Emerson Electric Co. (EMR) Earnings Call Transcript & Summary

So welcome -- first of all, I want to welcome everybody on the line. We have people obviously around the world listening to us. Clearly, we have competitors listening to us. We have customers listening to us. And most importantly, we have a lot of employees listening to us because they have not seen the information you have in front of you, but also we'll be seeing here this morning. And so again, I want to welcome everybody, and thank you very much for attending, and look forward to an important conversation. You'll -- and we'll talk a little bit about we're going to cover here in the next few minutes. So attendees, typically, on the left side, we have a lot of -- from the various people from the management team and the corporate side. And then also this year, I have a lot of individuals that we brought the next-generation leaders, like we did last year. We brought a lot of the next-generation leaders here. They're sitting in the back of the room. I'm sure you were engaging with them throughout breakfast this morning. You can throughout break today. I appreciate them coming. And now Tim Reeves is on this chart, because Tim has now been moved -- Tim's moving to Europe. Tim has now become the President of Europe Professional Tools. He's got a job. Before he goes though, he has to finish. He got -- also got elected this year into the Eisenhower Fellows. So he's doing India with Eisenhower Fellows. And so we have one more chance to get revenge on Tim, because we have a lot of people there, and all 8,000 can't wait to get their hands on Tim. And so congratulations, Tim. But here's all the next-generation leaders, you see them across the various businesses. We had 2 individuals that were going to come from China. We had to push them out for various reasons. One, we didn't want them caught in quarantine for the next 6 months. And two, as you'll see, we are highly engaged right now, trying to get our facilities up. And these 2 individuals are very, very important leaders in what they do. And we felt they could do a lot better there than getting stuck in some cruise ship for the next 2 weeks, not having fun. So we're going to cover here on the left-hand side, typically, I have a little over -- I have an overview. Lal have an overview on automation solutions. This year, Ram will give you an update on Final Control, which we've done in the last couple of years. A new presentation on digital transformation by Stuart Harris is a business we broke out this year as we focus on the digital transformation. You'll get a good understanding what's going on there. We are very active in this area. Bob will give you update on the Commercial & Residential Solutions. And then Tim Ferry, a new presenter, will also be talking this year about what's going on in the integration of the Textron tools around the Home Products business. So both these -- both Ram and Tim are very focused on delivering the synergies and the synergies that we see from these 2 very, very important acquisitions over the last 2 or 3 years. We'll have a break -- a couple of breaks. We'll do Q&A. Typically, the other thing you'll notice is that we decide -- as you know, we don't use written transcripts, typically because of transcripts so you can get them through marketing, PR, lawyers, they're worthless. And besides today's world happens very fast. You can imagine, with the geopolitical situation, coronavirus, you have to be current. And so we have -- we firmly believe you manage day to day. And if you can't manage day to day, know what's going on, you shouldn't be in our job. That's where we are. People in the back room in the same way as you talk to them about their jobs. So let's talk a little bit about what's going on here. So my presentation a little bit overview 2019 and get down through the work we've been doing the last 6, 7 months. Get into the, what I -- what we see for the next several years, update on 2020, driving investments and then quickly get out. Show you the update on the organization chart, which I've now been showing you now for 4 years as we go through this. So as we get started. 2019, I say as the CEO, was not the hardest year we've ever had. I would say, the year that we broke the string, 43 years of earnings string, with 9/11 was the toughest. 2008 was pretty tough. 2014 and '15, when we had the decision to reposition the company and get out of 1/3 of the company, that was pretty tough. But this was a very unusual year, as you heard us talk about, from the standpoint, you'll see. As we started out the year, when we sat here last year, it looked pretty good. We talked about maybe being better. And then all sudden, the world just weakened in the industrial world, you'll see that. But overall, from our perspective, we did still grow. We grew 3%. As you can see in the chart, underlying growth. We grew -- our margins were under pressure all year long, as we expected, basically 5% to 6%, 6.5% growth. We generated pretty good cash flow, a little bit under what we thought because the growth in earnings were a little bit less. But overall, a decent year, not what we expected, but we did grow well in the markets we serve. And I would say, we outperformed -- in particular, the industrial space, we outperformed our competitors. And Bob's business went into the downturn really early on in 2019. He started cutting in early 2018. And now -- to the point now, you see the margins of Bob's business are coming up. And I would expect Bob's business to start accelerating growth as we get into later this year, early next year. But if you look at the -- from my perspective, on the chart on the left-hand side, we sat here last year and 4.5%, we thought we'd be doing somewhere between 6%, 7% and it just proceeded to drop. And you -- as you heard me talk about it from the standpoint of we see weakness, we've seen things slow down. And from the perspective of what we're seeing is we're seeing the GFI, which we track, was really starting to deteriorate down to the low 2s. A lot of our competitors in the same peer in the peer group saw growth, but they eventually had negative growth for the end of the year. So we were in a very challenging environment right from the start as we got into the calendar year of 2019, and so we had to take actions. We started talking, you heard me started talking in early March in the calls, April. You'll see a time line here in a second. We started engaging the corporation. Okay, what are we going to do? Because we built our plan this year in 2019 on a 5.5%, 6% growth. We built the 3-year forecast, as you know, basically on 5.4% growth. If the first year, out the box, was not going to grow 5%, we knew we're in trouble. So we went into plan B very quickly relative to cost, what we were going to do from a restructuring standpoint, and we started talking to Board. We started talking to the Board in actually June, August, extensive meetings, extra day in October, extra day in November, extra day in February, with the full Board as we went through everything we're going to be talk about you with you this morning. But we weren't alone. Our competitors saw the same thing. But fortunately, we had decent growth around the world from that perspective, even though most of our competitors did not in the industrial world. So let's talk about where we're going. That's history. 2019 is behind us. We're looking where we're -- and we're looking forward to 2020, '21 and '22 right now. The key thing for me, on the chart on the left-hand side, is the big issue that I was -- I started seeing last year is GFI around the world started coming down. Any time you see GFI under 2%, you basically go to our customer base, and they're just doing KOB 3. That's all they're doing. They're basically not building a lot of new capacity. They're going to be upgrading the capacity. They'll be doing a lot of fixing, efficiency. They're going to do maybe some KOB 2. And you're seeing a lot of challenges from our perspective as we saw the economy start to come down, we're now starting to see it drift up. This is before the coronavirus, which we'll talk about later. My opinion, these numbers will be coming down once you start reflecting the coronavirus in the near term. Now that could -- you can see a bounce back, depending on how the global economies sort of flood in the marketplace with money, how China -- how does China react to this. But in the near term, in my opinion, in 2020, that number will come down. And I think we'll see a much lower number in the world investment environment until they start flooding the investment periods late '20, early '21. But what we saw here is we looked at this back in April and May, we saw an environment that our core markets, we're not going to spend a lot of capital. And you could see that even in the cusp of people you file, capital spending really came down. And there's no reason to spend a lot of capital, except for some maybe some new unique project just focused on KOB 3. So as we looked at where we were last year, here on the right. So we sit here. We started talking in February, we thought pretty good about it. We saw a fairly large funnel, which Lal will talk about later this morning. But then we got into this quarter, in March quarter, things were slowing. Trade wars were starting to heat up. China was slowing down. The U.S. was slowing down. So we made the decision. In April, we had a special meeting inside the management team. We pulled everyone together and say, folks, we are looking at an environment as we're not going to be looking at growth here. How do we get our margins, how do we get our cash flow by driving costs? What do we do? We've made some great acquisitions in the last couple of years. We had -- the recovery had been basically lasted about 4 or 5 quarters and stalled, and that's where we are right now. So when I started talking to the Board, I presented to the Board in June at our normal strategy session that I was very, very concerned about seeing a global slowdown, and what we're concerned about. Then we started talking what we're going to do. We started talking about in August, and we moved all the way through some major efforts. As we look to the portfolio, as we look at the cost structure, as we look at what we needed to do in an environment for the next 12, 18, 24 months where we had moderate growth, maybe no growth, maybe a couple of quarters negative growth. I would say this quarter right now and quarter 2 will be negative because of the impact of China. China is definitely going to impact us this quarter. There's no doubt about it. It will impact all industrial players this quarter. So as we went through the process with the Board and the Board engaged, we looked at core operations, we looked at the platforms. We formed task forces between the 2 platforms in corporate. We brought an outside consultant in to work with us. We brought 2 advisers to work with the Board relative to look at the businesses. What business has made sense? Where do we want to go? Where do we want to invest? Which businesses we need to trim? What businesses we want to go forward on? So the board took -- went through this whole process, basically over 6 months. We culminated this -- we finished this process last week -- I guess, yes, last week with the Board, and we're marching forward. We reviewed with the Board all the actions we're doing from an operational standpoint, from a corporate standpoint. We talked to them about what businesses we -- or divisions are operating areas we may want to get out of at the right time. We talked about potential acquisitions. We talked about capital allocations. The Board had a lot of engagement. I mean, a lot of engagement because like we brought extra days in. And so we're going to just focus just on this issue over the last several Board meetings. As we look at this reset, one of the things the Board says, okay, that's great. But are you damaging the company? Are you damaging the organization? Will you be able to come out of this? Because we will recover. There will be growth. We know that. The key thing for the Board perspective is making sure that we reallocated the costs. We took cost out, improve the profitability, but we didn't hurt the future of this company. Very big point of discussion at the Board level. As we looked at taking close to 10% of the salary workforce out, and we've already started this. We started as late last year, the Board wanted to make sure that we were not damaging the long-term viability of the corporation, losing that next-generation leadership team. Discussions around those were 2 key issues. The other key issue is why businesses you think may not make sense going forward? Where do you want to go from an acquisition standpoint? And what are you looking at going forward? So a very engaging Board from the standpoint of our advisers and for me and from -- and the task force involved. At the Board meeting on Tuesday or, in fact, it was Monday, both Lal and his team and Bob and his team and Mark and the corporate team presented to the Board the ideas that we had relative to make a more efficient, faster, cost-effective company. And the Board engaged around another area. Are you going to damage the integrity, the financials, the quality of earnings, the issues? Are you going to screw up the process that we have as a company and we've had for a long, long time? They pushed extremely hard on that. Obviously, from their standpoint of being very accountable around that area. They were very focused on making sure we weren't doing damage just to make short-term gains. But from an operational standpoint, you'll see a tremendous cost savings layout, both at the top level, but also the 2 platforms we'll talk about it. Well, this is the third one we've done. So we're not new to this game. As you know the chart, you see when we go through the cycles before. We reset. We raise profitability. We do acquisitions. We sell companies off. Since I've been CEO, we've sold $12 billion worth of sales at Emerson. So it's not something that's new to the game we play. We're constantly refreshing the portfolio. The Board always is engaging on should we be in these businesses? Which businesses should we move to? Where should we be investing? And it's a conversation at the Board level all the time. We brought the consultants in from outside. Capital allocation, you're going to quickly see, as we look at the marketplace right now and the opportunities right now as we focus on driving our costs back in line to get that profitability back up, you'll see that we're going to returning more cash to the shareholders over the next 2 or 3 years. That's the current plan, assuming no major acquisition pops up. We're talking about passing probably north of 70% of our operating cash flow back to shareholders in dividends and share repurchase. Historically, under my tenure, it's been around 55%. But we made the decision with the Board as we look at the acquisition opportunity right now, more money will be going back to the shareholders. We have -- and we're making sure we have a conservative balance sheet. We have a balance sheet that can ride through cycles. This is a capital business, we ride through cycles and to make sure that we get through those cycles, and we have the money available to ride through those cycles, and we have money available to do the acquisitions that we are pushing real hard to try to do across the company. From the standpoint of the M&A perspective, we talked extensively on this in the last meeting for several hours. Board given their inputs about where we should be looking, how we should be diversifying, how we should reinforce the portfolio we have today, which are world-class franchises that generate a lot of profitability, a lot of cash. Where should you invest? How do we make those investments happen? What are other ways we can do those investments? More than one way, just pure straight out acquisitions. What else can we do? So a lot of conversations still going on in this area right here, as we invest in those platforms and other ways we can look at those investments or as we look at maybe potential business unit divestitures, how else can we do those. As we did the portfolio review, it's an ongoing process in Emerson, we do it all the time. As I said, I've looked at the portfolio on an ongoing basis. I've sold off $12 billion worth of sales. We look at it. We sell things. We're in the process right now of selling some small product lines off. We'll continue to do that. But we also, as a Board pointed out, wanted to make sure that we didn't just sell assets to sell assets. You want to make sure you're selling in the right marketplace. Right now, it may not be the right time to be selling some assets. Businesses are not stable from the standpoint of where they are in the cycle. They could be drifting down further. So they want to ensure we don't just go out and liquidate assets just to say, check the box. So we're going to make sure we do it right, and we're going to make sure we find the right strategic partners. If we get the right money for these assets, we'll move forward, but it's going to take time. At the same time, what we spend a lot of time on the Board in 2 meetings is the actions around $425 million plus restructuring actions to drive over $450 million of savings over time, and we'll talk about that here on the macro basis, but also the 2 business platforms we'll talk about at the same time. But a lot of work went on in the portfolio, look at that strong portfolio, work in the strategics deal. It's very hard to get buy at the Board level where we want to go. How we get those deals going? How do we structure those deals? And then also look at where we can take assets out of the company at the right time and redeploy that money. The Board is not in the process of liquidating Emerson. The Board is in the process of trying to grow Emerson, generate the cash flow and generate the cash flow for our shareholders as we've been doing for over 100 years. As you know, since I've been CEO, we've paid back close to $35 billion to shareholders. $19-plus billion in dividends, $15 billion in share repurchase. We reduced the share base of this company. So we know how to make money, and we know how to put money back into the shareholders' hand. The Board want to make sure that we do not damage that ability to do that. We do not damage the franchise of this company, and we do not damage the company for as we go forward with the next generation, those next-generation leaders. Yes, I will be gone. The next-generation must keep on growing this company and driving value for our customers, the communities, the employees and our shareholders. It's not just one organization we deal with. We deal with lots of organizations. That's our game. So if you look at it, here is the trend, on the right-hand side, here's a reset broke 42 years. That was a fun day. Nick Heymann was on the phone probably when I did it. Stock went down 10%. We recovered pretty much within 3 to 4 months. Then 9/11 came along, caused a little bit more problems. But we reset. The quittal we're doing right now from my perspective is what we did back in 2002, 2003 and 2004, as we reset the organization from a global standpoint, where we focus our priorities and investments in the generations of savings that we see. Very similar. Obviously, the economy had a very good run until another tough time, financial crisis, which was kind of shocking to people like me because we didn't see it coming. And obviously, it came down pretty hard. And then we came back in. We did a reset again back in the 2017, 2018 time period. And then over here, as we came out is from that repositioning effort, we drove pretty good profitability. We are setting a plan right here, and you'll see it. And the Board pushed it pretty hard, "Can you deliver this without damaging the company?" We're going to get back to these peak margins at the EBITDA level and the peak EBIT level, and we're going to get back to that through the actions that we control, they're already underway. And if we do get a little bit of growth, so be it. That help us leverage. That's what happened here. We reset, it took us 2.5 years to reset. And then all sudden, the market took off, and we've got very good run in margins. So the game plan for us is a reset, and we're trying to do it fast. Lal will talk about his reset. He's trying to get done in less than 24 months, including major restructuring and major facility closure. Bob's already started. So it's a little bit easier for Bob, but we want to get it done. Can I say Hi, Steve? Steve, how are you doing? [ Jane ] has got -- has your vest on today. She stole it from JPMorgan. I don't know, do your choice. I don't know if you gave it to a free, I don't know, your choice. But you can see that what we're looking at here is go back up, but it's driven not by sales because our forecast right here from '19 to '20 to '23, we're looking at 2.7% underlying growth. Last year, we were here, we were talking about 5.3%, 5.4%. In fact, most of this growth comes in that last year because you're going from '19 to '22, it's 2.4% growth. So we see a recovery coming towards the end. In the meantime, Lal is trying to get things done. Bob is trying to get things done. We have over 140 facilities we're trying to interact with right now. From a closure standpoint, consolidation standpoint, both manufacturing, sales and service. There's a lot on the table. We've also increased capital. We debate that with the Board, too. We have to invest in the facilities as we start consolidating and closing facilities, very important for us. And a program that's underway. It's got to be done very quickly for us to get this done by the end of '21. So the game plan, as you'll see, is try to get most of the restructuring done by the end of '21. Easier for Bob, tougher for Lal. Because from the standpoint of the facilities, if we run into problems, and some of these facilities are in place, you just don't shut down by saying, we're shutting, period. So if you look at the total P&L buildup that we're looking at here, here's 2019. This is basically the impact. We had the headwind we have this year from the higher stock price because of the market run-up. The pension cost, the lower interest rates, partners here this year. This is a volume that we have built in this plan, basically, 2.7% underlying growth, leveraging at 30%. That's what that is right there. Now we normally have inflation hitting us, salaries, other cost inflations. And every year, every company you file has to offset just to protect margins. Our number is quite large when you look at it for 4 -- over a 4-year time period. So if you look at that red, it's $945 million. We've got to take actions just to tread water, a big number, which we have in the green here, basically, the price/cost, Nmi, again, on cost reduction activity, basically to offset that. And then you start seeing, as we drive the cost restructuring activity across the company, both in productivity cost reductions and footprint reductions, organization, restructuring and other opportunities. Within the program under right now with a task force between the corporate and the platforms that are outside consultants, we're looking for other opportunities. We'd like to grow that number out there. So if we have oh s***s, which every company does, you hear them on the calls all the time, we didn't expect that. Or we have things that we get out there in '22 and '23, that we may want to invest in some technologies, we have the room to protect that margins and still make those investments. So we're driving additional cost reductions as we look at the 2 touch points. In the meantime, as we show the Board, we're full out. When you look at the $425 million that we have underway right now, plus the normal day-to-day stuff we're dealing with right here, we're a full out from the organization standpoint. In particular sense, we're taking out close to 10% of our salary workforce through this process. So we're reorganizing, obviously, given these young leaders over here, a lot more opportunities to grow. We're testing them. As I tell the Board, one of the good things about this process, it's testing that next-generation leaders. We are seeing which of these leaders step up and show us they have the right stuff to run the company, not only at the level right below me, but all the way down to the organization because we're stressing the organization as we go forward here. We're still going to grow the company so we've got to figure out how to do this simultaneously from that perspective. So if you look at -- that's how the restructuring and the savings, we're talking about over $450 million flowing throughout the next several years. We have built -- there's the 23.5% margin we're going after. We built in about $300 million of sales through acquisitions, potential acquisitions. They don't happen, that won't happen. But we expect we'll pick up. We'll pick up probably $400 million, $500 million of acquisition costs this year. Not sales, but acquisition costs, and they typically come in at lower margin. And we have to figure out how to digest them and drive those margins up. But overall, you're looking at this plan right here, the EBITDA getting up to 23.5%, the EBIT with a normal growth over 19%, and obviously with the acquisitions coming in, a little bit above the 23%, but a little dilutive. But from our perspective, we're trying to figure out can we find more additional cost reductions in these 2 categories right here. Relative to footprint, organization structure right now, I think we have it pretty well tied up. We've just got to execute, and we're just starting to execute around the world. As you saw in the first quarter, we drove nearly $100 million of restructuring in the first quarter, as we went after cost across this company very aggressively. That's more than we spent all of last year, total year. We spent incrementally about $35 million in the fourth quarter, going after the ideas that both Bob and Lal's team had coming out of the April, May, June, July to August time period. So we've launched and got those done in the fourth quarter, which gives us a little bit of flexibility here as we go into the first part of this year. We've got a lot of work to do. This chart's blurry, so because it's an eye test here. Here we go. But you can see right now, we're talking about $425 million restructuring. If we identify similar opportunities from the organization, that number in '21 and '22 will go up. But you won't -- we won't be talking about that probably for the 12 or 18 months, unless something really pops. Because we right now see enough going on activity-wise to solve with this $425 million. You can see back here in this time period I talked about, we did over 3 years, we did about $460 million. That's about what this -- when I look at the profile of what we're doing here and what we've done here is identical. So the people around, what we did is really impact 1/3 of the company in that cycle back in 2002, 2003, 2004. We reset the company. We went global. We created a very strong global best-cost structure, we -- and we invested heavily in Asia Pacific and drove a lot of growth for us. You remember, this time period, our underlying average growth rate was in the high single digit. Very strong underlying growth rate, probably 8%, 9% for several years, which drove a very good expansion for us. That was a good time period, but we reset and then we wrote it. So what you're going to see here is we're going to reset very quickly here and then try to figure out and see -- and hopefully, things will pick back up at some point in time. If not, our margins will be sitting there in a low-growth environment, we should be pretty well set for a couple of years. One of the key things right now that we're facing is, you remember the price/cost ratios and price/costs. Last year was a tough year. Obviously, price went up. We had obviously the tariffs hitting us, we had inflation hitting us. So we stayed green as we talk about green between the price and cost. This year, right now, with a slowdown in the global economy, the wind basically went neutral to a tailwind. Now what's going to happen here as the economies slow down, we're seeing materials come down, we clearly have some materials already locked and loaded for 2020, but we're seeing overall pricing -- our material costs drifting down. Now our customer base, who are on the phone live right now, also see that, too. I guarantee you -- there's a reason why that red arrow is coming down right there. I guarantee as we go into the year, we'll feel that pressure. But we're trying to get ahead of it at this point in time. Now, one of the key things that we see right now with China, basically out of the ballpark for maybe a couple more months is that we'll drive down, I think, the demand for materials, which gives us a chance maybe to get our materials locked up for a little longer time period for lower price points. So the good global industrial companies will take advantage of that. So I think what's going to happen when we come back here next year, if I'm a betting person, that number will be a lot more negative. This number will be down here close to flat, but we'll still probably do better than that number because of a different mix. Containment versus price. Still think we'll have positive price for the year, but my gut tells me we'll be under some pressure as our customer base sees it. But overall, we're in pretty good control at this point in time. We went through this tough period as most of your companies did, that you follow, and we're sitting in a pretty good shape in this area. From the standpoint of the fundamental actions we're taking. So we're looking at 2,900 -- 1,000 (sic) [ 2,300 ], about 10% of our total salary workforce, either reduce taking jobs out, a lot of them have already been actioned in this quarter, the last 2 quarters. We're also looking at moving into shared facilities, in some of our best-cost locations. As you know, we have a very strong, best-cost location network out there around the world. And we use it from Manila, from India, from China, Costa Rica to Romania. We have a very broad, and we have a diverse -- that allows us to move it back and forth as we need to move it. So I see that activity really improving here, increasing, both as we rebalance as we go after those facilities, as we go after some of the sales offices, we're going to be rebalancing. So a lot of work impacted about 10% of our salary workforce. A significant impact for us at this point in time. For the standpoint of facilities, about 145 facilities. We've done a quick scan of facilities around the world that we have. We do a lot of acquisitions. So we acquire a lot of facilities over the years, and we're looking at how we could consolidate, how we can move, how we can take some capacity, some fixed cost off-line. That will be the plan that we're already starting on, but that will run for the next 18 months. That is the toughest challenge. Now we've done this, as you all know, over many, many years before. Something we know how to do. It's a lot of planning. But the key issue for us is we've got to invest in the new capacity in best-cost locations, or I call them best-cost countries. We've got to invest in our shared facilities, shared-service facilities to take this new capacity and new absorption that we're going to be pushing in there, and they got to be ready to take this on. That's very important. We're in the early stages of this. And we -- and from the standpoint of new facilities being built, as we went into this cycle, our capacity in best-cost locations had been maximized out. We basically knew we were going to have to start investing. The plan assumes -- you'll see the capital investment assumes at higher levels here for the next 2.5 years as we invest. Now we have the cash flow to do that. We don't have to go to bank. We've got cash. We control our own destiny, but we're going to invest in those facilities to drive our cost structure down, but that will be a very important gating item for the people from Emerson's organization, from Lal's organization, Ram's organization on down, how to manage this, something that they've already been planning on. The order that the Board pushed this real hard, what order are you going to go after this? The other thing they pushed was, are you going to be in my hometown, shutting the facility down, give me a break, but that's okay, that's what they ask. They don't want to read press, I get bad press every day. But we have a lot of actions going on around the world from that perspective. And obviously, I think that we'll have pretty good the price Nmi activity right now as we see it. So a lot of work going on from a consolidation standpoint. Plan execution around the synergies, which we -- which Lal will talk about. And -- not Lal, but Ram will talk about, and Tim Ferry will talk about. Sales and service centers, legal entity simplification. A company like Emerson does a lot of acquisitions. We've expanded around the world. We have thousands of legal entities. Now I'm assuming you heard a little bit about when the UTC breakup, UTX breakup. This is the biggest issue. When we went through Network Power, when we were spinning them off, the legal entity rationalization is enormous. So what we're going through right now is, can we reduce our legal entities, it takes our cost down, obviously, but it's also something you have to do in concert with tax authorities. Because as soon as you touch the legal entity, every tax authority in the world looks, are you screwing around me? Are you taking money for me? That's what they care about, tax authorities. So we're looking at the structural between the 2 platforms, the corporate and the business units. We basically formed this task force. We had an outside consultant. We have a lot of things underway right now. We identified several hundred million dollars. 1/3 of that is most -- is with the platforms, 1/3 of that is not with the platforms. And we're prioritizing that. The Board's very keen on that because they do not want us to jeopardize the integrity of what we do as a control company. From all the things that have been put in place from Sarbanes-Oxley over the years, they do not want that jeopardized. They do not want the quality of the audits, the quality of the processes that we go through, the governance touched. So we're figuring out how to make sure we don't damage that from that perspective. We're looking at all -- I mean, obviously, driving those recent acquisitions. We're looking at driving G&A in the best-cost locations. And then, obviously, we were looking at ways we engineer cost reductions and do everything we can do. At the same time, both these guys, both Lal and Bob will tell you they're actually allocating more money into the research and innovation and R&D. This world is going through an interesting transformation right now. We're going to talk a little bit about this digital transformation with us at this point in time. Very important world for us right now that we need to make sure that we're investing in right technologies, the right software, doing what's necessary for our customers to help them get through this transformation. As you know, you hear our customers talk about, they want to make things more efficient, more refrigerant savings. They want to go -- reduce emissions. They want to go through carbon dioxide stuff. They have to go and work with us. How do you think the refrigerant changes happen? How do you think efficiency changes happen? How do you think they do the monitoring to reduce emissions in a power plant or a process plant, like a chemical plant or a refinery? They work with us, and you'll hear about that today, both in Lal's and Ram's piece and Stuart's piece and also with Bob's. Very important. Here's the capital allocation, $12.4 billion at this point in time. I'll remind you, that's what we're looking at today, 70%. If something pops up, we got the capacity. We can maybe maintain that 70%, but I know the Board will also look at how do we rebalance that. We will not just drive down a number because it's on this piece of paper. If we see an acquisition opportunity, we will rebalance. We have a running 3-year forecast for the finance committee and the Board, and we rebalance every quarter. And we'll tell you if we have to rebalance. Right now, the plan is, this with the acquisitions and the capital spending, you can see the capital spending is up a little bit in the next couple of years, but our fundamental drivers to drive about $12.4 billion back to the shareholders. As you know, we went through a major downsize of the companies. We sold off 1/3 of the company. We maintained the dividend payment. There are a lot of people in this room bet against it, a lot. We maintained it, and we're increasing it. We're now back in the mode that we'll be driving this down to low 40s. The plan actually goes below 40, but with the divestitures that we'll have that number most likely will bounce back up into the low 40s, because our divestitures have cash. But the plan as it is right now, there's nothing built in here for the divestitures, so that number will actually go below 40, but most likely will -- it will stay within that band. You can see from a cash flow standpoint, the forecast we're looking at 17%, 18%, free cash flow of 13% to 15%, where it's $2 right now. We're going to maintain the 40% to 45%, most likely in the next couple of years as this number drifts back down, you'll start seeing a little bit more increase in the dividends, in particular after earnings start growing again, as we get through this year. So we're in a good shape right now. We've gone through this bust. We made it, and we're drifting back down. A major accomplishment by a lot of people or across this Emerson Company. A smaller company, driving back towards cash flow and ratios that we were before we did the major divestiture. From the standpoint of repositioning, we've been doing it forever. As I looked at it right here, there's $12 billion of things we've got out of over the years from this period here. I go back when I first joined Emerson in 1981, it's even bigger. We're looking right now. We show the Board about 10% of sales right now and companies that we're looking at from the perspective, have they peaked -- this peak from the sales standpoint is the lower high and lower lows, profitability stress or technology stresses, are we looking at businesses we should get out of? Not a whole platform, but our businesses we're getting out of. And we identified about 10%. Again, we're going to watch this and work it. We're going to look at where we go with those over time, but we're not going to do it if the market is not right for them. We want to make sure we get the value for these businesses. Most of these businesses are high margins. They're just not growing as fast anymore, and they're not nearly as strategic to what the strategies we're doing in the 2 platforms. So very, very important. So from our perspective, right now, we're looking at how we can sort of -- we fine-tune about 10% of our sales across the company, the portfolio, continue to look for acquisitions. The Board wants us to keep pushing into new technologies and some adjacent spaces that will help us with our solutions effort and automations and our solutions effort in the Commercial & Residential standpoint. But this is a game we play forever. Mr. Knight played it. Before him, a guy named "Buck" Persons played it, and I play it. And we'll continue to play this game. But we're also going to look at where we can go after other opportunities from an acquisition standpoint to bring technologies and solutions and services that allow us to drive higher margins and higher cash flow of the company. The Board's looking for those catalysts that will help us do certain things. At the same time, the Board understands a catalyst occurs, use that catalyst for other activities. So we will continue to fine-tune this portfolio, and we're looking right now about 10% of the sales at this point in time. That's something that we've been doing for many, many years. Same -- here's some acquisitions. I've -- not names of companies, the type of technologies, some control. We've got a lot of things right now. We have 3 opportunities going on right here in this control segment, 3 of them. Nothing major. Nice little bolt-on technologies, 2 for Lal, 1 for Bob. But we're continue -- we share with the board. Obviously, the Board sees names on these charts. We share with them the debate around why you'd want to do them, and the debate goes on from the standpoint of they'll ask for more information. How do you -- how you -- how would you action this into the details. So a lot of work goes on these things. From my perspective, I always kept the Board engaged at a very high level, very early on about acquisitions and what we should be looking at and why we should be looking at them, and the debate happens. Sometimes they get vetoed. Sometimes they say, let's get moving. And how do we make it happen? But typically, we keep more than 10 or 15 acquisition opportunities in front of Board at all times. It's not something I walk in one day and say, "Hey, I need $500 million. That doesn't happen in Emerson. They debate me all along, very rarely do they see an acquisition unless something pops out of a large company that's maybe tapped, and they're looking at spinning something out from this, from that standpoint. So if you look at Emerson, we're world-class profitability today. Here's our 2 segments. That is Commercial & Residential. Today, we're trying to get to 28%. Here's Lal's business today. It reports around 21% EBITDA. Without Final Control, it's around 23%. We're going from 21% to 24%. So you look at our world -- we are pretty well simple. These guys here are more systems-oriented. We have a lot of other capability in there, in Final Control, but we have a very good position from a standpoint of profitability. If you look at our structure, we're split a little bit differently. We are a very high-GP company, and we invest in that technology. We invest in our channel. We invest in that aftermarket. We are a high-GP company. You can -- you'd have a hard time finding companies across up there. Most of our competitors are down here. Honeywell's a little bit different. From the standpoint, it's a little bit of company. They run a low GP and a very low SG&A, a completely different company than we are. But from the perspective of the marketplace today, we run very high-level GPs, and we're going to move them higher, and we're going to move our margins higher, and we're obviously tweaking the SG&A at the same time. So it's going this way. So from the standpoint of our perspective, we're looking at ways we can go even higher in the world-class area and drive that profitability and stay at and above our peer level as we look at the business today. Marketplace. Obviously, we have had a good run here since last year at this time. We look at the capital goods. Here's Emerson, we look at our peer group, the industrial peers, the ABBs and GEs had a good run here. Schneider, the European companies have had a good run in the last 3 or 4, 5 months from the stock market. Overall, P/E from the standpoint, if you look at it, we're pretty much in line right with the average GE up as they've rebalance the company and sort of had a run here. Rockwell is the highest level in the industry. But most of the companies right here were on average right there with them. We'll go up and down 21, down to 18. We balanced 22. We balance in that range. We're pretty good shape right now from that perspective. So from my -- so I look at this, where we are right now, we're going after operational, capital allocation and the portfolio. Operational, a lot of work going on to fine-tune the cost structure, improve the profitability of the company. A lot of actions to protect the profitability, also enhance the profitability. We want to drive the profitability back to peak-plus levels, add 2 additional margin points at the EBITDA level to get over 23.5%. The review across the company has been very comprehensive. We will continue to do the review. The Board's asked for additional things to be looked at. We have some things we want to look at. So we're looking at those right now. In the meantime, our plate's full from an operational standpoint, with the $425 million of actions restructuring underway. They're very broad. They're not in just one area. They're across both platforms and across corporate. We're going after all the structures around the world to try to make sure we have the optimal structure. My drive is go as far as possible. If we had to bounce back, we can bounce back, but take this right to the edge, let's go for it. Capital allocation. As I said here, we're looking at about $6 billion in dividends, $6 billion in share repurchase. It's going to move around depending on what acquisitions we do. Again, over the last -- basically since 2000, that number's been $19 billion, and this number has been $15 billion. We're looking at investing around 3.5%, and we're looking at around about $4 billion of acquisitions, if we can find them. If not, then our capital structure is going to be looking a little different and we want to review that with the Board again. No breakup at this point in time. We were looking at huge opportunities within our businesses from the standpoint. We are going to fine-tune the businesses as we've talked about. As we look at certain divisions and business units, we're looking at which ones maybe should come out and which ones we want to add to that to drive that value. But we're going to continue to divestitures at this point in time at the right cycle. We're not going to do anything just to check a box, and we're going to continue to go after opportunities in the carve-outs and the breakouts, and some of these companies are spun, maybe potential acquisitions. In the meantime, we've been seeing very small product line acquisitions, and we'll continue to go after. As I look at this year, I would say we're going to spend probably around $500 million of acquisitions, mostly bolt-on type of acquisitions. Looking at the -- quickly, look at this, where we're going? Not very exciting right now. If you look at the mature markets, it's going to grow low G -- GFI 1% to 1.5%. Western Europe, Canada, United States, the world is going to grow a little faster. Again, this is before the impact of coronavirus because nothing is been flowed through. But as I look at our mature markets right now, if I look at the next 12, 18 months, I'm looking at very low 1% to 1.5% GFI type of growth, which is going to drive very low growth for us. Potentially some negative growth unless we gain share, and then that will allow us to get up to 0-plus level. But we're not looking at much growth in mature markets at this point in time. We do expect some things to start improving as we move out in the '21, '22 time period. But at this point in time, I see very low growth. I see more downside pressure, in particular, right now with the whole coronavirus. The big issue, though, will be we know that the economies will be -- will basically pumped, both in China at some point in time. And I think you're going to see some pumping in the United States and also Europe as they try to stabilize those economies. Now we'll see when that happens. I don't think we'll see any impact probably until later this year, 2020. I know China will definitely do that. In the emerging markets right now, again, without the coronavirus, we're looking at probably around -- GFI around 4. Our underlying sales around 2% to 5%. And as you know, we had a very good first quarter in our emerging markets. Our China businesses grew, both in orders and sales. Asia grew, Middle East grew, parts of Latin America grew. The mature markets were the big issues. The only place we did not have growth in emerging markets was Eastern Europe and Russia, as they really contracted as the price of oil, energy came down, and we saw that impact early on in our first quarter. But overall, decent growth from the standpoint of what we're seeing. But the fundamental message for me right now is for the next 12 to 18 months, moderate growth, how do we drive probability? How do we make Emerson stronger? How do we invest in the technologies? How we set this organization? And we use this as an opportunity to upgrade, up-skill the workforce. From the standpoint, can we improve the quality of the people we have as we go through this process? That's a key issue for me. We've done in the past, and we want to do it again, as we reset. I'm going to show you on the left-hand side for the people that know that we had a plan last year, everyone told me about it all the time. Here's the plan last year, we basically had 5 3% at $22 billion. We're now looking at about 2.4% in the same 3-year time period, so it drops off, clearly. We're looking at a little bit less acquisitions, as I look at the marketplace, fundamental lower growth. On the EPS last, we had a $4.50 in '21, but driven by the growth, margin, some headwinds. The headwinds are now larger. We're looking at less growth down to 2.4%, margins higher, more increased share repurchase. So 1 year out, this number is going to be in the $420 million, $425 million range as I look at 2021 now just because of overall slowdown in the marketplace. But we still are not backing off. We still believe that we're going to drive earnings growth. The recovery and growth, I think, will come back, but not in the next, I'd say, the next 3 years as I look at that low growth from that perspective. And this year, in particular, is going to be very low growth as we've talked about. So I look at the 5 -- a 4-year plan here, up to 2023, you can see basically core sales growing at 2.7% and with a little currency headwind, some acquisitions coming in. From that standpoint, driving '22 -- but that's what our plan looks like right now. From an EPS standpoint, here's basically last year as we reset with a discrete tax, restructuring, around $3.69 is the base, the headwinds we have this year, which you've heard us talk about since November last year. Basically, the underlying growth rate of 2.7%, looking at the margin expansion, future acquisitions and then share repurchase, driving up to around $5 a share. So that's how the plan's set now. It's built basically low growth, taking control of our cost actions, getting our margins back up, obviously, reinvest in the company where necessary from a capital standpoint, returning more money back to the shareholders, and we're looking for strategic acquisitions. We're not backing off of that. This plan does not have any divestitures in it at this point in time. It will -- those will happen as we go through this process, but the Board's again rechallenging us and some of our assumptions and what we're doing is divestitures. And why? The pricing, the timing, the Board is engaged and make sure we're not doing something stupid just to check a box from their perspective. So we're taking a hard look at that. But I guarantee, by the time we get out here, divestitures will happen. Will all 10%? I don't know, but divestitures will happen. And we'll look at cash flow will be negatively impacted from that perspective, I'll show at the end. But our ratios are still pretty good. You can see right here, we're getting down around 40%. And from the perspective that if we have plenty of room from a dividend standpoint, the next-generation leaders to raise the dividends like I've done over the -- my last 20 years. But our forecast is building off a lot of cost actions, money going back to shareholders, less acquisitions and a reset of that cost structure with a lot more moderate growth. I still believe you're going to see a bounce back in some of these marketplaces. I don't know exactly when. We just want to get things done so we're ready to go from a delivery standpoint and a technology standpoint, but I fundamentally believe it will bounce back, just a question when that timing is. So the overall plan, which I show the financial plan, which I've been using the chart since I've been CEO. Lower growth, more margin, acquisitions, share repurchase, driving a little bit higher growth rate in earnings through this activity right here, these top 3 things right here. Work capital -- operating capital efficiency and generating the free cash flow. So as we're building this plan on very little economic recovery, some recovery in outer years, driven off a very strong adjustment, the underlying cost structure, driving back to record margins in Automation Solutions, which will be around this 24% EBITDA, Lal will take you through that, continued very positive cash conversion over 100% in this time period, very important to us. It's going to be coming from margins. We have a little bit of working capital improvement. But from my perspective right now, as I look at where this forecast is driving cash flow, it's coming from the margins' expansion that we have. So higher earnings cash versus working capital cash, which we do both. But right now, as I look at that mix, it's going to be less working capital, probably only a couple of hundred million, and most of it coming from a margin standpoint. Driving strong earnings, driving capital in the first couple of years at 3.6%. You'll see that's where we are. And then bouncing back down in 3.3%, 3.2% range. This is all about getting our cost reset done in best-cost locations. Have that opportunity for acquisitions, and we return money back to the shareholders. We have the flexibility, but the most important thing you have to understand is, we are in an industry that does cycle. It does cycle hard, and we want to make sure we have that flexibility. If we have the opportunity to do an acquisition, we will do the acquisition. We'll debate to what we do in the capital allocation at that point in time. But right now, if you look at this balance sheet, we would have the opportunity to do an acquisition and leverage that balance sheet. If we don't do an acquisition, then we obviously have to take a look at that balance sheet and see how we deploy that cash flow. But at 70%, that's a pretty high number for the company. We've not run at that level for more than 1 year, it will be 2, 3, 4 years. So we have the flexibility from that perspective. And I like that from the standpoint of what we can do. And we'll continue to increase the dividends. This year, we're on our 64th year. But again, strong cash conversion, we're increasing our return to our shareholders. Let's talk about 2020. You've seen the numbers. The key issue for us focus on cost. That's where we're focused on. Growth, in my opinion, is going to be somewhere between negative 2% and plus 2%. With the coronavirus right now, I'm more likely even, flat. I don't see the second half bounce-back at this point in time, unless we see some improvement relative to the overall economy coming out of China. I know they'll stimulate. But in the meantime, I think that's going to be a damper on sales. It's going to be damper on the global economy. But this is the same numbers we've shown you from the standpoint of sales, underlying profitability, margin, earnings per share, cash flow, nothing new here. Again, we'll talk in a second here about the coronavirus. But the headwinds at corporate, no change when we talked about back in November, looking to spending around $650 million of capital as we get ready for the big moves. But clearly, our focus is on costs. Our focus is on making sure we make those right capital, generating the cash flow and get ready for that bounce back as we go forward here. January orders continue to trend down towards one. We're moving towards one. Nothing -- there's nothing surprising. I don't -- I mean, again, I think as we get into February and go into March, I think the number could be less because of what's going on in the coronavirus, you will see that. The forecast I see overall on our sales from the perspective, we were 0.3 in the first quarter underlying. I think now we're going to be closer to flat or 0 in the second quarter. And I think that depending on how fast China bounces back and the rest of the economy bounces back, we've had it pretty well boxed where I feel right now. Even with the corona right now, I feel we have pretty well boxed. But the number I'm looking at is basically a flat number, drive the cost reductions, drive the higher adjusted EBITDA, get those earnings per share through that, get the cash flow and get ready for when the recovery does happen. But a very difficult environment right now between the geopolitical world, the coronavirus, weakness in Europe, there's a lot of things that we CEOs are having to deal with right now, and I don't see that changing at this point in time. Mike might come up and talk. But this is China. A couple of things. As you know, I talked in the phone on Monday or Tuesday, couple weeks -- last week. I talked about we're in this blackout period as a reentry. For the people in the room that were old enough to remember the Apollo Gemini capsules coming, there's a blackout period between 5 or 6 years. That's where we were last week. Our plants are now up going. You can see here. We have 33, 34 of the 36 plants up and running. And Mike will talk to here in a second, a little bit more in the details here, but they're not running very, very high levels. Productivity-wise, we got to be running 20%, 30%, 40%. The plants will, mind you, ramp up very slowly. Our organization is focused very, very hard to get these plants back up and running, both the engineering centers and the facilities, the supply chain, workers, logistics, the Chinese government had this thing well wrapped up at this point in time. You have to get approval to get plants back open, and our people have been working this very, very hard. So Mike, why don't you come up and give them a quick update what you see at this point in time?

