Welcome to Emerson's 2021 Investor Conference. My name is Lal Carstenbaj. I'm the Chief Executive Officer of Emerson. I'd like to say a few words before we begin today. I regret that we're not all together in New York City as we have been over the last few years.
But having said that, I hope you and your families are all well. I'm joined here in the room with senior members of the Emerson management team. So as you see me look around and speak and I look at the camera, I'm addressing others in the room. It has been a very challenging period of time for our company. But we have done exceptionally well with our execution.
It took a lot of courage For David and this management team, weathering the storm through the pandemic, giving guidance and then exceeding the objectives that we put forward. We're in a good place. Our future is incredibly bright. Our people are motivated, and they're excited about the road ahead for us. As many of you know, I've been a part of the OCE for the last two years.
I've been a key member of the team that's developed the strategy of this corporation. And what I'll tell you is that the plan that we will present today is a plan That is mine. It is a plan that I believe in that we can deliver, and that's very important. We'll share as we go through the day today between myself, Jamie and David, the components of that plan, but I'm very excited about the opportunity it brings. I take my hat off to the management teams across the world.
They've worked incredibly hard to deliver 2020 and to commit to the actions that will deliver this plan going forward. Great job by everyone. I'm honored and excited about having the opportunity to lead this great team and manage this phenomenal company. I look forward to today and to future engagements with all of you out there. Thank you very much.
Just very quickly, obviously, we're going to be talking about our current business conditions. And as we make forward statements, there obviously have risks associated with those that you're aware of. Want to make sure I highlight that for everyone as we go through the day here today. So this is the agenda that we'll go through today. David and I will actually share the overview and the strategic update for the business.
We'll have Mike Train come up and talk about our environmental and sustainability programs, a very important component of our growth opportunities as a corporation. Then we'll take a short 15 minute break to give everyone some time. Then we'll come back with Jamie, and he's going to go through the Commercial and Residential business, exciting strategies that we have for growth and value creation. I'll come back and cover Automation Solutions. We'll have a break again to set up a Q and A period where a number of you will be able to dial into a different line and ask us questions, and that's what we'll go through.
So with that, I'm going to introduce David Farr, Chairman of Emerson Electric. Good morning, David. Good morning, Lal. How are you doing, my friend? Good.
It's good to see you.
It's good to be here with everybody today. It's not quite exactly how I thought about my last investor conference. So it reminds me of the Boston conference we had 1 year. We decided to go to Boston to present the Boston investors, And we got 2 feet of snow. But we did show up.
We were in Boston, but it was quite an enjoyable day without many investors in the room. But Today is a little bit different. With this world today, you have to do everything remotely. And clearly, we've had almost a foot of snow here in St. Louis, and it's been bitter cold the last couple of days, like minus degrees.
But it's good to be here and talking about the path forward. Lal and I are going to cover this first part here. I'm going to give a little review over the last Months where we sit today, then discuss a little bit about the path forward, then Lal will talk about the culture of the company, the market dynamics, the growth opportunities and then His financial plan, as he looks at the company today, as he's gone through it the last several weeks, and that's what we'll cover here in the first part of the presentation. So let's go forward here. The first slide, I just want to give a quick overview of where we've been for the last 18, 24 months.
And like Lal said, I also want to thank all the employees out there, The management team, the individual employees, we've gone through a lot the last 18, 24 months. As we know, back in 2019, we as a company saw Things were slowing down. And we made the decision talking to the Board that we thought that we need to take a quick review of our cost structure, a quick review of the businesses, Very much like we did back in 2014 2015 to make sure that we're composed properly to grow through this cycle and come out stronger in the end. And we did that. For 6 months, we had outside consultants working with us, taking a look at everything from the costs, the portfolio.
The decision was made In November and also February to stay pat, but we launched a very aggressive cost reset program, which you've seen over the last several years. And As we've gone through this year in 2020 and into 2021, we've accelerated those programs, and I'll show you that we're ahead of the plan at this point in time. And then this right after the February conference last year, pandemic hit. As all of you know, we started talking about the COVID pandemic In February, what we saw going on in our China operations and what we saw going on in our Italian operations, And it's clearly changed the way we had to govern the company, and we're living with the COVID today, and we're managing it accordingly. During this time period, we're working hard and I think we'll Create a very core growth opportunity for Lal and this team.
