Johnson Controls International plc (JCI) Earnings Call Transcript & Summary

This is Johnson Controls Investor Day. Please welcome your host, Antonella Franzen.

Welcome, everyone, and thank you for joining the Johnson Controls Investor Day. We're so excited to have you here with us today to share our journey to a smart building solutions leader. We have a great program lined up for you today, centered around our theme: better, bolder, building. Before we get into the agenda, I just wanted to remind you that during the course of today's program, we will be providing certain forward-looking statements, and we ask that you read through our forward-looking, cautionary informational statements. Let's take a look at the agenda. We're going to kick things off with a strategic overview by our Chairman and Chief Executive Officer, George Oliver. We'll then talk about what Johnson Controls is doing around sustainability, not only within our 4 walls, but for our customers as well. We'll then have a discussion about our product and technology leadership. After a short break, we'll be back to discuss digital services as well as our vectors of growth. And we'll wrap things up with our Chief Financial Officer, Olivier Leonetti, who will walk us through our 3-year financial plan before we get into the Q&A session. Before we get started, a few housekeeping items. There is a link on the event and landing page where you can download a PDF of today's presentation. Additionally, there is a Q&A module next to the video player. [Operator Instructions] I'll be watching them come in, and our entire executive team will join me during the Q&A session to answer them. Keep in mind, you're free to submit questions at any time during the program. Before George takes the stage, we'll share a brief video. [Presentation]

Please welcome, Chairman and Chief Executive Officer, George Oliver.

Good morning, everyone, and welcome to our Investor Day. It's been a number of years since we've been together for an Investor Day, and I couldn't be more excited to update you on our strategies, the progress we've made over the last 4 years, and more important, about how we're positioned over the next 3 years to deliver above-market growth with very strong returns. As I said, I'm not only excited to talk about our strategies, but more important, articulate what we see to be the vision of buildings going forward, the future of buildings, and why Johnson Controls is positioned to win. We have an incredible portfolio that spans multiple building systems today. We're in a very attractive market, $300 billion, but a market that's got strong secular trends underway that's going to be accelerating our market opportunity. We've got a proven product technology leadership, that, that combined with now OpenBlue, truly differentiates the solutions that we can bring to our customers and ultimately leverage our direct channel. We've been a demonstrated leader with ESG as Johnson Controls, but now more important, how we're partnering with our customers to ultimately deliver on their objectives. We've got a strong leadership team in place that you'll see today in positioning the company to deliver top-tier financial performance while we're creating very attractive shareholder returns. We are a leader in a very attractive market, as I said, $300 billion with -- in position to perform across all of the segments we compete in today. And more important, that as you look at these secular trends that are well underway within our space, decarbonization, healthy buildings and smart buildings, that represents in aggregate a $250 billion opportunity over the next decade. And we're going to lay out today how we're positioned to be able to now capitalize on this incredible opportunity. As I said, in aggregate, it's $250 billion. And as we lay out each one of these strategies today, they will amount to something greater. But the common thread is the OpenBlue digital solutions, and we didn't want to overestimate what the opportunity is in aggregate. And we've been on a journey to be the smart building solutions leader right from the merger that was completed back in 2016 of Tyco and Johnson Controls. We've gone through incredible change with transformation over the last 4 years, focusing on building strong business fundamentals, upgrading our leadership and making sure we have the right mix of talent, being able to redeploy investment in our product, product technology, at the same time that we're investing in OpenBlue. And we've been streamlining the portfolio, with the most significant transaction, selling the Power Solutions business. So now with OpenBlue, with our combined capabilities, we're now positioned to lead and ultimately lead the market with growth and ultimately delivering very attractive returns. Now as you look at our portfolio today, we report through 4 different segments. And when you look to the right, the $24 billion, very nice mix between HVAC, Fire & Security. And if you look at the business mix, what's interesting here is not only do we have a strong product business through our indirect channels, but our ability now to truly differentiate our direct channel, not only with product, but now with OpenBlue, that truly now builds recurring service revenue. And Ganesh Ramaswamy is going to talk to you more about that today. We've got a very balanced global footprint. When you look at the globe, we're just short of 50% outside of North America. And within that, about $7 billion are derived in the key growth markets where we've been reinvesting and positioning to win where the growth will occur. And then as you look at what we do globally, not only do we leverage our scale. But more important, about how do we take that scale locally, whether it be how we design new products, how we build a supply chain locally. But most important, how we deliver for our customers locally through our direct channel. That is going to be a key differentiator going forward. And we're serving the most mission-critical vertical markets with a full breadth of solutions that meet their life cycle needs, not only from the product, but how we design solutions that are differentiated in the key verticals we support, to how we provide the operating services. And then ultimately, the service over the life cycle through recurring revenues. And as you look at our verticals today, we're very strong in institutional. We support over 6,000 hospitals globally. And that represent an incredible opportunity, not only with our core business, but now as we differentiate the outcomes, the ability to be able to now capitalize on the opportunity that we see there. In school districts, we support 6,000 school districts in the U.S. and 1,900 higher ed universities. Again, with the ability to be able to pull it all together into differentiated solutions within those verticals, we're now positioned to be able to achieve their needs and solve the problems that they're looking to solve. Then as you go into government, we've been very strong in government historically. Now with some of these new commitments around net zero carbon emissions and health and safety, just an incredible opportunity to leverage that base, especially with the position that we have in federal government buildings. And then you'll see commercial and industrial, although there's a lot of disruption that's been happening, it is actually playing to our strengths. And how do we now position to be able to serve those spaces differently, addressing some of their more pressing needs around sustainability, health and safety as well as we create smart infrastructure supporting those verticals. Now we get a lot of questions about our structure and how we report our businesses. What I'll -- I'll simplify it by saying it's how we go to market, and ultimately, how we serve our customers. So let me start with Global Products. Today, we have almost $9 billion in revenue. And this is where we serve our customers through our distribution, our indirect channel. And most of that business is Residential HVAC, like Commercial HVAC as well as Fire & Security products. It's been incredibly successful, our ability to be able to lead through our product technology, and then making sure we've got the distribution with the full line card to be able to serve their customers. Now if you go to the right, when you look at our field-based business, roughly about $15 billion, what we call Building Solutions. And this is where we take our applied product in HVAC, Fire & Security as well as Industrial Refrigeration, and we configure differentiated solutions. We create an installed base. We then maybe operate that installed base for the customer. And most important, we service that installed base. Now historically, it's been through more mechanical services, and we're going to talk a lot today about how we're differentiating our services to be able to change the business model so that all of what we do in this space ultimately becomes recurring revenue as we look towards the future. It's all built on product technology and then our ability to be able to lead through our OpenBlue technology that enables this differentiation. We also get a lot of questions about, do you need HVAC, controls, fire and security within the portfolio to be successful? It starts with our vision of being the smart building solutions leader. All of this sensoring, all of these multiple systems truly are needed to create a smart building. And it's about not only sensoring and detecting, but then analyzing and then being able to respond to be able to deliver an important outcome depending on what problem you're trying to solve. So as you look at this, we have incredible installed base today with these systems, which gives us an opportunity, not only on the installed base to be able to upgrade and bring forward. But also, our ability to be able to truly disrupt the built environment as we build new infrastructure. That combines with OpenBlue. Within our technology stack, OpenBlue is where all of this sensoring and detection comes together, establishes one data platform and then applies analytics and AI that truly is focused on delivering an outcome through an application. There are hundreds of opportunities to be able to create value for our customers with multiple applications. And so it's about making sure we've got all of the data, we've got the AI capabilities. And then we're focusing on the outcomes that are typically tied to sustainability, healthy buildings, productivity, and then ultimately creating a digital foundation that ultimately creates a smart building. Now Vijay Sankaran is going to talk to you today about the limits of the individual systems operating alone with the inability to be able to apply a lot of analytics. But now combined within one digital platform, the outcomes that can be now created to learn, adapt and respond that ultimately delivers the most attractive outcomes for our customers. The other big, important fundamental that we have is our direct channel, which we believe as these trends continue, becomes a real competitive advantage with 12,000 frontline salespeople and over 6,000 frontline installers. We have 14,000, 15,000 frontline service technicians operating out of 2,000 locations. Now historically, it was more viewed as a installation contracting business and then, ultimately, get the mechanical services break/fix. But now what's happening is, not only being able to take that installed base, bring that forward with digital technologies, but truly differentiate now with the analytics and the outcomes that can be achieved with our -- delivering technology-enabled solutions. And most important, now we see, especially with these secular trends, the ability to be able to put all of that together, be innovative in how we work with our customers in structuring these type of agreements, but focusing on an outcome that ultimately becomes a recurring revenue for us within our service business model. Now let me give you an example here. And this is a simple example where we take our applied product and ultimately show the multiples of revenue that we get through the life cycle. Now traditionally, we were positioned more as a mechanical -- deploy a mechanical solution in the installed base and ultimately perform the break and fix, maintenance, repair, service required through the life cycle. And that was a very attractive model for us, I mean that -- when you take $1 of product and you get 5x that through the life cycle. What we've been working on is how do we then differentiate what we do and create more recurring revenue and ultimately a higher multiple of the product that we deploy within our customers. As we sit here today, as we connect our equipment today and ultimately begin to extract the data and apply new services, we can get to a 7x multiple. And that's what we're doing today. More important now, as we look towards the future -- and we'll talk a lot today about sustainability and decarbonization, healthy building, smart buildings, we can be positioned to get a 10x multiple of revenue on the technology that we deploy in the solutions that we serve our customers with. So a look ahead. There are 4 key pillars that we're executing on to be positioned to be able to deliver the outperformance on top line and very attractive returns. It starts with culture and leadership. It's about accelerating our growth strategies, that we're going to spend most of the time on today through the presentations, you'll see. It's about very strong margin expansion and closing the gap to our peers, delivering very strong returns. And then it's using the strong free cash flow with a very, very attractive capital allocation plan. Let me start with leadership and culture. Some -- it takes years to change cultures. And this is something that we've been very conscious on, very deliberate in how we're building a high-performance culture. And it's been about not only upgrading our leadership, but then remixing our talent to be able to deliver on the future. It's been about bringing in a lot of talent from tech companies that bring the acumen and the technical skills required not only to lead businesses and ultimately lead sales. But more important, how do we continue to strengthen the software capabilities that we've put together into one structure within Vijay Sankaran's business. And all of that has been -- that has been combined with the ability to not only take growth leaders internally as well as externally that have a proven reputation for delivering growth. And how they work outside in with customers, understanding problems and then configuring in a very agile approach solutions that ultimately deliver on these customer problems. All of the growth strategies you see here today, we've got this structure in place to be able to deliver on the opportunities that we see going forward. And all of what we do is built on a strong core set of values. Now core to our culture is Zero Harm to our people and to the environment. And this is something that has been, from a long-term standpoint, been fundamental to the company, focusing on Zero Harm to our people and the customers that we support, focused on the health and well-being of our employees and their families. And ultimately, making sure that we're positioned to get to Zero Harm with the environment and the communities that we live and work. We've made great progress. It is part of our DNA. We've made great progress. And I think we're positioned to take all of our success and bring it to a whole new level over the next 3 years. Sustainability has been a cornerstone for the company over decades. ESG is not new to the company. We've been able to make commitments. We've been recognized for the performance of achieving those commitments. And we've been included in, I think, 40 indices from an ESG perspective. Now we're not done. I mean it's clear that there's more work to be done. And we've recently unveiled very ambitious new ESG commitments that are going to -- it's going to take our performance to a whole new level. Our Chief Sustainability Officer, Katie McGinty, is going to share with you today not only a little bit more details about those commitments, but how this is embedded in all of the work we do. And you're going to hear this throughout the presentations today. Now the second pillar is accelerating our growth strategies. And this is where we're going to spend most of the time today. And it's about taking the incredible leadership that we've developed in our products and now through our technology in OpenBlue. And how we're focusing those on delivering what we see to be big secular trends within buildings: decarbonization, healthy buildings, smart buildings. While at the same time, we're operating and outperforming in our core, focusing on enterprise accounts, expanding in growth regions and ultimately delivering differentiation in the key verticals that we support. Now on the right, it's all about how do we leverage product, technology, create solutions and ultimately drive to recurring revenue, which is why services is so important. And we're going to talk a lot about that today, with the strength of what we do holistically is what differentiates us to be able to deliver on that business model. And all of this is focused on outside in, understanding our customers' strategy, their priorities and then making sure that we're positioned to serve the outcomes that they're looking for to be successful. The first is decarbonization. Now buildings represent 40% of the global carbon footprint. And most CEOs, most companies, most governments have made commitments to get to net zero carbon emission. So this problem has to be solved. And we're positioned to be able to solve that problem with the combined capabilities that we have. This is all supported with changing public policy as well as now new building regulations that are coming into play. So it's clear that this isn't futuristic. This is now. And our opportunity that we see here is roughly $240 billion over the next decade. It does build upon our strength in HVAC, combined with our Building Management Systems and OpenBlue. And it does go back to how do we not only address the installed base and be able to bring that installed base forward to be able to achieve the reductions necessary. But more important, now disrupt the future and how we can truly differentiate how new infrastructure is built. It's built on our market leadership and ultimately includes very innovative deal structures that are tied to the outcomes that we can deliver for our customers. The second is healthy buildings. It's clear that the pandemic has brought that to the forefront here and the need to significantly upgrade buildings from a health and safety standpoint. I don't believe now, with that awareness, that's not going to change going forward. So this is here and now. And we see this market to be $10 billion to $15 billion. And our ability to be able to serve this is not through one of our domains. It's through the combination of our domains that ultimately builds a portfolio of indoor environmental quality solutions that enable us to be able to address the most pressing challenges that our customers are looking to solve. It does take our equipment, combined with all of our Building Management Systems that -- most important is all of the sensoring that now comes together within one platform, now providing the solutions necessary to be able to win. Ganesh Ramaswamy is going to talk more about this today with our 5-pillar solution that ultimately positions us to capitalize on this very attractive market. Now the next growth strategy is smart buildings and really disrupting the built environment. Now as you look at the market today, it's $25 billion. And this is mainly software that's brought into buildings, stand-alone, separate from the multiple systems that exist today, very small. But we see this space growing very nicely, double-digit growth over the next decade to be roughly about a $70 billion market. It is clear to me that as we position our capabilities with OpenBlue, there is absolutely an increasing acceptance that now the digital offerings and services deliver real economic value to our customers. And again, it takes what we do not only in each of our separate domains, but brings it all together in a unifying software structure with OpenBlue, that now creates the outcomes that are differentiating in each of the verticals that we ultimately support. And most important, we've got the strong, go-to-market capabilities in place today, and we've been transforming those capabilities with digital acumen, and now positioned to be able to lead in this space and truly capitalize on this opportunity. The next is digital services, really changing the way the -- not only our core services businesses by incorporating connectivity and the use of data in the traditional market. But more important, how we use that as a platform to ultimately lead towards smart buildings going forward. Today, the market is about $150 billion. It's mainly -- it's very fragmented and mainly break/fix type service work. And as we have been digitizing, we're seeing incredible opportunity with the connectivity, with the use of data to add new services to that installed base. And more important, on a go-forward basis, get a much higher level of recurring revenue. It's really all about not only the broad capabilities that we bring to the market, the global footprint that we have and how we serve our customers. But then truly enabling them with the digital technologies that truly differentiate the outcomes that they can deliver for their customers. All of these growth strategies are supported with our product and technology leadership. And it's focused on -- the reinvestments that we've made over the last 5 years has truly differentiated what we do. And you'll see on the right that we've been granted over 1,300 patents over the last 5 years. And when you look at the mix of those patents, a lot of that is around our digital capabilities within our Building Management Systems and now significant patents now supporting our OpenBlue platform. And when I look at our successes today, from where we were to where we are, we now have the broadest building technology portfolio. We've focused on capabilities and differentiation to be able to address the most pressing needs. Good example is best-in-class heat pump portfolio addressing sustainability. We've been focused on digital, believing that as we take just the incredible base that we've had historically, digitize that base, differentiate with the connectivity and the data, we have an incredible opportunity to fundamentally disrupt the environment. And that's what we're doing with our building automation systems, now combined with OpenBlue, the use of data analytics and focusing on the outcomes that now we can deliver. Our third pillar is the aggressive productivity program that we have announced here over the last 6 months. It's built on sustained 30 basis points of base margin improvement with the core as we continue to deliver market growth. And then as you look at the opportunity that we have with SG&A, we add another $300 million of cost out; and then with our COGS effort for improving our gross margins, another $250 million. This positions us to be able to significantly increase our margins, expand our margins over the next 3 years. And Olivier Leonetti is going to be updating you more on where we are and ultimately, how we're going to execute this over the next 3 years. And then the fourth pillar is disciplined capital allocation. It's clear that we have made significant improvement in how we're delivering free cash flow. That has provided us to be able to put together a very attractive capital allocation framework, supporting a competitive dividend, with growth in line with our earnings growth. Being able to deliver steady share repurchases and being able to deploy 100% of our free cash back to our shareholders. And being able to be opportunistic here in how we ultimately execute M&A, 1% to 2% of additional growth above and beyond what we achieve organically, with very attractive opportunity for us. Now let me sum it up as I started here today and simplify. It's all about we're in an incredible market, the $300 billion of core market that we're positioned to perform. And what's extremely exciting is the secular trends that are underway today and why Johnson Controls is positioned very differently to be able to now capitalize on these trends, which are accelerators to the market that we see over the next decade. It's built on a very strong portfolio that crosses a number of building systems. The fundamentals are built on product technology, combined with OpenBlue technology that enables us now to leverage our direct channel and be able to change the outcomes that can ultimately be achieved in the buildings that we support. It's through demonstrated ESG leadership, not only as Johnson Controls, but how we partner with our customers to be able to deliver on their goals. And it's supported by incredibly strong leadership team that's focused on delivering top-tier financial performance and very attractive shareholder returns. So as an investor, as you're thinking about your investment capital, I would leave you with this: That Johnson Controls is positioned to be able to outperform the market with above-market growth. We'll expand margins 250 to 300 basis points over the next 3 years. We'll continue to deliver over 100% free cash flow conversion. That gives us over $8 billion in capital to deploy. And that's not only supporting organic reinvestment, but also an attractive dividend, steady share repurchases with strong M&A, with 1% to 2% growth above what we achieved organically. And then most important, positioning with all of these fundamentals to deliver double-digit adjusted EPS growth. So again, I couldn't be more excited about the plan that we've outlined here today. You're going to hear more from the management team. But couldn't be more excited about the next 3 years, and the confidence that I have in our ability now to take all that we've done and everything that we've got in place and put that to work to be able to accelerate the top line above market and be able to deliver very, very attractive returns to our shareholders.