It's nice to be here. Thanks. We did update last week on the call that we are anticipating that we get operations up and running in a majority of our facilities on February 10. That did happen on Monday. And then we had a couple more get added through the week. So we are at the 33 number that you referenced, David. We'll have our 34th. I think we're going to start working tomorrow in our valve facilities as we go forward. We've got a small factory left and we've got an office complex that we're anticipating by next Monday, but we'll have to see, we're working with the authorities. The process we've gone through is we've had to apply to restart work. We've had inspections by the government agencies and the districts in the different places we operate and then they've granted approvals, and we've been kind of navigating that process. I will say that in several situations, we were actually the first one approved in some of these districts, kind of helps set the bar, I think, for the Chinese government in terms of what people would expect and being -- obviously cooperating and collaborating as we go forward here. Operationally, as you noted, we're having a week where we're probably doing between 20%, 30%, 40%, 50% of output, something in that range right now. We're hopeful next week maybe we get that above 50% in some cases. And then from there, I think over the next couple of weeks, we'll continue to build on that. We've got about 2/3 of our workforce working, which is good, some remotely. Some of our office work is being done remotely at this point. But again, things are starting to happen, orders are starting to happen. We are trying to get the machine kind of restarted. I'd say the toughest challenges for us are probably around the supply chain and the logistics area. We have 1,600-plus suppliers. I think we noted last week, $750 million of our purchases in China, about $250 million of that leaves China, so does feed into the rest of our system around the world. We're getting some impacts there. Our top 36 suppliers have all resumed. And again, they're kind of in the same place, kind of in that 25% to 50% or 60% range. We do have a second-tier supplier base, those smaller enterprises. They are being prioritized differently, I would think, the bigger enterprises. So we're watching those. We're hopeful that the government will continue to support them as they come back. And then logistics is probably the major thing, just moving goods around the country right now, big challenge. We have had a few airfreights leave the country, which is good news. And I would say the customs, the Chinese customs folks have been very responsive and trying to be helpful in that regard. So as we look forward here over the next couple of weeks, again, the supply chain and logistics piece, getting some of these -- making sure it's not a key supplier that's not up quickly, we will be guarding against that. We have raised the impact, we're looking for in the second quarter. I think in the call, we said $50 million to $100 million. I think we're kind of tending a little bit higher towards that $100 million level for Q2 right now. And it's a judgment call right now, but we think about half of those sales will get recovered with some pent-up demand, half will be lost, either seasonal business or it will just slide out at the end of the fiscal year at this point. And then the last point we want to highlight is, we expect the Chinese government will put stimulus into the market. They -- I think they'll come at us with a very sound program at some point. Typically, that tends to help us on both fronts.