Finally, as we've left the calendar year 2020 and finished our 1st fiscal quarter, We had a lot of momentum. Growth was returning, the margins were starting to improve, cash flow was strong as you saw in the quarter, and we really had a lot of momentum behind us we moved into the 2021 time period. The one issue as we've seen the crosscurrents, which they'll be talking about this morning, is basically the material shortages, The issues dealing with those material shortages and then also labor to keep our plants open as the growth returns. And both Jamie and Lal will talk about that, but clearly We're managing that as we've done in the past. We can manage through that.
And then finally, the Board and I decided in early late January, early February that we should move forward with the transition. As I talked about in the conference call, Lal has clearly the right guy. He has the right stuff to run this company going forward and do a great job for all shareholders and all the employees. So again, I want to thank everybody. As we go forward here, I want to update a couple more things for you.
As we did in April last year, we did something unusual. Called a special board meeting, we called an audit committee meeting, and we made the decision to go out with a forecast for the next 4 quarters. We made the decision to give the investors Insights to what we saw happening through the pandemic. So we set a forecast of sales, margins and cash flow. And we made the decision to share our thought process with With almost a 90 minute earnings call with investors, which is, I think, was very insightful for our investors, but also Put a lot of commitment on the Emerson team to deliver, and they did deliver.
So we made tremendous progress for this year from a growth standpoint in sales, underlying growth in sales, Profitability margins were much better, and we also had strong restructuring as we increased restructuring as we went forward. Cash flow came out stronger. We paid back $2,200,000,000 to shareholders and our adjusted EPS got to $3.46 This is clearly better than everybody else Expected and better than we thought for the year. And we also finished 2 key strategic acquisitions of OSI Power and the American Governor. So really, we set the plan in April, and we delivered.
And the momentum in the Q4 going to the Q1, clearly, shows coming forth very strongly right now. And I'm very excited for where we sit at this point in time. As we've talked about in the past, Emerson does continue to reevaluate its businesses. I've been at Emerson for 40 years. We do not sit still.
We constantly look at the portfolio. We constantly look at what needs to change. If you just look at the last 30 years, as we've gone from $7,600,000,000 to almost $18,000,000,000 in size, You can see the changes in the portfolio. I guarantee you Lal will have the same process underway, just give him some time. From the standpoint of what we're seeing across the company, we will constantly change based on the markets, based on our technologies, Always focus on trying to drive premium growth in sales, profitability and cash flow.
The work will continue under the new management team. I did it as part of Chuck's leadership and I did it myself over the last 20 years. And clearly, one of the major moves we made back in 2015 or 2014 With the reposition of the company, we sold off onethree of the company. Keep in mind, in that process, we've had 2 outside consultants work with us, but I also brought in Four young next gen leaders: Jamie, Lal, Mark and Pat Fitzgerald, who's now down in Austin working as a CFO down there. These 4 guys were involved in the process to look at where this company should go back in 2014 2015, and now they're running the company.
That's an amazing process we went through. And also one other comment on Network Power. As you know, we did sell it and it's now spun into a SPAC. We did receive $4,000,000,000 at the time we sold it. We still have upside because we still have some equity in the SPAC, and I believe that we'll probably drive another $500,000,000 $600,000,000 of incremental cash flow for the corporation for that network power sale.
1 of the key outcomes of the 2014, 20 Team review was the technology pyramid, the technology stack. We look at this as sort of a governing driver of our growth today and where we need to invest, Where we need to divest, where we need to increase our investments internally or through acquisitions, it's become a very important process for us as we look at The core technology and the base, the control, the instrumentation, the sensors. Then you look at the next line, the control line, and you look at the data management and services. Over the last several years, we've been making acquisitions in all three categories, but in particular across the top, as we look at trying to change our services, our software and our data management. Leveraging the strength that we have in the foundation of this company around the sensors, the control valves and our capability in instrumentation.
We finally have a strong foundation. We've built this foundation up, and we continue to add stronger and stronger layers. In the most recent acquisition, OSI Power really brings a lot to the top of this management pyramid. And I feel very strong about the review process that each of the platforms go through And the corporation level we go through to make sure that we're staying competitive, strategic and very successful across the company. It drives where we look at things today, and I look forward to seeing how this company evolves over the next 5 or 10 years From off the side with my shares of Emerson.
