of transition state that has a lot of angst in it and maybe some transition fuel and eventually transition to our ultimate destination. And if you look at our portfolio today, we're positioned across the board. So if we start with the most boring things, that's energy efficiency. So how do you capture that value? So that's the digital solutions, all the process control, all the automation, all our legacy has been around industrial automation and efficiency. We're adapting a lot of that technology towards energy efficiency. Emissions management, you start with the lowest hanging fruit possible, which is fugitive emissions. That's a pretty significant portion of emissions that are the valve left open, the leaky flange, those kind of things. Today's technology involves satellite, virtual reality, you get a point in time view of that. What we have and what you'll see in the demos next door, is real time. We have the Signal Scout sensors. We have the Rebellion cameras that can quantify, can pinpoint your emissions real-time, and you can reduce. These are no-regrets kind of investments that are here and there now, they can improve what we're doing today. Then you transition from there to more sophisticated solutions for example, our municipal boilers today that use gas or other fuels can transition that to heat pumps. We offer these most virtually zero greenhouse warming potential impact refrigerants that can be used, REPowerEU is big and adopting heat pumps, they go there. Then we've covered a lot of the other more sophisticated technologies, whether you're talking about carbon capture and blue hydrogen, whether we're talking about green hydrogen, whether we go to even more sophisticated like e-fuels or biofuels. We have a number of those technologies that really complete that portfolio and give really a full offering where we can offer somebody an improvement on what they do today. Transition, we have a lot of activity going on in LNG as well. We talked about battery storage and then going all the way to new fuels, next-generation fuels like SAF, for example. So I'm really excited about that complete offering that we're bringing to the table and about the front row seat that will be able to play as a leader as the world transitions.

That's great. And now we're going to -- a lot of time for a couple of questions, but just in kind of summing it all up, Suresh, maybe talk a little bit of our breakthrough initiative pipeline. I think a lot of the big headline names people are pretty familiar with, STS, HCE, Quantinuum, AAM. But what else is kind of peeling back what's behind the curtain, what's still being incubated? Let's talk about what that pipeline looks like and why that maybe gets you excited about the growth in the longer term.

If you really -- in Vimal's innovation playbook grid, Breakthrough is our standing up a new business entity, new to market, disruptive technology. That's pretty much where our fundamental focus is. Yes, you've heard about 5, 6 businesses that we have stood up in the last many years right now. What is exciting is what I see is how the pipeline is built internally. That's my job and John Waldron as its Chief Commercial Officer's job is curating and building this pipeline. We have defined them into 2 buckets. One is breakthrough execution, which we have almost closer to higher teens right now, which we continue to curate, have an independent team working with customers, which we should be starting to see some good results. And then almost 3x of that is what we call a BTI pipeline or incubation, which is where we are taking some long-term bets at this juncture. There are a few things today we did not really talk to you in George business. We are completely spending all our efforts around robotics and storage and within the warehouse industry, how would that be the next big potential for their businesses. And the same way in Lucian business, we did not talk about the smart meters in a grid utility environment with digitization and quantum keys how it could completely turn things around. So there are a number of things that are coming up. One of the things that we are doing apart from structuring the process and really fine-tuning our hit rates to improve, we also are focusing on our venture arm to say, can we take some long-term bets? Can we actually co-create and some of them? Can it improve the hit rate? That's the portfolio at this juncture. What I can say in summarize, Sean is a pipeline that we have and how we are curating, we should be starting to see a lot more coming up in the coming years.

Awesome. So now we have a few minutes left and turn for some questions from the audience.

It's Deane Dray from RBC. I was really interested when Vimal highlighted a couple areas of new focus. And the first 2 interesting emissions monitoring and sensors. And so now we have George highlighting those that looks like you're already in those businesses. Just kind of share with us a bit, I mean, those landed on top of new areas of focus. This is an area that you -- Honeywell is already considered an expert in. But just time to market for new products. Will this all be organic growth? You have to add any new technologies and just expectations in terms of where this fits in the portfolio.