I would say Bob's business is really helped by the stimulus more than anybody else because they typically go after that marketplace, not necessarily the industrial. But clearly, this is what we see right now. We'll try to keep you updated, but we get dailies -- several times a day, we get updates. We get -- already had 2 or 3 this morning. We're up running, but it's very slow at this point in time. But having that position we have is very powerful for us in China right now. It's just a matter of how long it takes. But fortunately, we're working. So we're out of the dark zone, but the capsule is still not on the aircraft carrier yet, for the people who know I'm talking about. So let's talk quickly around investments. I'm running out of time here. Emerson is very much focused on our process and driving the One Emerson strategy, driving the technology, our superior technology, drive market growth, profits, cash flow, leading technologies in the industry. We help our customers from a technology standpoint. Our -- serve our customers are very strong, industry knowledge. Our regional reach is very powerful from that standpoint. We have world-class laboratories around the world working with our customers. We're very, very tight with our customers relative -- that's from an efficiency standpoint or a regulation standpoint. We have a huge installed base that we leverage from a KOB 3 aftermarket standpoint. But our customers, as they go through their sustainability, as they go through efficiencies, as they go through refrigeration -- refrigeration changes, as they go through food safety, as you look at the whole, we're going to talk digital transformation, the things that we deal with every day, our customers are tied right with us. We have the technology, and it's important that we invest in these technologies and stay up with this because these customers need us to help make this transitions. It embeds us very thoroughly and allows us to support them on a global basis. It's very important that we stay ahead of them in the various areas. And you hear it all the time when you're out there. And you're going to see Stuart talk about the digital transformation underway. This thing has taken off in the last 12 to 18 months at the customer level. And we are right there with them, working with them, and it's important we continue to invest. But we are trying to work extremely hard with our customers to help them be more efficient, more effective, more sustainable, reduce emissions, reduce the carbon footprint, and they're using technologies that we bring to that marketplace and allow them to do that. Very, very important is our service. You're going to see on the -- from a technology standpoint, today, you're going to see, Stuart is going to talk about this. Very important as a business we broke out Lal in his organization broke it out this year for the first time, it's separate P&L. Our stand-alone software is $600 million. Total software is about $1.8 billion, with most of that being embedded, that we get paid for, and Lal will talk about this how we get paid for our software. We've also continued to drive and invest in analytics. Very important from a standpoint of helping our customers on their digital transformation. But you're going to hear a lot about this from Lal, a lot about this from Stuart. But this is an area that we are very strong leaders in the world in this, and we're going to continue to invest both internally and then also through acquisitions. And it's something the Board is watching very, very closely. From an internal development standpoint, you're going to see a new power system come out. DeltaV came out in the Process world last year, power system, Ovation 3.8 is coming out, next-generation of valve instrumentation, which is very important to the digital transformation, next-generation of pressure instrumentation, also very important to the next-generation of our digital transformation. But a continued area of investing in the technologies to make sure that we stay relevant and help our customers make the transformations they need to make and bolster our installed base and bolster our value proposition over the long term. Same thing on Bob's side. Bob is up and down this from an energy efficiency, comfort, air quality, food safety, refrigeration regulations, food waste management, e-commerce, emerging markets, a world-class change. Bob's business is touching all this, and he'll talk about it. But clearly, from his standpoint, he has a new type of technology coming out, centrifugal compressors. He's got a lot of different type of products coming out in this area. He's looking at some control technologies he likes to acquire. But very important is his customer base continues to make these transitions. And they make them over time. These are not 1 month, as you all know and you follow this industry, they plan it out 2, 3, 4, 5 years. And so we have to be ahead of them to make that transition happen, and we are at this point in time. A couple of changes. I've been showing these charts the last couple of years. The red checks are pretty simple. The last red check will be me. Every other red checks will go before I go. It's all I need to know. We made a lot of changes over the years. We've added a lot of new organizations, there are new presenters this year, the presenters this year are the blue dots. New positions here, both Stuart Harris as we broke that out, [ Hawkin ] come back from Asia. We're looking -- Bob's looking at -- not Bob, Lal's looking at trying to create a new business here, form up what they are going to call measurement solutions, figuring out how to make this more efficient for us and also for our customer. Stay tuned. This is underway and will be happening. Same thing -- and Bob's organization other than myself up here, he's pretty well set with the next-generation. Just promoted Sandeep there. Perfect timing to go to China. Sure. Is Sandeep there yet, Bob? He's not there yet? He's having a hard time getting to Hong Kong. I wonder why. Okay. So when he'll be going to China to run that business. So right now, [ Hawkin ] is doing both jobs at this point in time. And so Tim will present today. But clearly, the Board is highly engaged in this process. Transition will go. I've been telling you that sometime in '21, there will be a new CEO. I don't know exactly where the Board is. I firmly believe the Board will be pushing pretty hard this year on changes within the organization from the standpoint of making sure we're set. They understand the successors, who the best teammates are. The Board has been engaged in this for 4 or 5 years, and I don't see that changing. I've always tried to keep you guys up to date. But I would -- if I were a betting man, sometime in '21, I'll be -- that red check will be gone because I will be off. But from my standpoint, there used to be a lot more red checks up here. We're down to 2, that I see position is changing. [Audio Gap] is where we're focused on right now, costs. We're not going to jeopardize the future of our franchises, we have fundamental franchises. The reason we have the GPs, the reason we have the EBITDAs that we have is because we have very strong global franchises, and we use them. And we invest in those franchises. We will continue to invest in those franchises. The Board is highly focused in that word right there. They do not want to jeopardize the franchises that we have built over many, many years. In the meantime, aggressive cost reset is underway. The P&L I see in 2020 is what we laid out when we report the quarter, no difference here. A little bit higher capital. You can see going forward, without acquisitions, will be 22 -- $20.5 billion with acquisitions, will be on $22 billion. This is what the P&L looks like. We clearly have the capacity to do acquisitions if we have the opportunity. In the meantime, it's all about getting the cost reset. The economy will bounce back, and we'll see that. We will get through this coronavirus. We will get through the geopolitical. There will be election in November. There will be a president in January, and the world will set. Brexit, we'll get through. There will be a new president probably in Germany. I mean let's go through all these things. It will happen because it will happen. But that's what we look at right now in the near term. But we're very -- we feel very good about where we sit at this point in time. We saw the slowdown happening. We went after it very quickly. I think we're in a good position at this point in time. We have a lot of great next-generation leaders, picking up and taking responsibility in the company, and I feel very good about where we sit from that standpoint. And the Board feels very, very much engaged on where we go from a strategy and also, most importantly, where they go with the next leadership team of Emerson. It's not something that's going to happen haphazardly, trust me. So with that, I'm going to introduce Lal. Sorry, Lal, went a few minutes over. Okay.

Well, if you'd like.

I'll present this.

That's fine. I know you know the business. Thank you sir.

You don't want that guy.

No. I just need this. Good morning, everyone. Lal Karsanbhai, great to see everyone here today. Before I start, I just want to say a few words. 2019 clearly unfolded very differently than we planned and when we met a year ago, but we grew 5% on an underlying basis. 3 -- that's 2 points above the market growth rate and the automation space in 2019. And there are 3 key elements that really stood out in terms of our performance in '19 and as we went through the first quarter of 2020. The greenfield projects, since in the last quarter alone, we've won 60% of the customer decisions around KOB 1. As a matter of fact, you can go back 2 years in our control systems business, we won 80% of the decisions in the chemical space. Second piece, the installed base and competitive displacement. For every 10 -- for every system that's pulled out, we win 10, and we have 1 of ours replaced. That's a tremendous ratio, a 10:1 ratio of control system, competitive displacement. We have over 17,000 control systems today, over 10,000 DeltaVs, and we control over 1.3 million megawatts of power generation across the world. Phenomenal positioning, growth in that business. And then the last is we stood up Stuart Harris' digital transformation business. Grow -- fast-growing technology business with devices, analytics, software packages, that's $750 million today and growing at a double-digit rate. All those things we executed through 2019, and we were able to grow by 2 points over market rate. The environment got slower on us. So as David explained, mid through -- midpoint through the year, we looked at the cost. And we looked at the structure of the company and the organization got behind an aggressive program, as you will see, of accelerated restructuring. That's looking at how we interact with our customers, how we're structured around the world, our footprint. All in all, we have to execute $1 billion of activity, about $375 million savings directly resulting from the accelerated restructure. And I'll walk you through exactly what that is and the impact of it in the business. Okay. Growth in this marketplace as we go through this year, there's been a lot of changes in the funnel. We talked about an $8.3 billion funnel a year ago. I'll walk you through what that looks like today and give you an update. But the slowdown in the upstream oil and gas market in the United States, the reverberations on lower oil prices around the world have had an impact in the business as well as the global discrete impact. I'll show you a perspective of what that looks like today and where we think the potential outlook is for the year. We have been winning within the capital wave, particularly around LNG. Ram's business has won 50% of the LNG contracts that have come up in Final Control. And we have won 1 critical system that was awarded to us with ExxonMobil. So we're working that very, very hard, and we have a few more, which I'll show you in the upcoming charts. The fruits of our labor is the $120 billion installed base. And that not only drives a very profitable KOB 3 business, but also enables the digital transformation journey. Because there's a lot of customer acceptance and customer knowledge around our technology that we can then leverage to pull in these modernization programs across the plant. So those are very, very critical. I'll spend a significant amount of time today on technology, not just to give you a perspective of where we're investing across the various layers of our business, but also to pull back the onion on the software business. David mentioned already, it's a $1.8 billion business. About $1.2 billion of it is in our embedded technologies, but we have a grow -- a fast-growing $600 million stand-alone software business today. And I'll break that down for you and give you some examples of what specifically we're talking about. Ram is going to spend 30 minutes going through the Final Control performance. Tremendous amount of effort, operating discipline that he's put into the company, the synergies that have been attained on cost and sales that are driving value within the Final Control platform. And then lastly, the digital, and we'll have Stuart come up for 30 minutes and go through the plans, how we define the business, what the opportunities are to grow, expand that very interesting market. The chart on the right gives you perspective on 2019. I'm not going to belabor it. You've seen it. We leveraged the company at a 35% adjusted EBITDA basis, on an underlying basis, on a reported basis, 17%. The impact of the mix, geographic mix. So if you think about our most profitable businesses in our most profitable world area, which is North America, slowed. So upstream oil and gas, very profitable. North America, very profitable. That slowed through '19. That impacted us through the year and the impact of the acquisitions were dilutive as well. So we -- that's opportunity for us as we go through '20, and I'll show you how that looks. The mix in the business didn't really change. If you look at the sales by marketplace, there were point-or-so-deltas within the geographic mix as Asia got slightly bigger and the U.S. and Europe got slightly smaller, about 1 point down on each. But what's more significant here is the mix into KOB 3. We expected, and we talked about a year ago, the growth in KOB 1 was going to fuel 2019 into '20, but we didn't quite see that. And we continued to grow on the underlying installed base and the KOB 3. So the KOB 3 business now is valued at about $7 billion, 57% of our sales, and grew by 2 points over a year ago. So I'll show you what that looks like specifically. Chart on the left is kind of the nuts and bolts of what we do in one chart. So how the business works from a control perspective. You have sensors that are the eyes and ears of the process. They send information to the brain, which is a control system. The control system makes a decision and sends that decision to the muscle, which is the Final Control element of the company. And that's repeated hundreds of times per second over and over again in a controlled environment. What makes the business very unique is the technology within the business and the people and how we interact with our customers across this business. It's very unique. We own the technologies within the business units. And we drive a matrix selling organization around the world with very specific geographic and customer-leading initiatives across the business. The space on the right side is about a $74 billion sandbox, a broader sandbox is well over $200 billion as we measure our overall markets today, but just highlighting the $74 billion of market here. Across the broad perspective, we have leading market positions. If you look at our instrumentation companies, our position in instrumentation is greater than the next 2 competitors together. Our position in Final Control is greater than the next 4 competitors added together, very strong positions there. The systems in software and solutions business, we now have the #1 position as we measure this. This includes our control systems as well as our remote automation solutions business and software that's in there. And the second competitor on that list being Honeywell. But again, a very tightly bunched group of 2 or 3 competitors within that systems and software space. And then lastly, we have a PLC bracket. Obviously, that's not the total PLC market. The total PLC market is well over $15 billion in size. This is purely the hybrid and process segment of the PLC application. We have a very small but growing piece of that market. Obviously, as we entered it with the acquisition of the machine automation solutions business from General Electric. Okay. I'm going to spend a few minutes talking about the cost program and how we -- what -- how -- what peak margins were and how we get back there. And the hard work that this organization has to accomplish to go on that journey. So the chart on the left gives you a little bit of a perspective, a decade perspective of where we've been. The business has grown on a reported basis from approximately $7.5 billion in '09 to the $12.2 billion in 2012. The peak margins of the business occurred in the 2014 time period. So on an adjusted EBITDA basis, 24% was the number that's up from 21% adjusted EBITDA in 2009. But if you look at that period from 2010 to 2014, that was a pretty magical period in the process automation space. We had the best, I call it the best of everything. We had a phenomenal North America growth. We had global expansion in chemical -- in the petrochemical industries. And we have the growth in the shale environment. And so the drive and the growth from that low 20s adjusted EBITDA to the mid-20s, really came through leverage from that very profitable growth. Then we went through the hydrocarbon recession through mid '15 through '17. Margins eroded. We deleveraged the business as volumes came down. And then we've had -- we've been in a -- what was a curtailed recovery and our margins hit 21%. So over the decade, flat at 21%, but really, were driven up through significant leverage in a very strong growth, good mix environment over the periods of 2010 to 2014. So now as we look forward and we look at that adjusted, that 24% adjusted EBITDA number to return back to that number, the efforts I'll talk to you about today, are not going to be based on growth. They're going to be based on hard cost activity. The underlying plan that we have going forward is a 3% growth plan. We'll leverage that at 30%. So there's about 1 point of margin improvement that will come from the growth. The remaining 2 points come from the hard activities around cost. Now before I go through the details of the plan over the next couple of flips, I do want to just make sure that we are cognizant, and which I know many of you are, that we are in the top quartile of margin performance across our space. And what we've done here is broken this out by each of the technology categories. Whether -- if you look across the scheme, with a few exceptions, it's top of the class. And if not top of the class, in the top quartile in terms of margin performance, clearly, because of the share positions that you saw in systems and software and systems and solutions, there's more compression and the competitors are a little closer. But in Final Control Instrumentation, where our positions in the marketplace are significantly stronger, our profitability is also much higher. If you look at the little stars that we put on top of our bars, they represent the 2023 plan and the commitments that we're making in terms of margin improvement across the platform for each of the 4 categories. Chart on the right has a detailed bridge. David showed this for the corporation as a whole. There's a 21% in 2019 and the journey to 24% in 2023. So 3 points of growth, 30 points of leverage gives us 1 point of margin improvement. That's the 1% green bar, $460 million of value. The red bar signifies approximately $180 million of inflation and other headwinds that we have to offset every year. This is part of the operating cadence that we have within the business. And those are things like salaried inflation, material inflation that impact the P&L and we have to drive and offset on an annual basis. That's the combined 3-year impact of that. And then there are about $1 billion of actions that drive -- that drives not just to offset that inflation, but drive the improvement in the EBITDA margin. First bucket is price and net material inflation, that's the small little bar there. And then the broader bar, part of which is green, which is part of our day-to-day management of the company, cost reductions, technology cost reductions within the business, but then there's a purple segment, which is valued at about $375 million, which is the specific savings around accelerated restructuring in the business. So when you add that together, there's about 2 points of improvement that add to the point of improvement from the leverage that drive us up to the 3 points. So the plan is less dependent on -- is not dependent on the market, it's dependent on us being able to execute what's in that purple large bar. Now what is that composed of? We're not strangers to restructuring in the business. I didn't put it on this chart, but if you went back to the financial crisis of '09 and '10, we spent about $142 million in restructuring in those 2 years. If you then fast forward to the hydrocarbon recession of '15 through '17, we spent $245 million in restructuring. They're exemplified here by the blue bars. In this planning period, our commitment to the organization, to the shareholders is $325 million of restructuring, '19, '20 and '21. The gray bars on the chart exemplify baseline restructuring that we do in the business. And typically, we'll do $20 million to $40 million of just underlying restructuring in the company on any given year. The '18 bar is a little bit larger because of the V&C integration efforts. So that year was particularly large. But generally, we fall within that $40 million type of number there. So alongside that, as David talked, we've got to invest in capital. So we've accelerated the capital investments across the company during this time period as well. Starting in 2020, about $103 million acceleration in capital, and that will enable us to drive footprint consolidation and best cost manufacturing to be able to do the significant footprint moves that David talked about earlier. So here's the details of the plan on the right. If you took that green bar -- green purple bar, which is the largest bar, the 2 green bar -- the little green bar and the purple bar, and you added them together, there's the $1 billion of activity that we have to do. It applies to approximately 10% of our salaried workforce. 2,300 salary reduction and 700 salary moves. So that will be from high cost, to best cost to better cost. That's about a 10%. We have 32,000 salaried employees approximately within automation solutions, a little under 10% of salaried workforce. There are 110 facility reductions in this plan. To give you a perspective, 35 of those are manufacturing plants. 8 of those are service organizations, the remainder being sales offices or SG&A facilities. The SG&A facilities and the service facilities, a lot easier to do. The plants take a little bit longer. So they are on the back end of the plan, into the '21 time frame, simply because we've got to build out the capacity in Eastern Europe, in Mexico, in India to move the facilities. We're looking across the organization and the structure of how we approach the customers. We're looking at our hub-and-spoke models around the world areas and taking sales organizations and customer support organizations into countries closer to where the customer base exists. That's part of this effort as well, as well as driving productivity and cost reductions within the business. The spend table on the bottom outlines what we'll spend and what the annualized savings are per year. What I'll tell you about this organization is they got after it really quick. I have a phenomenal team. We spent $83 million of restructuring in the first quarter of fiscal '20. We accelerated restructuring in the back half of 2019 by $30 million. So $19 million to $65 million, $35 million of it was planned, $30 million was accelerated in '19. We committed to $83 million in the first quarter, and we'll spend $177 million of restructuring this fiscal year. And then we'll finish the program in '21 with an additional $83 million of restructuring then. Our goal is to be complete with the hard activities through '21 and then to reap the benefits with -- into '22 and '23 and hit that peak margins. Again, if we get a pickup on volume, that will be wind in our sails. We're not planning on that as we put this plan together. And if we do that, that's -- that will be a benefit to the P&L. Okay. I'm going to switch now into the market and give you some perspectives on what we're -- what I'm seeing in the marketplace. Spent a lot of time with customers in my first year in this role and a lot of interactions. Clearly, a lot of our attention has been around North America and what's going on in the upstream oil and gas space. We've heard about the Permian Basin. We've talked about the Permian Basin. Production in the Permian Basin this year was down 21% through the 3 factors that we talked about throughout the year. We were concerned about takeaway capacity. Two pipelines were built that we kind of got behind that. We were concerned about consolidation in the industry where larger players took a large -- became larger -- a larger share of the production from 3% to 17% within the basin. Obviously, when a larger player takes production control, they drive better discipline on asset management and capital expenditures versus the smaller independents. And then the bankruptcies and the ability of the small independents to operate in a $50 to $60 a barrel environment, that had an impact on the demand and the spend as well. What matters to us is well completions. So when we look at the drill activity that doesn't necessarily mean that they're going to instrument the well and complete the well. We got to really look at the completions, which is when the valves and the instruments will go on to the well, and that's what we benefit. So it's been very soft. It's -- it continued to be soft through the first quarter. Now we do get into some easier comparisons as we get into the second half of this year. So that's what we're watching carefully as well. On the discrete side, whether it was automotive, semiconductor, packaging, any of the OEM businesses across the world slowed significantly, actually earlier in the cycle than the chart on the left, in the upstream markets. We slowed in our discrete environment. Starting in August of 2018, we started to see some signs of inventory positions in our distribution, of OEMs really pulling back on spending. And that has continued, now led by automotive in the United States and in China, in Asia particularly, they continued to be a headwind in the business. So Germany, you can see the numbers that's through December on PMI continues to struggle as OEMs look at potentially shutting down operations in Germany, relocating into Asia or other markets closer to customers, but that's had a significant impact in our discrete industrial business as well as the industry as a whole. So something we'll continue to watch carefully. I believe that David's talked about this, we've talked about this in the earnings calls that inventory levels within the distribution network have been adjusted 2 or 3 times already as we've gone through 2019. They have been ratcheted down a couple of times. They may be at a point now where we may start to see a little bit of a pickup. We're watching it very carefully, but very concerned there as well. Let's talk about the large projects, the capital projects. So the last time we met, we talked about a $7.6 billion funnel, then in the July call, I participated in the earnings call with David. We talked about an $8.3 billion funnel. The funnel as it stands today is valued at $7.1 billion. So I'm going to bridge the $1.2 billion for you. We booked $300 million of the funnel. $600 million of that funnel was canceled or delayed to the extent that we felt we should take out -- take it out of the funnel, $600 million. One petrochemical plant in Egypt represented half of that. We just took it out of the funnel. And then another $200 million were net adds, scope expansion, reductions within the funnel. So that's the bridge to the $1.2 billion. But overall, still very viable at $7.1 billion. The other number that's relevant on this chart is the committed not booked. If we go back to the July time frame, that number was at $1 billion. It's now $600 million. So we've booked -- we've committed -- from that committed bucket, $200 million of that turned into POs, the largest of which being the ExxonMobil Golden Pass LNG project control system. There was a large Arctic LNG control valve project as well. That's $200 million. We did have an additional $200 million that is no longer committed. What that means is the project's either on hold, it got moved. It got displaced permanently, but is no longer in our committed calculations. And then there's net adds and reductions that make up the delta. So in total, it continues to be a very strong number. We're working very hard to convert those commitments into POs and -- but since we last spoke in July, that's moved about $190 million, almost $200 million in those commitments. So really good performance there. The LNG wave is -- continues to be the most fruitful here. There are 3 large bubbles that you can pick out. These are actual bubbles, these are not just random things that we put on the chart. There are 3 large bubbles on the chart here. The 3 are -- the first one here is on the left, closest to us is the Qatar NFE, that's the North Field Expansion, large LNG project in Qatar. The next one is the Saudi crude to chemical, that's Aramco. And the last one is the Ratnagiri refinery in India. All of those continue to move forward at different paces, but -- and we're very engaged there. The LNG wave has been, as I mentioned, a critical part of the funnel, and it's moved on us, but there continues to be significant potential for additional bookings despite the fact that we've already booked almost $200 million of that value. Obviously, the Qatar piece is the biggest piece that sits there in the Middle East, but we continue to have opportunities in the Arctic, and particularly in Ram's business in Final Control and in instrumentation companies and opportunities in the Americas as well. But there has been an impact in terms of cancellations of projects due to trade and due to other concerns in the marketplace. I'll just give you a little example on the bottom of the chart on the right around the impact in Louisiana alone. So if you went back to December of 2017, there's projected $187 billion in petrochemical refining would be spent in the State of Louisiana. That number today is $139 billion. Big projects have been canceled. The Cameron LNG project, valued at a $10 billion investment, has been put permanently on hold. 2 large refinery expansions, 1 at Valero, 1 at Marathon, valued at over $3 billion have been canceled. So there's been significant impact within the funnel due to headwinds in the marketplace, uncertainties in the economy and in trade. It's important for us to be cognizant of. I'm going to turn to Page 9 and talk about KOB 3 and the modernization opportunities we have in the business. $120 billion installed base across the world, continues to grow, but really opens the door for us, not only to execute around the installed base from a traditional MRO perspective, but to really take then Stuart and his team in and drive modernizations in digital and take advantage of that installed base. We continue to invest in our service capabilities, service center, service personnel out there. In many cases, we learn that the service person becomes one of our best salespeople because they have that connection with the customer and trust of the customer, that really enables a whole slew of activity for us around the world. We're going to dissect the KOB 3 business a little bit for you here on the right side. $7 billion business today, growing at about 4%, 57% of our sales, of which 85% of that business is traditional MRO. It is exactly what you'd expect, replacement product, replacement parts, traditional type of services. 15% of the business, which is the fastest-growing part of the business is composed of 4 distinct programs that we have as an organization, targeting accelerated growth in the KOB 3. There are the shutdown, turnaround and outage services, the SDOs, over $640 million in sales in 2019. The long-term service agreements, over $240 million in sales in 2019. And then we have 2 fast-growing elements. The connected services piece and the managed services piece. One, where you're looking at a particular asset class and looking at its health, a managed service piece, where you're looking at the entire automation assets in a specific plant. Those are $25 million today, but growing very, very aggressively. We also enable that with digital solutions. The MyEmerson is a portal where customers can have a unique experience around their assets, increases of speed in which we can respond to issues for the customer in terms of replacement product, activity, technology upgrades, et cetera. So a very powerful digitally enabled capability. Let's turn a few minutes to innovation. We spent about 4% of our revenue in new product development across the company. 85% of which is in our core technologies. They're -- on the chart on the right, here's a few examples. We spent a year ago talking about DeltaV Version 14, the largest DeltaV released since the original DeltaV release and it's doing really well in the marketplace. David mentioned the instrumentation investments we're making both in our Final Control business and in our measurement business around the new generation of instruments, they're in our core space. It represents about 85% and grows -- expected to grow in the high single digits. 10% of all our investment falls into new to the business. They may exist, competitors may have it, but they're new to us. So a few examples here: Digital isolation valves, the location awareness product, we highlighted a year ago. We'll show you a little bit more today in Stuart's presentation and then a 2-wire Coriolis meter, which expands our opportunity in the chemical space for the flow business. And then 5% falls into the new to the world. Doesn't exist, it's a new product. And there's a few examples here. Plantweb optics. We'll spend some time with Stuart talking about that and how we bring all the analytics into one platform. The PK controller and the OCC. If you recall, we talked about it last year. This is in the hybrid control element that sits between a distributed control system and a PLC. Over $250 million of bookings so far this year since release. So very, very powerful release there. And then single-use sensors marrying our downhole technologies for pharmaceutical applications, measuring pressure, temperature and various analytical measurements, very fruitful. Software comprises about $1.8 billion part of our business. The bulk of the software that we do, $1.2 billion is embedded within our technology. It's embedded within our fuel devices, about $750 million, the remainder of it embedded within the control system. We don't run the business, and we don't measure it based on that embedded perspective, but we wanted to highlight that for you. What we do measure is what stands alone as software, which is the chart here on the right, $600 million in value and there are 2 pieces to it. There's the operational performance. These are measurable markets, I should say, first, these are markets that are measured and exists out there. The operational performance market is a $10 billion market. Think of this as a software layer that sits on top of your automation or control system. So that could be advanced process control. That could be MES, that could be alarm management. So that market growing 5%, and we have a $450 million position in it. Other market is the analytics and digital twin. That could be specific analytic packages for a certain asset class in a plant or it could be the use of AI or machine learning models to create a digital twin of an operation. Our business -- that market is growing, defined at $2 billion today, growing at 7%. We have $150 million business. And then Stuart will walk you through some of the key components in that, that really touch on that digital opportunity there. Software also comes in 2 dimensions. There's perpetual sale of software and there's subscription-based. Clearly, IT works in a world of subscription-based software. And as we've seen the convergence of IT and OT within particularly the digital transformation, there is going to be a move in our presence today from perpetual -- in our participation today, from perpetual more to subscription type of models. That will enable, obviously, lower upfront costs, but also the upgrade rates and the flexibility with the customer base gets great as you move to that subscription model. And the ability to scale becomes more significant. And that's a significant part of what we talk about when we talk about digital. A couple of examples of what we mean by subscription in the businesses that we have today that fall in that subscription model, which is slightly over 40% of our total software sales today, but growing at a higher rate, as you see on the chart on the left here. The Guardian is the largest single piece of that, about $115 million in sales in 2019. Again, this is the support system for the DCS for DeltaV. So you can purchase a subscription that will keep your DeltaV up to date. Whether that's a cybersecurity patch, a software upgrade patch. We will monitor the performance of the system, come back to the customer with real-time opportunities for improvement in the operating of that system. But there are other smaller examples on the right around some of our key assets, whether it's corrosion, machinery conditioning or valve conditioning software and subscriptions that we do provide. We spent a significant amount of time on digital transformation last year, when I was up here. We've now built that business out. The underlying premise around what we do in digital falls around the business drivers. Whether a customer is concerned about productivity, reliability, cybersecurity or safety, that is the premise for how we built the business. We then have the ability to scale significantly. We have the best-in-class sensors, which is the bottom of the pyramid. We drive that through a network of wireless devices into the analytics and the software layer. And the ability for us and the magic in this comes in the ability to scale from a very small pilot into a very significant business. I mentioned, a few weeks ago, we had a group up in the Twin Cities that we celebrate $200,000 orders in this business. A $200,000 order is a very significant order. It's a foot in the door, it's an opportunity to prove the value of our technology and then scale and expand. And that's how this business is built and in creating that confidence. On Tuesday, I was in Dallas, Texas. And I was at the [ AIC ], which is an organization of the power generation producers in the United States. In the room were the CEOs and key executive vice presidents, representing 70% of the electrical generation capacity in the United States. And I had the opportunity to speak for 10 minutes. Jim Nyquist and Bob Yeager were there with me. And what they're concerned about in the power generation world is aging infrastructure, aging workforce, cybersecurity in the digital transformation. That's what they're concerned about. This is their chart. They want to run to autonomous plants. As a matter of fact, NextEra in Florida has gone public with a project where they're taking 5 control rooms, 5 plant control rooms, consolidating to 1, so where they go from approximately 20 operators to 2. 2 people sitting in a control room, operating 5 plants. That leads us way up in this curve around autonomous. But what we're able to do with our digital journey is really go from a very basic advanced monitoring of assets in the plant, all the way up through the advanced control semiautonomous processes and ultimately enabling key customers like NextEra to drive to autonomous plants, so very, very powerful opportunity. As we look forward into 2020, David's given you the guidance. We're somewhere in the negative 1% to 3% on an underlying basis right now as we think about the business. We are going to see the benefit, however, of the hard work that the organization is doing around cost. We got after it very quickly, in the end of '19 and into the first quarter of '20, and we'll see 40 to 80 basis points expansion in the adjusted EBIT and 70 to 90 basis points of expansion in adjusted EBITDA in 2020. As we go forward, 2% to 4% CAGR, 3%, I think is what I shared with you is what our model is built on, and we'll get back to that peak margin performance at 24%. I'm going to introduce Ram Krishnan now to go through Final Control. Thank you.