One of the things people have to understand, this company has a unique ability To make it through the tough times. In my 20 years, I've had a few things hit me. I had the dotcom bus. We had obviously the 911. We had tremendous growth in the core company and also internationally in the 2020s.
And then we had the recession, the great recession, The financial crisis of 2,008 going down to 2010. We flattened out. Then we went back and did a whole key reposition effort, As I said earlier, we took a look at the company. Did we have the right businesses? How do we maintain our profitability?
How do we maintain our cash flow? What do we need to do differently? This went on for almost 6 months, use internal reviews and also external reviews. The Board did a lot of work in this effort, again focusing on What should Emerson look like in the new world as we go forward here? We've gone through a lot of challenging times over the years since I've been here 40 years.
But this management team, this management process always looks forward and looks into how to make this company stronger and come out of it. We did the same thing Last year in 2020 with the pandemic. The pandemic recession hit us. We look at the opportunities to accelerate some of the repositioning effort or the restructuring effort There we had started back in 2019. Jamie and Lal did a great job of trying to accelerate those, and we actually spent more money And it's driving the savings faster as you see in the early quarter of this year.
Fundamentally, we know how to manage through challenging times. And we as a management team know how to get through those times and really look at those opportunities to make things happen within the company. And I applaud the organization around the world as we've gone through the last 18 months. We've looked at the effort inside this company to grow faster, to improve our cost structure and to really make a stronger company as we've gone forward here in 2021. And I think the company is extremely strong at this point in time.
As you'll see, the growth is starting to return in both businesses and will be growing by the end of this fiscal year in 2021. But a lot of hard work And it's all about sustaining value creation for the shareholders. As the last things I look at here, the global macroeconomics. We're learning how to live with the COVID. We're learning how to survive in COVID, how to invest, how to grow and what can we do.
The V recovery has started. You remember back in April, we laid out that V. That V is pretty well mapped out exactly how we laid it out in April. Maybe slightly faster in the commercial residential and a slightly smaller in Lal's business, but in total, very much on track to where we are today. And I firmly believe that that line will be touched on a positive way when you hit the end of March quarter.
So we're coming back up And we're starting to grow again. From my perspective, we're looking at the economics around the world, they're better. We're seeing GFI get slightly better, both in the U. S. And also in the G7.
That will be good for us from our customer standpoint. It's going to be a different mix of businesses, as we'll talk about here today, But we're seeing the growth and our businesses are driving growth. And finally, the last win to our back would be the government stimulus around the world. The governments are spending like Crazy. They're spending on new technologies.
They're spending on new power generation. They're spending on areas that we can help. You'll hear both from Jamie and Lal talking about those investments and what we're doing with those investments. As we look at the markets, Commercial and Residential has come back strong, primarily U. S.
In Residential. Then we saw Europe coming back and the sustainable technologies that Jamie will talk about. Now Asia, we're starting to see the cold chain. We will see The professional tool business come back by end of this year. So his business has a strong momentum going on.
He's got some changes in the refrigerants and efficiencies that will drive growth for him for the next couple of years. The other key areas we're seeing major changes in the power markets and energy uses. We're seeing quite a turmoil in that area. There'll be growth opportunities for us. There'll be incremental investments here as they come out of this cold weather.
As we saw just in Texas, windmills don't work very well When it's freezing weather. So where do you see that LNG coming into play again in Texas, maybe in 2021 2022? We're seeing a boom in life sciences in the medical area, which were very strong. And we're seeing a strange a very strong recovery in some of our core businesses at this point in time. There will be some fundamental change in the digital transformation of our customers, and we are well positioned to help that.
It's one of our core technologies that we invested in for years years years ago. And we have created a separate business under the automation business focused on digital transformation, which is having great inroads in the marketplace today. As I said, I think Emerson is going to start seeing growth in the Q2. I see the diversification we've made across this The last several years is really helping. I see this opportunity for us to grow over the next 2 to 3 years.
I think Lal has a very strong solid plan With some potential upside in certain marketplaces for growth, I think our aggressive cost reset has taken hold. You're seeing it today in The margins that we delivered in the Q1 and also the Q4 of last year. We will have improved margins this year. We have some crosswinds, as we talked about, between the materials And the labor, but we'll work through those like we've always done in the past. We're strong and we're going to get through this as we can in 2021.