And now we move on to Katie McGinty on environmental, social and governance.

Well, hello, everyone. It's true. At Johnson Controls, we've been at this business of making buildings more efficient, more sustainable, more healthy for a long, long time, in fact since 1885, when Dr. Warren Johnson invented the electric thermostat. And we've been at it ever since, driving technology to make these buildings that we spend a heck of a lot of time in better places to live, to work and to play. Now today, we are very excited. We're excited because the conversation has turned to sustainability. And for us, that's great news. One, we believe that sustainability is our business. And second, kind of behind the scenes, we've been working for a long time to help lay the foundation of sustainability thought and action. So sustainability stats, for example, not since 2020, but literally for 20 years, we've been reporting those stats. The UN Global Compact, we're proud to be one of the very first companies that signed the compact way back in 2004. And energy, for a good time now, for a good number of years, we've actually offset 100% of our electricity consumption in our U.S. manufacturing facilities with renewable energy assets. Now all of that work has led to results. So as we meet today, we've cut our greenhouse gas intensity by about 70%, energy intensity by about 50%. And we're really pleased that our customers have been with us on this journey. So we've been able, working with them, to cut their carbon footprint by some 31 million metric tons of carbon while saving them $6.6 billion. Even as I share those statistics, I hope and I expect that they're already out of date. Out of date because we're trying every day to put points on the board against our next-round 2025 commitments. And they are really pleased to say that whether it's energy, greenhouse gases, waste, we are tracking on or ahead of schedule against those commitments. You might say, says who? We think that the stakes are really high when it comes to climate change and that third-party validation is important. So those numbers I just shared with you, we've been having them third-party audited since 2011. This slide takes a bit of a bigger view, that outside look at how we're doing. And we are pleased that we are now on some 40 sustainability indices. We're happy to be in a leader band with the Carbon Disclosure Projects, that's top 12% in the world; in Corporate Knight's top 100 most sustainable companies, and of course, AAA with MSCI that puts us in that top 5% globally. Like a lot of companies and a lot of organizations and individuals, however, we really looked in the mirror and said, good. But good really isn't good enough. And I think that IPCC report recently drives home the point. We got to raise the bar, do more, do it faster, do it more thoroughly in terms of reducing those emissions. So we stood up in early this year with a comprehensive new set of commitments across environment, social, governance. George alluded to these new commitments, but let's dig a little deeper. So on environment, for example, I spoke a moment ago about our carbon intensity. We're now moving to absolute reductions in carbon 55% by 2030, and we'll go further still in 2040 to reach net zero. Now internally, we're locking these commitments down with initiatives like a new life cycle analysis tool that will help inform all of our new capital investments. Or on top of that, we're committed to at least 75% of our R&D and new products will go to turning the tide in favor of and in the direction of sustainability. So how about the S, the social piece of the equation? Well, as I mentioned, we've been around a long time. We are deeply rooted in our communities. And we also know that 100% of our success is about that top talent we are blessed to see come work with us in our communities. That external look, we're pleased to know that organizations like 3BL and Ethisphere have us in their leadership ranks: 3BL saying that we are one of the best corporate citizens in the world 16 times in a row, and Ethisphere including Johnson Controls among the most ethical companies in the world 14 times. Now that's a stat that only 4 other companies in our industry have ever achieved. Recently, Forbes made our day by including us in their list of Best Employers for Diversity. Once again though, good, not good enough. So we are on a mission, working hard now. Over the next 5 years, we want to double women and minorities in leadership in our company, and we're not going it alone. Reaching externally, we're launching new initiatives with community colleges, with historically black colleges and universities. Why? To identify, to invest in and lift up that next generation of leaders who are going to build that sustainable future with us and for the world. Let's look at governance. I certainly don't have to tell this crowd that you manage what you measure. And at Johnson Controls, all of these goals are tied to executive compensation. But this isn't a top-down thing at our company. It's bottom-up as well and enterprise-wide. So now more than 10,000 colleagues have these goals hardwired into their KPIs. And our Board is stepping up as well: Governance Committee now Governance and Sustainability, Compensation Committee now Compensation and Talent Development. So you might wonder why we are so laser focused on these issues. This slide tells the tale. It's really about 2 things: the planet needs it, and we are uniquely situated to deliver it. What's the it? The planet needs that first line to change. 40% of global greenhouse gas emissions coming from buildings, definition of not sustainable. But what about the solutions? Here's what we've learned by listening to our customers. We really need a double shot of innovation to decarbonize those buildings. That double shot is: one, technology, innovation and technology; and second is about partnerships and rethinking how those relationships work. So on the technology side, it's a couple-piece equation. To decarbonize buildings, you need to electrify them and digitalize them. So on electrification, as you'll hear from Jeff and others, we've brought forward the most comprehensive suite of heat pump technologies in the industry. What about the digitalization piece? Why is that so important here? Well, that's a 2-pronged story as well. First is you just can't get there from here. The depth of carbon cuts we need to make can't be achieved by looking at individual siloed pieces of equipment even if, like our equipment, they are top of the line in efficiency. You need to be able to optimize across silos, and in fact, across whole systems. That's where OpenBlue, for example, delivers an additional 50% of efficiency on top of what any single piece of equipment can achieve. But here's the second reason you need to digitalize. Think about it. All of a sudden, we're electrifying heating, water and vehicles. If we put all of that new electric demand, just dump that on the grid, we're going to crash the grid. Buildings need to be able to talk to the grid so that it is buffering the grid instead of burdening it. That's where OpenBlue comes in as well: bilateral communication between buildings and the grid. You put it together, and it is about that technology that decarbonizes in a way, that crosses whole systems and talks to the grid that enables us to reach those deep cuts in carbon. But there's a second piece: innovation and partnership. And there, what our customers have told us is, look, we're committed. But honestly, internally, we don't have the ring-fenced capital or we don't have the skills. We don't know how to get there. That's why we're stepping up with financing, design, build, operate, maintain. We're in it for the long haul to ensure, to guarantee that, that carbon emission outcome is achieved. That's what you're going to hear about in terms of our sustainability and net zero as a service. Now we're taking this message far and wide to the White House, to the European Parliament, to top leaders in China with the overall message, go after climate, yes, and focus on solar, wind, electric vehicles. But buildings are 40%. We do not tackle climate without decarbonizing buildings. And we think that those leaders are starting to hear. In Washington, for example, and across the U.S., we have an energy bill, infrastructure bill and now building performance standards that are going to drive carbon down. In Europe, that renovation wave they've launched will triple the pace of building upgrades. And in China, Beijing is mobilizing billions to make better buildings. So we think we're on our way. First time in my 30 years working on climate that buildings are front and center. Getting there is about partners. And let's hear what our partners have to say. [Presentation]

So that really is our sustainability story and action plan and delivery in a nutshell. It's about technology partnerships to deliver healthy people, places and planet. Thank you very much.

Next, we talk about product leadership with Jeff Williams.

Our Global Products business is a best-in-class portfolio of products and technology that serves all building types. We have global reach, deep technical capabilities and an unmatched distribution network. We are well positioned to take advantage of industry growth trends, including sustainability; decarbonization; healthy, safe and smart buildings; and digital transformation. Throughout this presentation, I'll review in more detail how we differentiate, how we grow and how we win. Today, Global Products revenue is $11.6 billion. However, as a reported segment, we show $8.6 billion. This is because 25% of our revenue is provided to our direct channel or intercompany, while 75% is shipped to our third-party distribution network. The Global Products business is responsible for sales, product management, engineering, manufacturing and supply chain. We have functionalized the organization to improve our operating model and serve customers more efficiently. Examples of our model include: the Johnson Controls Management System that guides our manufacturing plants globally; rapid product development; engineering centers of excellence; and customer-facing technology such as Navigator, which are all yielding improvements in cost, efficiency and speed. As we look at our products, we have a dominant HVAC portfolio, complemented with strong fire, security and refrigeration businesses. All of these businesses are positioned to grow in alignment with both secular trends and industry expansion. Now I'll review each product domain and provide insights in how we grow at a premium to the market. First product line, applied HVAC equipment. We're the global market leader in HVAC, led by our chillers business and have a large installed base that drives recurring service revenue. Our approach to development is to invest in global, scalable platforms that provide speed to market and cost synergies. For an example, in 2018, we were first to market with the flagship YZ chiller, featuring ultra-low GWP refrigerant and magnetic bearings. Today, we continue to innovate with our new air-cooled centrifugal offering for data centers. We also continue to invest in a leading portfolio of water, air and heat pumps, serving all vertical markets. In order to provide improved customer value, we've developed OpenBlue connected chiller. This will deliver predictive analytics, better uptime, improved energy efficiency and lower carbon emissions. This leads to a stronger customer relationship and recurring service revenue. We have a strong building automation and controls portfolio that is critical to enabling our digital strategy. We are investing in sensor capabilities and smart edge devices that will allow for better data and digital outcomes for our customers. We have a leading position with our flagship Metasys in the complex market that is integrated with OpenBlue. Recently, we expanded our controls and automation offerings that allow us to serve all building types. Another solution is Verasys, targeted to the growing light commercial segment. Our strategy to win in this business is to grow our connected edge devices and leverage data coming from buildings along with more cloud functionality. This will enable us to drive better customer outcomes at a lower cost, leveraging existing infrastructure and optimizing mechanical systems. Moving on to Industrial Refrigeration. We participate in 2 primary vertical markets: food and beverage and energy segment. Today, we have a best-in-class heat pump portfolio. And we're outpacing the competition in this very attractive market that is growing between 15% and 20% CAGR. Regulation changes are requiring decarbonization, and we're meeting the challenge with district heating solutions and other industrial applications. Our solutions significantly reduce energy usage and greenhouse gas emissions. We're continuing development and increased investments in ultra-low GWP refrigerants, natural refrigerants and digital integrations. Let's move to our rooftop portfolio. We've refreshed our entire rooftop portfolio, launching 3 new platforms, which are compliant with 2023 regulations and address both efficiency and lower GWP refrigerants. These products offer best-in-class energy efficiency, lower installed cost and a 50% reduction in startup time. We're seeing a strong demand for these offerings as the commercial markets recover. In our VRF offerings, we hold a #1 position in China. And this is a portfolio that continues to be developed through our Hitachi joint venture. We differentiate ourselves with first-to-market products, such as side-flow design. This design allows greater flexibility in more building types and represents a significant growth platform for the business. We also offer digital connectivity through airCloud Pro software, which delivers predictive diagnostics and optimized installation. Moving to our residential HVAC portfolio and starting with the North America residential ducted business. We continue making investments that include a complete redesign of the portfolio to meet both 2023 and 2025 regulatory changes. Given our unprecedented demand, we're increasing manufacturing capacity, up to 35% by the end of this year, and optimizing our channel network to support our continued market share gains. To address the decarbonization opportunity, we're also focused on developing new lower-cost, higher-efficiency heat pumps, capable of operating in low ambient conditions. Now shifting to our residential ductless portfolio. We enjoy a leadership position in several key markets, including Japan, Taiwan, India and Europe. We're investing in this redesign portfolio, which includes features of global modular designs that generate both manufacturing efficiencies, scale and cost improvement. These offerings are differentiated, with superior features around digital, air quality and heat pump technologies. Moving to our fire portfolio. We're the #1 player in this global market and lead in both electronic and mechanical domains. These markets are primarily driven by compliance, codes and standards that across the world are constantly changing and require portfolio investments to protect our market position. In our electronic portfolio, we're improving ease of installation and digital connectivity, coupled with our next-generation detection platform. In our mechanical business, we're making strategic investments to capitalize on high-growth verticals, such as data centers and warehousing, while exploring new green suppressants, such as nonfluorinated foam. We're connecting both of these portfolios with OpenBlue applications, leveraging remote monitoring and driving recurring services. Our final product domain is security, a portfolio serving customers from residential to complex applications. We have a number of platforms that protect occupants and assets across multiple building types. We win by partnering with customers and migrate from traditional on-premise systems to cloud technology, leveraging OpenBlue and modern architecture with AI and ML-embedded edge devices. Our new solutions enable healthy and safe spaces for our customers through a frictionless experience for their occupants. Our residential and light commercial business is an innovative market leader. Our connected panels have the widest range of applications and integration capability. We are also expanding our portfolio of edge devices and software to enable a greater share of wallet and differentiated experiences. A few examples include our new IQ 4 platform, Wi-Fi hub and water detection system. This illustration depicts how our products, technology and OpenBlue create significant customer value. We have a significant installed base of equipment with embedded sensor technology. These sensors capture a significant amount of data from the asset and the building. The data is ingested through our OpenBlue platform. And together with software applications utilizing AI and ML, we're able to generate critical customer outcomes. These outcomes generate significant value, lower energy costs, lower carbon emissions, lower life cycle costs, better asset uptime and optimal experiences for owners and occupants alike. These are also tied to growth vectors around sustainability, decarbonization and healthy buildings. Here's an example of a hospital in Toronto, where Johnson Controls products and technology are enhanced by the OpenBlue platform and applications. This winning formula allows Johnson Controls to partner with the customer to achieve their business and sustainability goals that include guaranteed performance outcomes, reduced energy consumption, lower carbon emissions, improved uptime and lower total cost of ownership. Not only are we creating customer value, but we're also creating incremental value for Johnson Controls. These include better service attach rates, higher recurring revenues and lower attrition. This is just one of numerous examples where we have proven solutions across multiple verticals. Looking at our future investments, we directly align with the major growth vectors. And we prioritize funding for sustainability, safety, air quality, digital and services. In the last few years, we've increased investments between 7% and 8% of Global Products revenue, and we're maintaining this level of reinvestment today. These investments will yield hundreds of market-leading products over the next several years, both in product domains and in verticals, including new heat pump technologies, ultra low or natural refrigerants, connected edge devices and data center solutions. And we're protecting these critical innovations with over 1,300 U.S. patents filed this year alone. Complementing our investments, we constantly explore inorganic opportunities to further accelerate our growth. Our major focus remains on growth markets, portfolio expansion, new technologies and improved geographic coverage. We have an active group of opportunities at various levels of maturity that we continue to pursue. Silent-Aire is a recent example, completed May of this year. This capitalizes on the rapidly growing data center market. Together with Johnson Controls portfolio, the Silent-Aire acquisition allows us to serve customers with an end-to-end solution that addresses their growing needs through our deep technical expertise, global footprint and customized offerings. At this point, I've discussed how we lead, differentiate and win in the global markets we serve. We have an unparalleled portfolio that capitalizes on market growth vectors. We have strong momentum and a clear path to execution around digital transformation and service growth. And finally, our future product and technology investments, coupled with inorganic opportunities and leading channel partnerships, will enable us to grow at a premium to the market. Thank you for your time.