Thank you. Good morning. So over the next 30 minutes, I'm going to give you guys an update -- guys and gals, an update on the progress we're making with the Final Control business and the integration of valves and controls, 2-plus years into the acquisition. I had the opportunity to stand here last year, same time, and report on a solid start, a real strong start to the integration efforts with a solid year in 2018. 2018 was a very good year for us. Underlying orders growth was very strong at 9%. We grew sales underlying 13%, drove 210 basis points of margin improvement, $75 million of synergies right off the bat and almost 500 points of working capital improvement as a percent of sales which drove strong cash flow. We repeated that with another strong year in 2019, a different year. North America was slower. But despite that, our orders grew 8%. We had underlying sales growth of 3%, 70 basis points of margin improvement. We had $30 million of headwinds from a tariff perspective. We had North America mix go against us, but we had strong synergy programs to the tune of $112 million of synergies that helped us drive a strong 2019. We've built $150 million of backlog, which bodes well for us in 2020 despite the changing macro, and we're off to a good start at about 5% underlying growth in the first quarter of '20 and are targeting about a 4% year. 2020 will be a significant year for us. We're stepping up our restructuring efforts, driving $60 million of restructuring and raising the 5-year synergy plan commitment to $260 million. When we made this acquisition, we committed to fifth year synergies to the tune of $200 million. Last year, I showed you a $216 million number by 2022, which is the fifth year number. I'm going to show you today a $260 million synergy plan, $200 million of it coming from cost actions, which give us the needed momentum to drive this business to 21% EBITDA margins by 2023, which will put it at peak margins. On the orders and sales front, we've seen nice momentum with the integration of Valves & Controls in '18 and '19. Good momentum in the market. Strong orders growth. We've gained 1 point of participation, and right now, sit at 17% participation in a $24 billion market, 3x the next biggest competitor. And we have an unmatched capability and the breadth of technology for the investment waves coming at us in LNG, chemical and refining. Yes, upstream is going to be slower than what we had anticipated, but we like the mix of activity coming at us from a project perspective. And I'll show you a funnel of $2.3 billion of projects, top 125 projects. And early in the cycle, we've been winning at a 50% rate. So if that continues, we'll drive 4% growth in the plan. So I'll lay that out for you in terms of the project funnel and how we look in the LNG, chemical and refining space. KOB 3 for us is sitting at record levels at 60% of sales. We have a $40 billion installed base as we brought V&C into the equation and combined it with our base business. We have unmatched capability in terms of 100 service centers, 1,000 service techs, and we're targeting 360 critical sites to drive a rich set of life cycle service initiatives. So holding the line at 60% of sales from a KOB 3 perspective is very important to us, very important for the profitability and the long-term growth dynamics of this business. And then I'll show you, we are investing to build out this franchise. Yes, we're restructuring, yes, we're getting the synergy actions, but we're investing in service footprint, revamping our technology and, most importantly, regionalizing the manufacturing footprint. Valves & Controls did not have a regional manufacturing footprint. I'll show you our strategy to regionalize the manufacturing footprint for speed and response to our customers and responding to their needs on the KOB 3 front. So we're investing, and I'll show you the investment plans. The chart on the right shows the financial profile. Pre V&C acquisition, this business peaked at $2.8 billion in sales, 42% GP, 21% EBITDA. We bottomed in 2017 at the back end of the upstream oil and gas recession. We brought V&C in, bottomed at $3.5 billion pro forma sales, 13% [Audio Gap] a strong midstream exposure, which is where LNG comes in and then Valves & Controls gave us good exposure to refining and chemical, 32%, a big piece of our business. Asia and Middle East at 35%, big piece of our business. V&C strengthened us in Europe. Asia and Middle East is where we're going to see a lot of that KOB 1 activity in LNG and downstream come at us. And then KOB 3 at 60% of the total mix. We want to hold that at that level with the rich set of life cycle services initiatives, and I'll show you the KOB number -- our KOB 1 number will grow from 15% to 20% in this plan. The chart on the left shows you the scorecard of what we've been able to accomplish in the first 2 years since the acquisition of V&C, and I want to take this opportunity to recognize the global Final Control and automation solutions organizations, many of whom are probably listening to this call for the outstanding effort in the first 2 years. We got a lot done. New organization, new leadership team, new business units. We integrated the sales channels, launched the main valve partner strategy for the complete scope of solutions, both on the project environment as well as the operational environment, gaining traction with that. I'll show you some of the successes there. Unwound OMT, many of you are probably familiar with the Pentair OMT model, we were able to unwind that very, very quickly. Drove significant improvements in service levels and overdue backlog. Got quick results and supply chain savings. We're quick to rationalize some of the underperforming product lines. I'll show you that plan. And we're on a journey in terms of consolidating 20 manufacturing plants, 11 of that complete, 9 more to do in this cycle as we consolidate legal entities. You can see we spent $48 million of restructuring in the first 2 years, $90 million in the 3 years to follow, $60 million of that will happen in 2020, which is the reason we believe we'll up the synergy plan and drive $260 million by year 5, with $200 million coming out of cost. Strong order growth in year 1 and 2. We see a good path to drive 4% orders growth through the rest of this cycle. And that should give us a good environment to generate that 21% EBITDA margin as we get into 2023. A little more product pruning and rationalization to do. I'll show you some of the areas where we'll focus on. But most importantly, investing in our service network, investing in our regionalization efforts and the next-generation product launches, we'll spend $300 million of capital to get that done, which will strengthen the franchise. The chart on the right shows the scorecard. We've shown you this chart before, year 1 and year 2, you can see the results. We're raising the game in 2020 and upping the fifth year number to $260 million, with $200 million coming from the cost synergies. You can see the leverage rates. In the first 2 years, we've levered at 50% incremental margin to incremental sales, and we expect that to continue at least for the next 2 years in the cycle. Obviously, the normal leverage rates in this business are in the 30%, 35% range. But if you add the synergy actions, this business will lever at 50%, as we work the early part of these next 2 years and drive this business to 21% EBITDA margin. So we feel good. It's a self-help program. We're committed to the synergy actions, and we feel good about the dynamics of the end market to support a 4% growth for us in this environment. And 2020 will be an important year to make significant progress in this journey. On the working capital front, a strong year 1, 500 basis points of improvement, 30% to 25%. We drove another 100 basis points this year. Good progress across our receivable efforts, past due receivables. Tremendous progress on the payables front as we harmonize the payment terms of the VMC supply base with what we have at Emerson. Inventory is an area we want to continue to work. We had great results year 1, not as we didn't do as well as I would have hoped in year 2, in 2019. And 2020 will be an important year to get that going. Clearly, the regionalization efforts in our manufacturing facilities has an important role to play to drive better inventory performance. But net-net, we are very confident of getting this business into that low 20% working capital as a percent of sales and a 10-point improvement over the 5-year plan. The chart on the right shows the initiatives on the operational excellence perspective. Remains a very, very important element of our plan. Pace is accelerating, pace in terms of overdue backlog reduction to get that number less than $100 million by the end of 2020. The facility consolidation, we committed to 20 plants. We're on that journey. The supply chain programs, for the most part, are already in. We've gotten $30 million of synergy already captured in '18 and '19. And then on the product rationalization front, we laid out, when we made the acquisition 33 product transition opportunities. We've completed 20 of those, impacting $120 million in sales, actually delivered $20 million of positive margin when we got out of those product lines. There's another $100 million left yet to do as we advance the plan over the next 2 years. Switching gear to the global market. $24 billion global market, clear leadership position, as Lal showed, at 17%, 3-plus x the next biggest competitor. This market is made up -- the top 10 players in this market account for 45% of the market. Emerson is at 17. You got Flowserve, IMI, Metso, Baker Hughes, GE and Schlumberger-Cameron. You've got 2 smaller companies, but good focused companies in Crane and Samsung; and then you've got 2 large electric players or actuation players in Rotork and AUMA. That's kind of how we see the market. We have leadership positions in almost all of the segments we participate. Possibly, the electric actuators segment on the actuation side is where we're not the leader. But outside of that, in control valves, regulators, relief valves, many of the isolation product lines, we have a leadership position. And we have opportunities to lead and separate in every one of these segments. We have acquisition opportunities on particularly the pressure management side of the business as well as actuation. Isolation, I would say, is the one where we believe we've got what we need. We really like the exposure we have to LNG and chemical and refining with those assets, and is the one area we'll continue to look to prune some sales to get the right balance of profitability. It is a very competitive space, as you know, and we believe, at this point, we've got the right set of assets to offer a final control, main valve partner message to our customers. The chart on the right shows the fact that we've been driving quality growth at premium margins. This shows an example versus our largest global competitor, a good competitor, a competitor we respect and a competitor who's responsible, who's on a similar journey as we are. But the point I want you to take away from this is we will drive premium GP margins as we drive growth in this business. As David pointed out, we're a company that wants to get to 40-plus percent GP margins in this business. And we're well underway on that journey, which gives us the opportunity to make the needed investments in service, technology and regional manufacturing to drive premium growth. That's very, very important. And we will get to 21% EBITDA in this business. Obviously, as we brought V&C in, we got a little diluted, and we're on the journey to drive those margins up quickly, and we are outperforming the competition. This is one example, but I can show you many examples of other competitors over the last 2 years where we've gained good momentum. And our goal is to drive 2 points of share gain over the next 2, 3 years to get to 19% of this market. That's what this plan has baked in. On the KOB 1 project front, the chart on the left shows the tremendous wins we've had over the last couple of years. The early engagement as the main valve partner across many industries, across many of the geographies, in LNG, chemical, refining. So the strategy is working. Our early cycle, I'll say, early cycle because the cycle, frankly, hasn't really manifested itself yet, has been at 50-plus percent, and our hope is to continue those win rates in that 40% to 50% going forward. The last cycle, as you can see on the chart on the right, which was upstream driven, we won at about 35%. So clearly, the V&C scope and the fact that our technology and capability for LNG, chemical and refining, gives us a better chance of success. A big LNG funnel, $750 million. There's 8 projects, 5 in North America, Golden Pass, LNG; and then there's 4 other, Driftwood, Freeport, Plaquemines and Rio Grande are important projects in North America. There's an Arctic LNG project in Russia; the Qatar NFE that Lal talked about; and then Rovuma, which is in East Africa. Those are the 8 projects we're really tracking. In theory, we should get $46 million of Final Control content to Train. We've scaled that back to about 30 of the right opportunities we want to go after and put $500 million into this funnel. So we feel very good. There's activity in Arctic LNG. There's activity underway in Golden Pass LNG, and progress across many of the North America projects. So it's -- we're hopeful that we start seeing momentum on the LNG front. And then similarly, on the refining and petrochem side, investments in India, Ratnagiri Refinery that Lal talked about, today in a 200,000 barrels a day refinery, we get $21 million of Final Control content, 20,000 valves. Ratnagiri is going to be a 1.2 million barrels a day investment. Saudi Aramco, ADNOC and 3 large Indian government-owned, HPCL, BPCL and IOCL are investing. If that goes, that's a big funnel. Crude oils to chemicals in Saudi, another big opportunity for us. So we feel very good about the industries that are spending on our capability in terms of Final Control content to go after those opportunities. Switching gear to KOB 3. 60% of our sales, a $2.3 billion business, holding the line will be very, very important. And the chart on the right shows that Final Control is a KOB 3-intensive market. After pumps and compressors, valves are a service-intensive asset for most of our customers. Typically, 8% of the maintenance spend in a refinery or an ethylene plant is targeted towards valve assets. So it is a service-intensive market. In many of our markets, the KOB 3, the 10-year KOB 3 annuity, is greater than 1x of the KOB 1 opportunity we get on the greenfield. LNG is a clean application, so it's 31 over 46. But if you look at power, copper, refining, it's a big KOB 3 revenue stream. So once we get the installed base and we drive the service initiatives, we can protect that KOB 3 business at close to 60% and continue to grow it. So very important part of our strategy. We have a focused set of initiatives. Chart on the left around quick ship and parts distribution, our ability to go help our customers with shutdown turnarounds and outages, long-term service agreements. We have 180 service agreements today that will continue to grow. Our strategy is we're focused on 360 critical sites on a global basis, and we've got a very strong infrastructure, as you can see on the chart on the right, in terms of service footprint to cover those 360 critical sites. Today, on average, we generate $3 million of business at a critical site without any projects. I was just recently in Jamnagar, India, at the Reliance facility, and they haven't had a project spend in the last 3 years. We delivered $7 million. We generated $7 million a year in Jamnagar alone through our service efforts on control valves, isolation valves and PRB. So if we can get another $1.5 million a site through the focused set of initiatives, we've already got the service footprint, we're in calling on the site, we have a rich suite of initiatives, that's a $500 million opportunity for us. So KOB 3, critical sites and our service initiatives around quick-ship parts, SDOs, service agreements and valve condition monitoring remains an important element to keep that KOB 3 mix at 60% of sales. So we'll make the investments in service, but the other 2 areas we're really looking at to continue the investments to protect this franchise and build out this franchise is around regionalization of the manufacturing footprint. I showed you this chart last year. Obviously, we're moving the needle. That's what those dials are supposed to represent. V&C came in at very low levels of regionalization. They had an OMT model. They shipped everything out of Asia and Europe plants to all over the world. That's not our model. Our model's on manufacturing in the region, for the region, supply chain in the region, to feed the plant and the region. It is an effort that takes time. It's an effort that takes capital. We're putting in that investment. You can see all of the different initiatives underway in every region of the world. 2020 will be a big year for us in Middle East and India as our Chakan facility in Pune comes on board. That's going to be the area where the KOB 1 investment is going to happen in Middle East and India in that region of the world. So that will be a huge deal for us as we ramp that up and move that needle in Middle East and India. But efforts underway across the board, takes investment, but gives us the ability to flex, gives us the speed and, frankly, is a differentiator for us versus our competition. And then the chart on the right shows the investments we're making in next-generation products. Lal talked about every business within Automation Solutions doing that. We're no different. As we drive towards peak margins, there are certain areas we will not compromise. In our case, the service footprint, the regional manufacturing and the technology investments. Our goal is to drive $1 billion in fifth year sales from these new product launches that will drive our new product vitality or percent of sales from these products to 20%, which is important. And when we started this journey, E&D spend as a percent of sales was 2.5 percentage points. Our goal is to drive that to a 3.5% number in this cycle to make these investments and get the new product launch, which will give us an opportunity to continue to lead and separate. So in conclusion, 2020, good 2 years. 2020 will be an important year. If we can drive 4% growth and make the progress in driving $160 million of synergies, puts us in a good position to deliver peak margins by 2023. We anticipate around 4% growth in the cycle, $4.5 billion business, 21% EBITDA and then you can see the mix where the investments will happen. Midstream will be a bigger part of our business, refining and chemical. Asia and Middle East will be a growth area, and we'll hold the line at 60% of KOB 3 as a percent of our overall mix while the project business grows. So I look forward to reporting on a good 2020 next year, but there's a lot to be done and a lot to learn over the next 3 quarters. So thank you. With that, I'm going to introduce you to Mr. Stuart Harris, who is going to come up and give you a presentation on our newly formed business group, digital transformation. But before Stuart comes up, we have a short video that we're going to play to introduce the topic. Thank you. [Presentation]