We continue to invest in technologies and acquisitions. And also important, as you see with Lal and his new team, we have a process in the side company that teaches leadership, that trains leader to be leaders. We help people become stronger leaders. Out of that process, you've seen people like Jamie and Lal and Mark and other many other leaders in this room. They've emerged through that process and they are stronger for it.
So Lal has a very strong team behind him, coming through the leadership process, I'm very excited for him. And I think he's going to have a great run with this team. They are ready to go, they are ready to win, and they're ready to take over for my leadership. I'll be glad to step aside and clip my coupons and my dividends as we go forward here. Thank you very much.
So let's talk about Lao. Lal has the right stuff. I've known Lal for a long time. He was a young planner working for me in my early years when I came back from Asia. He was a very interesting planner at that point in time, but he had a lot of energy, a lot of strength, a lot of smarts.
So we sent him down to one of the process business to the regulators, which he did a decent job. We then sent him over to Europe, and then we brought him back to run the regulators business. I then brought him back into corporate to become the Head of Planning and Strategy, which is a good chance for me to see what the guy thinks like. Really thoughtful person, Very smart from a strategic plan standpoint. And as we went forward and we decided to sell the Network Power business because he was part of that process, we decided to move him to Europe.
And the reason we decided to move him to Europe, a couple of reasons. 1, he was born in Europe, but more importantly, there needed to be a massive amount of restructuring. And Lal understood how to do that. He truly understood how to get that plan, how to execute in Europe. He did a great job.
Recently, we bought him back to run the Rosemont business. And then 2 years ago, we promoted him to be the platform leader for automation solutions. He has the skills necessary, both at the platform level, At the division level and at corporate. And I think he's going to be a great CEO, and I wish him well. And with that, I'm going to turn it back over to him.
I want to say goodbye to everybody. I won't see you unfortunately because we're not traveling these days, but I hope to run into all of you in the time someplace in New York or Boston around the world Because I'll be moving. You take care now. Thank you very much.
Thank you, David. Actually, do you mind staying up here with me for a few moments? Come on up here. You don't know what's coming. You don't know what's coming.
And That's
why I get nervous.
You do. But I could not let this opportunity go by without recognizing the value you've created and how meaningful you've been to so many of us. Thank you. Both of us inside this room, the teams around Emerson, but all the stakeholders, our investors, our customers and our communities around the world. I have known you for a long time as well.
I met you in London for the first time in 'ninety seven, I think it was. And I recall all the good times and the tough times that we spent together and the many learnings along the way, and I thank you for those. So let's talk a little bit about you, David, and about the value you've created for all of us and all the stakeholders. Starting with the financial performance, 400% return over the period of your CEOship on TSR basis, Outperformed the S and P and the XLI. You've returned nearly $36,000,000,000 of cash to shareholders In that period of time, phenomenal performance, and you're handing over a company that has over $50,000,000,000 of market value.
Very nice young picture of Chuck and myself there.
You look very good there, Doug.
I was a young planner. I was one of these young planners over here. That's what I looked like when I ran planning.
Yes, you've aged well, let's say that to you. You've aged well. You're a lucky man. Globalization was one of the first things that you really put in place in the strategy that you took forward. Part of it was your heart.
You spent 4 years in Asia. You got to see the opportunities from the ground of what we could become, really turning us from a U. S. Company to have international business to a truly global industrial company. But it wasn't just about setting up sales offices.
It was about localizing our business, manufacturing, Supply chain, our people development in the region so we can manage locally. You spent a lot of time laying that infrastructure and invested A significant amount of time of your effort in creating the global company that we have today. Tremendously well done in that respect. You also had many opportunities to reinvent the company. You spoke about some of those already, Whether that was around our management processes, as we looked at cash, as we looked at our on time delivery efforts, As we thought about our management process and evolved it, the repositioning, 60 when I joined this company in 1995, there were over The independent operating divisions, we call them.
We evolved that into business groups and ultimately to the 3 franchise business platforms that we have today. That journey over 20 years was thoughtful. And as you said, you took your time. You acquired over 80 companies as CEO of this of Emerson. But none, I believe, closer to your heart than PWS, the Westinghouse business.
