Johnson Controls at Bank of America Conference: Strategic Resegmentation Insights

On Wednesday, 14 May 2025, Johnson Controls (NYSE:JCI) presented at the Bank of America Industrials, Transportation, & Airlines Key Leaders Conference 2025. The company outlined its strategic initiatives under CFO Mark Vindiperbeg, focusing on resegmentation, cash conversion, and a comprehensive portfolio review. While the outlook for data centers remains positive, challenges persist in inventory management and other slower-growing segments.

Key Takeaways

• Johnson Controls aims for 100% cash conversion, improving accounts receivable and procurement processes.
• A comprehensive portfolio review may lead to divestitures or operational changes.
• The company targets acquisitions in data center technologies and plans a significant share repurchase in Q4.
• Data centers, particularly the Silent-Air business, are a major growth focus.
• Reshoring opportunities in the US and capacity expansions in Mexico are underway.

Financial Results

• Cash Conversion:

- Approaching 100% this year, driven by enhanced accounts receivable management.

- Inventory management improvements are needed to achieve consistent results.

• M&A and Capital Allocation:

- Closing a divestiture transaction in Q4, with $5 billion planned for share repurchases.

- Acquisitions will focus on technologies complementing the thermal HVAC business.

• Order Book:

- Backlog has increased by 12% year over year.

Operational Updates

• Reorganization:

- Effective April 1, Johnson Controls unified its building solutions and global products models to enhance customer focus and operational efficiency.

• Data Centers:

- Representing just under 10% of revenue, the data center business, particularly Silent-Air, is experiencing high double-digit growth.

• Capacity Additions:

- Expanded capacity at the Mexico facility for air-cooled chillers, focusing on lean management.

• Fire and Security:

- Profitability in Europe improved, while North America saw low single-digit growth.

Future Outlook

• Portfolio Review:

- CEO Joachim is conducting a thorough review, with potential divestitures and operational improvements on the horizon.

• M&A Strategy:

- Focused on acquiring data center technologies, heat pumps in Europe, and controls.

• Data Centers:

- Anticipates continued demand growth, despite technological shifts.

• Reshoring Opportunities:

- Increased activity in semi and biopharma sectors, with warehouse demand indicating manufacturing reshoring.

Q&A Highlights

• Cash EPS:

- Shareholders are pushing for a shift to cash EPS, contingent on consistent cash conversion.

• Data Center Strategy:

- Emphasis on integrated solutions in data halls, with caution in the commoditized CDU market.

• Vertical Markets:

- Government and retail sectors are softening, while higher education and Class A commercial real estate remain strong.

• Emilia Turnaround:

- Focus on customer needs-based segmentation to boost profitability.

For a detailed understanding, readers are encouraged to refer to the full transcript.

Full transcript - Bank of America Industrials, Transportation, & Airlines Key Leaders Conference 2025:

Andrew, Host: Thanks so much. Our next session is with Johnson Controls, and we’re going to be hosting a fireside chat with Mark Vindiperbeg, Executive Vice President and CFO of the company. Thanks so much for being here. We’re very, very excited and let’s start. Let’s kick it off.

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Yeah, thanks for having us, Andrew. Of course.

Andrew, Host: So maybe the first question and can you talk about resegmenting? What drove the decision and how does it reflect changes in operating philosophy and org charts?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Yes. So the resegmentation is really coming from a change in our operating model. JCI used to be organized with two independent operating model. We had our building solutions operating model that was really a field based business where we do those systems and services. And then we had our global products operating model, which was really the team that makes the products and finds channel partner distributors to actually sell those products.

And we had those two operating model kind of working at the same time and often competing on the same turf. And what we saw is a lot of inefficiency when we were operating that way. And the goal was to bring those two operating model together and being really market focused. How do we win more customer on a particular turf? And some of our customers want an OEM that stand behind the system and service the assets over its life and hopefully is there for the replacement down the line.

Some of our customers don’t see that value and just want to buy the equipment and install or maintain or manage it themselves or they have a different kind of CPQ associated with how they buy. And so instead of having two teams trying to figure out the market and figure out how they play best, we decided they need to be combined together, look at the market opportunity and just win more customer in the market. That change in organization model is really a first step in simplifying how we run the company, being much more oriented against what the customer needs and the customer success looks like and also starting to work on more verticalized approach to how we approach those markets. So what does a healthcare customer look for regardless of the channel we take? What does a higher ed customer look for regardless of how we address that customer from a channel standpoint and really get after a higher entitlement of growth, but also profitability.