Technology leadership and OpenBlue are covered next. Here's Vijay Sankaran.

Thank you, Antonella. I'm really excited to be here today to share our strategy around our OpenBlue software platform, the digital blueprint for our future. It's our smart building solution that enables the solution for customer problems around energy management, safety, sustainability and so much more. Let's take a closer look at our OpenBlue software platform. I've recently joined Johnson Controls a few months ago from a Fortune 500 fintech. And what motivated me to come to Johnson Controls was the opportunity to leverage all the learnings around data analytics and digital experiences and really build a digital adviser for the smart building ecosystem. If you think, we're at a key inflection point in the transition from traditional building management systems to a fully smart autonomous building management system. So if you look at what we've had traditionally, we've had HVAC in controls, fire detection, access and intrusion, all very rich capabilities, but standing alone independently and not really connected and talking to each other. With OpenBlue at the center, we're fully taking the first steps and making progress towards smart autonomous buildings where all of these different systems are interconnected together, leveraging a standardized digital twin structure to store data and creating scalable experiences on top of that to add value for all of our customer solutions going forward. It's this power of digital and really interconnecting the building with modern technologies and software that creates this autonomous ecosystem as we move forward. OpenBlue is game-changing in terms of every aspect of our business and really has enriched all aspects. If you think about digital services, Global Products and digital solutions, with OpenBlue as the foundation for everything, we're able to create new service offerings around remote management as a service around industrial equipment, leveraging AI and ML to enrich those solutions, and really, an as-a-service model like we're doing in our performance improvement business as well as some of the work that we're doing on security as a business. In Global Products, which has extensive leadership, as Jeff shared earlier in areas like control and cameras and intrusion and fire detection, OpenBlue infuses those edge solutions with software and models and artificial intelligence to take those solutions to the next level. So it's the OpenBlue and attaching that with our leadership around Global Products that actually differentiates Johnson Controls from many of its key competitors. And then finally, the digital scalable experiences that we generate for our customers through the power of OpenBlue is where significant value is added around energy management, sustainability, safety applications and actually the visualization of the campus and fully driving autonomy to the business. Again, these are the subscription-based solutions that we'll be building for industrial verticals as well as specific solutions like data centers and security that create significant value and make OpenBlue that game changer for us. Now let's take a closer look at the OpenBlue software platform. What makes OpenBlue so special, it is a single software platform based upon a modern architecture that's cloud-based, but also able to be deployed on a private cloud environment that ingests data from the edge; stores it in a digital twin structure that's based upon the industry standard brick format as well as an analytical structure that's based upon Snowflake, a leading industry analytical platform; applies AI and machine learning to those data sets; creates alerts and monitoring and optimization algorithms within that context; and creates those scalable experiences that our customers consume and can take action upon. To actually control those devices at the edge to create outcomes around energy efficiency, decarbonization, really where items should be placed during the construction process. So it's that holistic nature of OpenBlue that's a key differentiator for us. Double clicking down on the OpenBlue architecture, you start with our OpenBlue Bridge, which is our software stack at the edge. Think of it as the iOS for smart buildings. So OpenBlue Bridge delivers a secure connection to all of those devices, both Johnson Controls and non-Johnson Controls devices at the edge. And it's very, very powerful in the way that it does that. It connects to those devices. It creates a secure connection up to the cloud, ingests messages and signals and alerts and data from those edge devices, and then basically formats them and then routes them up to the cloud in OpenBlue cloud. OpenBlue Cloud has 3 primary purposes that it serves. First, OpenBlue Cloud stores that data, as we mentioned, in a digital twin format. So think about that digital twin format as a spatial representation of the building. So how different objects in the building ecosystem connect with each other, where things should be laid out in the building ecosystem, that can actually be visualized using a visual rendering tool. Second is the OpenBlue analytics environment, which actually collects the data and the telemetry from the edge, alerts, readings from the sensors, how a chiller is performing, and stores it in an analytical repository where it can be analyzed through our consuming applications as well as our internal service staff. Thirdly, OpenBlue Cloud enriches those data through third-party connectors. So imagine sustainability, for example, where you may actually want to understand the source of those different renewables that are coming into your energy efficiency and decarbonization goals. OpenBlue Cloud has an extensive set of third-party connectors for things like energy sustainability, scheduling, servicing the third party -- leading third-party systems that are brought into OpenBlue Cloud to create even more open capabilities across our environment. Then there's the repository, the library of artificial intelligence and machine learning algorithms to do things like vibrational analyses, detecting objects from our cameras, being able to look at predictive failure, understanding where a chiller may have downtime. All these libraries that we're building in a very agile way that then can create optimizations that our customers can take action upon. And these are consumed by our OpenBlue applications that then can actually create those rich, scalable digital experiences we talked about, that digital adviser for the smart building that is so powerful in terms of creating that outcome. Let's take a closer look at these applications. So our applications are grouped into several key categories. First, you have OpenBlue Enterprise Manager, OpenBlue Central Utility Plant, OpenBlue Connected Equipment, which are all oriented around energy management, sustainability and the monitoring of equipment at the site. These all work together to create alerts, create insights, give visibility into energy efficiency, and we'll see that in a few minutes. Then you have OpenBlue Companion, which is our return-to-office solution, which enables hybrid work, where employees can actually go into a mobile device and be able to book a space using and leveraging schedulers like Microsoft Outlook to integrate that information and understand more about their work environment, integrating data from sensors around things like air quality and monitoring for pathogens in the space. It's a very powerful tool for employees returning to the workplace. Next, we have OpenBlue Secure, which is all about risk management. And it has several key modules around risk management and alerting and actual active dispatch for active incidents that security operation centers can manage. All of these are built upon the OpenBlue Platform, which we'll take a closer look at right now. So here, a facilities manager would log in to OpenBlue and Enterprise Manager, which is their single pane of glass for managing energy efficiency, sustainability and fault management. So they'll go into their log-in screen and they'll securely log in. Here, you can see all of the different facilities in their buildings, the electrical consumption on the upper left, the energy utilization unit, which is a normalized factor. On the right, you see all of the data around faults, energy performance, tenant management. So this is sort of their single pane of glass. So now we're going to double-click down into energy consumption, specifically around energy utilization units, so we can see more data about the space. So you can see the energy that's been consumed at a campus level, holistically, what some of the carbon consumption is and the carbon footprint, some of the KPI on water. And then you can look at it on a building-by-building level. So now let's dig down specifically into building 1. So you drill down into the next layer, and you can see the energy consumption in building 1. And then you see over time, what has been the energy utilization. You see that several months have not been meeting their benchmarks and their baselines and actually reducing the energy efficiency. So we're going to drill down into actual faults to see what has happened in that particular set of months. So now you drill down. You see 3 months in the red, where we haven't met the benchmarks that we've set in terms of energy performance. And now we go down and we actually begin to look at the faults that might have contributed to it. So we see a high weekend load on a particular equipment. Now we go down into that and we can look at the faults by equipment category, the different fault types around energy and the different equipment that we have in the particular space. And we see that in the air handling unit, there is a specific fault that the weakened performance of that air handling unit may be contributing to the energy efficiency issues. So we double-click on that, and we can actually create a particular service ticket that gets dispatched, and then we can route that to address that particular need. So that's what we're doing right here. Now we're going to switch gears and move over to our Companion app, which is our return-to-office, hybrid-work-environment tool. You can see that a employee can go in, pick a particular space that they would like to book in a particular location in that space, double-click on it, see what equipment is available to them and actually say, okay, I'm going to reserve that particular space. They've gone into that space. They look at when they want to reserve it. It's integrated with Outlook and other scheduling tools, and they're actually able to go ahead and reserve that. And now coming back to OpenBlue Enterprise Manager, the facility manager can see the overall utilization of the space, what the current occupancy rate is as well as the total capacity. There are other attributes on the left, like the infectious disease risk score as well as indoor air quality, that's captured off of the sensors on the edge and can give them a holistic view of the space and what the issues might be. You can see on the bottom, there's additional KPIs around the risk scores and the quality scores. And this is where the power of AI and ML and OpenBlue comes together in order to be able to optimize capabilities and conditions in that particular space. So we've clicked on a particular part of the floor. And here are some recommendation options that OpenBlue has actually generated. So in option 1, we can optimize the air quality and the pathogen risk. And in option 2, we can take some additional measures to optimize energy efficiency. So it gives our customers a balance point because if you have additional ventilation, for example, that could increase your energy cost, whereas if you have less ventilation, that could reduce some of the risk score. So it's all a balance between these different attributes. And once you accept, let's say, the highest on the risk score that works there well to optimize the space. Now we're going to log in to OpenBlue Enterprise Manager again with a different, more space and campus-specific view. So now you can see more of that digital twin visualization capability here, where you can actually see all the campus buildings, the active alarms, the work orders as well as standard KPIs around people, places and planets. We're going to drill down into the specific, highlighted building so that we can explore that in more detail. So we've clicked on that. And we go into that actual building space. And you can see all the different floors, and it's represented as a set of layers that you can actually highlight and filter upon. So now we're actually going to go into the elevator part of the building by filtering out on that, and you can see what the alerts are on specific elevators and faults. Now we're going to go to the mechanical aspects, and you can see the different floors there, and you see some specific alerts on a specific floor, which is the rooftop. So we're able to see that in the red and basically click on it by looking at the individual floor. You can see that on that floor, we're going to click on HVAC operations to see the performance of our rooftop chillers. And so we go ahead and click on that. And you can see the flow and the pressure and whatever conditions. And this is all being collected with real-life telemetry off of those edge devices. Now we're actually going to go into looking at the lighting in a particular space, so we filter upon that. And so you click on the lighting button, and now you're able to see where there might be alerts around lighting. Now we're going to actually go into the security cameras. And we can actually activate the security cameras on the space, and you see that there's a fault that's been indicated in the red around a propped door open. With the security camera there and the integration of those 2 data points, you're actually able to verify that and be able to dispatch someone almost immediately through standard workflow and orders to create that rich alert to address that particular condition. So we're going to go ahead and do that. And through a standard work order system, we actually go ahead and say, here's the asset, let's go ahead and create the work order in that particular issue. The work order is created here through the single pane of glass in the workflow and integrated with the workflow system at the customer. So we go ahead and do that. And while we're doing that, we actually see an active alarm for our security operation systems that there's a risk that's local. So now we move into our active responder and risk insights platform as part of Secure that shows you all the different risks that happen in a particular area. So you can trace the particular incident that we just saw. And we can trace the time line of when that incident emerged and all of the details around that. Similarly, you can go to the overall pane of glass within Secure and look at all the different monitor, building and threats, external event information that's been coming in from third-party sources around threats. You can filter all of those things so that only the key signals come through. So we're actually going to go ahead and do some of that, and be able to look also at different types of risks that exist around hurricane, wildfire and different other types of issues. So now we can actually, based upon intel that we're getting, add a new threat, which is what we're going ahead and doing. We're adding a new threat into the system so that our standard operating workflows can take effect. So you can see in the same format a threat has been added to the workflow system. And now we're going ahead and checking the conditions associated with that threat so that we can basically submit dispatches to local authorities to address that particular threat. So we're going ahead and doing that. It's going through the standard workflow. We can trace it through the workflow, and it's actually setting up that dispatch at the end of the day. And so that's been completed. And this is the overall dashboard where you can see all the active standard operating procedures. As you can see, all of these solutions together on a single software and data platform, OpenBlue, is what creates value for our customers at the end of the day. And you can see that we can, in an agile way, in an agile software engineering organization, continue to add scalable experiences that add significant value for our customers at the end of the day. These solutions, as you can see, powered by the OpenBlue data and software platform, will generate significant growth for Johnson Controls as well as drive operational efficiencies. The as-a-service model, which my colleagues, Ganesh and Mike, will talk about a little bit later, have things like: performance improvement as a service, which we're already leveraging OpenBlue for; command center as a service, which we're working with several large companies around. And you can see the evolution into building management as a service; IoT, cybersecurity as a service. So these are all recurring services that are inclusive of our digital capabilities, OpenBlue and other elements of service that really create recurring value for our customers. Subscription revenues will continue to grow as well with OpenBlue. These rich digital solutions, enabled by OpenBlue, driving recurring revenue around energy management, sustainability, decarbonization, hybrid work, space visualization, healthy spaces are all very powerful. And they will continue to generate additional value for our customers and create additional revenue for Johnson Controls as well as they already have by some of the growth in these spaces. And finally, OpenBlue will change the way that we do business in terms of our ability to do remote triage and diagnosis, over-the-air activation and updates, remote updates using firmware patches, streamline our connectivity at the edge with OpenBlue Bridge, our iOS for smart buildings. So by doing all of that, we also become a much more lean and efficient organization in terms of service. These are all powerful enablers for our revenue growth and OpEx efficiency moving forward. One of the areas where we've had strong leadership in is in the building management space. So we have our award-winning Metasys platform, which OpenBlue leverages and builds upon. So in Metasys, it's very building-specific. It has a manual setup and has very strong local optimization of controls, like lighting and HVAC and chillers and other parts of your building. OpenBlue builds upon Metasys at a campus, multicampus level, brings in additional sensors and devices, integrates third-party devices that are not Johnson Controls-specific, takes that data, analyzes it and provides 2-way optimization back to those devices, which is a very powerful construct. Let's double-click into that a little bit more. So if you look at the specific pieces of functionality, you have things like remote monitoring that is not enabled through a traditional building management system, which is what OpenBlue enables through its single pane of glass. Equipment health monitoring, where you can look at faults and be able to do predictive maintenance and analysis. Administer remote firmware updates over the air so that you can add additional functionalities on an ongoing basis. Be able to capture additional data through third-party integration. This is something that a traditional BMS doesn't have the capability to do. Support new use cases. We started with energy management. We're quickly pivoting to sustainability. We've added security. Now we're doing space visualization. So we can -- with the data and the data that's coming from the edge, we can add a lot of new use cases quickly. So this is a very powerful construct, and we feel it's a key differentiator versus the rest of the industry to fully enable smart autonomous buildings. The additive value of OpenBlue with multiple BMS systems is seen here at a large global asset management firm. What the customer has done is integrated multiple building management systems across 42 buildings to collect data, analyze it and provide optimization recommendations. We've taken individual BMS systems, 10 or more, with hundreds and tens of thousands of points of data and improved energy efficiency by $800,000 in just over 2 months. Over 5 years, we're expecting energy efficiency benefits of over $4 million. And by being able to manage and look at the campus holistically, they're able to drive an additional over $2 million in operating services by not having to dispatch out technicians and do monitoring capabilities at the edge. This is the power that OpenBlue has brought to one of our major customers. OpenBlue is the leading smart building software platform. And the reason that it is, is that you look at the strength that Johnson Controls brings to the table around its breadth of portfolio of building management solutions. Whether that's in access control and video surveillance or whether that's in our chillers and HVAC units, whether it's in intrusion, whether it's in building controls, we have this breadth of portfolio of solutions that add a lot of value to our customers and have a lot of existing customers. Secondly, we have deep relationships with these customers through our field presence. And so when we add OpenBlue on top of that, we're able to create a platform that connects all of these devices at the edge, connects non-JCI devices, and deeply integrates all of these things into a single software platform and data repository that adds AI and ML to create these scalable experiences. That's a really very powerful construct that not -- our competitors just don't have. And the reason that it's differentiated is while our competitors may have different pieces of the puzzle, it's the holistic nature of breadth, coupled with depth, with agile, scalable experiences that are driven around customer outcomes with specific orientation around verticals that makes OpenBlue so powerful at the end of the day. Cybersecurity is something that's absolutely top of mind for all of our customers these days, and it's something that we take very seriously within OpenBlue. Number one, we have a very comprehensive product cybersecurity framework that we utilize from the onset of the software engineering process. And we do scanning. We teach our engineers how to integrate security into their engineering best practices. We manage risk all throughout the engineering life cycle. Then as things are launched and there may be vulnerabilities that are externally discovered, we have 0-day patching and update mechanisms that ensure that our cloud platforms are best-in-class and secure. Then we have third-party partnerships with leading companies, like Pelion, Nozomi and Tempered, to establish secure connectivity at the edge and constant edge monitoring of all of those edge devices that are connecting securely into our ecosystem. And finally, we have industry standard certifications, such as ISO 270001, SOC 2 and FedRAMP, which have third-parties validating our capabilities around cybersecurity and ensuring that OpenBlue is absolutely a very strong offering in terms of cybersecurity. We also have amplified our reach and accelerated our time to market through our ecosystem partners. We have 3 types of partnerships: technology partnerships that add capabilities to our platform and speed our time to market; our go-to-market partnerships that really amplify our reach and allow for co-development efforts; and regional partnerships that allow us to enter markets with very market-specific needs. Around the technology partnerships, we have partners like Pelion, Nozomi and Tempered who have accelerated our capabilities around device management and cybersecurity. We have very strong go-to-market partners, like Microsoft and Accenture, Microsoft where we codeveloped under Azure Digital Twin structure, and Accenture we're actually codeveloping third-party connectors. And then finally, in the China market, we've partnered with Alibaba to really accelerate our time to market and really add capabilities and reach the Chinese customer base very quickly. All of these are built upon the OpenBlue Platform, which we'll take a closer look at right now. [Presentation]

