Building Solutions to Address Climate Change

comes to the global economy and corporate expenditures. Well, that's exactly where I want to start with George Oliver, Chairman and chief executive officer of Johnson Controls. George joining us via zoom from Milwaukee. George, how are you. I'm doing very well. Great to be with you today. Well, as Carol mentioned, you do have such a great view on what's going on here in the United States and around the world. What is your view of the economy here

in the US. Yeah, when we look at what's happening within our business, um, you know, we see unprecedented demand

for what we do within buildings. You know, let me start by talking about what we do or smart solutions are provider for buildings and infrastructure and uh, you know, we did a merger five years ago which put together to leadership companies in the space, Tycho and John's Controls, and with our strategy of of taking the multiple you know, building systems and then being able to deploy technology with a data platform that enables us to be able to

significantly change the outcome of buildings. And those outcomes are reducing energy demand, improving the indoor into our air quality, and ultimately you know, making autonomous buildings. And so for us, given the the the environment that we're in, we're seeing very strong demand. We've got backlogs that are that are wrecking high backlogs. Our challenges have been shorter term is ultimately converting with the supply chain challenges on that demand.

And when you look at what we do within buildings, you know, when you look at the global carbon footprint, it represents about the of the overall global covernment footprint buildings do. And then the opportunity that we have now as a smart building solutions provider to significantly reduce the energy that's consumed in the building at the same time that we're upgrading the indoor equality and ultimately creating an autonomous, autonomous building. So for us, we're watching the economy closely.

But given what we see now going forward, where now buildings have become much more strategic UM. I think in the past they buildings were built with multiple systems separating apart, and now with the opportunity to bring that all together into one solution set, we're seeing very strong demand. So when we look at the market that ultimately is being created with these new problems that our customers are trying to solve, we see roughly accumulative about two d fifty

billion dollars of additional market over the next decade. So we're watching it closely, but right now we're really focused on being able to execute on the backlock to support our customers. It's interesting when you talk about unprecedented demand, strong demand, UM George, how much of it is because of companies looking to cut costs and be more of fficient. How much of is it because of regulatory changes or the push towards you know, concerns about climate change and

being much more sustainable. How much of the demand is new build Well when you look at let me start with the commitments have been made on climate change or decarbonization that have been made broadly across businesses as well as with governments, and I think coming back from Davos from last week, it's how do we take all of the commitments that have been made and ultimately how do we now you know, bring that together with a combination

that's shared between business and government and ultimately now capitalize on what we see the opportunity to be So for us with those commitments and recognizing now to get to net zero, buildings are going to be an important part that have to be addressed to get to the commitments

that have been made. So we're seeing that for instance, in our in our sustainable sustainable solutions business, we we see a pipeline now or let's say, about seven billion dollars and will convert roughly a billion of that during in the course of the year. So we are seeing a significant demand for the type of solutions that we

can now provide. And we are uniquely positioned as Johnson Controls, and not only do we have the building systems, but now with our open Blue platform, which is a platform that allows us to be able to bridge all of the building systems together and then ultimately create outputs that historically haven't been delivered all right, so help me out here.

So how much though is you know, in terms of demand, if you had to put it into cuts of a pie or percentage wise, how much of that demand is new build how much of is it cause of regulatory change? You know? How can you break it down a little bit. I'm curious about what's the psyche of people who are who are doing the spend. So Carola, what I would say,

it's both with the pandemic. When the pandemic hit, we immediately saw our demand to be able to upgrade the indoor air quality, which require upgrading systems and deploying digital to be able to then optimize how you deliver a clean air delivery rate within buildings. So we we saw that which has really taken the built environment and being able to elevate that built environment to solve for today's problem. So a lot of retrofit, a lot of upgrade, a

lot of repair, leveraging our our technologies. Now at the same time you've seen the new construction come back. You know, when you look at Architectural Building Buildings Index and a lot of the other metrics, you see where there has been an expansion and a lot of that growth is

coming back. So for us, it's been both and it's not only a significant demand for upgrading the existing built environment, but at the same time fundamentally changing how buildings are built that ultimately going to be able to deliver a significant different outcome as it relates to energy consumed as

well as the environment that's created. One thing I want to know, George, Um, you know, it's interesting we are David Weston catching up with Larry Think over a black rock and talking about we're gonna be living with more uncertainty, saying the inflation problem isn't you know, it's policy related, but that the feed isn't someone who can fix some of these issues. Specifically talked about the supply chain, uh and the supply chain problems. How is your supply chain?