Andrew, Host: Excellent. Thanks so much. So another question is cash conversion will be approaching 100% this year. What are the key drivers? And I know that you are not committing to 100, but what would need to happen operationally to achieve 100% on a sustained basis going forward?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: So first, how we got where we are. As soon as I took over focusing on cash conversion, quality of earnings overall was critical. We had won our factoring program. We simplified our supply chain and procurement process. That drove really two clear benefits, a much better management of our cash inflow account receivable, way we build customer, the way we collect on that bill, the way we manage that process across our businesses and then how we manage our procurement, getting better entitlement on how we manage our supply base, how we manage terms with that supply base and how we buy overall.

That has driven over the last eighteen months a massive improvement in the cash flow conversion. That has allowed us to get past some of the structural headwind we have from a cash tax standpoint. We’ve talked about it in the past and a slightly elevated level of CapEx as we were making certain investments in the business. I would say for us to continuously improve on that cash conversion and being like me being comfortable telling you it’s 100% all the way, we still got to work a lot on our inventory. And that has to do with the work that’s being done on lean management and really simplifying and taking a lot of waste in how our manufacturing process works and how on time delivery improves over time.

And there’s a lot that can be unlocked from an inventory management from a cash standpoint in the future. And this is not a one or two quarter adventure because it means transformation of supply chain, transformation of process within the factory, elimination of waste and scrappage and a lot of process need to come in to actually drive that. There’s, by the way, margin improvement also associated with that. But the inventory benefit that comes with that will be a big tailwind over the next couple of years. And hopefully when we get on the other side of that, we’ll provide better visibility on the 100% cash.

Andrew, Host: And does the reorg in terms of that you no longer have this manufacturing organization and distribution organization sort of doing this intercompany transfer, does that help structurally sort of to simplify the system with inventory down the line?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: It’s a good first step to bring the sales and operations team more aligned to what’s needed in the system and providing buying signal or selling signal earlier in the cycle because those team are now under one roof.

Andrew, Host: So we’ve seen some of the benefit but more to come.

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: And more to come. Think that we transformed the organization on April 1. Give us a couple of more questions.

Andrew, Host: Okay. More to come. Sorry. Okay. Fine.

That’s better. Okay. Another question is most multi industrial companies now exclude M and A amortization from earnings. How do you think about this particularly as your cash flow approaches 100%?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Yes. Ultimately, the goal is to move to cash EPS. I’d say when we’ve done a lot of interviews with our key shareholders, they wanted us to move ultimately to a cash EPS kind of view of our financials as soon as we had clear visibility on that 100% conversion. Got you. And so it’s a little bit connected with my earlier comment.

As soon as we’ve cleared that threshold and I can confidently tell you that, I think it’s going be easier for us to give you a cash EPS number. But it is clear the need and request for a pure transparent cash EPS is the solution longer term.

Andrew, Host: Excellent. So the next one is a direct quote from your CEO. And the quote is, I’m taking an objective fresh look at our strategy and how to best further optimize our portfolio. I will share more at a later point in time about what I think is good for Johnson Controls as I deepen my understanding of our business and markets and customer needs. So I guess the question is clearly, we’re still very early and the statement says that we’re But looking from the outside, how comprehensive will the review process be?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Oh, there’s going to be no stones unturned. I think Joachim is taking a clear unencumbered look at every part of the portfolio, understanding customer and how we serve customer, understanding our operating principles, how we are actually delivering the services and product to those customers. And that leads to both a strategic view of what those business need to take, but also a view on what the entitlement of profit and growth rate is. And as we go through that review of the portfolio, he’s going to have an unemotional view on what we do with those And there’s going to be multiple possible outcome. It’s again, the man has been eight weeks in the seat, so give him a little bit of room to actually do the hard work of understanding deeply those businesses.

But it could lead to us deciding some of those assets are not part of the portfolio. It could lead to us deciding some of those assets could be run a whole lot better and we could drive those businesses to better cash performance and help us support that long term 100% free cash flow conversion. Not every part of the organization is going to grow double digit. And so for those parts of the portfolio that are growing a little slower than the rest of the portfolio, what do you do about it and what are the operating changes you need to make, whether you decide to keep that asset or not.