Chevron R&I is a really excellent example of a customer who's taking a practical approach to digital transformation. As you heard in the video, they're focused on very specific business issues, they're applying technologies and they're realizing real value from that today with an approach of focus on known problems and scale those across the enterprise. As you can see from the chart here on the left-hand side, many of the companies around the world across many different industries, have digital transformation programs that they're counting on to drive significant operational performance improvements. And because they're committing to their stakeholders, their investors, improvements in their operation, these programs are very often under the direct supervision and engagement from the CEOs and the Boards of Directors of those companies. Well, good morning. I'm Stuart Harris, and I lead our New Digital Transformation business. I'm a new face to many of you in this room. So briefly, I've been at Emerson for 30 years. I spent most of my career in the Systems business. The first 12 years or so in the Europe, Middle East and Africa, world area. And then for the past 20 years, in global roles. And for the past 7 years, I ran strategic planning, marketing and our digital customer experience for Automation Solutions. Today, though, I'm going to talk about this new business that we've created around digital transformation, and I'll describe for you the strategies, talk about our growth programs, the proven solutions that we have and the pathway to drive this to being $1 billion in the next 2 to 3 years. So the business today is about $750 million. It's growing at mid-teens rates, and it is accretive margins overall. Customers are moving ahead with digital transformation programs now. And so this is why we've invested in this organization at this time. Companies are appointing Chief Digital Officers, they're putting budgets together, they're defining programs. And so this is the right opportunity in the right moment in time for us to capitalize on that. A lot of the conversations around digital transformation go right to talking about technologies. And one of the things that differentiates our approach is that we're bringing together not only the technology, but also the expertise and the services that are necessary to get success and to drive the value out of these programs. We're connecting to customers' operational performance issues, as you heard in the Chevron R&I video there, and we'll talk more about that. And this builds on the $120 billion installed base that Lal has talked about earlier on. We created the focused business group. This enables us to be that best partner for our customer as they embark on this journey of digital transformation. That's an organization globally of around 1,000 people that are dedicated and driving channel, technology, the go-to-market strategies and the growth programs for this business. And as I said, I'll share with you today the pathway to building this to being a $1 billion in the next couple of years. So to profile the business for you. The mix from an industry perspective is very diverse. It's very similar to what Automation Solutions looks like. It's also a very global business. Again, we have customers around the world that are investing in these digital transformation programs. And if you look at the makeup of the business, we can really think about it in being -- really in 1/3s. So a little over 1/3 is what we call our pervasive sensing, and so these are innovative sensors that give new insights into the customer's operation. About 1/3 is reliability and predictive maintenance, predictive diagnostics technologies. And so you could think of those 2 pieces together as being sort of the source of information, the insights in how the customers' facilities are operating and performing. And then the other 1/3 is software and analytics, and the associated consulting and services. And that's where we take the information from all those diagnostics and really turn that into information that enables our customers to drive those operational performance improvements. So why are companies focused on digital transformation? Why is this such a focus? And why does it have executive level engagement? Well, that's because when you look at process plants and you look at performance, in this case of refineries, and you look at the difference between top quartile performance and the industry average, there are significant deltas across these 4 dimensions of safety, reliability, production and energy and emissions. So just to give you a few examples. If we look at reliability, a top quartile performer has 2 additional weeks of availability than the industry average. Just think about that for a minute and think about what 2 weeks of additional production and the profitability that comes with that. Now interestingly enough, those top quartile companies also have half of the maintenance spend. So what that means is that they're directing their efforts into those aspects of the operation that really drive the performance, and they're not wasting a lot of time in areas that don't drive availability. Another example, safety, 3x fewer safety incidents in a top quartile plant versus the industry average. And if we look at the area of emissions and energy, very important as our customers focus on sustainability efforts around the world. Again, you can see 30% lower emissions and also 30% less energy usage for top quartile performers. So the opportunities are very significant, they're very real. And the approach that we're taking is to start with the business problem, where the quantified opportunity, build the business case around that, deploy the technology and then realize the return on that investment and scale and replicate from there. Now the opportunities for digital transformation exists across the customer's life cycle. So if we think about operational excellence, [ Trevor Arani ] talked about that in the video, many of our customers have operational excellence programs. This is perhaps the most obvious area where digital transformation investments are happening as they look to increase productivity and reduce their costs. We also see significant opportunities around upgrades and modernizations, and this would be, perhaps, if you think about that as our KOB 2, we've got many customers for whom we're doing control systems upgrades at multiple plants, in fact, in sort of a program form. And those companies don't want to just go from an old control system to a more modern control system, but they want to use that as an opportunity to bring in a lot of these new technologies and drive for those higher levels of performance that are associated. And then there's also the opportunity on greenfield projects as well. Most brand-new plants are actually designed and built for third quartile performance. Again, think about that. We're building a brand new plant. And on the day it starts up, it's going to operate at third quartile performance. That's what's happening in the industry today. But the opportunity exists to bring those same digital transformation technologies in -- during the project phase and to drive for that top quartile performance right from the outset of the operation. Across that continuum, of course, we have the opportunity to capture both OpEx as well as CapEx spend that the customer has. And then, of course, there are many different functional organizations across the companies that are also involved in digital transformation programs. Many of those are organizations and departments that we know and work with regularly. That would be engineering, that would be operations, maintenance and reliability, for example. But also new organizations like IT, are heavily involved in these digital transformation programs at our customers, and they're bringing significant funding, significant budgets to this and that represents another opportunity area. The solutions that I'll describe for you in a little bit here are very relevant for IT, and in fact, span what we refer to as the OT, or the operational technology, as well as the IT domains. So the market is evolving. How has it evolved? Let's talk about that. Well, the first area is around sensing. And while a lot of our customers realize that they've got lots of data, many also realize that they don't necessarily have the right data or there's an opportunity to measure additional things to get insights. And a couple of examples around that might be corrosion, for example, where we could monitor and understand corrosion in a process plant. Looking at energy, for example. Vibration would be another area. And so companies are investing in that pervasive sensing area. And of course, with our background in instrumentation, this is a real sweet spot for us. The next area of investment is around software and analytics. And of course, you hear a lot of discussion when you talk digital transformation, about analytics. And in that market, you have everything from start-up companies to the largest software companies in the world. We're very focused on the operational analytics because that is the area where we believe that the greatest impact to the operation can be found. And then across those 4 different domains, reliability is where we see customers focusing their initial efforts. They see this big opportunity around availability, around driving maintenance costs. And again, that's an area that we've been very active in for more than 20 years. Also I want to talk a little bit about the consulting space, though, because given the complexity and perhaps some confusion around digital transformation and how to get started, this has created a big opportunity for the consulting organizations, the management consultants to work with our customers on helping to define and set a digital transformation vision. What we find, though, is that while they may create the vision, they don't necessarily deliver an actionable plan around the operations piece. And so in fact, that's a sweet spot for us, is to work with those organizations and translate a vision into an actionable plan. To do that, we have a team of over 100 consultants who bring together knowledge of automation, of the domains that I talked about, of the industries, and they also know these digital transformation technologies. And they can work with our customers to put together a road map which identifies the priorities, creates the business case and lays out the ROI from that investment. And then very importantly, we have the resources to be able to implement these programs as well because implementation is critical and it's a very important part of how the value is ultimately realized. And our approach is really one that is very scalable. We have experience that a big bang approach to digital transformation doesn't work. The idea that we can deploy certain technologies or bite this off as a whole thing really doesn't work, and so the proven approach is one of scale and replicate. And as I described, focus on known problems, prove the ROI, scale that rapidly and then replicate it across other applications and across the enterprise. Now the -- on your left-hand side here, the Plantweb digital ecosystem is at the core of our digital transformation capabilities. And I want to describe for you what makes up this Plantweb ecosystem. First point I want to make, though, is that, as you can see from the left-hand side of that chart, this builds on what we call our digital foundation. That's our intelligent field devices, it's our control systems, it's our control software, things that we've been doing for a long time, and Lal described for you both the installed base and the position we have in the marketplace. And so this digital transformation set of capabilities builds on top of that. At the foundation, then, you see that pervasive sensing layer. And this is a family of sensors. We have actually 40 -- more than 40 sensors. And these are typically wireless, nonintrusive, battery powered. And so the idea is that very easily, these can be deployed in an existing facility or in a new plant to give these new insights, vibration, pressures, temperatures, corrosion as examples. The next layer in the architecture and the ecosystem is the secure communications. And the -- you really can't talk about digital transformation without being concerned for security, and that's something that we have built into this ecosystem. We also partner with Cisco in this area. And then very importantly, is the platforms and software. And that software portfolio ranges from very targeted, easy-to-deploy analytics around specific asset types to asset performance platforms where we can aggregate information from across the enterprise and provide notifications and really drive that operational performance improvement. It also includes things like digital twins as well. Now our software can be deployed both on-premise as well as in a cloud environment, so software as a service. And also, customers are leveraging Emerson then to use that technology, combined with our services to provide a connected service or help them manage their operations more effectively. And then, as I said, consulting and implementation is really important. So let's take a couple of examples and bring this to life for you. The first one that I'll describe is around pumps. So our customers in their facilities have hundreds of pumps, maybe even thousands. And today, many of them are monitored only infrequently or may not be monitored at all. And so with the solutions that we're talking about, we have the opportunity now with wireless technologies, vibration, pressure, temperature to easily monitor those pumps. We have software analytics with out-of-the box diagnostics for predictive health of those pumps, which we can make available to the customer or Emerson's experts can also guide the users on those assets and the performance. Also, if you think about a process plant, it's large, it's complex. There's often hazardous areas. And so knowing where people are inside of the facility is a really important thing, obviously, in the case of an emergency. It's even more important during a shutdown, turnaround and outage where you're bringing literally thousands of contractors into that facility, who don't know the plant as well as the employees do. And so using those exact same wireless technologies, that I just described before, we're now able to provide a real-time location awareness solution to know where everybody, where every employee is, wearing a smart tag, know where all those employees are. And in the event that we need to muster, if we need to make sure that people don't cross into a hazardous area, for example, or provide safety alerts, we can do all of that, leveraging the same infrastructure as we would do with, for example, the pump health scenario. Now I gave you 2 examples there, around pumps and around location. And on the left-hand side here, we actually have dozens of what we refer to as the known solutions to known problems. And these span those 4 domains of reliability, production, safety and energy and emissions. And just to give you a few examples. For example, safety showers. Monitoring the safety showers in the plant or toxic gas, very important safety applications. Things like pumps with vibration and then energy monitoring around steam traps or safety with corrosion as well. And the key to these solutions is that they use the combination of the innovative sensors, along with these easily-applied, easily-deployed analytics packages that give you the -- without any configuration, give you the insights into those assets and their performance. Software, also an important part of the portfolio. And this is an area that both through our own developments as well as acquisitions, we've built out a very significant capability. The first of these is our asset performance platform. We call that Plantweb Optics. And what that does is aggregates all of this health and performance information from across the enterprise and gives the customer a holistic view of their plant and its performance. And then importantly, if we need to notify safety personnel about safety incident, if we need to inform the reliability and maintenance folks about something, we have the ability to do that through that system. We, through a recent acquisition of KnowledgeNet, or KNet, we have an advanced analytics capability. It includes artificial intelligence, machine learning. But the power of this tool really is that we have embedded a lot of our intellectual property around failure modes for equipment as well as equipment models so that these advanced technologies can be, again, very easily deployed and start to create value much more quickly than would typically be the case when you're looking at applying those kinds of advanced analytics. And then we also have a portfolio of digital twins. This ranges from digital twins of the power plants, refineries, pipelines as well as the oilfield. And by creating this digital representation of the operation, we're now able to use that for training and for running scenarios and for optimization of the operations, very significant as our customers drive to higher levels of performance. I do want to spend a couple more minutes to just talk about analytics because it's a space that -- again, that when we talk about digital transmission, there's a lot of conversation about this. So if you think about a process plant. It, in turn, is made up of hundreds of process units and complex assets that, in turn, are made up of thousands of individual assets, pumps, valves, compressors, turbines, things of that sort, which, in turn, are made up of millions of components. Now it's actually not practical. It's impossible to drive plant reliability by focusing only at the plant. You have to dig down, and this is a sum of the parts in the sense of you've got the components, which you need to monitor, the individual assets and in turn reliability is achieved that way. Now a lot of people think that today's advanced analytics, we apply AI machine learning to these things. But the reality is that 85% of the failures of those assets in the plant are things that we have known solutions for, they're things that today we can apply sensors, we can apply analytics to. And in fact, at Emerson, over the past 20 years, we've built out a very rich portfolio, device diagnostics, machinery health, diagnostics, machinery performance and analytics that are associated with that. What that allows us then to do is, with these advanced tools, like artificial intelligence, we're applying those to now solving the known issues that don't have known problems. And so for us, it's this combination of the principles driven because we could use a lot of simple engineering principles to diagnose problems with equipment, but also bring those advanced analytics as well for the higher level problems. We have an installed base of over $4 billion of these digital transformation technologies that I've been describing for you. Just to give a few examples. We have 52,000 wireless networks installed around the world. 20,000 AMS systems. So these are systems that we've deployed over the last 10, 15 years, that are providing customers with all kinds of predictive diagnostics and insights on their assets, more than 6 million connected devices. And then we have over 800 planned digital twins deployed. And so that's a terrific installed base. As we go back into our customers and talk about taking the next levels of operational performance, this is an installed base that we can build on as well for the next steps in the digital transformation journey. I want to share a couple of more examples with you. These examples were both presented by the users themselves at or Emerson's Users Exchange in October of last year. The first of these is PETRONAS. They have over 100 offshore platforms. And clearly, platforms offshore, very difficult and costly to maintain equipment on the asset. And so what they have done is, each of these platforms has multiple pumps that pump the crude oil, and approximately $750,000 of oil per day per platform goes through them. So you can imagine if there's a failure, it's significantly costly and they were experiencing pump problems. And so we've deployed wireless sensors on those pumps. That information is, in turn, communicated to experts that are onshore and, in turn, we can route that diagnostics, as I said, to the right people. So instead now of a failure happening and then having to dispatch people in a reactive way, they've been able to move to a more predictive, proactive way of managing those offshore assets, very, very significant to their operation. They've done this now on a number of platforms, and their plan is to roll that out across all of their platforms. Another example, Celanese, that presented. This is a customer that we have partnered with on their digital transformation journey. We've done several things with them, including providing valve connected services, which they have proven to drive improved performance and avoid operational loss. But this is a company who recognize that they already had a lot of operational data that they weren't utilizing. And so they were looking for an advanced analytics application to -- and a partner to drive that. They went through a process. They looked at 43 analytics applications to begin with. They narrowed that down to 12, then to 6, then to 2 and then to 1. And the ultimate solution that they're using is the KNet solution from Emerson. And they're in the process right now of rolling that out across multiple applications and across multiple facilities. And again, these are both terrific examples of this scale and replicate model that we really advocate for, prove the ROI and then build from there. So hopefully, you got a good sense for this digital transformation business that we've created. It's a very strategic business. It's an important business for us. And it's also very differentiated in terms of the approach we're taking, focused on the customers' business goals, the way we're bringing together the portfolio as well as building on that $120 billion installed base. And we're very confident that over the next couple of years, we will grow this into a billion-dollar business at accretive margins. Thank you. So -- yes. So with that, break.

We're going to take break, but I'm going to -- I'll talk for one second here.

Okay. All right.

So we're going to come back in 15 minutes, so 10:50. And I did say, on Chart 46, as I look at the trend line, and based on the savings coming at us, I did say $4.20 to $4.25, even though it says $4 plus. I think that's where the trend line is with some recovery in '21 in the marketplaces. So I did say that, in case people didn't hear that correctly. But let's take a 15-minute break. Be back here at 10 of. And we'll go to Bob's business next, okay? Thank you very much. [Break]

Okay, I want everyone to sit down for Mr. Sharp's presentation, Julian, I can cancel Milano. I said, everyone sit down, please. So we're going to get back started here with some people on the line to Bob's and Tim, So Bob, it's all yours. It's all yours. So everyone pay attention. Thank you very much.