Well, where it fits in the portfolio is exactly where it is. That's an easy answer. But a couple of things tied to mark. We're reading in the market today with current sensors that are actually providing a safety profile for EVs already. We've had wins with auto OEMs. But on the back end of that or the -- from the tailwind behind that, we're working with auto OEMs and developing the next-generation sensors, as I mentioned earlier in my talk. So that stuff should come to market in the next couple of years, and we expect meaningful growth coming from that in our portfolio over the long-range plan that Vimal presented. In terms of M&A, we're always scouting around for new capabilities to complement the portfolio of sensors. I mentioned that we have a wide range of parameter detection capabilities already, but there's things we don't have and things we're constantly scouting on, areas we'll be looking at our particle detection outside the light-emitting technology I mentioned earlier. But outside of that, there's other technology we think we could acquire maybe. So that's one area. And the second area is other sensor capabilities around pressure and flow that help advance our medical device application development that also are interesting for us.

You guys have talked a lot about the Vitality index and how that's increasing. The growth hasn't been that spectacular in the last couple of years. What's like the decline curve on the -- or the decay curve on the stuff that isn't an NPI? What's the drag from that kind of on an annual basis? Because it just doesn't -- all these technologies don't really seem to be dropping to the bottom line? Or is this just -- it's going to take a couple of years, and we'll see it a couple of years out?

One of the things that what we have done well in the last 5 years is we started measuring the vitality. So we have an NPI Vitality as a measure that we have probably doubled up in the last 4, 5 years once we started measuring. Now we are realizing you have to start slicing the vitality -- quality of the vitality. So one of the things that Vimal showed the overall full quarter in grid, core business, we want to ensure that the measure of vitality, you don't really erode that business because you basically refresh your product portfolio, you have to keep up with the GDP growth rate. When we get to NPI new, which is new to market or new technology, we want to actually track that as an organic growth. And the BTI should be a top of all together. So one of the things that you're actually starting to see as we are rewiring the innovation playbook, we're going to be slicing that into NPI Vitality and NPI New Vitality. NPI New Vitality that we want to start mentioning against the organic growth rate formally and then NPI Vitality, the way we started measuring it, we want to ensure that there's no erosion. That's pretty much we're going to be redefining as we move forward at this juncture.

Time for one more.

I think this is for Lucian, like so historically, PMT has been maybe a little bit more cyclical in parts, but now you're talking about sustainability, how does it balance out the cyclicality of that business? And then I think the growth rate long term mid- to high single digits, does it help? You talked about the new target, the $2 billion but does it help you get closer to the high end if you do this well going forward?

Yes. So I think in the past, part of the answer even to the previous question we had, we've communicated certainly, we had a lot of exposure to Russia. A lot of that was in PMT. So we had that hit that was also a onetime source of erosion that is not there. Vimal also talked about our high-growth regions. Now looking forward, we're going to diversify. He mentioned China, what will happen will happen. So we're trying to be more balanced and more diversified to where you can absorb a shock, right? But in the end, what it's all about is innovation. The answer -- the short answer to your question is, yes, I think it's going to balance because first of all, what you try to do and the magic of all this is going to be a one PMT end-to-end solution, ultimately, a One Honeywell and you've heard a lot of that today about how we bring together solutions across SPGs, and take them to the market. And I think that all the sustainability trends are the great unifier that it gives you a common problem to address that's going to allow us to bring the different elements of PMT. But I think to go to your specific question, UOP, at least Oil and Gas, you've had some decrease in investment. We're certainly seeing that rebound in a very good way. I think the industry has learned a very valuable lesson that if you don't invest across the cycle, there's going to be things you're short on that you didn't plan on like welders. Most boring thing that you didn't think would bite you, this is what bite you. So at this point in the industry, I think, is more committed to investing. You don't see in the petrochemical sector, the slowdown that maybe you would have seen historically when there's a little bit of slowdown in demand. So we see a more steady demand. The backlog is very, very strong. The order books are strong. So we feel very good about what we have in front of us. But we're truly excited about the innovation portfolio. I think the macro trend that's in front of us, the tools that we have, we really don't have a good excuse not to lead this. And so it's on us right now to bring the capability forward and lead segment as we move forward.