Andrew, Host: Excellent. No, that’s terrific. And meanwhile, I think you sort of brought up some sort of thoughts about M and A, but as we are undergoing this review, what is happening with M and A? How should we think about M and A at JCI going forward? As I said, cash is clearly improving, cleaned up a lot of the portfolio, but any regions or product technology verticals that really stand out?

And as I model M and A or capital allocation, what’s a good placeholder for M and A spend?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: So first, I’ll address the short term part of that question. We are going to close the transaction on our divestiture in the fourth quarter. We have a healthy pipeline of M and A targets that we are looking at, and I’ll describe in a little bit more detail where we are spending our time there, but nothing in the short term that will require action. And so we are going to redeploy the vast majority of the net proceeds, about $5,000,000,000 against a quick share repurchase strategy in the fourth quarter. After that, between the health of our balance sheet and the continued performance on free cash flow, we have a lot of ability to acquire larger companies.

But the goal here is not to do something massively transformative. It’s very much trying to acquire new technologies that are complementary to our kind of thermal HVAC business, whether it’s for particular verticals that we see growing faster than other or whether it’s for particular region where we see the opportunity growing. And so yes, of course, there’s assets we are looking at that would bring great capability from a data center vertical. We’re also looking at assets that would give us capability to continue leveraging on the growth we are seeing, for example, in Europe, in HVAC, where we are seeing the heat pump market, commercial heat pump market continue to grow very rapidly and where we want to keep up pace with demand. And then our controls business is really a world class one and we continue to try and create differentiated solution and continue to invest into new technologies that allows us to continuously differentiate our product and provide solution to particular vertical markets that are beneficial to us.

Andrew, Host: It was great. Speaking about data centers, can we talk about silent air? Clearly seems like a competitive advantage as it gets you into the data hall. I don’t think people appreciate that you are bigger, just generally bigger in data centers than two of your large public competitors combined.

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Yeah, yeah. Oh, yeah, combined for sure. It’s so Cylenter is improving. As you know, we acquired that business five years ago and it took us a little bit to really understand the backlog of what that business had actually signed up to prior to the acquisition and be able to pivot and help the customers ultimately drive the value of the product they’re looking for. That business continues to do extremely well growing in the high double digit.

As you know, data center is

Andrew, Host: High double digits?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: High double digit, That business data center overall, not just Silentair, but that it’s about 10%, just under 10% of our revenue. Silentair is about a third of that. And they continue to see increased demand regardless of the momentous that’s happening at the chip level because the solution they have in the data hole works for liquid to air or liquid to liquid solutions and provide kind of thermal efficiency that I think are very hard to get from other competitor. They really have a very differentiated solution on a product that historically was very commoditized and very standard. They’ve really created differentiated solution that our customer enjoy.

Andrew, Host: Okay. So you just help us, who is the typical data center customer for JCI? Are you over indexed to hyperscalers, colos, enterprise? Any comment on geographies?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: So when you have that large of a presence in a market and you have five or six companies that are that large in that particular market, you are naturally a little bit more indexed towards those particular player than you would otherwise like. So yes, we have very strong, very good relationship with all hyperscalers. They define where the market is heading. So they’re really creatively around the templates that some of the collocator and some of the smaller software company will ultimately design against. So yes, it’s tilt more towards hyperscaler, but it provides benefit for us to play across the board.

And so while we have a lot of relationship with the hyperscaler, we deal with pretty much all of the larger global collocator. From a geographic standpoint, we have seen more success in North America than we have in other regions. I would say APAC comes second and then we need to look at Europe and our opportunity there. It is not so much a capability standpoint, it’s an ability to regionalize some of the solution. And then the pace of growth in Europe for data center is not as good as what you see in other because of the complexity around the regulatory environment.

That is creating some heartburns for actually most of the hyperscaler as when they decide to locate themselves. And then the availability of power is a problem globally, but it’s particularly difficult to see a pass to that power in Europe in the midterm. So there’s a lot of geopolitical moving piece that are happening there. Some of that demand may shift a little bit east or south depending on what Europe decide to do from an energy and a regulatory standpoint on data center.