Step is not fully secured, that's a safety issue. Okay. Good morning, everybody. I'm going to go through Commercial & Residential Solutions. You can see on the right side, certainly for us as well, 2019 was a tough year. We accelerated actions, as Dave said. Really, it was about the fourth quarter of 2018, frankly, that we got into a bit more accelerated actions. At that time, we were doing things like some China plant consolidations, European distribution consolidations. As we got into the slower sales environment of '19 and what we're seeing with '20, actions have changed a bit as well. And then you'll see we've got quite a sustained amount of activity, really, even through 2022 at this point as a number of things are facility-related and will stage out over more time. Commercial & Residential Solutions, again, and you can see it in the margin numbers that Dave showed. We have a unique position in the industry. It's a key to our role as an industry steward. I'd like to refer to it as franchises. Copeland, RIDGID and Sensi. These are franchise names with very strong positions. I know that some of you pay a lot of attention to that because that also brings up the question of can you protect your positions. The way we look at it, we've done that for many years. There are -- we go through cycles of different things. Especially now with all the regulatory activity playing out, that tends to be a time that we shine, because there's a lot of refrigerants out there right now, whether it's propane, CO2 and others in refrigeration, R32, 454, potentially others in air conditioning, and we're just talking about that. We don't have the luxury of picking winners in those things because we serve effectively the entire industry globally. We serve everybody with that. And that's when our local capabilities, that's when our design and testing capabilities come into play. And so we feel good actually about the activity that's playing out is very busy. But as you get into '23, '24, residential, commercial, everything is changing right now. That's a good time for us, and that's when we really exercise that stewardship. A big part of it also is the investing in the breadth of technologies. More and more, we want to combine the compressors in the climate side with controls, with data activity, and you can see some of our acquisitions around that. And even on the tool side as well, the locating and usage and other things, especially on the pro orientation of tools, there's actually quite a bit of data and electronics side of those products as well. The Tools & Home products is a world-class business. Tim is going to give you an update, particularly, around Pro Tools. I had the question about Textron tools. Textron tools really frankly doesn't exist anymore. We have taken that business and integrated it into -- with RIDGID very closely. And so we have certain products together. Paul McAndrew is here. Came to us from Textron, runs the North America side, a part of that business. Europe is all together, Asia is all together. And so we'll give you an update on it. But frankly, it gets harder and harder to tell you how Textron tools is doing because we can tell you how Pro Tools is doing in total. But we're just not running it that way. It's an integrated business now and very much so going forward. And again, we'll give you an update on that. 2019, certainly, again, was challenging, we did report 3% sales up because we had the full year of the acquisition. Underlying down 1%. On an EBIT basis, you can see a big decline. Again, most of that was the acquisition, dilution. We had about 70 basis points on an underlying basis, heavily driven by the volume going down and then some other challenges. And as you'll see in the first quarter, we picked up more than that in the first quarter and we're feeling good about this year. So we've got also about a 3-point delta for the coming period, and we're planning to pick up about 1 point of that this year. So we think we're ahead of the game. This chart on the left, frankly, has probably come in handy in recent months. We developed it quite some time ago. Our employees hear the question about portfolio and things like that. And frankly, I put this together for them. But I think it's also important for you all. If you look at Commercial & Residential Solutions as a platform, starting with the Emerson brand promise around technology and solutions and global leadership, that defines commercial and residential solutions. If you look at the values, these certainly are ingrained in Commercial & Residential, especially the customer focus and innovation to maintain the margins we maintain with the kind of customers we have. It takes steady innovation and customer focus to be able to do that. And our businesses are quite successful at that. Noble causes. Dave talked about the overall Emerson noble causes, which are very much aligned here. Human comfort and health, food safety, quality. As I like to say internally, they're not just good things for the world, they're also good business opportunities and the good reasons to come to work every day as employees in this business. And so we like doing those things. For differentiated value, clearly, air conditioning and cold chain and the tools businesses are a bit different. So we go-to-market in that orientation. One thing they do have in common is the global leadership. And especially with some of the acquisitions we've had, one of the key synergies has been this global infrastructure we have, whether it's the tools businesses or some of the cargo solutions and other things we've done. When we put that into the global infrastructure of Emerson, it leads to some good things. In terms of our focus areas, people development and perfect execution on the left are really Emerson wide. On the right, again, industry stewardship and then business development. We are certainly focused for the next few years on making sure we can drive value creation with margin, and we've got a plan that we're very confident to do that. The long-term game for this business continues to be growing above market, and we're attentive to that. And so we talk about our goals being getting that separation from the market, which historically been around a 3% kind of rate. So we want to get up into the 4-plus territory in the long term. Return to the 23-plus percent EBIT margin. These businesses is run with very high return on capital. The recent acquisition diluted us down into the 30s, which is still pretty high. And then our plan gets us back over the 40s again. And frankly, some of these businesses run in a 100% return on capital that have been around for a while. And then trade working capital is also very strong in this business. That's been a key synergy of the Textron Tools acquisition, which was running very high on trade working capital versus RIDGID Tool, which runs around 8%. And as Tim will give you an update, a big part of the cash generation has been making a change to that pretty quickly, making good progress. Everybody in our business understands higher highs and higher lows. Dave mentioned it. We understand value creation, we're a public company and it's important to keep that going. We feel good about having the ability to do that. You can see we have continued to achieve higher highs and higher lows. It was a record year in 2019 for sales for Commercial & Residential Solutions. And maybe more importantly, it was also a record year on cash flow, you can see the line below. And over time, we've had very strong growth, which has actually picked up a little bit in the last 4 or 5 years. So again, we understand there's a threshold of being part of Emerson. Every business in my organization gets that, and we feel good about having the plans to do that. If you look at our sales activity, on the left side is the -- line is the underlying orders, 3-month orders, which vary quite a bit. We don't carry a lot of backlog in this. Our lead times to a Home Depot or 2 to 3 days. Our lead times to an air conditioning OEM are 1 to 2 days. So we don't get a lot of orders visibility. It tends to move with sales, and it tends to jump around a little bit. The green bars are the annual sales. And you can see, again, we've had periods of getting up into the 3%, 4%, 5%, 6%. When we go soft, it's typically around flat, maybe down a couple of percent. We're obviously in that zone right now. And with coronavirus, we have $0.5 billion of sales in China. Coronavirus is going to cause some amount of disruption to that this year. And that's why we're setting up the cost activities we're doing. As Dave mentioned, in this time, we've really been in the restructuring mode since late '18. If you go back into '15, 16, obviously, we're doing it then as well. It's a bit more elevated right now. And you saw that shine through in the first quarter. Underlying sales was down 1%, but we delivered 900 basis points on the adjusted EBITDA margin. We feel good about it. Q4 last year, our SG&A year-on-year was down. Same thing in Q1. So we're certainly in that mode actively. This chart is similar to the one that Dave showed on the conference call -- or the quarterly announcement last time. But I did add it's really an interesting time. In the first quarter, Asia, Middle East and Africa, Latin America, Canada, Western Europe for the climate the side of business, all had 5-plus percent growth. So there's activity out there. Unfortunately, the U.S. was quite soft. And for the Pro Tools business, which is also heavily weighted to the industrial cycle, we've had some softness as well. So we're planning. The history would say that we come out of these periods with some good growth. We're not really building a plan around that as far as the cost structure side of things. And if it happens, it should give us some more opportunity on the value-creation side. For the Commercial & Residential margin, you could see on the left, we peaked actually in 2017. The adjusted EBITDA, 27.9%. Some good things lined up in the '15, '16, '17. First of all, the restructuring that we did in '15, '16 kicked in. Price/cost was very much in our favor. Volume was good. And so that was an all-time high for this business. And then a combination of the acquisition, which was a bit more than half, actually, of the decline you see over the couple of years, plus price/cost turning on us, some mix and some other challenges. So we can move pretty quickly. We can have a point negative on price/cost. We can have a point positive on price/cost. This year, fortunately, we're more on the positive side of that. And that's the environment we kind of expect to happen right now. If volume picks up, it tends to put pressure on price/cost, but then we get the volume help with that. And so this is kind of just a normalized forward look. We're not counting on price/cost beyond this year. But you can see, we also have around 3 points of a margin plan. On the right, you can see again, volume at 30% gives us about 1 point. Inflation and other activities take that away very quickly. And I will say, in the other, it's come up a few times, there are investments in this plan as well. I want to show you a number of programs that are active and that are key to getting that sales separation. We are keeping those programs sustained. And that's one of the reasons we're doing as many actions as we're doing on the other side of the equation, including other areas of SG&A is to make sure we can keep funding those things. And so you can see we've got about 330 total for the business. It flows through at about $145 million. A, couple of points also, and gets us about that 3-point delta.

[indiscernible]

Right. So this inflation number is separating materials. You can see materials is put over there with price/Nmi, net material inflation. So right, this is compensation increases, typically around a few percent in the U.S.; higher in emerging countries, indirect costs, and things like that. So we typically have a few percent headwind automatically. And so if you can hold SG&A flat, it's usually because you're getting a few percent productivity, at least on a dollar basis. And then we've got other -- the indirect and other kind of things, too. And yes, it's very important because it's multiple points quickly. In any plan, you start with that dynamic. And if you're static, you go down. The key part of actions, again, similarly, a lot of facility opportunities. Some of these are consolidation of sites near each other. Some of these are significant moves, the manufacturing operations. As Tim will show, part of the opportunity that we have for professional tools is taking a number of different operations and utilizing them together, and that's certainly part of the plan. There's other areas as well. We're doing that. You can see again, we also have significant activity. This is a business that runs relatively lean on SG&A, around 15% of sales. Even in that environment, we certainly have a lot of programs around that area. And to our employees out there listening, I want to make sure it's also understood. Part of the reason we do that is to be able to fund other things. We will redeploy. We recently did some adjustments. We've got a pretty good research organization, a pretty sizable research organization for climate. We recently did some changes to that organization, some reductions. At the same time, we took a good part of that funding and we put it on a compressor program that we're working on. So we have to balance that equation. And certainly, it's not just driving margin. We already operate at high margins. We believe we can get them higher. But again, from there, it's going to be the sales side that drives earnings. And you can see on the hourly, with plans with automation, a significant amount of activity there as well. And so again, these programs are well in flight, as I mentioned, a good part of this reads through this year. And then it will keep going for a while, especially when you get into facilities and things like that. Some of these things are staged over time because of capacity or other reasons. As I mentioned, the key thing for us is really about -- or the key focus for us is the separation from the market. Historically, this is a few-percent kind of market, the industries we're in. We're not planning on it in this period. Hopefully, we will be surprised by that 1 to 2 being higher. We're frankly just not going to bank on it right now. We're building a plan. Our sales plan for '19 to '23 is in the low 2s, at least that we build our cost structure and our programs around. And again, if it's higher, that will be great. And depending on where it comes from, we should get some mix from that, but we're just not going to bank on that right now. It's about innovation and technology on a continuous basis, both to keep the leadership positions we have as well as to create some new things, and I'll show you some of those ideas or opportunities. The solutions activity, we are very different than our competitors, especially in climate, in that we have this full portfolio. The compressors, the controls and electronics, the data capability, we are typically competing with a compressor company, an electronics company, a focused area, maybe it's focused in one region. We are unique in that we are global across these industries, and air conditioning varies a lot globally. Cold chains is a bit more similar. And we're also unique of that composition. And frankly, we're going to use it for a solutions play and then acquisitions and investments as well. So again, we also have a strong position. This chart varies a lot depending on which market vertical it is and even what region it is. But in total, we've got very strong positions to work from in each of these verticals, which is a good thing to have right now because of everything going on. So we talk a lot again about stewardship. Between us and the end user is a linkage chain. We have big OEMS we serve. We have big retailers and other people we serve. They would like the relationship to be in that box, if you will. From our perspective, going out there and influencing the industry standards, getting end user preference, contractors as well in our businesses. Contractors are the ones who live with these installations going forward. Their brand is affected by what they put in, including what compressor is in the product. And frankly, they help us a lot because they value what we do and the reliability and quality of our products. The regulatory environment right now is very active. You can see on the right. On refrigerants, the industry, HVAC industry would kind of actually like the Kigali activity to be done. Because absent that, then California takes on its own life and other kind of things. It'd be more settled if we had a more stable decision. In Europe, it's the F-gases as they cause them. They're more aggressive than the Kigali amendments. In Asia, there's still conversions from R22 to 410A, and people are looking at flipping that and just going right to whether it's R32 or whatever other refrigerant, which is very much pushed in the U.S. or in Asia. In the U.S., there's a question on 454, R32 or something else in air conditioning. Since we serve everybody, we have to support all of those things. That's what we do. And so we don't -- we're not in it to pick a winner as far as a refrigerant. We're going to support whatever winner emerges. And that's when, again, our value to the customers really comes into play as our ability to do that. It's taken a new lab capability to do flammables and even mildly flammables. It takes a lot of engineering capacity, and that's what we can offer our customers. On efficiencies, again, both the commercial and the residential, the efficiency standards are changing, even how system efficiency is measured. What measurement is used is changing. Clean air as buildings get tighter, internal air is also a key factor, and you have to have control mechanisms to handle it because you don't have the natural fresh air coming in. Asia has got a lot of activity. China, on clean air, there's a lot of heat pump activity in China to get away from boilers. It's happening in Germany and Europe as well, very aggressive growth in heat pumps to get away from the oil boilers. And then food waste is a big one, too. There's bans on organics going into landfill, starting with Commercial and also Residential. China, I'll show you, Shanghai has put very strict restrictions on what can go in the trash and what can't, and there are several trash bins to choose from now. And a lot of people are deciding, it's easier just to take the food and put it in the disposer. And so our China InSinkErator business last year grew 50% because there's -- it's a very difficult dynamic. There's literally garbage inspectors, making sure that the right stuff going in the right place. And it's a bit of a hassle for people. Dave showed the chart on the left as far as those regulations create a lot of global trends. And across the verticals, we've got a lot of programs that play into those, whether it's compressor modulation or food safety or cargo tracking or a number of things. Another cut is on the right with the -- when you look at from a pyramid standpoint, a lot of these programs are at the device layer, still very important for us. We make a lot of money on devices. A number of them are at the control layer. And then when you have those, it also creates a data capability as well. And I characterize them as programs in the plan, which means they have sales today of some magnitude and significant forecasts and what I call key bets on the right, which is, they may be very small or even no sales right now. But as I'll show you in a minute, the market opportunities are big. And it's a bit of -- I should have put them on here. We've had a couple that have struck out if you will. That's fine. One of the reasons we're trying to keep enough of them going is because there are going to be several that don't make it. Whether it's for technical or commercial reasons, the customer is just not ready. And -- but if we have enough of these if just a few of these things hit, as you'll see by the sale -- the market opportunity. Another point of growth for us is about $60 million plus a year of sales. Not $1 billion, it's not $100 million. And you look at these programs, Sensi Hydro, which is a full heat pump system. We make the entire heat pump system and then use distribution. We're expecting about $10 million of growth this year out of that. So that's a pretty good contributor to $60 million. Centrifugal. That's out there a little further. It's progressing nicely. Sensi, both the thermostat, interior air quality and then getting into predict. Sensi thermostat is growing $10-plus million right now a year. The commercial cargo solutions is the businesses we bought, Locus Traxx and PakSense. We put them together. At the time, it was about $30 million of combined sales. It's now over $50 million. This year, it's growing 30%. And one of the reasons, as I mentioned before, is that international infrastructure capability we have. These were very U.S.-centric businesses, smaller businesses. International sales for one of them was out of Idaho. We don't run international sales out of Idaho. We run it out of Europe. We run it out of Asia. We run it at Latin America. And we're getting good growth from that. So I'll show you a number of these programs. And also for the verticals, you can kind of see our strategic summary. In air conditioning and heating, certainly, again, the refrigerants, the industry efficiency standards, tremendous amount of activity going on right now. And that local infrastructure we have, engineering, laboratory testing is important in all regions to be able to help the customers through this. Maintaining U.S. residential leadership is important, yes. Most compressors in your house in the United States are a Copeland compressor. That's a good thing from an overall sales volume. It also means we've got people that want to get some of that. And we get it. And we'll continue to fight that with innovation, with cost and with other things. Heat pumps. Outside of the U.S. on residential, it is primarily a heat pump play. We're not in the [ mini splits ] is a little different technology. But China, Germany, Europe, high, high incentives to put in heat pumps and also high regulations to put in heat pumps. In Germany, you can't put an oil boiler in the house anymore. You have to put an electric heat pump system for environmental reasons. And so we're experiencing some very strong growth on that right now. Commercial AC. There are some things like centrifugal, dehumidification that we've talked about before, Sensi and others. And you can see some of the key initiatives. And again, I'll highlight a few of those. On the product side, if you will, or the compressor side, Sensi Hydro, again, this is not just providing the compressor and controls, this is an entire heat pump and that we make and that we have teamed up with 98 distribution partners to help with the distribution, installation and servicing. It is more, let's say, a high-end solution. It's the $1 million-plus apartments. It's the $2 million, $3 million-plus villas, as they call them, and there are a lot of those in China up the Yangtze River where this is really kind of a sweet spot for. And so we've got a lot of excitement around that activity from these partners as well. Centrifugal is a thing we're working on. And there's a space out there on the commercial side, especially when you get into low GWP refrigerants, low-density refrigerants where centrifugal has a place. You probably tend to know who is in that position right now. And frankly, we've had a number of customers who will be very interested in us being there to serve them as well. And so we're working on accommodating them. So we'll -- it'll be an exciting product, when we come up with that one. On the electronics and controls side, again, Sensi is a big part of it. The thermostat itself is a very highly rated product with still about 4.5 stars on Amazon. We're experiencing good growth. There's some disruption in that space right now. I'll say that provides some opportunity for us. We're extending that into air quality, teaming it up with a sensor in the house. At a basic level, you can run the air handler to disperse VOCs or something. You can bring in fresh air if you have a fresh air intake for a house, and you could take it to a number of different levels, too. So you're not just watching temperature. You're watching humidity, VOCs, CO2 and other characteristics that all make up comfort within the house. Sensi Predict is the monitoring system we have to put on as a retrofit solution. As I mentioned before, there's 15-plus million households today paying a contractor a couple of hundred dollars a year to come out a couple of times a year and check their system. For less money than that, we can put a sensor kit on that. We can watch it every day. We can give the homeowner a report as often as they want, basically. We do it monthly of how much energy their system is using, and we can alert their contractor if they have an issue, too. And if you're like me, you don't really want to spend a lot of time at home waiting for a contractor appointment. And so 2 appointments a year is not a positive thing and this eliminates that. And we've got some interesting things going on. One of the interesting opportunities that's come out of this is the multi-dwelling unit owners who have tens of thousands of apartments per se. And they're very sensitive to whether when that apartment is vacant is the homeowner -- is the occupant keeping the system going. They might shut it down for whatever reason. If they do and if you're in the south, you can have a humidity and mold issue creep up pretty quickly, which is a significant problem. So we're finding that we have -- I've described it before as this MTM, Multiple Thermostat Management interface we have, where you can watch several Sensis from a central location. Things like school, houses and religious institutes that use it because they've got a lot of disparate buildings with different systems. These apartment owners like that feature, too. Because, again, they want to be able to make sure that the system's being left running properly, so they don't run into a big repair issue and also deal with the fact that they're paying the energy cost. So we continue to work on that. It's a good example of where the technology is obvious. The value proposition is easy to put out there. Customer adoption, especially when you're dealing with millions of households and thousands of contractors is a challenge, and we continue to work at that and are seeing some good traction, especially with this multidwelling side right now. At Cold Chain, as we talked about before, everything from the origination growing through packing and distribution to the homeowner is the Cold Chain, the statistics. It's very high energy use. Supermarkets don't make a lot of money. Some energy savings matters a lot to them. Not just developing areas as far as having a Cold Chain, but even in the U.S. in the quality of the Cold Chain from front to back. I've given the statistic before, the estimate is about 30% of the food that grow and doesn't make it into a mouth. If that goes into a landfill and emits methane, it's the third-largest country in the world for methane emissions. So you don't want that to happen. And I heard another statistic recently that about 20% of the arable land and water going with it is making this food, which doesn't go and which doesn't result in any value. So best case, it's going to go back and composting. Worst case, it's going to go into a landfill and turn into methane, which is a very bad gas. And so we want to help get that reduced. And a lot of that is because of the way it goes in transit. So focus areas. Again, there's also the refrigerants on this side. It's more of the propane and CO2, ammonia and some industrial circumstances as NAFTA refrigerants. A big part of being the solutions has been putting this organization together. And the culture -- the electronics and the compressor organizations are fully together, and the sales is fully together. Architectures. I'll give you a couple of examples of how architectures vary depending on what kind of a food provider it is, and this is where data comes into play a lot, too. Because it's the supermarket or the person watching the shipping that can value -- benefit from the data, and it's more of an end-user discussion than kind of an OEM in between. Again, a number of programs here on key initiatives. And the [ last thing ] at Cargo Solutions is this combination of the 2, the smaller acquisitions we did. It's growing very nicely. Since the acquisition, it's over a 20% growth rate. As I mentioned, this year, it's even stronger than that. Cooper-Atkins is the other acquisition we did recently. This is where we're using kind of cloud-based data aggregation. A restaurant right now will have a handheld thermometer and check the meat patties and check the cold room as a double-check on things and clipboard things. We've got a Bluetooth solution that will feed that information to the cloud. If you're like a QuikTrip or installations like this that don't have a lot of on-site infrastructure, the owner or their maintenance wants to see that from a distance. And I hope to be able to next year highlight a very significant restaurant chain with tens of thousands of restaurants out there globally that we're working on now getting these installations in, which was about a $15 million, $20 million opportunity. So it's significant. On the right side, there's different architectures playing out right now. If you're a large-scale supermarket, you typically have a big mechanical room in the back and a lot of piping to the cases. If you're a smaller format, like a QuikTrip or an ALDI or something, you've got a refrigeration loop in every case. It's more flexible. It doesn't take up the mechanical space. And there's really kind of everything in between these days. And so we have a thing we used to call it rogue, I guess it's no secret we're even changing the name midway through the program now. But out of the Helix -- it is likely to be our first commercial opportunity coming out of the Helix that we have in Dayton. What we are doing is basically combining the circuitry of the medium and low-temp cases. I won't get into the details of how that's done or the IP around doing it, but I'll say it creates a lot of energy efficiency opportunity. At least one OEM in particular right now is very interested in partnering with us on this. And that's one of the things we're working through is what do we provide as far as the solution. How full is it versus we'll provide to somebody else? And as long as they use our devices, then the IP can be licensed in that kind of a model. Another one is, I call this the Holy Grail because I've been running this business for about 5 years now, and I've heard about it the whole time. CO2 transcritical with scroll technology. That has the potential to be very breakthrough in the economics and the efficiency of the larger scale, like a rack installation. We have these running now in multiple installations, especially in Europe where this is also a bigger topic. We expect by late this year to be having product out there commercially for sale. And right now, we're teaming up with both some installers as well as OEMs. Installation of CO2 is more complex. It's very high pressure. It's not an easy refrigerant to work with. It creates a lot more stress on a compressor, which is a big part of the development capability. And so that's an exciting product, and it's -- like I said, we have product running. We have customers and contractors very interested in commercializing this. And so we look forward to some opportunity there. Our Tools & Home Products, this is an interesting business. It's probably one of the lesser discussed that we do. But from a standpoint of growth and value creation, it's very significant. These businesses in the last 10 years have had about a 4.5% underlying growth rate. It is driven by a continuous stream of new innovations, new products as well as now the acquisition, bringing us into electrical in full force. Right now, we've got over 40 products in the MPD pipeline. So this is kind of a new product innovation machine, especially in the Professional Tools side. The strategy is very much up for tools. It's around professionals. About 2/3 of our distribution is pro channel. We do some big box stuff and pros more and more use the big box as well. But our tools are very heavily oriented toward the pros. For the home, again, the food waste disposers, there's still half the homes in the U.S. that could use a food waste disposer that don't have one in them. And we continue to work on that because of the hygienic as well as the environmental benefits of putting your food through the disposer instead of in the trashcan. And as I mentioned, internationally, China right now has the potential to be tens of millions of dollars of additional disposer volume very quickly because of what's happening around regulations on food disposal. It started in Shanghai, but there are several other cities as well working on this. Obviously, it's on a little pause right now. And then e-commerce. We typically have about -- we've got about 25% growth in the e-commerce channel here. Certainly, a part of that is displacing other channels, but it also does create some incremental opportunity. So I mentioned food waste disposers in China. The one on the right is one of the articles about it: sends Chinese city into frenzy. The diagram here, I thought, was kind of fun. If you are unsure of what food to put where, this is a simple explanation. There are 4 kinds of bins. You have the recyclables, you have the hazardous electronics, you've got wet food and dry food. And then if you have big items like furniture or appliances, you also have things for that. They literally will watch the trash collection. And it's not good if you're putting stuff in the wrong place. And it has led to a lot of activity around disposers. So we've always had a certain amount of disposer business in China. Right now, we've largely played on the high end. We ship disposers in from InSinkErator. They run at a very high price point in China, which is kind of interesting. We are working right now on a China-for-China product that we'll be making in China, for China, which will help us play in more of a, I'll call it, more of a mid-tier. It's not low tier because the price points in China are really quite good for these products, but it will help us get out some more of the market. As I mentioned, last year, the business grew 49%. So in a time when China was down and pretty tough last year, this -- and it was basically driven by this in Shanghai. So as this goes out further across China, we're very optimistic about the opportunity. And it can provide a really nice kicker, frankly, for InSinkErator. On the Pro Tool side, pipe and electrical tools, battery hydraulics. Tim is going to talk especially about the Pro Tool side. The vacs, where we have a very strong partnership with Home Depot on this, underground technologies. These are not your typical tools. So I'm not really much on props normally, but I brought one. So here's a product that we have coming now. On the top right there, you see an insulated tool for safety. So if you're a utility worker, working on lines, and this is not a home electric line, this is the kind of cable you're talking about. This is kind of electric cable you're talking about. So if you want to cut it, it takes a little bit of force to do that. So this tool does that. You don't want to put your finger there in the middle of that thing because you can imagine the amount of force. This is a $1,900 to $2,200 tool. This is not a $49 do-it-yourself kind of a thing. It's a very good margin tool, frankly, because it's a very important tool, and it's something that the professionals like this use on a day-in and day-out basis. And if you're a utility worker, going into a trench or somewhere, and there's not just one of these, there are several. You're not 100% sure, which one's live, which one's not live. It's nice to have a little protection. And this thing is an isolation between a metal end, and it can take up to 1,000 volts without getting into the operator's arm, if you will. So again, that's the kind of stuff we do. That's what's interesting to us is the pro orientation. And that's where we're focused. And there are some other areas that are interesting for us as well on that front, which Tim will talk about. Yes, you can do some damage with that thing. In fact, I'm going to take the battery off, so [ Martin ] doesn't play with it in the break. That could be a problem if you play with that tool if you're untrained. So anyway, like I said, we the sale's softness of the past year, what we anticipate happening right now certainly is challenging for us. We've gotten on top of this, we believe. We think you can see it play through already in the first quarter. The guidance we've given is that we will be in line with that kind of 100 basis points improvement for the year. So expect to see this continuing. That's, frankly, despite whatever the sales environment is. That's kind of our mantra inside as whatever sales we end up with because it could end up being less with China, we are still going for the 100 basis points, and I feel good about that. And then going forward, we've got a 2% to 3% expectation here. I know some of you are going to reverse engineer the bridge and see that we used about $6.7 billion of sales for the margin forecast. That's correct. We were purposely conservative on the low end of the 2% to 3%. The midpoint would be more around $6.8 billion. And again, 25% up to around 28%. And with 1/3 of that, frankly, coming this year. So we feel good about the program. With that, I'll turn it over to Tim.