That's a great way to end it. Thank you all very much.

[Presentation] Please welcome our Digitalization and Transformation Panel, Senior Vice President and Chief Financial Officer, Greg Lewis; senior Vice President and Chief Supply Chain Officer, Torsten Pilz; Senior Vice President and Chief Digital Technology Officer, Sheila Jordan; HCE President and Chief Executive Officer, Kevin Dehoff; Senior Vice President and Chief Commercial Officer; John Waldron; and moderator, Vice President of Investor Relations, Sean Meakim.

All right. We're off to a good start. The last panel got wild applause. You all [indiscernible] came to the silence. I Will pick it up from here though. Right. Okay. That's right. So Greg, we'll start with you. A year ago at Investor Day, you spent a lot of time talking about the great integration of Honeywell in the last 5 or 6 years. Darius referred earlier Stage 2 of Honeywell, we're going to move on to Stage 3. Stage 2 is about simplifying and digitizing the company. Maybe just help us understand what's been accomplished to date? And more critically, what does that mean in terms of financial performance over the next 5 to 10 years?

Sure. Yes. So again, simplified, Gary spoke about earlier this morning, supply chain footprint, simplifying the portfolio with the spin, simplifying the IT architecture that we had, again, 150 ERPs, thousands of applications, 1,500 websites. So you can imagine the ability to actually monitor your portfolio and KPIs across the company. It was completely manual and frankly, to do it in a way that was closed loop almost impossible. And not to mention the interface with the customers needed to be much more seamless. So as we described and we spent over $1 billion and by the way, we did that while creating productivity to fund it. So it wasn't like it was a knock on our margin expansion, where we spent over $1 billion in creating this infrastructure that was discussed. I mean roughly 10 ERPs, about 3 of them have more than 90% of the business on it, which gives you an opportunity now to build something around it, right? Now you can build a logical ecosystem around it and Sheila will talk about 19 platforms. So think about things like supply planning, a unified customer experience. Think about what the guys were just talking about here in terms of NPI, having NPI operational platform to manage from all of these things are now possible because of what was done. And so that's delivered not just data to make decisions but actually, more importantly, the ability to make those good decisions and then ensure that what you think you said you were going to go do actually happens. Like the closed-loop aspect of it, that's actually where the value comes from. You can do all the analytics in the world, have great hypotheses. But frankly, we can actually plan do and check and make sure that the things that we said we were going to do are actually happening. And again, you saw that in terms of where does it come through from a financial perspective, last year, we highlighted in this year of dramatic inflation, price/cost was a strength for us and was a huge driver to our margin expansion. And we did that with speed, the ability to do that across such a large enterprise and with speed is really a differentiator. And these are kinds of things that we've been able to create value from across the enterprise. And we're just getting started. We've moved from operational financial reporting and now we're getting into this value capture from this data thread that we've been able to build.

So Sheila, naturally to turn to you next. So you're our Chief Digital Technology Officer. So a lot of the work that Greg is talking about falls in your lap, right? So can you help us understand what it means when Greg talks about moving towards digitizing in a closed-loop end-to-end process and ultimately, how that translates into tangible value for Honeywell.