Andrew, Host: And on APAC, is that outside of China or would APAC include China?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: It’s mostly outside of China, but we have deep relationship with some of the larger collocated in China. It’s a very competitive market, onshore We’re playing our part and we’re seeing some good growth there, But it’s a much tougher market with really very creative, I would say, local competitor that have provided very differentiated solutions for that market. Got you.

Andrew, Host: No, thanks so much. What are the missing pieces in your data center portfolio? For example, some of your competitors have entered the CDU market fairly recently. Any thoughts there?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Yes. It’s a market we look at in deep details. I would say it all comes down to how far down the chip you want to go and whether the economics of that thermal value chain will work out over time. Right now, there’s a lot of CDU solutions. Right now, we are seeing not a lot of differentiation from a value or capabilities.

It is just availability and that availability game will die down very quickly. We will only enter, I would say, the data room if we can find a way to create differentiated, integrated solution with what’s happening outside of the data room and drive value for customer. Chasing a highly commoditized, very temporary part of the segment of the market like CDU may not be our first bet.

Andrew, Host: No, we’ve heard it’s very interesting and I’m really curious to see how the industry will develop that, for example, folks who really have deep technological expertise in chillers, you know, well positioned as we go to two phase cooling for sort of more complex architecture that that creates an opening for more sophisticated players. Is that the right way of thinking

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: about it? That’s absolutely the right way of thinking about it. And ultimately it may eliminate the need for a CDU midterm. And so that creates a completely different paradigm on how you manage the whole thermal loop within the data And we are designing some solution right now that would address some of those needs. But there are some capabilities we will ultimately potentially look outside of the company to acquire to be able to double down on the technology differentiation there.

Andrew, Host: And how much visibility do you have in data center order book beyond 25?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: We have great visibility. That order book continues to grow. I mean, our backlog overall has grown 12% year on year. So we have across data center and all of other verticals, have a very strong visibility on what’s coming. The health of our pipeline in data center continues to improve.

So it’s not like you’ve seen a dampening. There’s been a little bit of a shift of where the demand comes in. You know what I mean? Like a little bit less from hyperscaler that we still see a high demand and you see a more fragmented demand coming from different colo and mid market software players. But ultimately, we are able to address all of those needs, particularly because the standards have come a lot from the hyperscaler and the market knows we have a differentiated solution there that can help those software players being extremely competitive from a cost cool their infrastructure standpoint.

And

Andrew, Host: just so I have my notes correct and Devin is in the audience, but this high double digit, is that silent air order numbers? Is it total data center?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: It’s total data center.

Andrew, Host: So it’s orders or revenue? Sorry. Both. Okay. Okay.

That looks good. Maybe just we’ll finish with data centers. Do you see the timetable for rollout of GB 300 introduction of Rubin because the timeline is changing?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Shifting a little bit, yes.

Andrew, Host: Are you seeing this impact what your customers are doing?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Changes a little bit the type of technology and the timing and the type of technology they intended on implementing originally.

Andrew, Host: Okay. So it does. Okay.

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: It shifts some things to the right. So doesn’t change the demand overall for the thermal needs. It changed the type of architecture that end up being deployed. We have those solution across the board. I think the more advanced, less tested technology being pushed a little bit more to the right, which is good.

It gives everybody more time to validate the capability there. I think what you’re seeing is the more complex data center customer are starting to understand that the blades, the racks, the CDUs, the air inside the data room and infrastructure are not four or five different parts of the thermal envelope. They’re all one single unit and they need to be able to find modularized, sorry, approach to each component to be able to play actively and be able to react to the need of what the thermal load is going to be at the chip level across that need. And so that containerized, that modularized approach we see it across the board because the timing of the deployment of particular chips will constantly evolve. It’s slowing down a little bit now.

In two years from now, we’re going to talk about the acceleration and then it’s going to lead to different changes.

Andrew, Host: But I’m just sort of thinking if you’re a large hyperscaler customer and maybe GB 200 slipping to the right, but the gap between GB 200 and Rubin is getting narrower. So on the margin, you see some change in architecture say, hey, maybe I’m going to it’s less black while more Rubin down the line as the mix. Is that or is that too simplistic of you?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: It’s a little too simplistic because the application themselves are changing at the same time.

Andrew, Host: Okay.