Thanks, Bob. All right. I'm looking forward to talking about Tools & Home products. This is a great business, as Bob framed. We've grown in the past 10 years, 4.5% on an underlying basis, have a nice tailwind with the acquisition of the Textron tools business, which I'm going to share some opportunities on that segment and really have a great team that is all about innovation, delivering on what the end user wants and needs are. We're really tied with the professional contractor that we talked about. This was really the discerning pro, all about reliability, dependability and uptime. And we have the tools and products to deliver on that promise. So if you look at our 2019 results, and again, this is reported separately within Emerson, $1.9 billion of sales. That was a 22% increase over last year, driven by the full year of the Textron Tools business. We had a quarter in 2018, the fourth quarter, underlying sales at 2%, started the year off really strong on the Professional Tools segment, we are tied to industrial and some of the energy markets and then that tailed off. You can see adjusted EBITDA was growing at 3%. And then the acquisition, with the margin dilution at 3.9 points and 2.9 points on the adjusted EBITDA. We are -- we consist of really these franchise brands. So that's InSinkErator for food waste disposers, strong leadership position in the global markets there. We're very strong in the United States. RIDGID, Greenlee and Klauke, which I'm going to talk more about as we had access to the electrical market, with the Textron Tools acquisition, that provided the Greenlee and Klauke brands, which again, world-class franchise, iconic brand, similar to the RIDGID brand serving the plumbing and mechanical markets. Talked about the strong underlying growth, the sustainability trends, which is helping the disposer market, Bob mentioned. We have about 53% penetration in the U.S. market. So great growth in these international markets. China grew at 50%. But there's a lot of tailwinds for the U.S. market, where we have obviously, is the strongest disposer market in the world and a lot of runway for broader adoption as more sustainability comes into play aside from the convenience and hygienic benefits of the product. And then this acquisition of tools -- of the Textron Tools really does extend our presence. It expands our served market by about $2 billion. We were traditionally very strong with this mechanical plumbing contractor with the Ridge Tool business that Emerson bought in the mid-60s. Our Chairman and CEO ran that business for several years. He's very familiar with it, but we're weak on the electrical contractor side. And that's where the Textron Tools business was very strong. And again, that gave us access. So we were at a 2-legged stool with the mechanical plumbing side. The electrical side really gives us that 3-legged stool to go after the contract in a more meaningful way. Lots of progress in the last 19 months. We closed on the deal in July of 2018, and the team has done a remarkable job. We've done a lot of restructuring. And we've got a single, unified organization that we call Professional Tools. As Bob mentioned, there's not a Textron Tools. There's not a RIDGID Tool. We are a single, unified organizational structure under Professional Tools, and we've got really just a fabulous team that's delivering on our plans and the actions that we identify from a synergy basis. So the Tools & Home Products is really an important value creator for Emerson, a great margin business, great growth profile in the past 10 years, strong cash generator with really these iconic franchise brands. So this is a chart that we showed when we announced the deal again in July of 2018 when we closed it. And you can see the product categories from a Greenlee and Klauke perspective, the electrical side, bending, pulling. Bob showed the cable terminations, knockout pullers. These are again our premium products that provide reliability, dependability for the electrical contractor, primarily an Americas-based business. So Greenlee again is very strong with the electrical contract in the Americas. Klauke is the European leader on the electrical side. So similar products, although there's not as much conduit as in Europe as there is in the Americas. So it's less of a conduit-bending. But the battery hydraulic tools, we are the leaders in the electrical side as well as the plumbing and mechanical side, and I'll touch on that in a minute. They did have several businesses, 3 that were nonstrategic. So we divested those over the last year, and that would amount on to about 20% of the total revenue, so that we could focus on their remaining businesses that serve that mechanical, electrical and plumbing contractors. So they had a business in communications that was in the telco, cable, technician space, it didn't make sense. Endura hand tool business, which sold in the DIY market in China, it didn't make sense, clearly. And then they had a utility equipment category, which is a high cap -- high -- expensive capital business, long-selling cycle, and it was a different market in the utility side. So we divested that as well. And then the one area that we also like is this test and measurement side. So that serves the utility contractor in a high-voltage application as well as the electrical contractor. With some of the restructuring we've done, we've tucked that underneath the leadership for the Greenlee product, and that's an area that again we think organically, we can do a lot with, and there's other opportunities to grow that business. So we're excited about that area. Again, when you look at who we are serving with these businesses, with these key franchise brands of RIDGID, Klauke and Greenlee, it's this mechanical electrical plumbing contractor, very discerning professional. It's all about uptime, as I mentioned. It's about reliability. And we offer a full portfolio of tools to serve in those segments. Bob mentioned the distribution channels. Professional distribution is where we play. That's where they buy because they want the service. Again, it's about uptime in terms of delivery, et cetera. You can see some of the key accounts that we have. One of the key dynamics that's going on is, if you're traditionally an electrical contractor, you're wanting to branch out and provide more services in the mechanical and plumbing space. Vice versa, if you're a plumbing contractor, you want to extend into the electrical side. And similarly, distribution is expanding their portfolio to be able to offer a more comprehensive solution to the M-E-P contractor. So the beauty of this is there's consolidation efforts going on. We now have a much broader portfolio to serve not only the end user but the professional distributor. Big box is a big channel as well. We do have a long partnership with the leading home improvement retailer, 25-plus years. That's where we sell our RIDGID wet/dry vacs and have a broad portfolio of our drain cleaning and plumbing equipment. We do think we can extend that in the electrical side with the Greenlee brand. Because these big box, they want the brands that are going to draw the professionals into those stores. And we have those and have done a really terrific job working with again, the leading home improvement retailer to grow these categories within the big box channel, and we think there's other opportunities within the Greenlee category in the United States and the Americas. E-commerce. Bob touched on this, great growth. We've grown 24% on a 5-year basis. A lot of activity in terms of digital content, making sure our websites are where they need to be because that's where these contractors are going out and searching. We have a big forum that contractors can go on to, ridgid.com, for example, and talk about jobs that they had issues with or problems with. That takes an infrastructure to build. We've got that. It's really a terrific resource. We've got a broad software solutions team that I'll talk about, that's helping with that. And we really have key differentiations from a digital perspective to serve those key customers. I talked a little bit about the organizational structure. Here it is. And when you look at, we have functional leadership and regional leadership. So we had 2 businesses before the acquisition, obviously. We combined this into one leadership. So we eliminated a layer of overhead. And then we have business leaders for each of these vertical segments. And on the right side is more detail and color as it relates to the verticals that we have for Professional Tools. So pipe and electrical solutions being our biggest category. That's the pipe and threading tubing equipment, that is with our RIDGID legacy business. And then I talked about the expansion of bending and pulling and fishing and hole making, test and measurement is an area, again, that's very attractive. The underground technologies, this is a Ridge Tool business, great growth profile. We have pipe inspection and cameras. So we can go into a drain or a pipe and determine what is wrong with that pipe, if there's a clog. Is there a root structure? Is it grease that's causing that. And then we have the drain cleaning systems to be able to clean that. And I'll share with you some of the applications from a connected device perspective that really add value in that market. And then locating is really an area that's growing nicely, too. I'll talk more about it. Battery hydraulic tools, again, we are the leaders in the pressing space, which is basically joining 2 pipes together, whether that's copper tube, or now we can go up to 4-inch steel tube by a hydraulic tool that's got a special fitting, so you don't have to [ sweat ] the pipe, or you don't have to weld the pipe. You don't have to thread the pipe. And then electrical crimping is a big area as well. Similarly, it takes a lot of force. When you have the cable that Bob showed to be able to put a lug on the end of that. It takes about 60 kilo newtons to get an effective connection, and we have the tools to be able to do that. And that it's the jaws that work collectively with the pressing and the crimping tools that there's kind of an art to the system approach.

[indiscernible]

Yes. Actually, Tim is going to get trained in Elyria, Ohio and Rockford, Illinois, which is where the mechanical plumbing side as with RIDGID in Elyria, and then Greenlee at Rockford before he heads over to Europe. Actually, before he heads to India for his Eisenhower Fellowship. He's a quick learner though as everybody knows here.

[indiscernible]

I wanted to touch on the some of the key industry trends of what's going on in this space. And I frame that with 3 of these as it relates to the mechanical electric plumbing side. And I want to start off with plumbing. So I talked a little bit about it where you basically can eliminate the need for sweating pipe. So again, where a traditional plumber would have a -- connect 2 pieces of copper tubing, 0.5 inch, 2 inch, they would traditionally sweat or braze that pipe. And now you can just simply put a new fitting connected to the pipe, put our hydraulic tool over that, and it makes an effective crimp, which is a hermetic seal for that pipe. In Europe and the United States, there's 3.2 billion fittings. That's how big the market is. 2 billion of those is a sanitation market, 1.2 billion is the air conditioning, refrigeration market. In Europe, it's -- there's more -- the penetration on the sanitation side. There's less in the United States. It's growing rapidly, and it's at its infancy in the air conditioning and refrigeration market. So you need our tools to be able to connect those new fittings on AC or refrigeration line. It's a big, big opportunity. We have a terrific partnership with the largest-fitting manufacturer in the world. So that gives us access to some of the things that they're working on, on new technologies, which has really advantaged the RIDGID product category here. And then on the electrical side, similarly, again, eliminate the need for soldering on electrical lines, simply put a lug over this cable, crimp it, and you've got a great connection. This addresses the skilled labor shortage. So you don't need to learn how to braze a pipe or you don't need to, in some cases, weld, I mean, these crimps can go up to 4-inch steel pipes. So in some cases, you may need to weld that. And all you really need to do, as Bob showed, is pull the trigger on these battery hydraulic tools to make that fit connection or to cut the cable. So it's a big productivity improvement and addresses the skilled labor shortage. The other thing on the lugs with the battery hydraulic tools is electrification. So there's obviously more batteries in terms of energy storage. It's critically important that you have a right connection. So you don't have any energy loss in that. And this is a system that provides that. And then on the digitization. So I talked about these locating tools. So if you're going to -- if you're one of these contractors, then you got to dig, whether it's a shovel or a backhoe, you don't know what's underneath the ground. What utility lines, whether it's gas, sewer electrical lines, we make the products to identify what those lines are. And then we have software applications that can map that appropriately. So it's really -- it's called a RIDGID Trax software application. Again, just a terrific system, and we're -- the team has done a magnificent job in developing that. The other thing is these contractor business is challenges. Bob talked about safety. Obviously, the insulated tool provides a certain level of protection. We would hope that we can get a standard built in that if you're cutting cable, you have to use an insulated product. These fittings that I talked about. Again, there's no sweating. There's no flames. They have torches to be able to do that. So it's safer. I mean periodically, you will hear about buildings or houses being -- there's fire in them because it was torched when they were sweating pipe. And then remote cutting. So if you do identify a line underneath from an electrical perspective, you don't know if it's live, you don't have an insulated tool or you can't get into the area, you can actually remote cut it, whether that's a Bluetooth-activated device, which is really cool. Again, another layer of safety. Productivity. This move to cordless. These products were traditionally corded. They transitioned to cordless. We're looking at a broad -- much broader cordless battery system application on more of our tools. Prefab work. Again, addressing the skilled labor shortage. We have conduit vendors that are going to prefab work, and this is really a skilled art. If you don't bend conduit properly, it's a huge scrap problem. And so we have new conduit vendors tied with a BIM, Building Information Modeling system, we call BIM works that optimizes the conduit bending. And again, addresses a skilled labor shortage. It's really cool application. It is tied to the leading BIM software tool. So it's -- the utilization is terrific. Again, I talked about some of the software-connected devices. We have RIDGIDConnect, which provides location for the tools, provides the number of cycles that have been used from a service perspective. Where the device is you -- where the close-to-service center is. So really terrific programs there. And then I want to touch a little bit on our one-face to the customer approach. So as we integrated these businesses together. We unified the Americas, Europe and Asia. We've got harmonized pricing programs, which was not easy to do. Well, Greenlee had a separate program. Klauke had a separate program. We've now harmonized those. So we have one Professional Tools programs. We have one CRM system, which was actually developed by our software solutions team in Elyria, Ohio. We've streamlined our customer technical training and are now working on a single ERP system for our Pro Tools business. This is a look at our served markets. As I mentioned, we're leaders in those verticals I touched on. This is an area that the acquisition extends our position in. Again, very big market, an area that is very attractive to us. This gets a little more granular as it relates to the product categories. What's applicable from a cordless perspective, what's at a higher growth application, the darker the green is where we are strong in. Lighter is where we are not as strong in, but obviously, an area of attractiveness as it goes up to higher growth scale. And you can see wet dry vacs is an area that we're very strong in across all 3 of those verticals. Again, a lot of opportunity here. So a little more detail as it relates to these segments. When you talk about pipe and electrical solutions, that is our largest business. You can see the breakup of the pipe and the electrical side. It's all about productivity. It's about addressing the skilled labor shortage. I talked about putting new power systems in place. Again, it's reliability, making sure we're delivering on that promise that we have for many years with these key brands. And these are really our franchise product lines as it relates to pressing and bending and pipe wrenches. And so there's -- it's a great opportunity to extend the software, IoT capabilities as well as just new technologies, and we're investing heavily here. This is the underground technology portfolio. Again, you can see the mix from inspection and locating and drain cleaning. I talked about going in inspecting the pipes and having a full array of products to be able to clean these. Nobody has the scale in this segment of the market that Emerson does. And the technology, we've got new cameras, new systems, inspection systems in terms of the high dynamic range capabilities for pipe inspection as well as just the new camera systems are phenomenal, and we've invested that, and this is a growing, really growing area. Durability is key because these things are on job sites, and we have the most durable products in the market here. And then battery hydraulic tools. Again, you can see the size, the mix. Klauke and RIDGID with the pressing. Greenlee and Klauke with the crimping. New investments on battery systems, brushless DC motors. One of the big opportunities here is to be able to scale this appropriately. So RIDGID had, again, a long history of pressing. Greenlee, Klauke, a long history of crimping. Fundamentally, it's the same mechanisms, whether it's the hydraulic valves, batteries, motors, PCBAs. So we're designing where we can have common parts, and that gives us a cost and a competitive advantage from a technology standpoint. And then lastly, the RIDGID wet/dry vac. You can see a great business. Strong mix of filters and accessories, which is a consumable-type business. We've innovated a lot with different filtration systems. This serves the residential, commercial and industrial markets. So growth profile here is a little different, in that we've got more res construction exposure and remodeling exposure, which has still held up, and that's doing nicely and more e-commerce growth in this segment as well. So this was another chart that we showed at the acquisition, the one that's on the left in terms of the rationale for the Textron Tools business. So obviously, again, these brands are iconic, and it complements the RIDGID legacy business very nicely, adds $2 billion of served market expansion, improves our geographic mix. Klauke is again the leader in Germany, had a strong presence in Asia Pacific, that extends our business in a meaningful way in both of those markets, Greenlee in the U.S. And then there's potential for meaningful value creation. So when we did the deal, we thought that we would reach 20% EBIT, and we're well on our way to reaching those margin goals. We thought we could take out $25 million to $50 million of working capital. We think we can extend that even more, and we thought we'd generate over $100 million of operating cash flow. So you can see on the right slide, where we are, on the bottom right, as it relates to margin expansion, with the retained Textron Tools business. So we're well on our way to the EBIT margins that I mentioned and then significant cash flow generation with the working capital improvements. And we again talked about the divestitures, too. So some of the results today, one of the things I want to highlight is safety. Dave talked about the key values of Emerson, and safety, obviously, is one of the 7. Big improvement in safety. So that took a lot of effort from the team to focus on the activities from a safety perspective and to see a 55% improvement in this is really remarkable, and hats off to the whole organization to really pay attention to that. We moved $200 million of spend, 33 days. Clearly helped our working capital numbers. Optimize the business portfolio, I talked about what those divestitures, the one face to the customer actions. And then we are underway as it relates to the footprint optimization and opportunities that brings for EBIT improvement as well as our cash flow. And ultimately, for servicing our customers in a more regionalized local way, that will be better for them. So we've achieved about 40% of the synergy plan savings in the first year. Again, we want to thank the team for all the work and effort that has gone on and a lot more to do on a go-forward basis. If you look at our guidance. So for 2020, we're at negative 3% to 1%. Again, consistent with what Bob showed for total Com & Res again tied to the industrial energy markets more on the Professional Tools, which is a headwind. The 2% to 4% is our forecast on sales going forward. And then you can see the margin expansion in '20, so 60 to 80 basis points improvement in '20 for adjusted EBIT and a full point for adjusted EBITDA and then growing 3 to 4 points on a forward basis from a margin improvement for these businesses. So in summary, it's -- these are great franchise businesses, great growth profile the past 10 years, driven by technology, innovation, which we are investing in a meaningful way. And we're excited about what it brings as we pull together the Textron Tools business with this Professional Tools and what opportunities that has again from a cost perspective, asset management improvement and just provides a terrific runway going forward from a growth and margin expansion. So it's a great value creator for Emerson. And it's fun to be part of this terrific team.

