Honeywell 2014 Annual Report Download - page 3

We also committed to growing our dividend faster than earnings (increasing the payout
ratio). Additionally, we said we have a growing cash position we could deploy to get an
additional $1.00 of earnings per share in 2018. And, we assumed a continued “weakish” but
growing global economy. A pretty darned good commitment overall.
2015
As we embark on the first year of this plan, turmoil abounds, as usual it seems. Lower oil
prices, a strengthening dollar, and potential exogenous geographical events all give cause for
concern. There is not much we can do to plan for the exogenous event. When it comes to oil
price, I’d have to say that for the first time in five years I’m more bullish than economic
forecasts because of it. For the last four years we’ve been more negative at the outset of the
year and that’s been a good call. I don’t know how we got ourselves to the point where we
think lower oil prices are a bad thing. Today, there is a huge shift in wealth occurring from oil
producing economies to oil consuming economies like the US, Europe, China, India, and
Japan where the money will get spent by hundreds of millions of consumers who will see the
benefit. And that benefit is as noticeable as a raise or a tax cut. Filling my car used to cost a
hundred bucks, now it costs $70. I noticed it. We’ll see if I’m right of course. Either way, we
will continue to stay conservative in how we plan the Company because we can’t be sure.
The strengthening dollar should benefit exports for other regions and reduce inflation risk
in the US. While there isn’t a lot we can do in the long term, we did hedge about 80% of our
Euro exposure for 2015 in anticipation of that strengthening. We normally don’t hedge
translation because I do believe over a 20 year span you’ll be right about 50% of the time.
This year it seemed like the high probability outcome was a weakening Euro. We thought it
could go to $1.10 so we elected to hedge. At this point it looks like a good call. You never
know of course until you actually complete the year. We’ll see.
Performance Drivers
To successfully complete our new five year plan we will keep doing more of the same of
course because it works. All of our process initiatives and growth initiatives have worked and
we will keep doing them… lots of seed planting… and there’s still upside. That focus on
making the machinery work better every day (our process) for our employees, customers,
and suppliers is fundamental to our Business Model.
•5 Initiatives / 12 Behaviors
•Management Resource Review
-Rigorous Business Review Process
-CEO Interviews Top 200 Roles
•Trick Is In The Doing
-The Machinery Needs To Work
-Go Slow To Go Fast
-Achieve Two Seemingly Conflicting Things
•Foundational Tools
-Six Sigma, Cycle Time
-ERP, CMMI
•Innovation Mindset
-Breakthrough Ideas Every Year
HON Business Model
One Honeywell Culture •Great Positions In Good Industries
•Acquisitions Are Incremental
-Bolt On Or Consistent Business Model
•Balance
-Long / Short Cycle
-Early / Mid / Late Cycle
•Globalization Opportunity
Consistent Business Model That Applies Effectively To
Every Honeywell Business … And Generates Results
•HOS Gold: Honeywell Operating Model
•VPDTM:Velocity Product Development
•FT: Functional Transformation
•OEF: Organizational Effectiveness
•HUE: HON User Experience
Portfolio
Processes
Applied
To