The folks in Pittsburgh, That business has added over 10 12 points, I believe, of market share globally and over 25 points of market share in North America since you acquired that business in 1998, an incredibly meaningful business that now we're building around with OSI as we get out of the power generation into transmission and distribution. And then your passion for technology, David, Has fueled our efforts around digital transformation. Many don't know that you were running the process business at the time of the original Plantweb, And that's evolved now to the business that's over $600,000,000 in size and Stuart Harris runs around digital. But also your passion For Technology, let us down the path of software and the investments that we've made. And we now have a $1,100,000,000 standalone software business in those efforts.
Great work there as well. But you've engaged with everyone. You've engaged with all our stakeholders with our customers at the highest level around the world. You've been a steward for U. S.
Manufacturing and led the North American Manufacturing Association as Chairman for a number of years. Your passion with investors, well, I think everyone on the call will know and recognize that and how Much energy you get out of those conversations and engagements. And then your commitment to all our communities, from Mexico City to St. Louis To Milan, to Bangkok, to everywhere we do business, you're passionate and you put your effort and hard work around that. And we all feel it, You recognize it.
But there's one passion that you truly, truly, I think, have above all else, which is developing our people. Your passion for all of us. The countless hours that you've spent With the OCE spends about 1200 hours a year. You lead that, David. 5, 6 hour presentations are not uncommon with David as he talks to our developing people.
And the impact that you've had among so many will be felt for years years to come. I thank you for all of that, my friend. I thank you for what you've done for all of us, what you've done for our stakeholders, our customers, our investors and above all, your employees and our communities. I thank you, David. I thank you.
The only people who never listened to me are those
whole kids.
STEM day So I threatened to cut their dividend to their parents.
They paid attention. They got quiet at that point?
Yeah, they got quiet. It's been a lot of fun. Thank you, Lal.
You're welcome, sir. There will be no dividend cut. No. Just to clarify. Okay.
Well, I'm going to continue from here on Forward on this overview and business review. I'll begin with the culture, talk about the market and then review the Emerson financial plan. So why is the CEO of Emerson talking about culture first? Well, because I believe culture drives performance and performance creates value. My strategy as CEO of Emerson is to put people at the center of everything we do to foster an environment that's inclusive, where the Best minds in the world are attracted to come and work here.
We drive innovation That makes the world healthier, safer, smarter and more sustainable. What a great set of words. Over 17,000 of our employees over a period of 12 weeks developed that purpose statement. Those are the words we live by. That's why that's what guides us.
That's the goal that we reach for. But there's an intrinsic link between our purpose, The management processes we use to our causes and our values as a company. All of this comes together as we manage the company and think about creating value. I want to spend a little time talking about our people. Over the 25 years that I've spent in this company, nothing gave me greater joy.
Actually, it's a lot of emotions. It was joy. It was there were tears. And then making 85 phone calls To 85 different individuals across Automation Solutions, we made over 130 phone calls between commercial, residential Incorporated. To people who went above and beyond during the most one of the most challenging periods of time that any of us We'll have to manage through the March April pandemic crisis.
These were people who went who decided to stay on-site to serve their customers. These were people who stayed in plants, some individuals who were living in situations they had never seen before, never thought they'd encounter. It was incredibly rewarding. There were many more phone calls we could have made. We picked 130, but there are many more.
This is what makes Emerson a phenomenal business. The passion, the commitment, the energy of the individuals as I depicted on this piece of paper. And he energizes me every day as the leader of automation and certainly as the CEO of this company. So what I'll talk about in terms of culture are 3 dimensions. I want to give you some perspectives as to my leadership style.
I know some of you have asked, so I thought I'd talk about it. I want to talk about diversity inclusion and governance as well. I truly believe that trust and empowerment are the key elements of leadership. We got to let people run. We got to let people do their jobs and perform.
What I ask in return is accountability. I hold people accountable for the goals they set and the objectives that they set on paper. But I let people run. And I think that's very, very important as a manager. It's worked for me as I've scaled.
David went through the history From a regulated business down in McKinney, Texas to Rosemount to the leader of automation, and I'm certainly that same style can scale to the CEO of the company. I think it's equally important for us to be very aware and deliberate about people development. The experiences that I had and that Jamie had, Mark, Ram Krishnan, did not come by chance. They did not come by chance. I was lucky a few times, as David will tell you.