OpenBlue is a game changer for every aspect of our business. First, it brings together the power of a modern software and data platform. Second, it creates significant value creation for our customers in area like energy management, sustainability, safety and campus visualization. Next, it enhances the functionality that we already have leadership on in terms of building management solution leadership and access control and video surveillance, intrusion, controls, and our traditional HVAC and chiller and industrial business. It's this portfolio breadth and our field business model that allows OpenBlue and Johnson Controls be differentiated in its digital industrial leadership going forward. This contributes to significant revenue growth, as you can see, 10% CAGR. And really, we're enabling the smart autonomous building for the future in a few years from now. Thank you.

Thank you, Vijay. That was excellent. As a reminder, you can submit your questions at anytime. I've been seeing a number of great questions coming in. I appreciate that. At this point, we're going to take a 10-minute break. Please keep this tab open on your browser. We'll be back shortly. [Break]

Welcome back to Johnson Controls Investor Day. [Presentation]

Ganesh Ramaswamy, joins us to discuss digital services.

Thank you, Antonella. Good morning. I'm very excited to speak with you regarding digital services at Johnson Controls. Let me start by giving you some directional color. Our service business is a $6.5 billion global service portfolio with margins that are accretive across our entire business. We operate in a $150 billion service space that is growing at GDP rates. The derivative opportunities that George was referring to this morning on decarbonization and healthy buildings are on top of this $150 billion space. There are 2 major shifts, which are impacting the services space. The first of them is related to technology, the second one demographics. On the technology front, a wave of digital technologies is starting to impact the buildings space. Customers are seeing the impact of technology-driven outcomes, which is causing a shift from the traditional break/fix service delivery model towards an outcome-based service solution model. On the demographic front, we are seeing the number of retirements from the labor force is far outpacing the number of new entrants into the labor force, causing a net reduction in demographics. These 2 shifts, demographic shifts and the evolution of technology, favor players like Johnson Controls who have access to reach, scale and technology. What I'll take you through in the next few minutes is our digital service strategy as well as the capabilities that we are building to exploit these market shifts and position us for above-market growth in the coming 3 years. Let me give you a little bit of color on the global services market. It's a $150 billion space growing at GDP rates. Roughly 20% of the space is served by OEMs like us. The remaining 80% of the space is highly fragmented, involving thousands of service delivery providers, regional players, local players, national service providers and in many cases, customers who choose to self-perform their equipment using in-house capabilities. For the most part, the dominant business model in this space is a traditional break/fix service delivery model. However, the rules of the game are changing. There are a number of shifts, which are driving the changes to the rules of the game. I talked about demographic shifts a moment ago. We see a net shrinkage of up to 20% in the labor force in the coming decade. The shift -- the demand for indoor environmental quality is not going to subside even after the pandemic subsides. It's going to continue to stay, primarily driven by the demands on occupant health, occupant safety and occupant productivity. There is an apparent competition between energy demands for clean air and energy reduction due to sustainability goals. Here, technology has a role to play to be able to balance competing demands. I mentioned about the technology driver earlier. There is the shift in the impact of digital technologies in the building space is driving a shift from a traditional break/fix service delivery model towards an outcome-oriented service solutions model. So in the light of the shifting rules of the game, there is a combination of winning attributes that will differentiate the winners in this marketplace from the rest of the marketplace. There are about 5 attributes: size of the installed base, the extent of labor footprint, the breadth of the product portfolio, access to digital technologies and platforms and very importantly, the ability to tie together these 4 aspects, installed base, footprint, access to a broad portfolio and access to digital capabilities, along with the ability to deliver outcome-oriented service solutions is going to be key. The players who are able to combine all of these 5 attributes will be differentiating themselves from the rest of the marketplace and will be positioned for winning. Let me give you a little bit of color on the Johnson Controls service business. We are a $6.5 billion service business. Global in scope, we serve across all 3 regions. We also service all of our solution domains, HVAC, building management system controls, fire detection, security. Our recurring revenue portfolio is slightly more than half of our total business that positions us well for the future. We also have a substantial installed base across all of our domains as well as a substantial labor footprint across all of our domains. The key value drivers that customers look for are a low total cost of ownership. Total cost of ownership is a function of asset life and the prevention of expensive repairs. Customers also look for savings in energy. Energy efficiency depends on energy waste, which is due to improper usage; or energy drift, which happens when the control system logic is not properly calibrated with current demands; or energy leakage, which happens when the equipment is not in proper condition. Customers look for reduction in unplanned downtime. To give you an example, 1-day downtime of a chiller at a large hospital means 140 operations are postponed. So it's a big deal. In addition, in our fire detection business, meeting regulatory compliance besides the obvious safety elements is also a key value driver. In the last 3 years, our service business has been growing at GDP rates. This year, we've seen a pickup, especially in the most recent quarter where we have grown our revenues and orders by double digits. New customer placements year-to-date are up double digits. We have also increased our service attach rate by 400 basis points year-to-date. We are benefiting from a couple of industry macro wins in terms of rising demand on healthy building solutions, especially driven by stimulus funding as well as accelerated adoption of sustainability goals across our customer base. We see our business outgrowing the market by 2 to 3 percentage points in the coming 3 years. And the way we are achieving that is by doing 2 things: first, by building strategic capabilities through our digital services transformation framework; and second, by leveraging this framework, instantiating it across our solution domains and launching outcome-based services and solutions. Let me explain to you what our digital service transformation is. In essence, our digital service transformation framework is a market and customer-centric framework that allows us to create value-added service offerings that are highly monetizable. At the center, we have our customer personas, which could be our facilities personnel, owners, architects, engineers, sustainability leaders, CFOs, CEOs and the like. Each of these personas care about one or more outcomes, outcomes pertaining to occupant health, occupant safety, occupant productivity, sustainability objectives, continuity of business operations and so on. The service value proposition -- and each of these personas interact with our people, products and platform through a range of use cases. The service value proposition is embedded in these use cases. So as part of our transformation, what we are doing is we are assessing these use cases, extracting the service value proposition in these use cases and modifying them, replacing them, in some cases, disrupting them in order to augment the value that we're offering our customer base. In order to do that, there are 4 enablers, which are shown on the 4 corners of this page. Starting with top left, we are aggressively connecting our devices. Top right, we are collecting the data from these connected devices through our cloud-based platforms. Bottom right, we are translating the collected data from these platforms into insights and intelligence using artificial intelligence and machine learning. And on the bottom left, we are streamlining our processes, workflows and systems in our field to be able to market, sell, deliver and support these service offerings. We are instantiating this digital service transformation framework across each of our solution domains. So for example, in the case of chillers, we have ability to connect 100% of our chillers that are leaving our factories today. We have also developed the capability to go back and connect 97% of our brownfield installed base of chillers out there in the field. For collecting the data and translating the data into insights and intelligence, we are leveraging the OpenBlue platform that Vijay took you through a few minutes ago. So let me give you some color on some very specific OpenBlue-related capabilities that are especially relevant for our service business. Predictive analytics for condition-based maintenance gives us the ability to move from routine planned maintenance to predictive condition-based maintenance. And we do that by combining highly accurate sensors. So these are sensors with more than 99.5% accuracy, along with machine learning algorithms to predict vibration failures. Vibration failures are extremely expensive in the case of chillers or scaling in pipes due to poor water quality, which can impact heat exchanging capabilities in the pipe, which will result in poor energy usage. Smart Edge for secure connectivity allows us the ability to commission and decommission gateways remotely. This gives us the ability to install firmware and also installed security patches as and when needed. In addition, edge-based artificial intelligence gives us higher performance at lower cost points, higher performance because of lower latency and lower costs because of reduced cloud computing expenses. Common data platforms and user interface gives our customers a single pane of glass to view their connected chillers performance. It also enables subscription-based access to apps similar to how we use our smartphones to subscribe to apps on the phone. The last capability on video analytics is more relevant for our securities business. Here, we are leveraging artificial intelligence to translate information into intelligence that allows us to go from reactive access control towards proactive assessment of threats and therefore, provide proactive mitigation strategies. So far, I've taken you through the digital service transformation framework. What I'll now take you through is how we are instantiating that framework across our different solution domains, starting with chillers. In the case of chillers, our customers look for reduced total cost of ownership. They look for reduced unplanned downtime. They look for reduced energy usage to waste -- or due to waste or drift. They also look for improved productivity through improved availability, utilization and efficiency of the equipment. Here, our solution, we have essentially taken a 3-step approach to developing our solution. We have developed a cloud-based connected equipment platform that has the ability to receive data from our connected chillers. Our chillers are able to transmit up to 2 -- more than 200 chiller performance parameters to this platform. And by leveraging these parameters, we have the ability to create a very robust digital twin of the chiller. Connecting this connected equipment platform and the digital twin of the chiller allows us the ability to compare actual chiller performance with predicted performance entitlement. What we are doing now is to integrate this connected equipment platform and the digital twin with our building management system, specifically what we are calling as a central utility plant, which is basically a software tied to a building management system to be able to compare actual chiller performance with predicted performance entitlement and more importantly, continuously monitor performance and provide real-time alerts and adjustments whenever performance goes out of bounds. By doing this, we are able to produce significant improvements across all of the key value drivers. In addition, in the next 3 years, we expect our service attach connectivity to go up to 40% of our entire installed base. So by doing that, we are going to achieve 2 things. One is we're going to expand value across the installed base as well as drive value penetration within the installed base by augmenting the intensity of value on a per chiller basis. The next example I want to take you through is related to our Healthy Buildings offerings, specifically indoor environmental quality. We expect this market to be around $15 billion by the end of this decade. Our Healthy Buildings solutions has got 5 steps, starting with a baseline of the -- starting with a science-based assessment of our customers' baseline state. In order to do the science-based assessment, we are partnering with entities like the International WELL Building Institute. So once we have that baseline, we offer surgical solutions to our customers for filtration, ventilation and disinfection that allow our customers to meet their target state. These solutions are tested and validated, and we are leveraging our partnership with [ WELL ] for testing and validation. We then leverage our monitoring infrastructure to be able to monitor system performance and alert and adjust the system as and when the system performance goes out of bounds. What we are also doing is shifting our Healthy Buildings portfolio from a retrofit-centric portfolio towards an as-a-service recurring revenue portfolio. To do that, we have partnered with Kaiterra, who offers us high-fidelity sensors, advanced high-fidelity sensing capabilities that allows us to measure a broader and more holistic range of indoor environmental quality parameters. These Kaiterra sensors are integrated with our Metasys building management system that now allows us for the ability to continuously monitor IEQ parameters and also automatically alert and adjust system parameters whenever the performance parameters go out of bounds. The next example that I want to take you through is related to our security domain. There are a number of shifts which are happening in the security domain. For example, there is a shift to go from entry access towards occupancy intelligence, in terms of who is in the building, how many people are in the building, where are they located and so on. There is a shift from building-friendly devices towards people-friendly devices. Frictionless access is an example. A shift from reactive forensics of events after they occur towards proactive assessment of threats and proactive prevention and protection by assessing those threats and developing appropriate mitigation strategies. Moving from a product-centric model towards a service-centered model. And finally, moving from a siloed configuration of stand-alone or semi-independent devices towards an integrated ecosystem that drives broader intelligence. Our OpenBlue platform is tailor-made to leverage these shifts in the security landscape. In the past few months, we've launched a number of offerings related to -- such as OpenBlue Risk Insights, OpenBlue Active Responder, OpenBlue Location Based Services, OpenBlue Companion and so on. And we expect a number of offerings to come out in the coming months. So far, I have taken you through our digital service transformation framework and how we have instantiated this framework across each of our solution domains. Now what I'll take you through is some examples on how and where these outcome-based solution offerings are impacting our customers across multiple solution domains. Starting with connected chillers on the left side of this page. This example is from a large health care company where we have about more than 100 chillers placed. We have launched our connected chillers services offerings at this customer site, and we have demonstrated a 50% reduction in unplanned downtime in addition to significant savings in energy usage as well as eliminating energy drift and wastage. In the middle of the page is an example of our Healthy Buildings solution at a large university campus, where we have retrofitted a large number of their equipment and also installed our Metasys building automation systems at this site. The result, a 20% reduction in energy usage and cleaner air. So this is an example where technology is able to balance to competing demands of cleaner air as well as reduced energy savings. The third example of this page is from our security domain. Here, we have implemented our One cloud solution at a large retail chain in the United States and realized more than a 30% savings in total cost of ownership for our customer. So by leveraging our digital service transformation framework and instantiating it across our solution domains, we are transforming our service profile from a fix, repair, maintain type of a model towards an outcome-based service solution model, which is based on predictive condition-based maintenance, remote services and outcomes as a service. We have improved our attach rate by 400 basis points this year, and we are currently at about 40% in terms of our overall attach rate. If we continue along this trajectory, a simple, linear extrapolation over the next 3 years, which would be a conservative estimate, would land us in the range of about 55%. 1 percentage point of attach equals $30 million of revenue. So increasing attach rate by 15 percentage points and reducing attrition by about 3 percentage points would give us an $800 million lift in our recurring revenue base. On top of this, we also expect the -- an increased or accelerated pickup in our nonrecurring labor and material part of our portfolio in terms of the pull-through rates going up from the current 50% range to about 60% to 65% in the coming 3 years. So all in all, based on our model, we expect our service business to evolve from the current state to the vicinity of $8 billion portfolio in the coming 3 years, a business that has got a significant digital content and a substantial recurring revenue profile. Thank you for your attention.

