Mexico Speech. June 17, 2012

Transcription

1 Mexico Speech June 17, 2012 To understand the role Mexico has played at Honeywell over the last ten years, it s helpful to start with Who is Honeywell? Honeywell is a $38 billion sales company with a market capitalization of about $45 billion. We have 130,000 employees and about 55% of our sales are outside the US, up from about 40% ten years ago making us decidedly more global then we were. We have four major businesses focused on Aerospace, Controls of all kinds, Performance Materials, and Turbochargers. The key differentiator for us in our businesses is technology. We spend a lot of time and money ensuring we have leading edge technologies in all our businesses and we have over 20,000 engineers. 1 P age

2 In Aerospace, we focus on both mechanical systems and electronics. We produce the most sophisticated avionics in the world, for example, the entire cockpit for the new Orion Spacecraft for the US Space Program is provided by Honeywell. We make small jet engines, auxiliary power units, and safety avionics that have saved many lives. In our Controls business, we re the leading global producer of personal protection equipment and we make controls to manage fire detection, security, and energy usage in homes, large buildings, and factories. We also make the controls to manage an entire petrochemical plant or refinery. Think of it as a cockpit for the entire petrochemical complex. In Performance Materials, we have invented a new fluorine molecule that is non-ozone depleting and has extremely low global warming potential to provide cooling in air conditioning systems and serve as a blowing agent for insulation. We are also the world s leading designer of the 2 P age

3 process technologies used by refineries and petrochemical plants. In our turbocharger business, we are again the world s leading producer because the technology is an outgrowth of jet engine technology and we are the only turbo manufacturer in the world that has both a jet engine and turbocharger business. In fact, we invented turbochargers! The significance of a turbocharger is that an engine at two-thirds the size can produce the same power as a full size engine meaning about a 25% reduction in fuel usage and emissions and a happy consumer. This focus on technology businesses has been hugely beneficial to our company s evolution. Ten years ago, Honeywell was a company in trouble, and now in a recent profile in Fortune magazine they pointed out that in these last ten years, while the S&P 500 rose 88%, Honeywell stock rose 215%, significantly outperforming the market. The stock rose 3 P age

4 because our earnings and cash flow have more than doubled on an 80% sales increase. Now while I ve enjoyed telling you our story, why is it relevant to today s discussion? The answer is because Mexico played a huge role in our transformation. Using 2004 as a base again, our employment, including temps, has grown 45% to almost 14,000, our domestic sales have more than tripled to over $300 million, our exports from Mexico are over $1 billion including Aerospace products that have grown from almost nothing to about $350 million, and our investment in the country has increased four-fold to about $230 million. Mexico has been a big driver of our success. Most important has been the shift in our approach toward Mexico because of its increasing economic competitiveness that has accompanied this success. Like many, we historically viewed Mexico as a place to support low cost, 4 P age

5 uncomplicated manufacturing. The big change was recognizing the increasing economic sophistication of the country and adding resources to support that shift. Some examples: Our Engineering census increased from under a hundred to over 350 as we increased product complexity and design ownership in the country. We ve been able to hire excellent graduates from schools like the Technologico de Monterrey, CETYS, CEBTIS, CONALEP, Unitec, UABC, and UACH and we have received excellent support from the Government through CENALTEC to develop curricula important to us and CONACYT, the National Science & Technology Council. In San Luis Potosi, we now do almost all of our IT Infrastructure Design and Solutions work for the entire company worldwide. This is the basic design of the computer server and determines what the application will need in architecture and computer horse power to support the new application. Figuring out the number of 5 P age

6 computer processors, memory and storage needs, and operating system configurations. Building on the increasing capability in IT and accounting, we now deliver almost all of our US payroll through operations in San Luis Potosi. To support all this growth in capability, we have more than doubled to about 2,500 our number of college graduates from Mexico. As sophistication of suppliers and capability of resources has evolved in Mexico, we ve been able to increase our spend and purchasing organization purview. Our purchases have more than doubled to over $300 million, purchasing census is now close to 300 people including supplier development resources, and today about 20% of all purchasing of direct material for our Aerospace business is done from Mexico. When it comes to Manufacturing, we ve seen another big evolution. With over 11,000 manufacturing people here we pay a lot of attention to it. 6 P age

7 o This first dimension is process capability. We created the Honeywell Operating System or HOS globally, basically the Toyota Production System but Honeywell-ized. It s a much more sophisticated approach to Manufacturing process that requires involvement of all employees, especially people working on the floor, in radically changing how we produce and then constantly improving from that point. We ve been implementing HOS for about eight years to ensure we got it right. A key milestone is achieving Bronze status. While the total company is now about 50% Bronze or better, in Mexico we now have about 84% of our operations at Bronze or better. o The second dimension involves the increased technical capability available. The best example of what we ve been able to do is establishing our Aerospace capability in Chihuahua and Mexicali. In Chihuahua with about 1,400 people, we now have the 7 P age

8 most advanced manufacturing center of its kind in the world with five, seven, and nine axis machines doing high tech CNC machining and other processing for products like Turbine blades, Impellers, and inertia welded wheels highly sophisticated products. In Mexicali, with about 1,800 employees we produce complicated Air & Thermal Management System, Electro Mechanical Power Systems, and Electric Power Generators and we support all of them with in-house Engineering, labs, testing, and design in Mexicali! As you can see, Mexico has played a huge role in our evolution and success as a company. There are several aspects of the country that have enabled all of this to come true. We have found the Government at the State and Federal level to be very helpful in their support; the caliber and number of University graduates, and engineering in particular, continues 8 P age

9 to evolve and we have Universities eager to work with us; all the Free Trade Agreements have made Mexico even more attractive; the well-established rule of law and democracy along with investor friendly legal reforms implemented in the nineties and anti-corruption efforts; and of course geographic proximity to the biggest market in the world. I d ask Mexico to continue supporting everything I just mentioned and, of course, I can t help but make a few additional suggestions. Please accept these suggestions in the spirit intended because I am a big fan of the country. First, the drug violence has to be significantly reduced. This is not just an American talking. I m representing the view of my Mexican employees and as an investor. Second, consistency of Government policy in areas like taxes and incentives is important. Capital is a coward and it won t come if it feels promises aren t kept. Third, PEMEX needs to be 9 P age

10 unleashed to realize its full potential. Fourth, we need even more technical and engineering graduates. We are quite pleased with the contributions Mexico has made to our success story. The evolution of capability has allowed us to evolve in the complexity of what we do here. I only ask that the evolution continues so we can continue to grow here. And again I ask that all please take my suggestions for improvement in the spirit intended. The success of Mexico will have a lot to do with the success of my own country. I and Honeywell look forward to participating in that success. Thank you. 10 P age

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