So for people to provide a little history of this, I managed late '89, early '90, '91. Oh don't...

Oh, sorry.

He blew that. That's okay. There's a guy. Some of you may know this guy. I don't know if you know this guy who ran Greenlee because I tried to buy this company since 1990. Have you ever heard of Herb Henkel? Herb Henkel ran Greenlee Tool when I was running Ridge Tool. And Herb and I got to know each other a little bit differently when he became CEO of IR. We didn't become as much friendly as we used to be when we were in the Tool Institute. He called me friends. But -- so Herb used to Greenlee. I ran Ridge Tool for a couple of years. It's unbelievable, history. That's why you don't piss people off because you never know who you're -- what's going to happen. But it's a great acquisition. We're going to create a lot of value with this acquisition in Professional Tools area. And there's other things we can do around this because one of the things you noticed and Bob showed this tool here. So much -- if you just come up and take the battery out and don't play around because these are very dangerous. It could have 30, 40 newton power. There's a lot of power. But the lightness. So when I used to work with tools, I was a pretty good plumber. And you couldn't lift the products. But today, you have males, females, you have a different -- you have to have products you can use so people can use on a more diverse workforce. And that's been the big issue for the world, to go with lighter products and more power. And if you watch those people, a lot of times, the men and women are working over their head. And those things -- you do a couple of joints over your head after about 2 or 3 times, your arm drops off. And so it's an amazing technology. It's not going to go away. The joining is not going to go away. To think that we can connect a 4-inch pipe today with a coupling and power, just unbelievable technology. And what happens with it is, first, you design the tool, but more importantly, you get these amateur people and they break the jaws, and you got to buy new jaws. What a shame. And so that happens. Okay. Before we take a break, I got to show you the photographs. Here they are. Here's Doon and Rocket. Rocket's in the backside, Rocket's a little bit depressed because his stock's only gone up a few shares since last year. When you guys were calling me pump and dump or something like that. You remember that last year, you call it pump. Poor Rocket got his first certificates, pump and dump. Doon says, he's wanting to wait a little longer on this thing. So this is -- Doon is now 9 months old, Rocket's a little over a year a bit. And so this is lot -- we have 2 days to go. This is a meditate with my wife every morning, and that's where they go. That's the meditation room. And so Rocket is better at this than Doon. Doon is a little bit impatient, sort of like dad, and he's ready to get out of that meditation bed. So let's take a 5, 10-minute break, and then we're going to do a 45-minute Q&A for people who want to stick around. We're going to do 45-minute Q&A for the people on the phone and -- if you're still there, you're not falling asleep, we're going to go back and do a Q&A, and we are going to broadcast the Q&A. I've got to mix up. I got to -- yes, yes. But I -- you know what the hell, Deane. You've got to change once.

[indiscernible]

No, no, no. It's -- from the standpoint of -- we had a huge demand this year. And we can only get so many people in the room, and so we made a decision to do Q&A broadcast. And so -- but come back in 10 minutes, and we'll set up and we'll do the Q&A, and talk a little bit about what you want to know about. Okay. Thanks. [Break]

I don't need this. Unless I want to zap somebody. Oh, there's someone to zap right there. I don't want to get your eyes. Let's grab your seats everybody. We can put you on the front row, and then we really can have fun. Okay. So if you think about the math of $425 million, the biggest savings for us is next year. It should be close to $200 million, the delta. So this year, remember, this year, can you turn that down, just a tad where my microphone person is, walkie-talkie. She's talking. Thank you very much. So the biggest -- this year, we have about $55 million. Next year, the incremental is going to be around $200 million. Then following year, probably around $100 million, as we look at. So if these guys and everyone out there on the phone and then my executives in the back of room or on this room, execute, we should drive incremental savings next year of $200 million. That's how you get that number. And I think that we'll also get a little growth bounce back in some places. But really, what we're driving next year incrementally is a bigger number of savings, which allows us to get back to that, not quite all the way to $450 million, because we have more growth in that number, but allows us to have a very solid $425 million, $420 million based on the incremental savings. A lot coming from Lal because Lal really kicks in. Even Bob next year. We don't talk a lot about the facility stuff, because a lot of it is not announced and it's in places you don't want to talk about it yet. If you noticed from Bob in his charts, they all talk about consultation or stuff like that. As soon as that [ covert ], you know you're talking about Europe and things like that. So it's very important. And these guys, that's fine -- I'm very honest with these people. So that's where we are. Let's call on the floor. Who wants a question? Who wants the question? We're going to start right here.

So just following up on your comments around the $425 million. So -- like you guys always talk about other inflation. You now dropped it in the year, this big red bar chart. So when I think about sort of the offset usually between other inflation and productivity, usually there is kind of a one-to-one offset with that in pricing, I guess. Is that still what you're expecting? So basically, when you said that $200 million, you just said, does that fall directly to the bottom line?

That's the delta from -- that's from the -- all the restructuring activity we're taking right now. From the standpoint of what we see, inflation is typically driven around salaries and wages and benefits, the government regulations. Our Emerson profit planning process is driven around to offset that every year. Now we showed it to you because a lot of companies will not show to you. But we showed to you because we showed it to our Board, we showed it internally. And it's very important to understand that the magnitude that we're undertaking that really drive both the inflationary numbers and then the real cost numbers, the $200 million, which will drop to the bottom line. And also, what we're trying to do is, in Bob case, he's building in through his net material inflation work and other work. He's working on -- he's trying to get some investments going. Lal gets his through a little bit of incremental leverage on the sales. So we're trying to make sure we build into some investments to make sure we're not hurting the company as we go forward here. But the $200 million comes from pure, pure actions we're taking above the underlying job that we do and run the business day-to-day.

Great. And then now that we have a little bit of visibility on China, a little -- you talked about $0.02 last week or whatever in terms of impact, that you're within that $0.81 to $0.79. Does it still feel like that's kind of the impact for the year? Does it feel worse? I know you said high end of the $75 million to $100 million. But how are you thinking about it now in terms of the impact on the...

I don't think I have -- I mean, from the standpoint, and other people can pipe in, we're taking orders. The question we're going to watch is day-to-day, now, we think about so many facilities have been shut down for 3 weeks. And so we're up and running. We're very much in tune with what's going on. We have a very -- a great organization. My hats off to all the Chinese people, they're probably listening to this live right now. Hats off to what they've got done, but they've got to get things moving, production orders. So I still believe this quarter, $75 million to $100 million hit. Bob has businesses that once the season's gone, they're not going to say, "Oh, let's go ahead and do it anyway." He'll get it next year, but he won't get it this year. So I think that we're going to -- so what I'm concerned about right now is I think Lal will -- can probably get his back, but Bob will probably lose some of it. And then Chinese will come in the second half of the calendar year with some stimulus, in my opinion. So the number, I said, I think we're still good. My concern is, right now, it's probably still $75 million to $100 million. I have no new information. I'll try to keep you updated if we have something. Pete and Tim, when do we put the orders out again? At the end of this month? End of February?

[indiscernible]

Okay. So we'll probably put a little blurp in there and trying to keep everyone informed. But right now, you've got the hottest information and the most open information than anyone else is getting here right now. Go on this side over here. Nicole? I'm going to make it hard for the mic players. They're going to try to guess good luck.

Thanks, Dave. So maybe just a quick clarification to what Andy asked. So then are you saying that the growth investments back into the business fall within that inflation other bucket?

Bob has -- Bob did that in his plan. And so -- and Lal typically would leverage a little bit higher than 30%. Bob, it's a struggle to get 30%, so Bob builds cost reductions in. He's trying to build investments into his plan at a lower growth. You guys want to. Go ahead.

Right. Ours is in the leverage calculation. That's where you'd find the investments that are underlying in the business.

The other key thing, Nicole, is -- from the standpoint is, if we do get a little nice bump in growth, and we're playing a little bit of bump and then '23 could come in a little bit sooner, typically you're going see that will leverage faster. So historically, when you look back at the 2002 to 2005 plan, we got -- if you look at it, we really got a bump as we came in sales and then we had to come back after the fact, and start putting some technical support in the place and then deal with it. So historically, what we're trying to set ourselves up for is to set a new high. And part of that is going to be -- most of it is coming through pure, pure costs and then get a little bump. And that's how it's going to be. Now these guys are all saying "I'm setting these targets out there. I'll leave it." And they'll just reset them after I leave. The issue will be is, I'll come back and get them. I've got a lot of new tools. Trust me.

Okay. Thanks. And then with respect to the divestitures, understand that you didn't embed that in the outlook to 2023. Do you have any sense of like potential dilution from those? Or would the goal be to offset that with buybacks, so that it's neutral to EPS?

No, I -- the dilution will be -- could be -- from a cash flow standpoint, it could be significant. I think we're looking at around $400 million -- Mark, was it $400 million total or $200 million? About $400 million total cash flow. So they're reasonable businesses. The key for me would be is, we'd like to do some acquisitions at the same time. So it will be a combination of share buyback and acquisitions. The key issue for the board right now is how do we manage -- our shareholders expect us to be pretty consistent, one thing I've learned. They want that cash, from the standpoint of either dividends or share repurchase, from that standpoint. And so we're trying to -- we'll manage it as we go forward. But we also want to make sure that we get the right price for our shareholders. We're not going to dump. We're not going to do the Rocket dump -- pump and dump, okay? Though Rocket's very happy right now. His dividend went up this year. So he's a happy camper. He gets more dog food. Back here in the back of the room, and then I'll come back up. I'll keep -- I'm going to go back and forth. We've got 45 minutes. I'll wear you out.

Dave, you're pretty consistent with kind of the cost takeout plan, and that's great. But there is an opportunity potentially this year for some assets to come on the market. Obviously, there's talk -- I mean obviously, Neles out there, and then the specter of potentially ABB breaking up. I mean how do you think about maybe switching the game plan if you see some attractive assets that you can get at, I guess, "reasonable prices" in this environment?

Nothing is reasonable in this one right now. Neles-Jamesbury is a control valve -- is a valve company that's been part of Metso for a long, long time, 2 phenomenal brands. It's about $1.5 billion, Mark. Is that...

700 million.

EUR 700 million.

EUR 700 million. Okay. I think about the valuation of the market. EUR 700 million is a very good business. I firmly believe that it's a unique asset, but I'm not quite sure that would be on the top of my list. I think it will create play movement in the Final Control market space. The reason it's being spun off is because Metso's going a different way. And the people that bought into Metso are the same people that bought into ABB, and they're pushing them to put this out to see what's going to happen. So I firmly believe that something is going to happen in the Final Control space, maybe not in '20, but '21, ABB. Now by the way, both of these assets, I've talked with the Board about, and explained to the Board, we see these assets out, as Mark knows. And so ABB, from my perspective, there is no information that says they're going to sell anything off. There's a lot of rumor, particularly by people in this room. But clearly, what I reviewed with the Board is potential interest in that asset. Because I would say, yes, there are assets within ABB. Obviously, I know Peter very well, serving at IBM Board with him and just went through the transition of the CEO there at IBM. And now I'm looking forward to meeting the new CEO when he starts, I guess, March 1. Is that what it is, March 1? So I'm looking forward to seeing that. And so I -- we showed the Board both those assets. We didn't have them up in this chart here, but we showed both assets and explained to them what interest that would be to us and why, and what that means and the type of thought process we go through. Mark, anything you want to add to that?

Yes, I'd just say, in general, we're not shy in calling our corporate peers and letting them know what we're interested in. And there's a lot of activity, I think, with some spins going on that might offer some opportunity. So we have a conservative acquisition plan just because of the environment. But as that turns, we have a strong balance sheet that we fully intend to use to get the assets when they become available.

So Lal, would you like to make a comment, because you and Ram have been going through this Neles Jamesbury looking at where we are...

Right. Exactly. It's a tremendous brand. Both 2 very strong brands. But we have a very complete Final Control portfolio. Across all the technologies, what Neles really brings to the table is a rotary product. We already have a greater than $300 million rotary valve business that's very strong. They bring certain segments. But I would prioritize the control software opportunities out there well ahead of building further Final Control portfolio right now.

I'm more interested in what that could create the tension in the Final Control market space, which I'm always interested. I'm a first mover type of person, lean in and push. Another question?

Yes, my second question. What about Bob, I guess? Is...

Bob? Oh the movie.

Yes. I was looking for Bob Sharp.

I thought you said the movie.

So what I would say -- what I would ask is Carrier obviously just had a pretty interesting Investor Day earlier in the week, actually right here.

Right here, upstairs.

Yes. It wasn't like Otis, where the elevator was broken. But from that standpoint, Carrier did talk a lot about their SG&A plan and cost reduction plan, particularly amongst its components. And obviously, the obvious player there would be a lot of the motors and drives manufacturers as a whole, and you divested a lot of that portfolio over the years. But on the compressor side, are you nervous about perhaps increased scrutiny, competition and then even cost out from some of the key OEMs? How are you going to deal with that? How are you going to continue to preserve what is a very strong competitive advantage?

Yes. That's -- it's a day-to-day activity in a space when you're serving OEMs with hundred millions of dollars of content. So there's a natural cycle that happens, and as I was saying, with the regulatory changes going on right now, we're optimistic about that because that's when our engineering and lab and design and other capabilities to help with new applications, especially when there's multiple refrigerants in the mix at the same time comes into play. Products go through cycles where then there's a heavy cost focus. So what you're describing is not anything we haven't faced for the last couple of years or so. We believe it's actually shifting more now into the -- they got new platforms to get out, and their main attention is going to be on having the product to meet the next efficiency and refrigerant standards. But again, we have big customers. I mentioned that traditional box. And yes, they would like that box to be the conversation, because they want to talk price. But I'll frankly say that distribution as well as contractors and others. A challenge sometimes that an OEM can run into is they'll substitute, and it's not unknown to people, and so the channel may want a piece of that, too or may not like what they're substituting, and we'll work outside of it with those other pieces of the equation. So again, we -- they know our margins. They'll report it. They know they're substantially higher than theirs as well as others. They remind us of it frequently. We have to earn that premium every day.

The key issue I would add to that is, as you -- and their people follows in, their like cycles, like he just said. So we're in a cycle right now. Cost reductions are big, and then -- but we'll play with that game.

Yes, it's flipping now.

It will flip. And then -- so what happens is we gain, our margin goes up and we drip. I mean that's how this game goes. Listen, we've been in here for a while from that standpoint. Let's start over here? Deane, get right there. Don't hit her on the face.

Dave, I was hoping to get a bit more color on how the $425 million number was reached. We got the -- your revealed number last week. But in the presentations today, is it a coincidence that both businesses, both segments landed on the 10% down on headcount? Because that makes it sound like it was a top-down mandate. So is it a coincidence? But you brought in consultants. I would have thought there was a more thoughtful bottom-up assessment of what you were finding.

It was definitely a bottom up. And it's more coincidental than anything else. It's -- one of them is probably a little higher than 10%, one is a little bit lower. It's more coincidence. I mean -- from the standpoint, the consultants did a good job of retesting the way we do things. And I mean -- I can let Lal and Bob talk about because they are part of the task force. I was not part of the task force. Basically from the standpoint, as they report back into us, I mean, Justin was -- led the task force. But they -- it was definitely a bottom up and they looked at everything we do from the standpoint of what we do across the company. And they break it into the buckets. Where is Justin? What are the 4 or 5 buckets you broke into, Justin?

The categories?

Yes, the categories? The buckets they broke this -- the cost out into. We call -- we had the ones from the standpoint of serving the customer, serving...

Service and shape go. Yes, so we looked at it from a safeguarding, servicing and shaping perspective. So we always wanted to protect what was core to Emerson's DNA, and then we also looked at it from where the key levers are from a cost savings perspective. And so it really was a bottoms-up approach, driven by the individual businesses.

And we show the breakdown between the businesses and corporate. And the Board went back and forth. The Board has asked us to do a little bit more work on the corporate side. And so from that perspective, we're taking a hard look at this. We've done a lot of things in both places. The big issue I try to explain to the board is, we have a lot of moving pieces. And when a company this large and you've got this many people and movement from the standpoint of jobs consolidations, Lal is going to put -- create a measurement solutions business. There's a lot of things that we have to deal with, and we have customers. And so I think that from our perspective, it's just a pure coincidence. It was definitely a bottom up. And we have other numbers we can go after that we want to go after. But right now, we have our hands full from this perspective to try to get this. And I think we have what we need to get to -- we didn't say, okay, what do we need to get the 25% or 24%. We said, what really can we do and -- from that perspective.

Just a little color. Within Automation Solutions, in mid-October, we started, we identified 17 operating tracks as the management team got together. Each of those were worked into plans that led to what you saw over -- on the charts today. So there were individual tracks. So ultimately, the 17 went to 4. But there were 17 different opportunities that we saw as we looked across the business to take costs out and get back to peak margins.

Anything you want to add Bob?

And went at it -- I'll say, yes -- I mean we came at it from different directions. We went with each business unit. We challenged to get back to peak for whatever their peak was. Frankly, it's a subject we've been on for a while now because you saw -- over the last couple of years, we've been talking return to peak for a while. We had individual reviews. We had them do year-by-year bridging of what is your inflation and your price and your Nmi and your cost reductions? And we had kind of full day sessions with everybody. When we added it up, I would say, it added a little bit more than the 3 points of margin, partly because there's a little different sales. We put a little conservatism on that. And frankly, it was a coincidence. We both ended up on 3 points and also the headcount numbers. Honestly I didn't quite know those numbers until the last days. This is a live subject. And we weren't really looking at it that way because we've been more running business by business. They landed very similarly.

Yes. There should be no mistake. We did not start with a headcount target by no means in any of the processes that we drove -- either one of us drove.

And the same thing we did in the corporate side too from that standpoint. Go ahead.

Yes, that color was very helpful. Just second question, speaking of divestitures, Dave, I'd be interested in your thoughts on the reemergence of network power. And also, could you remind us what and how Emerson stands to benefit with that new ownership?

So we will benefit. If -- Platinum has obviously sold the piece out and it's going in to his pack, which is, I've talked to Dave a couple of times. We have Ed Monser, who will be on the board. And there's a lot of people -- there's a lot of influence around that from that perspective and what's going on. But clearly, we have a potential piece on the preferred equity side. I'll let Mark talk about because he and Frank did it. But we have a potential upside if we do well, and as Platinum sells out. We're not counting anything. There's nothing in this forecast. I mean, for me, I think it's cash. The earnings, I look at it from a cash standpoint. And so from our perspective, that if this fact does very well and [ Cody ] and his team does very well, we'll benefit from that.

So yes, we have some pretty significant upside once platinum reaches a threshold cash-on-cash returns. So it's going to take a couple of years to play out. But we think we're in pretty good position to realize some upside.

I mean the number we showed to the Board was $200 million to $500 million.

Yes, in that range. In that range.

And so as I told Dave, I'm cheering for you. I mean we've made a lot of money in the divestitures. It was the right timing. I wish his team well. They've gone through a lot of restructuring, a lot of changes. I know [ Cody ] really is liking it. And said, Dave, I know this business really well. I ran it for a while. It's a little bit different than anything you have in inside your company. It's a little bit different. Over here. [ John ]? Yes, the people on the phone can -- and on the webcast can hear you?

They might. The -- Dave, how -- so the plan, way I understand it, it's going to take a couple of years, right? To go through the facilities and plants and so forth. How concerned are you about the risks? Or how do you manage the risks with the economy actually coming back much more quickly? You don't want to be caught flat-footed or supplied out or something like that?

Correct. There was a lot of discussion on the board around this. Now, one of the things we actually are starting to take action in the facilities right now. We actually are. The big issue that we're -- and I'll let Lal and Bob talk about this is, the window is 18 months. We've got to build, we've got to get going and we've got to move. So what we're doing right now is prioritizing which ones we want to do and -- because you can't do them all at one-time because my -- that's my biggest concern. You get halfway through this process and this happened to me before. Then all of a sudden you have a spurt of growth, and you're sitting there holding an empty facility, because you're not going to move. Because -- I mean customer service, quality, all these different things. So what we're -- what these guys are doing is prioritizing how they want to go at it. Rob has had a benefit because he's been at this for a few years. So he's running a little bit faster. Both Bob and Lal, in the other areas, are a little bit behind from the standpoint of just starting this. But that's the biggest concern. The Board is watching it. Not much the Board can do about this issue. This is really pure operations, which we know how to do. But that is probably my biggest concern in this whole plan, is that all of a sudden we get halfway through this. And all of a sudden there's surge growth for some unknown reason, and you say, okay, we got to pause. Now -- obviously faster growth and we can leverage that, but we -- our cost structure will be out of balance. So I'll let Bob -- because this is a big issue for us right now, we're trying to go as fast as possible. The Board has given us the capital. We don't like -- we're not going to waste capital. But we need to build and go quickly and start prioritizing those facilities or we will get caught flat footed, and then it will piss off our customers, which is a big problem for us.

So the acceleration in capital from $297 million to $400 million is not only a bulk increase in the capital spend, but it's also reprioritization on what we spend the capital on. So we looked at that original list that we had reviewed as we budgeted the year, actually took things off that had fallen under the priorities of driving the cost plan. So that's number one. Number two, risk mitigation is part of what we do, any time we pick up a line and move it, whether we're moving it from one part of the plant to another part of the plant or across the continent. We know how to do that very well. We've -- I can't tell you how many line moves we've done across this corporation, but it's...