Next, we hear from Michael Ellis on smart buildings.

Welcome and thank you for joining me for this discussion about smart buildings. At Johnson Controls, we are transforming how buildings work, and we're doing it through smart buildings. So let's dive in. So when you think about smart buildings, you're thinking about, obviously, not only operational technology, the core platforms that we actually run our buildings with, HVAC, controls with fire and security, et cetera, but also the information technology. And infusing those together really changes the data that we start to compile and we start to understand about how buildings actually operate. So our ability to actually create new outcomes by bringing these 2 worlds together and bringing that dynamic capability that's infused by both of those worlds in terms of operational and information technology is game-changing. So we couldn't be more excited to be on this dialogue with you about smart buildings. So what are smart buildings? Let's talk about this for a second. Think about the evolution. So on the left side of this slide, you see typical buildings. Typical building, most of the systems are not connected. Probably none of them are. They're all siloed. You might have HVAC, you might have controls running HVAC, you might have fire and security, et cetera. Of course, the IT system is not connected whatsoever with operational technology. You move over to connected buildings where you might see a system or 2 that are starting to connect and share data. They might be sharing some insights, et cetera, and getting a little smarter, a little more optimized about how you might run a building. But move over to smart buildings and you're talking about a totally different thing. You're talking about truly the marriage of IT and operational technology. You're really starting to compile the data and build insights and concepts about how to better run that building. And of course, what you're driving there is outcomes. You're looking for the most impactful opportunities to impact value for those building owners and the people that occupy those buildings. It's not all about just savings, but it's also about creating new experiences, in creating goals and reaching goals like sustainability and carbon footprint reduction. So really, really impactful, especially in this day and age. So what do we think about that from a market size? So it's significant. So when you look at this slide and you see a CAGR of 12%, that's interesting. $70 billion in terms of market over the next 9, 10 years, also interesting. But recognize that this is pertaining to the technology, the sensors, the devices, the IoT elements, the cloud applications, et cetera, that fulfill that world of smart buildings. Understand that the real cornerstone here is smart buildings are what drive what George talked about earlier, $250 billion in market opportunity. So smart buildings and the technology behind smart buildings are really the catalyst to making that come alive and become real. So it's not only the $70 billion over the next 8, 9, 10 years, but actually the impact on achieving the $250-plus billion in market opportunity. And if you look on the right side of the slide, it is about outcomes. So how do we really deliver something of value, not just the mechanical and the information technology capabilities, but the actual value. And of course, underpinning everything we talk about these days is building health, sustainability, intelligent security, capabilities around experience that changed the game for building owners. So when you think and you step back -- and of course, we've listened to a lot of our customers talk to us about this. They see the value of buildings changing. And of course, that change is predicated on new experiences. And of course, it is assumed that those experiences are more healthy because of the way they're managing the building. And oh, by the way, can we do this with reduced energy? Can we start to impact our goal around reducing carbon footprint for those same buildings? And of course, that's what smart buildings is about, how do we activate those key outcomes for our customers. So one of the key elements to this, and I'm sure you heard Vijay talk about the connected world and how we get there, is open platforms built on open standards and really created so that we can bring in an ecosystem alive with applications, capabilities, AI, IoT, et cetera, all of the buzzwords that make that world actually operate and become much bigger than, frankly, just JCI, but all of our partners coming together to solve that world and open is one of the most key words. So actually creating the ease of integration, the ease of connectivity for whatever vendors technology might be in those buildings that are 30, 40, 80 years old and starting to front end that technology. So not only the new design buildings can benefit from these technologies and capabilities of connected and the insights that drive outcomes but also the building stack that's been there for a long time. We can start to front end that technology and make that come alive. So really exciting. And of course, we're taking a vertical approach to this as well. We're starting to understand how do we take and mold some of the capabilities from that platform and apply them to very specific use cases, could be hospitals in health care, retail, commercial, of course, education and campuses and residential. And it's not just about driving costs down, but it's actually about impacting revenue, impacting productivity, impacting experiences so that people in retail establishments can have a different level of experience because of the way the building is being run and the experiences that are being elevated by the systems in that building. And of course, if you can reduce response time in hospitals. So think code blue and the ability to achieve a lower time frame of responding to code blue, it's game-changing. Mortality is a key value driver. How do I bring that rate down to increase the value of our hospitals and the view of our hospital in particular, as a building owner. So vertical, very important. Industry is very important in building purpose-built applications to deliver value. One great example is in Dubai, so the largest government zero-energy building in the world. We are thrilled and honored to be a part of this, Dubai Electricity and Water Authority, and it's just a wonderful example. If you look at the outcomes in the light blue on the right side of these 2 graphics, you can start to understand the depth of what we're delivering of that combination of information technology and operational technology and starting to bring together the data from all of those systems to enable these levels of outcome. Of course, for Johnson Controls, we look at this and go through our OpenBlue platform. We can deliver this like no other vendor in the world. We are very unique in our ability because of the breadth of our portfolio to deliver against this vision. So that breadth that you saw earlier from Vijay and Jeff absolutely critical in understanding the data and insights that come off these systems, so driving for us at Johnson Controls higher reoccurring revenues that are sticky in long term, services growth because we can understand how to better maintain, monitor and manage those technology platforms and of course, pull-through, additional systems that we bring to bear and deliver against that vision. So how do we do it? When you think about -- have things changed at Johnson Controls to be able to enable this to become real? The answer is, of course, yes. Over the last several years, we've upgraded and updated and accelerated our go-to-market capabilities in the field so that we have digital-ready capabilities, tiger teams, if you will, smart sales teams that can also get involved with the customer about visioning and understanding how to get at those outcomes and value through technology. Of course, customer success is a big piece of this, so listening to the customer and understanding those outcomes. It's not about just installing systems and walking away, but it's actually about building reoccurring value props where we're involved in the delivery of that value ongoingly, both from our service organization as well as the technology and the reoccurring applications that we're delivering. So customer success is critical to that. Think software industry, sticky, great retention on subscriptions and capabilities that we're delivering to make that real. And of course, ecosystem and partners. So like any technology firm, like a software firm, we innovate and we co-innovate with our partners to bring that alive, accelerate innovation in terms of how we bring that to market faster but also work with our partners around delivering it hand-in-hand with the customer themselves and our partners to make that real and bring it together and bring it live faster. So we're really excited about these capabilities. One of the big changes -- when you think about Johnson Controls, you might think, well, you spend a lot of time in the basement. You've got chillers down there, you've got control panels, you've got security platforms, et cetera. Well, we're also extremely relevant at the boardroom today, so boardroom and basement. And we've earned the right to play there because we are talking about the outcomes that are most critical to those building owners, so sustainability. Again, I know of almost no CEO in the Fortune 1000, Fortune 2000 worldwide that isn't thinking about their carbon footprint and how to deliver and activate against that mission. It's not just about buying credits, it's about actually activating a strategy that is ongoing and reducing that energy footprint. We do that at Johnson Controls. And so our right to not only affect sustainability and carbon footprint, but also importantly, helping the customers build new value propositions for how they value their own building and that's by the building systems, frictionless security, healthy buildings that are more safe for people to come back to and work and operate and do retail within. And of course, also creating different experiences because of these systems coming together, IT and OT, and making that real. So really exciting for us. And of course, on the go-to-market side, we also, in the last several years, have put in place in all of the theaters worldwide regional vice presidents that are dedicated to digital. And so they're there to augment our current platform teams in place selling to our key and core customers and bringing to bear great business development, professional services, ecosystem, solution architects capabilities. And many of these folks have come out of the technology sector and/or software sector. And so they're infusing and working hand-in-hand, arm-and-arm with our current in-region teams to bring up that and accelerate that whole delivery of IT and OT. So really, really exciting for us. In customer success, you might have heard this phrase before, there is nothing more important than superior customer experience and return on investment. So if we're serious about outcomes, we're also really super serious about customer success. It's about escalating and elevating deployment and tiger teams that bring to bear and bring alive that digital component, that artificial intelligence, all those levels of new capabilities and technology that you heard from Vijay and Jeff and bring that alive in everything that we do, including our service platforms that Ganesh is rolling out. And of course, listening to the customer, customer success management, customer experience and customer design to understand what is relevant in delivering these systems and what creates really great experiences and usability is absolutely critical. So this is a big deal to us. This is part of our heartbeat of delivering amazing new value to our customer base. And of course, I mentioned ecosystem several times. Ecosystem and partnerships are really, really important to us. As I talked about earlier, it's about co-innovation and accelerating that, but it's also about co-selling. It's going to market together and also going to market from the standpoint of implementation and system integration with our key partners. Very exciting to us. We have that muscle within our firm. We are very excited about that journey with our partners. I list a few here on the slide that are examples of those partners. We have many more like Intel and ARM and Atos and others, but let's hear from a couple.

As the world's largest commercial real estate services company, CBRE is at the leading edge of helping companies plan for [ heavily utilized ] real estate today and in the future. We're helping our clients achieve their sustainability goals, improve efficiency and enhance workplace experiences. Our long-standing partnership with JCI is strengthened by their strong commitment to sustainability and investment in smart building solutions.

With the world's buildings accounting for some 40% of the world's carbon footprint, companies need to digitize their building operations so they embed sustainability by design to improve overall workforce health and productivity. That is why Accenture is privileged to work with Johnson Controls to deliver holistic solutions that apply technology, analytics and services so our clients no longer need to figure this out themselves, go to multiple point providers or pay for bespoke solutions.

So you just heard from 2 of our great partners. We are thrilled with that whole motion with them in delivering the best of value. We are so excited about our traction. So we are not only seeing a pipeline growth that's substantial. As you see here on the slide, 75% growth over -- year-over-year for a very substantial amount, $1.2 billion. But also, we're experiencing extraordinary win rates on those smart building projects over the last 12 months. So more than half of the deals we enter into from the standpoint of a bid and a design and understanding that customer journey and dialogue with that customer, we're winning. So it's a really, really exciting time. And of course, it would be wrong for me not to mention the margins we're experiencing. So we're experiencing what you would hope software-like margins on our software products. And we're really excited about what that means to us as we continue to build out and grow our whole portfolio of capabilities and infuse software, by the way, in almost all our solutions. And of course, also, that means amazing contract value. So the pull along within smart buildings is you start to also pull all the rest of the core portfolio that comes along with our full road map of solutions and capabilities. And of course, that contract value over the life cycle gets bigger and bigger. So higher margin growth, amazing 10x contract value, really great double-digit growth in terms of the market itself. We couldn't be more excited about being on this journey.

Our next discussion is around decarbonization and heat pumps. You'll hear from each of our field presidents, Visal Leng, Nate Manning and Tomas Brannemo.