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: And the ability to get those higher chips out there for the larger language model. For the smaller language model, because of the productivity gains that have happened over the last year, you now have a pickup in productivity there that wasn’t anticipated at first. And so the type of chip and the type of data center is shifting a little bit quicker. Gotcha. But there’s a whole lot more that comes into play when it comes to data center is memory and now you have the power delivery that changes the thermal envelope.

There’s like very complex ecosystem to be dealt with here. Thank you.

Andrew, Host: So maybe just can you remind us about your recent capacity additions in North America, sort of brownfield versus greenfield?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Yes. The largest expansion we’ve done over the last twelve months was really to be able to keep up pace with the air cooled chiller demand we were seeing, mostly investment we’ve made in our Mexico facility in Stiva, where we almost doubled the capacity of that plant simply because the backlog was more than double than it was in the prior year. We said the orders in the first half were double what they were in the whole prior year. And so as you see that momentum, we build capacity. With Joaquin coming on board, there’s a clear focus on lean and lean management, particularly lean manufacturing.

Lean is not just manufacturing, but it is where it shines the most. And so we are now very comfortable with the footprint we have. The goal is how are we going to be able to add 30%, forty %, fifty % capacity with the existing footprint by optimizing the flow, the structure and eliminated waste in how we run those facilities to create more output from the existing infrastructure and also improving quality at the end of the day.

Andrew, Host: Got you. We’re sort of one of the themes, I think, is reassuring as, you know, I think the biggest applied player. What do you see in terms of reshoring opportunity in The US? And do you participate in semi and biopharma reshoring? And what are you seeing?

What are the good leading indicators to track? Is it starts, spending? What’s a relevant metric for Johnson Controls?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: So what we track is our quoting activity for that those particular vertical and we see a big pickup, there’s no question about it, on an increasing quoting. Quotes don’t always convert to orders and they’ve not converted yet to order. So there’s huge activity. A lot of people are clearly

Andrew, Host: Is it both on same as in biopharma or one Yes, both.

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Yes. Generally, reshowing there’s certain vertical, think about warehouses. Three, four years ago, I would have told you big boom in warehouses, great opportunity for us, growing double digit and we see no end and then it plateaued the need for those logistical warehouse kind of leveled off in 2023, ’20 ’20 ’4. We see a pickup in those right now. That means manufacturing or supply chain is pivoting and people need that space to hold their goods as they transit through the system.

That is the best early indicator of knowing that somebody needs to build new capabilities in factoring warehousing. It’s your early indicator because you first buy to distribute and then you’re tired of holding your warehouse and pre buying from your factory wherever they may be and you build a factory to replace that capacity. We see that momentum honestly with how dynamic the geopolitical environment is. I don’t want to tell you with clear confidence this is where it’s heading. We want to give it a little bit of time.

You can see you see the same indices I see. ABI is still pretty soft. Dodge construction momentum is kind of flattening out to cliffing off a little bit. So the big key indicator are a little bit softening, but they could quickly pick back up. We don’t see that yet in our own internal KPI

Andrew, Host: as I said but

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: at some point something’s gonna give.

Andrew, Host: So have you seen just let me drill down on biopharma because it’s just the headlines have been quite exciting and it’s hard to tell how real it is. But you’ve talked to some

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: Yes, we see Again, it’s at the quoting stage. Yes, I know that. You got to convert that to orders. But similarly to what you saw probably two years ago, three years ago in the battery manufacturing phase where we had three years ago a massive demand in quotes and we weren’t seeing those orders coming through.

And then everything gave out and we had tons of order coming in very quickly. I think it’s going to be the same momentum. People are going to build their business case. They’re right now trying to figure out what would it cost to build that infrastructure in The US, what would it cost to run it because it’s not just chillers unfortunately. It’s a whole bunch of other aspects to that and I think we see that very positively right now.

Andrew, Host: Can we talk about other verticals in The US because looking at the construction spending data, it seems, you know, sort of data centers and manufacturing dominate the current construction spending. What are you seeing in other verticals? What’s good? What’s lagging?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: So on the ones that are lagging, let’s start with the tough one first. Government retail, it’s not a surprise. It’s softening and it continues to soften. Retail has been soft for the better part of the last decade, but it’s not improving quite the opposite. And government, naturally with what’s happening with Doge, you see some softening of that.