Sure. So thank you. First, I'll say that we have been very busy over the last few years. And what Greg explained is it's so exciting because it really is the layers of IT and the layers of architecture. The first is we resolved and fixed and rightsized the applications and infrastructure across the organization, so global networking and all the applications. The second is we've introduced this notion of 19 strategic platforms, so long gone on the day of these fragmented bolt-on applications. And the third is the enterprise data warehouse, which both Darius and Vimal and Greg have spoken about. We've unleashed the opportunity and the transparency across the organization to really manage the business near real time, every day transactional information is available and it's the transactional systems come together, so you get to see those insights. This helped us drive which we spoke about last year, there's notion of inflation-adjusted pricing. We're looking at optimizing the supply chain. So it really has unleashed the opportunity for us to really run the business fully transparency near real-time 24/7. But even though that's all fantastic. I'm super excited about the next phase of this because it's a natural evolution where we bring these end-to-end processes together. So we talked about the Honeywell accelerator before, but really, the notion is that you've got your 4 business models, products, projects, software and services, and we've identified 7 end-to-end processes that we're going to standardize and simplify for the organization. So let's take 3, for example. The first one is around e-commerce or our customer experience. Think about us doing which we have today about $5 billion comes through the e-commerce channel today which we hope to more than double over the next 3 years. And think about that, e-commerce against products, e-commerce and software and e-commerce and services, we still have to determine what projects means. But each of these 7 end-to-end processes will be addressed, simplify and standardize against each of the business models. So another example is what we talked about, Suresh talked about is the innovation life cycle. So think about NPI and how we're going to model-based engineering and using digital tools to do engineering, but so much so that we're bringing in the supply chain at the beginning of that. So the supply chain can weigh in on the design of products. That's all vis-a-vis the technology and the tools that we've talked about. And then finally, which really has significant opportunities is really quote to cash. So you think about the opportunity of order to -- quote-to-order, order-to-invoice, invoice-to-cash. And again, each one of those will have an implication against the 4 business models. But if we do this right, we'll have less churns on the quoting process. We'll know our customers better. We won't do as many quotes. And of course, we'll improve our cash position. And again, we were determining that and simplifying those processes against those 4 business models. So it is super exciting as we enter into this next evolution.

Super interesting. I don't think investors get a lot of visibility into how companies are digitalizing, right? On the inside. So from your seat, as you look across comparable companies of our scale, how unique is this model that we're driving.

So I have the fortune to really speak to a lot of CIOs across all different industries. And I can honestly tell you that I don't know of any other company that's doing all of this at the same time. They might be picking the technology. They might be thinking about the enterprise data warehouse. But the uniqueness is what we've been able to do over the last 3 years is really simplify the foundation and kind of clean the garage. We've done that work and now we can really take advantage of it and really drive these simplified end-to-end processes that I think is going to unleash the next area of value for the organization.

And so now let's turn the other part of the transformation, which is supply chain. So Torsten, a year ago at this event we were kind of the apex of supply chain pain throughout a number of industries. We made a lot of progress. You're going to unlock a lot of the challenge that we've had. I'm sure this audience would like to hear just an update on where we are on the path to normalization. And then thinking about the more strategic areas, we're towards the later stages of footprint simplification. And so the natural question at Honeywell is what's next?