Thank you. I am excited to be with you today. The issue of climate change has taken on more urgency in recent years. we see growing focus and commitment to decarbonization and net zero aspiration globally. To achieve this national and organizational net zero goals, buildings will play a key role. And there is significant market opportunity estimated at $240 billion over the next decade. As Katie mentioned, sustainability is our business at Johnson Control. And we have had a long history of driving sustainability and more specifically, energy efficiency. And as you have heard from the team so far today, we are very well placed to be a leader in this critical net zero movement as the OEM and solution provider with cutting-edge technology, extensive direct channel access, decades of experience guaranteeing outcomes and the ability to provide innovative deal structures. So let's expand on the major role of buildings in the efforts to decarbonize. With buildings accounting for nearly 40% of the total greenhouse gas emission, it is critical that building owners pledge to reduce the carbon footprint of their portfolios. Encouraging this trend, we have seen a confluence, a convergence of [ force in function ] that are shaping the decision-making process. Governments are adopting national targets and regulation across the world, in the U.S., in Europe. Here in Asia Pacific, China has set their goals to achieve peak emission by 2030 and carbon neutrality by 2060. Local and regional municipalities are implementing new building standards. 15 of the largest commercial banks have committed to aligning lending portfolios to net zero. It's not only from the government or from the business. There is also a push from a social perspective, where communities around the world are increasingly recognizing the need for change. Let's have a closer look at the $240 billion opportunity. Decarbonizing the industrial economy has clearly gained steam, has gained momentum since the Paris Agreement. And as Katie mentioned, it is only recently that buildings have been included as part of the solution. Although the exact trajectory of the demand growth is still a bit unclear, the increased focus and advancements in technology are propelling this trend forward. And we see the adoption of decarbonization ramping steadily over the next decade. As you can see on the left, nearly 80% of the opportunity will come from the complex and mid-market segment and our portfolio lines up very well. Specifically, mid market represents about 2/3 of the opportunity, which is why having a business model to serve this segment is critical for success, and this is an area of strength for us. Similarly, HVAC, building controls and digital platforms represent the key solution technologies to complete the building retrofit work that is required to decarbonize. Currently, we can supply approximately 60% of this retrofit scope with our existing portfolio. What have we done? Over the course of the last 2 decades, we have built a unique solution set to solve for decarbonization. And this include innovative technologies and capabilities. And we are one of the few OEM who can also act as a comprehensive integrated solution provider for outcomes like improving energy efficiency, equipment that supports electrification and leveraging data through digitalization. Are we going to do this alone? No. We also value strongly partnerships in our role as a net zero solution provider. For example, as a leading HVAC OEM, we are continuously developing new equipment that enables the use of low GWP refrigerants across our platforms. And in the case of energy savings guarantees, we work closely with renewables and electric grid partners to create the most efficient solutions possible. When it comes to delivering these solutions, our direct channel access is second to none with highly skilled engineers across the globe who develop, sell, install and service. This allow us to do 4 things. Number one, the market access with a tremendous installed base and a direct owner relationship in key verticals. Number two, our turnkey capabilities with deep expertise and sweet spot in retrofits. Number three, our experience, our track record, decades of experience, guaranteeing outcomes and critical sustainability KPIs. And last but not least, number four, the share of wallet with install and service capabilities spanning across 2,000 location in 150 countries. So the breadth and the depth of our solution in our portfolio, combined with the appropriate channel access to deliver the solutions really uniquely position Johnson Controls to capitalize on this market opportunity. So now let me hand it over to my good colleague, Nate, to continue with our strategy to capture this exciting market opportunity. Thank you.

Thanks, Visal. I'm excited to be here and expand on what you've already heard today. Our strategy has 4 key elements to win: one, leverage our product and technology portfolio to deliver differentiated solutions; two, utilize innovative deal structures, including more as-a-service models; three, expanding our go-to-market strategies with more outcome-based guarantees; and four, influencing government policy to gain support for decarbonization globally. So why are we so confident in our strategy? At Johnson Controls, we have a world-class team of experts across sustainability, marketing and commercial excellence, product development, digital technology and operations. We've engaged directly with all of our top customers and we have received thousands of customer survey responses to deeply understand the market needs. And we've assessed the competitive landscape to devise our winning strategy. So let's get into it. As Visal mentioned, 60% of decarbonization retrofit solution can be supplied by JCI given the breadth and depth of our portfolio. And the good news is we have redirected investments to expand our portfolio in 2 areas: heat pumps and digitalization. We have over a dozen new heat pump product launches that we're bringing to market in FY '22 and several more in FY '23. When completed, Johnson Controls will have the most complete line of heat pump technology of any manufacturer globally. We will do a deeper dive in heat pumps at the end of this section. As you heard from Vijay earlier, our cloud-based software platform, OpenBlue, is essential to collect, analyze and act on building performance data from countless systems, sensors and sources. OpenBlue minimizes building carbon load and integrates seamlessly with on-site generation assets. Most companies today achieve or seek to achieve carbon-neutral targets in 2 ways: first, by reducing demand and energy efficiency projects; and second, the ownership of renewable energy credits. RECs are the mechanism by which most entities claim zero carbon electricity. And there are 2 challenges with RECs. One is the increased demand has put upward pressure on the cost of RECs, and we expect prices will continue to trend higher over time. For example, the price of wind RECs have quadrupled in the last year. And secondly, RECs do not decarbonize buildings. More and more companies are now focused on real carbon removal. To remove carbon, our buildings customers will have to focus more on optimizing their existing assets, increase electrification, practice smart load management, add more renewables to their portfolio and/or engage in power purchase agreements, and this is where we come in. We've been a leader in the energy performance contracting for over 3 decades. And today, we have over $6.5 billion of guaranteed energy and operational savings with our customers. We understand not every customer nor a project can fit one model. Our range of offerings include basic service and retrofits through the traditional procurement models shown on the left side of this slide to more of a turnkey solution and an outcome-based model shown on the right. The right shows more risk transferred to Johnson Controls, and we design, install and operate the building. We continue to refresh the technology for the life of the agreement, many 20 to 30 years. These flexible deal structures and varying offerings together give our customers what they need and how they need it and giving us the ability to meet our customers where they need us to meet them. And now we have even more to offer. We continue to expand our capabilities with our recently announced joint venture with Apollo. This JV will provide financing for our Energy-as-a-Service offerings while JCI will lead the operational aspects. An important point to note is that the JV will bring financing model to the commercial and industrial market, which until now has been a limitation to the adoption of the energy performance contracting model in the private sector. Our 30 years of experience executing these type of projects, along with the financing model, sets us apart from others. In addition, Apollo plans to leverage this offering with their own investment portfolio of companies. We are targeting a $1 billion pipeline, and we already have visibility to half of that goal. There are 3 main differentiators that make this a very attractive offering for our customers: one, guaranteed outcomes and reduced risk; two, predictable fee-based services; and three, reduced capital requirements. The combined strength that Johnson Controls and Apollo will allow us to meet unmet customer needs and reinforce our leading position in this space. Now I want to dive a bit deeper into our performance infrastructure business in North America. The industry where this business plays today contains energy savings performance contracting, which is the most mature segment and 2 fast-growing segments in Infrastructure-as-a-Service and Buildings-as-a-Service. For example, we are the leader in the $4 billion energy savings performance contracting market in North America with 14% share and a leader in the new emerging as-a-service space. But the real highlight here is that decarbonization is expected to drive significant growth in these outcome-based industries over the next 3 years, increasing the overall market to $8.5 billion in the U.S. alone. We are leveraging the deep capability, experience and the market leadership of this existing business to catapult growth. I want to take a minute to talk about what differentiates our performance infrastructure business. The existing PI organization has more than 320 energy specialists in sales, engineering and operations in the $750 million business today. And we're expanding the team, doubling down to grow organically and inorganically in North America and aggressively building out the services globally. This mature business already has the people, processes and tools to support our customers at any step of the decarbonization process and successfully serve customers at all maturity levels. I like to share a real customer success story with you, one that really demonstrates what we can do for our customers. This is Colorado State University at Pueblo. They partnered with JCI where sustainability was a key driver for the $16 million project. The university wanted a more efficient campus, including renewables and clean energy. We are guaranteeing the outcomes and savings. We are the designer, developer and operator of the project. We also provide operations and maintenance and technology refreshes throughout the 25-year agreement. Annually, the project is expected to decrease utility consumption, where electrical demand is down 27%, natural gas down 6% and water down 6%. Colorado State University at Pueblo now has over 90% of the electricity provided by solar power on the campus and 100% of their academic buildings. As Katie shared earlier, in addition to creating customer advocates, we're working with business and government entities to enable true building decarbonization and to help shape key policies to support sustainability efforts globally. The infrastructure bill made its way through the Senate and if enacted in this current form will generate $73 billion in energy infrastructure work. $2 billion should boost the performance contracting and decarbonization markets and another $3 billion for grid projects. We also worked through our local teams with state and local government policy decision-makers on important processes like building performance standards and electrification mandates. One example is engaging with NYSERDA to inform electrification policy. These type of policies will drive building improvements to decarbonize and create opportunities to track, optimize and report carbon. To amplify our work directly with the governments, JCI is also leveraging key trade associations. For example, we were the only company invited to the steering committee of the International Codes Commission to develop codes that govern indoor air quality. So in summary, we're incredibly excited about the strategy we've laid out and the opportunity we see in our future. This 4-point strategy is a path to strengthen our offerings, deliver more customer value and capitalize on global growth. Thank you for your time today. I'd now like to pass it over to Tomas to discuss the heat pumps in more detail.

Thank you, Nate, and thank you, Visal. Good morning, and good afternoon, everyone. As Nate just outlined, legislation is driving radical change across the world in relation to carbon reductions. Now I would like to highlight an industry where and why we are ideally placed to capitalize on this shift in sustainability regulation heat pumps. In simple terms, the heat pump is a heat engine operating in reverse. And heat is ordinary flowing from hot places to cold places, but heat pump reverses this flow. It absorbs energy from a cold environment and releases it as heat at a higher temperature. For example, it converts cool outdoor air into warmer indoor air. Until now, heat pumps has been powered largely by fossil fuels with a high carbon output, which is putting the industry under an immense pressure to meet new sustainability regulations. Our heat pumps overcome this industrial challenge by being electrified, eliminating fossil fuels. In addition, they pull energy from renewable sources such as solar energy absorbed by water, natural heat from the ground or waste energy generated by industrial processes. In short, Johnson Controls heat pumps provide significant reduction in CO2 emissions, low overall energy costs and ultimately produce more than 3x the energy they consume. And driven by regulatory requirements, this is a paradigm shift for the industry that Johnson Control is uniquely placed to pioneer due to a long history in the field, our direct channel strength and our ability to move fast in relation to local regulations and requirements. On the right-hand side of the slide, you'll see one of our heat pumps case studies, where excess heat waste from a data center is powering 10,000 homes in the city of Groningen, Netherlands, reducing emissions by 55% in the process. The demand for heat pumps is driven by decarbonization regulations as well as by the favorable life cycle economics. Here's a snapshot of our key regions and the growth expected in each market as a result. Speaking for my own region in Europe, I recently moderated a discussion with industry peers and Mr. Klaus Welle, Secretary General of the European Union, about climate and decarbonization. And I can say from those discussions that the appetite for wholesale change in regulation and partnership with business leaders is very strong. We have seen this resulting in an impressive 40% year-over-year heat pumps booking year-to-date. And that appetite is also reflected globally, with China becoming net zero by 2060 and heat pumps growing 3x faster than boilers in the last 5 years in U.S., while Biden administration is expected to further accelerate that growth. Overall, we have a 5% share in the heat pump market globally and twice that share in the complex and commercial sectors. Here, you can see the breadth our heat pump portfolio from the complex segment that powers city district and large industrial processes to the commercial segment, powering smart buildings and places right down to the residential market. And 60% of the investment made from a product development point of view are going into the complex and commercial segments. And this is for a very good reason. As within these segments, we have higher service attachment rates for our direct field workforce. We also see higher spare part pull-through during the typical 15-year life cycle of this equipment. And more importantly, these segments are where the highest impact can be seen in terms of regulations, market growth and connectivity to smart cities and spaces going forward. Our OpenBlue energy offering that Mike talked about act as a differentiation and maintain a strong customer connection relationship as our heat pump become more and more data-driven through OpenBlue. And there's a clear opportunity for new solutions, growth and high-margin, long-term recurring service revenue. I would briefly like to highlight the case study that encapsulates our heat pumps opportunity. In Germany, local municipalities plays a key role in driving sustainability regulations. Financing is critical. And the German government supplies grants in case where a minimum of 30% of renewable energy is used. And for the Stadtwerke Rosenheim Energy Company, our heat pumps ensured feasibility for the government funding through renewable energy and in addition to reprocessing waste heat from the local wastewater treatment plant. The result was that Stadtwerke was able to heat residential homes at a reduction of 30% in emissions and by lowering carbon output by 6 tons annually. And this is just a snapshot of the change that is happening globally as a result of the regulatory changes and the push for decarbonization in the heating industry. Heat pumps is just one of our sustainability-driven decarbonization opportunities in the market. As Visal outlined earlier, we have a $240 billion decarbonization opportunity overall in the next decade. We have the infrastructure to develop, deliver and fully own the complete solutions required to address this global issue, affording us end-to-end control of how we pivot and maneuver. We have the direct channel advantage and decades of experience in delivering on guaranteed outcomes. We are ready to provide deal structures such as our financing opportunities with Apollo that allow anyone to adopt our sustainability offering while driving recurring service model uptake. We have seen very strong activities and bookings in this area during the last 6 to 12 months and are excited and eager to deliver for our customers and for the world on this critical issue. And we will end by looking at a short recording of one of our customers utilizing our heat pump technology as an enabler to meet his carbon goals and a positive energy building. Thank you for your attention. [Presentation]

Our final presentation before the Q&A is our financial outlook with Olivier Leonetti.