You look at higher ed, the state owned type of higher ed, it’s very soft. The privately owned, it’s actually picking up. So we see good investments there. And then if you go to commercial real estate, which is a big part of the market, about 25 or so for us, it’s kind of a tale of two cities. The Class A market, people continue to invest, they want great offices and we see a pickup in demand there.

And then you go lower in the grade of offices and the demand like softened really rapidly. I think New York City is a great example. You would see building like this one fully utilized, thousands of people coming in, you look at the floor plates, the floor plates are maximized with cubicle and meeting room and space fully utilized and tons of people in there. And then you’re going to see a class B or C office right next door, half of it dark, completely unutilized. Something is going to give at some point, right, because we can’t just double down on that, but that market remains very, very soft.

The replacement cycle there has been lengthened quite a bit and there’s a lot of people sitting on the sideline waiting for something to happen in that market.

Andrew, Host: And hospitals just to round that out?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: So healthcare overall, the hospital particularly there’s a All healthcare, yeah. Yeah. If you look at healthcare overall, very healthy life science has some softening that’s been happening for a couple of years and so we don’t have that tailwind that much anymore. But if you look at hospital, there’s been a shift in size. So the mega hospital construction craze is a little bit behind us in I’m talking about North America.

There’s opportunities outside of North America if you think about Southeast Asia and India and some parts of Europe where we see great opportunity there. In North America, it’s really around smaller healthcare facilities, more self contained, but more of them and that’s where our service capabilities come into play because now we are dealing with those hospital groups that sort of in one large campus have seven or eight satellites and they want an OEM to be able to serve those satellites across the region and guarantee their service the same way they guaranteed in the big infrastructure. We’re seeing great growth there actually as investment are continuously made.

Andrew, Host: Can we talk about Fire and Security fundamentals by region? Because Europe seemingly well, a, guys you have done a lot of heavy lifting in Europe. Just maybe just talk about fire and security fundamentals by region because big part

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: of the company. Yes, it’s very small for APAC. So I don’t think it’s worth talking too much about it. APAC is mostly a HVAC controls market with a little bit of Fire and Security, but it’s fundamentally not large. If you look at Europe, great franchise we have there, very, very strong margin.

It’s growing well. We got to continue focusing on that success story. Yes, we’ve done a lot of work on improving the profitability of that business from like mid single digit two, three years ago to mid teens right now. But I think the entitlement of that business is much higher. Fire and security continue to be a very healthy market for us in Europe and we don’t see any macro trend that would change that.

In North America, the fire and security market and market we serve are very much tilted towards new construction and mid market that Class B C office I’m talking A little bit more exposed than it is in Europe and that’s why you’ve seen the growth of that business in the very low single digit, I would say 0% to 5% depending on the quarter you look at. I don’t think fundamentally we’re going to see a change in that market anytime soon. What we need to work on and where Joachim and I are really focused on right now is can we improve the profitability of that business? Can we do something different with that business? Or is it part of a bigger portfolio review something somebody else could manage better than us?

Andrew, Host: Question, what was your just talking about Fire Security, Mila just pivoting. What were your big personal, big takeaways from the operational turnaround at Emilia under your leadership? And what can be applied to the broader JCI playbook?

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: It’s customer needs based segmentation. What the team in Europe was trying to do is they had the right products, they had the right footprint, they were just not deploying the resource against the best parts of the market from a product capability standpoint. The goal of running a systems or an install for JCI is ultimately to serve that customer. And if you start trying to sell using the branches, selling system in spots of the market where you’re never going to win service, you’re going to utilize resource wrong and you’re not going to get your return on your system investment through the service. What you saw in Europe in the last two or three years, you had your flat growth in systems, 0% to 1% to 2% and then you had a double digit growth, 10, 15 percent, 20 percent some quarter in service.

That happens simply because the same level of install we were doing the year before, we did it with double the level of attachment rate within the That drove massive mix in both the quality and the type of margin we could comment on system, but also help the mix on service overall. And that’s how you quickly drove a margin improvement. We got to continue to improve that operating system. I think the work that we are doing on lean management over the next two, three years will drive a massive improvement on gross margin and continue to bring better leverage on the SG and A that that organization has.

Andrew, Host: We’re almost out of time. We’re right on time. Thanks so much.

Mark Vindiperbeg, Executive Vice President and CFO, Johnson Controls: No, thank you. Thanks for having us, Andrew.

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