Yes. So we made tremendous progress in terms of access to material. It's not only on the semiconductor side. Semiconductor was probably one of our biggest problems. And I do think it's we are the back end of that semiconductor problem, but it's not only this area also casting, special components. So we buy hundreds and hundreds of thousands of different components. So it's for us, it's a very complex challenge. We would not have been able to do this without cleaning house or cleaning the garage and having visibility in all the technology. So it was very, very important. We also changed a little bit how we go to our suppliers. We used to buy a lot through distribution. We changed this. We created really strategic supply base, real good connections at very high levels with a lot of strategic suppliers. So we shifted from a very transactional management of supply chain to more strategic supply chain. To your question on footprint, yes, we are at the back end of it over the last 3, 4 years. I think we took out about 100 facilities, 100 sites out of our network. And so we have probably another 10, 15 to go. But I think by the end of next year, we're almost done, and then we're going to shift into more maintenance mode. At the same time, we also have been very busy on the digital side because I'm lucky because I run an operation that has now a very well-established digital backbone. And that is a connection of everything that we've developed in-house products that Gavin has that we sell for others. And so that enabled us to really drive a lot of simplification value. And we measure this for instance, in productivity. And this enables us this year, for instance, to offset inflation completely with productivity. So somebody asked me what about inflation this year? What kind of inflation we offset this productivity. So that's something where we can act really, really fast and really, really quickly. And -- and that's really thanks to the -- to everything we've done in the past. So when it comes, what's the next step, where are we going with this? I think the next step is two-fold. One is the way we operate the company now enables us to relatively seamlessly integrate our operational sites, machines, processes, equipment with the digital backbone that we've created in the company. That's very, very powerful because we have real-time visibility, can make very well, very good decisions and can establish this plan do check at cycle that Greg was referring to, not only from a financial perspective, but also in the operations. So that's super powerful. And then the next step really is to drive towards more automated decision-making in our operation. I think that's the next frontier. And similar to what Sheila was mentioning, I also have the pleasure to talk to some of -- a lot of my colleagues and other companies. And I'm very, very convinced that none of them is at the level that we have established right now. And most of them are thinking about this, but the good news is we're actually doing it right now.

And so you mentioned, Kevin. So Kevin leads our Honeywell Connected Enterprise, our stand-alone software business. That business was originally a BTI startup in 2018 as one of the early BTIs under Darius' tenure, but the last 6 to 12 months have been about moving off the foundation towards really driving commercialization. It's been a big part of what Kevin has been leading. Maybe you could just give us an update on what that looks like. A lot of new products introduced. We're going to see some of them following the presentation and the reception and maybe just some customer proof points beyond the one -- the video that we saw just a few minutes ago.

Yes. Look, as you said, I'm very excited about excited about the acceleration of innovation that we have in connected enterprise. Over this past year, we've introduced at least 12 new products and many more to come here throughout 2023. I'm also very confident that we've got the right products at the right time. And the reason I'm confident is because when we speak with our customers there's at least 3 things that every one of them wants to speak about, and that is digitalization, particularly in operations, sustainability and cybersecurity. And that's exactly what Forge is positioned to deliver. Forge is the software that we use to enable us to deliver business outcomes in those 3 areas. And those business outcomes have very clear economic value to our customers in the form of higher asset utilization, increase in labor productivity, less energy consumption. That equates to a smaller carbon footprint and ultimately, the assurance of security at the operational asset level. And so when you hear our customers talk about things like forge enabling a 2% to 3% improvement in throughput or 5% reduction in energy or 10% increase in labor productivity. These types of outcomes have tens, if not hundreds of millions of dollars of impact directly on the customers' P&L. So the Globalworth video that played just before we came on stage, we recently a $40 million software deal with Global worth. And the reason they invested $40 million is because there's an overwhelming return on that investment in the form of what our software is enabling them to save in energy, in lower asset life cycle costs, improved predictive maintenance, increased operational efficiency in their buildings. So it's a multiple return on that investment. And so as we break here a little bit later and you go over to the demo room, you'll hear 6 other customer experiences that will illustrate the kind of impact that we're having with the software.

Thanks, Kevin. Let's maybe widen the lens a little bit and bring John into discussions with John is our Chief Commercial Officer. And John, as we think about the types of outcomes that Kevin is really focused on delivering for customers, maybe you can just give us your perspective the seat that you sit in, as we think about companies moving along, customers moving along and their digitalization path and how both our internal efforts as well as the offering we have externally both can deliver value for those customers.