Thank you, Antonella, and good morning, everyone. As you can infer from our presentations today, we are excited by the opportunities facing Johnson Controls. Our customers are exposed to a series of inflection points, which are going to make this decade one of the most exciting decade for the smart building industry. We believe that Johnson Controls is uniquely positioned to solve those critical challenges. Our customers, large and small, need indoor environmental quality, decarbonization of their buildings and an improvement of their service outcome. We believe that the breadth of our product portfolio, our ability to generate insights from those multiple data points with OpenBlue and our ability to execute on those insights through our direct field presence represent a set of key competitive advantages, which are critical to be a smart building solution player. This strong competitive position serving those secular market trends has and will allow us to build on a position of strength. We have a compelling financial profile, a strong track records, a solid balance sheet. And we expect to deliver an attractive financial performance from a top line, profit and free cash flow generation standpoint. Looking back, and George went through this recent history at Johnson Control, we have been over the first 4 years post merger, we have been focused in creating a smart building solution leader through the rationalization of our portfolio, the strengthening of the fundamentals of the business, by reinvesting also in our business and by also refinement of our strategy. And we have now also a new operating model. And this work was completed in financial year '20. And we have since then been able to be fully dedicated to competing as a smart building solution player. And this privilege of focus translated during financial year '21 in an above-market growth, an increased level of profitability and a significant free cash flow generation. And we believe as a company, we believe as a management team that the best is in front of us. We believe now we are ready to outperform. If you look at our market and you can see that on this chart, we expect our end markets to grow at a CAGR of 4% to 5% over the next 3 years. And these -- those markets will largely be correlated to nominal GDP. As you can see also from the chart on the left, we believe that the market across all geographies will grow over 4%, with the Asia market expected to have a growth rate in the high single-digit rate. From a vertical market standpoint, we expect the various markets we serve to grow mid-single digits or higher, most particularly in the industrial and data center markets, which are anticipated to grow high single-digit CAGR to financial year '24. And we believe that this market growth will be supported by the strong secular trends we have been discussing through the morning. What are those? We have aging existing building equipments, which are not able to perform and deliver the adequate indoor environment quality or to meet the ambitious decarbonization goals of our customers. As an industry, as a company, we have now the technology from a product standpoint and also from a software standpoint. We have the technology to solve those complex problems while delivering an attractive return on investment for our customers. Now if you look at the opportunities we are facing as an organization, we are very excited. And we believe that the best decision is in front of us as an industry and as a company. We are serving exciting new markets, which are large, growing. And we believe that Johnson Control has a strong right to play and to win in those markets. We believe that our complex customers' problems cannot be solved in an optimal manner at the level of an HVAC equipment and that an optimum outcome can only be delivered through a smart building solution. Those accelerated vector of growth include serving the smart building and the decarb market, serving also our service market. We see also an acceleration in the digital revenue growth at the company. And also, we expect our global products will grow at a premium of the market, powered by the decarb solutions we'll be offering and digital also enablement. Those opportunities and new market will allow Johnson Control to accelerate the progression of new business models and disrupt the market. What are those? New consultancy revenue business models, new software revenue, new as-a-service recurring revenue and new financial models. And those new business models are expected to accelerate and deliver increased recurring revenue with above-average margin rate. Looking now at the top line, and you can see that on this chart, our exposure to those end markets and our competitive position is expected to deliver a strong revenue profile. We expect to be able to deliver revenue growth of 6% to 7% or close to 2 points above the growth of the market. This will be driven by market share gain in our global product business, thanks to the breadth and technical leadership we have in this division. We expect to grow our service business. As you would see -- as you saw from Ganesh, the service business is evolving from a local graphics to regional digital. And we believe that the power of OpenBlue will allow us to gain share in the service business. And we believe also we have the ability to materialize on the market vector of growth we have been discussing throughout the morning, including the decarb market, the smart building market and the indoor environment quality market. And you might have sensed from our presentations this morning that we have a high level of focus and a compelling game plan to materialize on those opportunities. We have detailed operational plans. We have a strong go-to-market strategy, and our teams are ready to compete. We also expect, in addition to this 6% to 7% revenue growth, to be able to drive 1 or 2 points of additional growth per year through M&A. Let me move now to our productivity program. We expect to drive strong margin expansion at the back of our productivity programs. As we have indicated before, we announced that our productivity programs would deliver $550 million of cumulative net savings by financial year '23. As a reminder, those productivity programs are based upon the standardization and simplification of our operations worldwide across all the elements of our value chain, from product development to manufacturing, to go-to-market and support functions. And those productivity programs today are well on track, and we are confident that the quality of our execution will allow us to deliver on those opportunities. We have across Johnson Control a strong transformation engine, which is well integrated across the enterprise. Those productivity programs are also embedded in our compensation plans to further increase focus and, ultimately, execution. If you look at now our margin by 2024, you see that because of our productivity program, because of the power of leverage, because of the power of execution, because also the improvement in our business mix, we expect to be able to increase our EBITDA margin rate by up to 300 basis points from financial year '21 to financial year '24 to reach a range of 16.8% to 17.3%. Moving now to outlook assumptions by regions and also what will happen from a profitability standpoint. From a regional performance standpoint, we believe that all our businesses will grow at a CAGR of over 4% at the midpoint. The higher growth is expected to be generated from our North America and Global Products division as we believe that those businesses will be the one, the most exposed to the decarb market trend and also to the indoor environment trends we have been discussing earlier. From a profitability standpoint, we expect the highest level of profitability increase to come as well from those 2 largest businesses, North America and Global Products for 2 reasons: first, business mix, as those 2 divisions will be the one being the most exposed to the recurring software revenue; and second, the higher impact of standardization, centralization and simplification will be on those 2 businesses. We expect up to 350 basis points of improvement for our North America business and up to 250 basis points of margin improvement for our Global Product business. For EMEALA, we expect an improvement up to 200 basis points and for our APAC region, an improvement of about 150 basis points. Moving now to cash flow. We have demonstrated over the last 2 years that we were 100% free cash flow conversion company. And we believe that we will be able to keep converting 100% of our net income into free cash flow, inclusive of the absorption of the cost of our restructuring programs and deliver more than $8 billion of free cash flow over the next 3 years. The improvement in the level of profit, our ability to keep leveraging our working capital management, our disciplined approach to CapEx deployment will allow us to achieve this goal. Our level of discipline across the organization regarding free cash flow management is high. We have dedicated teams focused on free cash flow generation to ensure execution and our incentive compensation give a strong weight to cash generation. Moving down to capital allocation, how we're going to deploy our cash. Our high level of confidence and discipline around free cash flow generation will allow us to commit to distribute 100% of our free cash flow in the form of dividend and buyback. We will increase dividend with earnings growth, and we deploy the balance of our free cash flow in the form of buyback. In addition, we will have ample balance sheet capacity to carry out strategic bolt-on acquisitions and target increasing our annual revenue growth by 1% to 2% on top of the declared 6% to 7% I mentioned earlier. We'll have 2 cash levers to increase that M&A to create that M&A capacity: one, the growth in our EBITDA in rate and dollars; and second, if needed, the ability to increase our leverage from the current leverage ratio of 1.8 to 2 to 2.5 EBITDA on a net basis, if needed. Now what kind of acquisitions are we contemplating? Acquisitions are going to be an integral part of our strategy. We want to deploy our cash to deliver bolt-on acquisitions, which will focus on 3 areas: first, improve our digital capabilities and having digital capabilities, which will be leveraged across our product portfolio, service portfolio and also across our safe and building solutions. Second, we want to improve our product capabilities where we have gap in exciting parts of the market. Silent-Aire will be an example of the kind of acquisitions we'll be contemplating. And third, we want to do M&A to improve and enhance our service capabilities. Now we will remain rigorous in the way we perform M&A. From a target standpoint, we'll be looking at companies with a high level of technical differentiation that can be leveraged worldwide across our portfolio. From a financial standpoint, we'll be looking at financial hurdles such as ROIC over our WACC on a cash basis over 3 years and EPS cash accretion being achieved by year 2. And we have across the company today a strong discipline, rigorous approach and a strong integration muscle, which will allow us to deploy our cash through M&A. And our pipeline today across the enterprise is developing nicely. From a capital structure standpoint, we have a strong balance sheet today with significant liquidities. We are committed as a team to a BBB+ credit rating and a targeted leverage of 2 to 2.5 EBITDA on a net basis. Preserving this strong capital structure and green financing instruments, where we have been a pioneer, is critical to us. To conclude, we believe that the smart building industry is facing an exciting decade. We also believe that the breadth of our product portfolio, our digital capabilities and our direct presence give us a unique competitive advantage to solve our customers' complex problem. We believe solving those will allow us to deliver an attractive financial return to you, our shareholders. This will include a revenue growth of 6% to 7% on a CAGR basis, up to 300 basis points of segment EBITDA margin improvement, 100% free cash flow generation, 100% use of this cash to be deployed in the form of dividends and buyback and finally, 18% to 21% EPS growth. On top of this, we are targeting to be able to add 1 to 2 points of additional growth from M&A. Thank you.

Thank you, Olivier, and thank you to all of our presenters. Now let's get into the Q&A. In order to maintain social distancing, I'm joined here in the studio by Mike, Ganesh, Olivier, George, Katie and Vijay. And joining us remotely, we have Jeff, Nate, Tomas and Visal. All right. Let's get started. We've gotten a number of questions that came in throughout the program. And we've aggregated a lot of those questions, and we're going to try to get through as many of them as we can. So we're going to kick things off with Olivier. How would -- how should we think about revenue, margin and EPS growth phasing from FY '22 to FY '24? And what are the drivers of the North America weighting to margin expansion versus some of the other regions?

So if you look at the revenue, we believe that the revenue over the 3 years is going to be more or less equally distributed. If you go down to profit because of the impact of our productivity program, which is going to be stronger in '22 and in '23, we would expect profit and EPS over those 2 years to be stronger versus year 3. To answer to your second question, if you look at our North America business, because of the impact of our productivity program in this business, centralizing, standardizing, eliminating duplicate work and because of the vector of growth, which will have a high impact in this business, we believe that the margin in North America will increase more than in the rest of the portfolio.

Thanks, Olivier. So staying with Olivier, 2024 guidance seems to imply 20% base operating leverage when you exclude all the savings from our cost of sales program and SG&A program over the 3 years. Could there be upside to this, particularly if there's services outgrowth?

It's possible. We took today a balanced approach to do our financial plan to you. It's possible that the vector of growth we are today trying to plan, which are going to be rich in recurring revenue, rich in margin, could deliver upside on the top line and also on the bottom line. That's possible, but we believe that a prudent approach is the one we have been communicating to you.

Thanks, Olivier. So turning it over to George. What does the 6% to 7% sales CAGR target embed for Fire & Security versus HVAC growth?

Yes. I think the way that you have to think about it is the vectors of growth is really going to lift all of our businesses equally. And I think when you think of Fire & Security, historically, it's been lower growth than HVAC. But with the connectivity and the importance of the sensoring and the detection and then ultimately, to analyze and then ultimately create outputs, it is a critical element of smart buildings. A good example is when we talk about healthy buildings, the ability to be able to use all of our security sensoring to understand occupancy. And that combines with our control systems and OpenBlue to make sure that not only we're elevating the health and safety of the building, the air quality, but at the same time that we're driving energy savings and driving sustainability. So as you think about all of the vectors of growth, it becomes a very important element of that. And I think it's going to be fundamental to our ability to be able to differentiate the solutions that we bring to all of the key verticals that we support.

Thanks, George. And just to build upon that, Tomas, do you want to share some of your discussions with customers in how Fire & security comes into those conversations?

Yes, for sure. Thank you, Antonella. As George already mentioned, the Fire & Security platform together, of course, with HVAC and controls are already critical enablers for smart buildings. And both of these subsystems keep occupants safe and healthy in the building environments as well as enabling experiences and added services based on our OpenBlue application. So these Fire & Security systems with the vast network of connected EDGE devices are the key to these outcomes. So just to give you an example of what we are installing is, for example, as part of our OpenBlue Healthy Buildings program, we leverage our frictionless access control technology to create a seamless experience for individuals that comes in and out off spaces. And this then, coupled with our OpenBlue companion occupancy measures, ensure that social distancing protocols are met and enables the right airflow to keep the space safe and healthy.

Thanks, Tomas, and we're going to go back to Olivier. Olivier, what are some of the assumptions around the 80 basis point sales CAGR contribution from our vectors of growth? And is there scope for this to be stronger?

Again, we took a balanced view regarding the planning of those vector of growth, and we see those vector of growth, it's kind of obvious, to accelerate over the 3 years period. It's possible, as you saw from today, we believe we have deployed at Johnson Controls a formidable way to serve those vector of growth. And it's possible that we got it maybe slightly wrong and maybe slightly prudent. But we think that today, with the information we know, that's the best way to plan for the enterprise.

Thanks, Olivier. We're going to go back to George. So does the mix of equipment versus controls or software change going forward? And does this have implications for the labor required or on the margin mix?

Yes. So as you think about controls and software with OpenBlue and the vectors of growth and being able to deliver on the outcomes that we're delivering, as Vijay showed, we're going to see double-digit growth within that segment. And that's where we have higher margin. It also enables recurring services, which are higher margin. And so certainly, with that mix, with the higher margins, that's going to contribute nicely to our margin rate and overall, the contributor -- contribution to the growth that we're going to achieve.

Great. So George, while we have you, it seems like we'll be able to deploy $7 billion to $8 billion in free cash flow after dividends in the next 3 years and stay within our target leverage range. What are your thoughts on sizable M&A?

Yes. So the way that we think about it is when you look at the vectors of growth and the opportunity that we have to be able to take advantage of that and differentiate what Johnson Controls does, we're very much focused on our organic execution. And then with that, as we look at M&A, how do we make sure that we look at not only organically what we're developing, but other key capabilities, whether it be digital, supporting our services, continuing to strengthen our product that truly enables us to be able to now capitalize on these trends. So I think about it as bolt-on acquisitions, enabling us to be able to accelerate the execution of these vectors of growth on a go-forward basis. And that should add, on an annual basis, about 1% to 2% top line growth above and beyond what we achieved organically.

Thanks, George. And Olivier, back over to you. You reiterated our Q4 and fiscal '21 guidance this morning. Several companies have cut their near-term growth on supply chain, chip constraints, labor and commodity inflation. Can you talk a little bit about how we are offsetting these?

So if you look, so we're confirming all the elements of our guide, as you said, Antonella, on revenue, margin RECs expansion, EPS and cash flow. And if you look at the quarter at the moment, we are very pleased with the order velocity. And as a result of this, our backlog is actually record high. So that's for orders. If you look at margin expansion, we are very pleased with the margin expansion we have had. And as a result, very pleased with the EPS we are able to pull through. Same also on cash flow generation. Today, because of the raw material shortages, as you said, Antonella, affecting all the industries, we have today our revenue being under pressure. While we're being in the guide, our revenue organic would be under pressure. Our teams are doing a great job. All the vector of growth we went through this morning actually playing out as expected or better. And we have to manage this short-term situation.

Thanks, Olivier. And now let's get -- hear from a few of our other presenters. So Vijay, how is OpenBlue differentiated versus a controls company or other HVAC OEMs and potentially even startups? How does having HVAC equipment and Fire & Security field make OpenBlue differentiated?

Thanks for the question, Antonella. OpenBlue is differentiated because of the holistic nature of the solution, as we shared in the presentation earlier. So OpenBlue builds upon control systems like Metasys, integrates other building management systems like security, HVAC as well as the chillers. So it really is much more of an integration. And it brings together that data in a single repository, applies the AI and ML and produces those scalable experiences that we talked about. It does that at the building level, the campus level, the global level. And it does it with both Johnson Controls and non-Johnson Controls product. The other elements that makes OpenBlue differentiating is its ability to actually connect with business systems such as service dispatch systems, such as wireless systems that are on site, scheduling systems to automatically book conference rooms. So we've built those integrations into OpenBlue that cannot only connect them and gather that data about those business systems, but also to leverage scheduling systems and dispatch systems that automate the workflow on how work gets done within the campus ecosystem. And then finally, we have deep integrations into vertical systems as well in areas like hospitals as well as airports, where we are actually integrated into those systems to automatically be able to do things like smart patient rooms. So in a recent example, we were actually able to deploy a smart patient room at a hospital in a matter of weeks with our OpenBlue Bridge technology that actually acted like an orchestrator, bringing together all of these different capabilities, vertical systems, business systems and traditional building management solutions. So it's that holistic nature of OpenBlue that differentiates the solution from anything else that's out in the marketplace.

Thanks, Vijay. And staying on OpenBlue, how do you scale OpenBlue for different buildings? We've heard that some controls projects are just too big to start. Is there a minimum investment level to start?