Are you seeing any kind of loosening in some of the snarls that have been out there? If you look at what's happened over the last couple of years with the pandemic and then the multiple shutdowns that have occurred to contain the virus and now some of what we're experiencing in China with the shutdowns there. I mean, then at the same time with the Ukraine crisis and and

then with in our space, the unprecedented demands. So when you put all of that together, we've we've had our own challenges and we've it's really about resiliency, and so not only with what we do to help our customers with their buildings and infrastructure and creating resilient, much more resilient buildings and communities, but also making sure that we're working with our suppliers to create a much more resilient

supply chain globally. And that's what that's what we've been doing in the last two years, and we've made a tremendous amount of progress. Now what we're seeing is with that strategy, we are seeing improvement um and and it's across all of our commodities, whether it be microchips and semiconductors or other other materials, and so we've been working through it um. But resiliency in in in supply chains

and mean, George, what does that mean. Does it mean you're shifting where you're doing it or what does that mean.

We've always had a strategy in our supply chain to be local for local, and so when you are manufacturing footprint, we have manufacturing footprint and all of the key markets we support, and then we build local supply chains to support those manufacturing plants with local supply and so there are when you're building a global supply chain, there are some products that are used across multiple markets and so you can't predict you know, whether it be the environment

and natural disasters or pandemics or you know, these some of the geopolitical challenges that that might exist. And so our strategy has been to be local for local and we've been developing not only the right product but also having the local supply eye chain that creates resilience and how are how we're able to then you know, be able to support our customers and deliver for our customers.

So that with the idea that you have multiple sources globally, so as you're going through some of this disruption, you've got a supply chain that has multiple sources, so you can source from multiple multiple locations. Um, all of that

comes together into having a supply chain that's much more resilient. George, I'm really intrigued when you said you're seeing improvement in the supply chain, where specifically are you seeing that and you're seeing improvement when it comes to commodities as well as it chips. Is it like? What is it? It's been when we look at the work that we've done to strategize our semiconductors and chips when making good progress there across the globe UM, A lot of our supply

chain challenge was in North America. When we look at our supply chain, we have multi tiered suppliers and a lot of the challenges that we had with the disruptions from from COVID shutdowns and then some of the labor challenges UM not necessarily within our facilities, but within our suppliers that UM and so we've worked very closely with them and being able to address their their labor challenges

ultimately getting the supply chain back operating. So it's really looking at all levels of the supply chain UM as well as all when you look at the global footprint, all regions, and we've been making part pretty much across the board. Georgia, are you expecting a recession maybe later this year or maybe next year? Are you? Are you when you gather your management team do you say, guys,

this is what you know. We need to have the playbook ready for Well, you can go back with the pandemic, and I think we we we demonstrated this very well.

We've been creating a lot of agility with how we operate as a company, and we've had an incredible opportunity with the work that we do within buildings and infrastructure to respond to these crisis like for instance, a good example is in the early days of the pandemic, we support critical infrastructure, which is healthcare, and we were on the front lines building hospitals in a matter of days that had the highest air quality and ultimately the resource

that they needed to be able to attend to those infected. And so we've we've built, you know, we've been very agile with what we do, not only responding to the new demands and the crisis, but also agility relative to understanding a little bit of what's gonna potentially happening and make sure that we're always positioned to be able to deliver for our customers, be able to solve their biggest problems, and then ultimately make sure that we're taken into account

what we see happening on the horizon. So being agile in case of whatever comes your way, so could be a recession, could not is that is that fair to say. Yeah. Like I said, right, our focus right now is delivering on the backlog and delivering for our customers given what

we've seen here over the last about eighteen twenty four months. Obviously, I think the demand that we see now solving the biggest problems within buildings, which is indoor ear quality, making making them much healthier and safer, and then also being able to address the global carment footprint that domain is going to continue because the commitments have been made and

ultimately our customers have to deliver on those commitments. So we're working closely to make sure we understand how that plays out and how we're positioned to support our customers. At the same time that we're taking into account making sure that we're we're gonna be agile with any downturn that might might occur in some of the key markets

that we operated. But you know what, I it's really all about making sure that we're not only supporting the customer with the demand that we have today in the backlog, but at the same time taken into account the factors that we see that potentially could impact us longer term. George, thank you so much for your time today. I really appreciate it, George, all of our He is chairman and chief executive officer Johnson Controls, joining us via Zoom from Milwaukee