Sure. So first, I want to maybe answer a question that was asked a little earlier on, well, what is the timing of these products and offers. And when are they going to be available? The answer is now. Everything Kevin just said is generally available, publicly available. We'll take purchase orders later today. And these products are in use. We're using them. Our customers are using them and delivering real value today. And our customers are -- most of them are going through many of the same transformational issues we are, right? They're going from analog to digital and distributed to central and really trying to wrestle with all of that related challenges. And so -- but most are still focused on IT transformation, centralizing their data, getting visibility, building fancy dashboards so they understand what people are doing. And they're now starting to grapple with the operational technology side. All the things that Torsten described in terms of what are my assets really doing in those plants? How are those processes performing? What are the safety issues I'm dealing with? What are the cybersecurity realities that are on the edge of my network in those particular domains and now as we engage these customers, they all have different challenges to solve because they all have different mixtures of those assets, those processes and the network that they are part of. But we come from a position of having done this for ourselves with a very large complex network that is now very centrally accessible. We are able to do remote management. We're doing autonomous operations in some cases. And we're really able to come out of this from a very consultative perspective then help customers plot their own journey through their own IT to OT to optimize performance.

That's great. Let's bring back to Kevin one more time. Earlier today, Vimal talked about the pathway to adding $750 million of incremental revenue. You put that burden on you today in the next 3 years. Can you just help us illuminate that path? And just talk about the key markers that you have in your mind's eye as you think about going towards that size of an industrial software business.

Well, look, it's really exciting and a privilege to lead Connected Enterprise at this point because as you've been hearing throughout the day, It's an increasingly important part of Honeywell's portfolio. I think it was Darius mentioned that since its inception, Connected Enterprise has grown double digits with accretive margins on a normalized basis. So it's a high-performing business in and of itself, but it's also a growth engine for Honeywell, and we're going to increase the top line of Connected Enterprise by 50% over the next 3 years. And has Sean just alluded, that plan requires us finding $750 million of incremental growth by 2025. And 2/3 of that growth is going to come from our investments in new products and new technology. And so we're aggressively investing across the software portfolio along 3 different time horizons. We have a legacy portfolio of edge applications that are high-value franchises that are creating significant value for our customers in our installed base, and we'll continue to add functionality, add enhancements to those products. But the real growth engine is the investments that we're making in Forge applications. These are our cloud-based Forge applications that are focused on the kinds of things that I talked about. And they will -- that will, in fact, be driving a significant amount of that growth. And then the final horizon is the all-new that Suresh talked about. We have some exciting investments, and you'll see a couple of them in the demonstrations later this afternoon. All new growth platforms around emissions monitoring and management around OT cyber security and around enabling and equipping the digital worker for higher levels of productivity. These are all new platforms that we're investing in that will also contribute to the growth. So you mentioned what indicators? Well, ultimately, it will -- it's my job to continue that sustained double-digit growth and have it be accretive to Honeywell. But things that I'm looking at or we're continuing to build that foundation of recurring revenue in HCE. And that becomes the flywheel, right? I mean that -- as we build that and it's an increasing part of the overall HCE revenue, the big contributor to that recurring revenue is our SaaS growth. And we're looking at these new Forge products driving the revenue and we have high aspirations for the amount of growth that's going to drive. And then finally is, as we talked about with Suresh is the vitality that we're committed to a high vitality portfolio, and we publicly committed to 2 new product introduction events each year. One of them is coming up here in 2 weeks. It's called Honeywell Connect. It's a virtual event. We'll be introducing about a half dozen additional new products and enhancements. And then our flagship event is in the fall in October, where again, we'll be on a routine basis introducing these new products. So pretty exciting pipeline, innovation driven and will be the key to delivering the growth that we're committed to.

Thanks, Kevin. So we're going to open up to questions. But before we do, Greg, maybe just help stitch all this together for us as we think about from the CFO's position, ultimately, how is all this going to impact, whether it's revenue, margin expansion, cash generation, the things that the folks in the audience really care about.