That's a great question, Antonella. And with OpenBlue and OpenBlue Bridge specifically, we provide a very scalable connectivity experience at the EDGE. As you remember, we talked about OpenBlue Bridge, which is essentially our iOS for smart buildings. And you can deploy OpenBlue Bridge at a single site. You can deploy it campus-wide. You can deploy it from light commercial. You can deploy it in complex enterprise. And what makes OpenBlue Bridge so powerful is it is actually embedded in a number of different device types and gateways that have a different level of affordable investment points. And the ease of setup is a matter of a couple of hours where you go in, install the OpenBlue Bridge gateway. You discover the points that exist within your building location. You can actually visually map them using an easy-to-understand intuitive workflow that doesn't require a lot of sophistication. You can map what data objects get collected through OpenBlue Bridge in that same workflow. And that data within a couple of hours is flowing up to the cloud and can be delivered through OpenBlue Enterprise Manager and other experiences to provide energy insights almost immediately. So it's that scalable connectivity from light commercial, all the way to complex enterprise, the ability to set up quickly and the ability to capture data holistically in the cloud and deliver through scalable experiences that makes OpenBlue Bridge so special.

Thanks for all the color, Vijay. So let's move things over to Ganesh. Can you update us on your indoor air quality conversations? And how lasting of a trend do you expect this to be?

Thank you, Antonella. We see the indoor air quality or indoor environmental quality market to evolve to a $10 billion to $15 billion market by the end of the decade. And that shift is going to continue even after the pandemic effects are over. And it's really driven by 3 forces. The first force is studies continue to show the impact of cleaner air and cleaner environment on occupant health and occupant productivity. It's reflected by reduced sick days, improvement in student test scores and so on. So you'll see that buildings which have cleaner air and environmental infrastructure will be able to command higher rental premiums, lower insurance costs and all that. So that's the first dynamic. The second dynamic that's going on is the increased ability for in situ detection of pathogens in the air environment. And those technologies, as they are coming -- as they're evolving, will also augment the application of these solutions within the infrastructure. So the second dynamic. The third dynamic is really the ability of digital technologies to balance the apparently competing demands of cleaner air and cleaner environmental -- clean environment, along with reduced energy usage, to meet sustainability goals. So when you combine all of these 3 forces into account, you'll see that there's going to be a steady shift in terms of this market. And we see that continue to evolve over the coming decade.

Thanks, Ganesh. Now we're going to pass things over to Jeff and talk a little bit about the North America residential market. So Jeff, can you talk a little bit about what is your view on the North America resi HVAC cycle? And do you think the average life of units has changed?

Yes, thanks, Antonella. I think if I look at the rolling 12 of the North America resi market, we're up 17% year-over-year. And really, that's driven by consumer demand to upgrade their systems or both for energy efficiency and air quality using our MERV filters and other UV solutions. But -- and in that cycle of 17% year-over-year growth, we are gaining share as well, right, with our business. And what I would -- looking ahead to next year and really the next couple of years, we see that the market growth normalizing to mid-single digits. And so what we're also seeing is that there's really no change in the replacement cycle. It's really between 10 and 12 years, really depending on the region in North America at this point.

Thanks, Jeff. So back to Olivier. Can you please clarify if the 1 to 2 percentage points from M&A contribution is in the 3-year revenue target or the EPS targets we provided?

It is not. It would be additional, Antonella.

Thanks, Olivier. So since that one was quick, we're going to go right to another one. So if you include all of your controls and digital revenue as well as performance contracting and add that to the $6.5 billion in services, around what total would that be of our overall revenue?

If you add all those pieces and you have some overlap between all of those, you will be close to $9 billion, give or take, with obviously richer margin and the gross profile, which is different than the company average, meaning higher.

Thanks, Olivier. So next, we're going to go to both George. And Mike, you may want to chime in on this one as well. So how should we think about stand-alone software revenues and how this is expected to grow over the medium term? And what percentage of software is software-as-a-service or subscription-type revenues?

Yes. So as we showed you today that, that market today is about $25 billion. And over the next 10 years, we see roughly 10%, 12% growth on that. And what's important is not just the stand-alone software, but how that comes together with all of our other digital platforms within the building and then contributes to the outcomes that we're looking to achieve, whether it be decarbonization, healthy buildings and then ultimately, smart buildings. And so you can't look at the software alone. But even that being said, it will be growing double digit, including our other digital platforms that will enable our ability to be able to capitalize on a significant opportunity in smart buildings. Mike?

Sure. Thanks, George. As George just said, we're absolutely seeing significant growth. And when you think about digital and the digital revenue amount itself, we're tracking at around $4.2 billion this year. We're seeing that growth and projecting in '24 to be at around $5.6 billion. And of course, software is a key element of that. As George mentioned, we're experiencing software growth in the double digits.

Thanks, Mike. Thanks, George. So Ganesh, as attach rates increase, who is losing share? Would you say that it's some of the smaller companies? Is it some of our larger competitors? Or is it more to in-house maintenance? And what measures are we taking as well to lower attrition rates?

Absolutely, Antonella. Thank you for the question. It's really all 3 segments: service providers, competitors as well as customers who have in-house capabilities. And if you think about -- the main trend which is driving that is the shift from a fix, repair, maintain type of a service model towards an outcome-oriented service model. And that is actually being -- the impact of these outcomes, our service solutions is really what is driving the improvement in attach rates. Now with respect to the question that you asked about attrition, we have developed fairly robust models, analytical models based upon artificial intelligence and machine learning, which have the ability to predict potential attrition within our customer base to a fairly high level of precision. And these attrition model analytics are primarily applicable in areas where we have large volumes of customers with relatively small dollar base, for example. So to use these models against that customer base actually allows us a significantly amplified capability to dovetail who is likely to attrit and also take targeted surgical actions against those customers to mitigate the likely effect of attrition.

Thanks, Ganesh. Olivier, in the plan, assuming that we add 1 to 2 points from acquisitions, what would you say our ending fiscal '24 leverage would be expected to be?

So if you look at our leverage level today, which is around 1.8, if you look at the profit growth, we will be comfortably within our leverage guide by deploying cash to do 1% or 2% of additional growth, comfortably within the range.

Thank you, Olivier. So George, could you comment on service margins, particularly in Fire & Security? It seems that these are high single digits, and some of our peers recently sold businesses. Is that representative of our portfolio?

Not at all. When you look at our Fire & Security business, today, it's about $4 billion in revenue. And when you look at our service that we get from that installed base, it's significant, and it is very high margin. So we're -- we have a very different portfolio than the competitor that I think you're referring to. And then more important, as we think about the solutions that we talked about today, it plays a critical role with the sensoring and the detection and then the ability to be able to analyze the data and contribute to the outcomes that we're ultimately putting together that's going to be the acceleration of our growth going forward. And so I wouldn't think of it as compared to our competitor. I would think of it as a key part of the portfolio that ultimately is going to enable our ability to be able to deliver on these significant opportunities.

So staying with George, what is your strategy policy on pricing your products and services for the additional benefits we bring to customers? And do you price to provide a certain return?

Absolutely, Antonella. I mean, we've implemented strategic pricing across all of our businesses. And as we've gone through our transformation within the company and now being able to deploy the capabilities that we have in new business models, it's all about the value creation that we deliver for our customers. And so around whether you talk about decarbonization or healthy buildings or smart buildings or digital services, it's all about what is the value now we can create. And then how do we create a return for our customers, but at the same time, get the appropriate return for the investments that we're making, especially into the software capabilities as we're deploying OpenBlue. And so we're very disciplined. We've been in an inflationary environment. We've been very disciplined about what that impact is not only this year, but as we go forward. And we've executed on that extremely well.

Thanks, George. And we're going to turn it back to Ganesh. So what do you project will be the percent of recurring revenue in fiscal '24?

Antonella, the -- currently, our -- the base of our recurring revenue is about 55% of our total portfolio -- service portfolio. We expect that to continue as we head into '24 because we see a very nice lift in terms of recurring revenues, but at the same time, the pull-through from our nonrecurring labor and material part of the portfolio is also going to pick up significantly. So from a mix perspective, it's still going to be around 55% of the total portfolio.

Thanks, Ganesh. So the next question, I think, could be a tag team here between Mike and Vijay. Can you talk a little bit about our go-to-market strategy related to OpenBlue? And how does that differentiate for between a new customer and one of our existing customers?

So maybe I'll start real quickly. Think, firstly, our core. So it's about services. How do we digitize our service platforms and capabilities so we can enrich that whole service experience? Of course, that drives reoccurring revenue and attach to those customers and really creating a digital layer that's insightful and provides new levels of understanding what's going on with all the equipment systems, core platforms, OT and IT, as we talked about in our presentation and bringing that all together into a really unique opportunity for us. Of course, that does translate also into solutions that we talked to earlier this morning, and that is around outcomes. So around sustainability, around healthy buildings, around extraordinary customer experiences within those buildings. Vijay?

Yes. I think to add to what Mike just said, the partnership between the OpenBlue engineering organization and our field organization is extremely strong. So we're constantly working with the field to understand what those customer pain points are and building solutions that are applicable to a set of verticals and a set of outcomes that are coming in from the field based upon all of their experiences. In addition, we have digital solutions teams, tiger teams that work very closely with the engineering organization as well as the different customers to understand how OpenBlue will really fit into their set of solutions to drive the desired outcome. So I think between the capabilities, the partnership between engineering and the field organization and our outcome-based focus working with the field, we have a really strong proposition on how we go to market.

Great. Thanks, Mike. Thanks, Vijay. So the next question is around heat pumps. And we're going to ask, Tomas, if maybe you can start, and then we could go to Visal. So many of our peers are talking about heat pumps. Can you give us a little bit more color on the differentiation between in the JCI portfolio?

Yes, Antonella. I think it's fair to say that in the complex market, our heat pump are very efficient. They have a really high -- good with the GDP factor, and they also operate at the higher -- at very high temperatures. So this means that we will be able to offer really good economics and really good lifetime cost for our customers. And we also have a long, I would say, experience in how we define the project, how we size the project and how we're executing for this. And those have clearly been some really good success factors in the execution during the last, I would say, 12 to 24 months.

Visal, anything you'd like to add?

Yes. So where we have seen success for heat pumps in Asia Pacific is really in China in district cooling and district heating. I think the key differentiator here in China is, of course, the legislation, which is pushing towards decarbonization. We talked about that. But also for JCI, for Johnson Control, we have a leading position in the HVAC market, about 20-plus percent market share. We have a brand name which is very well recognized. We have done a lot of work with the government to position ourselves. And we also talk about our direct relationship with customers and our channel to market, which is really second to none. So this really put us in a great position in terms of reference and going forward in terms of market opportunity.

Excellent. Thanks, Visal. So next, we have a question on our -- on supply chains in general. So Olivier, I'm going to ask this one for you. So supply chains have continued to tighten. So have we had to accelerate our productivity programs to offset in this particular environment in order to meet our short-term financial targets?

We haven't accelerated the program for that reason. Today, the programs, and we have said -- I've said that when I presented earlier, are really well on track. The commitment, which our net commitment, I repeat the number, $550 million net by 2023, we're well on track. We have transformation teams across the enterprise. Our incentive program also embed this productivity program to ensure focus. So we are well on track. We are pleased with the advance of those productivity programs. But we're not accelerating them in any way because of supply chain.

Thanks, Olivier. So the next question is for Katie. Can you talk a little bit about the infrastructure bill and how that could potentially impact Johnson Controls?

Yes. Thanks. So if I could paint a little bit of a bigger picture first. I think a theme that you have heard throughout the day is we're a different company, and the world is different, too. And that's the backdrop for these bills. In terms of a different company, we're delivering those solutions, pure play, sustainable building technologies. And we're becoming known now increasingly for that. Now coincidentally or not, the world is changing in sync with that, right? So the talk, the focus is about climate change, and it's about healthy buildings. Put those 2 things together. And what we're seeing, as I kind of alluded to, I've been at this 30 years. Buildings were always in the backseat in terms of environmental policy, not anymore. That's the story, whether it's building performance standards, the infrastructure bill, the energy bill, what Visal just described in Beijing, buildings are front and center because leaders are understanding that piece of 40% of emissions coming from buildings. And so what we see then, Antonella, is some very key provisions, talking about investing in smart buildings, further understanding let's leverage those dollars through performance contracting. So I think the message is heard, and we're seeing the fingerprints of it in legislation around the world.

Thanks, Katie. So our next question is going to go to Ganesh. And then maybe, Nate, you can add a little bit of color, given the size of our service business in North America. So Ganesh, if you start us off, can you expand on how you see the company's service organization becoming leaner and that transition to outcome-based and digital services?

Absolutely. That's a great question, Antonella. I think the -- you asked and I took all of you through the digital service transformation framework earlier, it's about -- first of all, it's about creating value-added service offerings that are highly monetizable in the market in terms of increasing the value of content. Simultaneously, what we are also doing is ramping up our capabilities to market, sell, deliver and support these services by improving the digital competencies and the digital capabilities of our technician field at the field level and in terms of improving our systems and our workflows and our processes to enable subscription-based access, which are in line with the digital solutions that we are offering. So these are some of the important capabilities that we are building to enable the penetration of digital services in the field. And I'll let Nate share his perspectives on that.

And I would say, in addition to that, Ganesh, in our performance infrastructure business, we use the -- our digital service offerings to also underwrite our contracts when we sign contracts that are 20, 30 years long when we have guaranteed outcomes with our customers. So I would add that into addition to what Ganesh has said.

Thanks, Nate. So one more question, George, before we wrap things up. So what would you say is the single differentiator for JCI to drive share gains when it comes to decarb, digital and smart buildings?

Our -- the clear differentiator is OpenBlue. When you combine OpenBlue with the installed base that we serve and the direct channel that we ultimately serve our customers, it becomes a huge differentiator and totally disrupts the industry with our ability to be able to deliver autonomous buildings longer term. And we're deploying that pretty much across all of what we're doing, not only in our installation business, but our service business and it's going to be fundamentally leading, I believe, leading the industry with the differentiated capabilities.

That's all the time we have today for questions. So George, any final comments?

Yes. First, I'd like to thank everyone for joining us today. I think you've seen today that JCI is a different company. A few key thoughts as we wrap up. We are -- Johnson Controls, we're positioned in a very attractive market, and we're very excited about the growth vectors that we see going forward. I think we've made the case that OpenBlue is going to be the differentiator. It's going to fundamentally change how we go to market with new business models, creating outcomes and now being able to capitalize on that exciting growth. I think you've also seen we've got a very strong leadership team that is absolutely committed to being able to deliver top-tier financial performance with very, very attractive shareholder returns. And so as you think about the choices that you make with your investment capital, I'd also like to leave you with the fundamentals that we're positioned to be able to achieve over the next 3 years. Johnson Controls is positioned to be able to outperform the market with above-market organic growth. And then when you look at our margins, we're going to continue to be able to drive strong productivity cost-out and be able to leverage the volume to be able to deliver very, very strong margins over the next 3 years. All of that will deliver very strong free cash flow that gives us tremendous capacity to be able to reinvest and ultimately add to our growth through M&A. And then all of that together positions us to be able to deliver very strong double-digit adjusted EPS growth over the next 3 years. So again, I want to thank you all for joining us, and we look forward to following up and having multiple follow-up discussions with each of you after today. Thanks again.

Thanks, George, and thank you to all of our presenters. We appreciate you taking the time today to all of our shareholders and analysts for joining us on your busy schedule to learn about our exciting future. And as always, Ryan and I will be available to answer any follow-up questions. A replay of the event will be made available on the Investor Relations section of our website. Thank you again.