Yes. I mean, I guess, first, I would just start by saying these initiatives that we laid out in 2017 and actually publicly went into depth around our Investor Day in 2019, they're working. We've delivered over $2 billion of benefits in working capital revenue margin. You heard each of the teams talk about the various places that's coming from, whether it's Kevin's growth in HCE or the price cost management we've gotten or what Torsten has been able to achieve in the supply chain. And again, the productivity that Sheila is unlocked to be able to even afford making these investments without becoming a burden to the company. And those things are underpinning our ability to execute, right? That's -- Darius mentioned it earlier, I've said it often, the sustainable performance we've had does not happen by accident. And these are some of the reasons why we're able to do this through and through the cycle. And I guess I would just say, I'll just tag it back to Vimal's comments around accelerator in the business models. Each one of them, you saw that bubble chart, each one of them is going to have a little bit of a different priority as to what we'll get from where. In the services business, we're going to go attack installed base and drive added capture because we're going to instrument the muscles that go about doing that on purpose, and that's going to drive growth. We talked about what we've been doing in the projects business. We're going to digitize and instrument contract management. That's going to lower risk. It's going to increase margin. It's going to accelerate cash generation. So each of these things are going to have a little bit of a different focus area in each one of the business models, but there are all other things that are enabling us to do we're doing today, which is reconfirming and in many cases, upgrading our long-term financial outlook.

It's really powerful. Let's take a couple of questions here.

So I think it was very clear from Vimal's presentation that accelerated growth is a big focus. As we sort of look at the digitalization, what are the levers that are available to you to pull to accelerate the growth versus what we've seen over the past 3, 5 years? I mean, it's really hard. I appreciate to sort of develop organically a digital growth platform, but is it technology? Is it change in how we hire people? Is it the fact that we've been incubating a lot of stuff over the past couple of years, what drives acceleration within digitalization?

Sure. I mean, I'll start and maybe John, Kevin, you guys can kind of take it from there. I think it's a little bit of all of those things. I mean, the technologies that we have been developing are coming to market now. And so those are going to be accelerators. Again, if I speak about the Accelerator Operating System, each one of those things, we're driving our organization to be better at the things that they're going to do in terms of not only knowing what's out there in the market in terms of demand and what offerings we're going to go develop to satisfy those offerings, but then executing around those. So it's a little bit of technology. It's absolutely execution orientation around the things we want to go do and again, feeding right into the overall macro trends. I don't know, John if you chime on that?

I would also add that what we've been doing is essentially laying digital threads through the organization. And when you think about the connectivity between the products you decide you need to go invent, how you need to construct them or deploy them and then the people that take them to market through your channels or to your customers, historically, that's been a lot of human denominated handoffs. A lot of tribal knowledge. Well, we've been investing for years in these digital threads through these processes in our company, and we're continuing on that trend. But that's going to allow us to more repeatably execute from the idea to scaled commercial capture in the market whether that's in our existing markets or in some of these extended markets for new [ SAM ] growth or even in our breakthroughs, and that's really what Accelerator is about. It's about laying the digital thread so that when people join the organization, they're much more quickly coming up to speed on how we innovate, how we engineer and how we then commercially scale an idea into the marketplace. So it's a little bit of everything you said, but how we do it is kind of what Vimal's described in this Accelerator framework that's underpinned by this entire digital infrastructure that we've been investing in.

And I would ask Torsten maybe to make a couple of comments because, again, without delivery, right?

Yes, it's not inventing and selling, it's also making. So it actually

That is important.

And it actually connects everything together. But at the -- it requires a little bit different breed of people. I mean we really pivoted towards a more technology-based leadership among us, but also who we hire, who's in the end, in particular, in our end, we have -- the beauty of it is that we can combine the technology and knowledge with the domain knowledge of the -- in which we are. And most tech companies out there, they have great technology, but they lack use cases. They lag examples how to do this. And we can do this all together. That's a real powerful thing. That's the differentiator.

So we have time for maybe one more.

Maybe one for Kevin, just on HCE specifically. I just wondered if you could give us some more kind of KPIs around the makeup of the business, recurring versus reoccurring sales mix, license versus subscription. And also, I guess, when we think about that $2 billion of revenue, is the R&D to drive it drawn kind of from the 4 segments? Or does it have its own like stand-alone vertical P&L with SG&A, R&D of its own?