I was lucky a few times that someone turned the job down and I got an opportunity. But there were deliberate moves for me to gain experiences. I try to make the most of those. And we need to think very carefully about our development of our young people, so that in 10, 15 years from now, the next leader is standing up here and they've had the opportunity to run the company, to develop and to pick the right skills required to be the CEO or the business leaders of this great corporation. Diversity and inclusion.
We've done a lot of work here, but there's a lot to be done. There's a lot to be done here, and I'm excited about it. Obviously, being a multi ethnic person, I feel very, very it's just a subject that's very close to my heart, And I have a particular passion for it, discussions that we've already kicked off as a management team here and I'm excited about. I have a Board that's incredibly active and engaged around the issues of culture, but they're equally active and engaged on governance and compliance of this company. Done a lot of work, David and the Board, over the years to diversify the experience of the Board, as depicted here on the right, both in terms of gender makeup, ethnicity and Experiences.
And I think we have a path going forward working together to continue to create value at Emerson. So now I'll turn to our market, and I'll outline the growth dynamics and opportunities for the company going forward. We have 3 phenomenal franchise platforms, all of which Have opportunities to grow, have opportunities to expand their served markets and opportunities to create value. Across their categories, they are leaders. They are sales leaders in market create value.
And I'll walk you through what those will be. So let's start with the diversification, which is strategy number 1. We've done a lot of work Over the last number of years to gas sales by end market are down 9 points since 2014 in 2020. But more importantly, Our relevance in hybrid, discrete and the culture around those, we've had a relevant very good opportunity for that business. Around discrete, we spoke about this at length 2 years ago in New York.
My train talked about the acquisition of the Gene Michaels that it exposes this to. And as we talked at the earnings call, we are getting the benefit of those early cycle businesses right now in the automation space. We built on that PLC business that we acquired with another acquisition of a company called Progia in Italy earlier this year, which brought an HMI based business in for the PLC. And so we have a complete offering now for our channel and our customers around the world. But we also acquired a motion control business in Germany called Aventix, a very interesting Opportunity for us, which is now growing aggressively.
It gave us access to a strong German economy in the discrete space. And we'll continue to drive opportunities around that business as well. So we have the basis for phenomenal expansion there. And then the last market here I'll highlight is hybrid. And in that, as you know, consists of a number of markets, including pulp and paper, Mining and Food and Beverage.
But the life science market, which we'll spend a little time speaking about in the automation piece, Has had phenomenal experienced phenomenal growth in 2020 and into 2021. And that's obviously driven by the therapeutic efforts as well as the vaccine efforts around COVID-nineteen. But we have a technology hand to play as well. This industry is undergoing a change from traditional batch manufacturing, where essentially you move Chemicals or biologicals from one container to another into a continuous manufacturing process And our ability with our systems and expertise to journey our customers through that process is very strong. So Great growth across these markets.
Look for investments that we're looking at at $1,100,000,000 of stand alone software business. That internal and external development is pervasive across all three of these Generation of compressors, which Jamie will talk about, addressing the low GWP refrigerants and efficiencies. If you look across the control layer, the PK controller, which we spoke about 2 years ago, Jim Nyquist presented in New York, It is one of Emerson's most successful new product launches. Alone, the PK controls over a $200,000,000 business today in a short two years. Phenomenal work there as we continue to expand the opportunities for IO in Process and Hybrid.
And then in the data management layer, manufacturing execution systems around Sinkade for Pharmaceuticals or Mimic Simulation software giving real time simulation opportunities of business conditions for process plans, all All around that layer, and I'll just give you a few more examples in a few moments. So if we step back and just look at the software layer, dollars 1,100,000,000 of stand alone $2,400,000,000 of software when you account for the software that's embedded in our products. We've innovated from within. That's the bottom left of the chart. Many examples you'll hear throughout the day, many of which you're familiar with already, But we've been acquisitive as well.
In the time that I ran automation, we made 8 acquisitions, all of them in the software space. We made 2 equity investments in this space as well as we continue to broaden the opportunities, the reach around that. Our strategy is to be very expertise enabled and vertical as we look at software opportunities. It is not To go horizontal or to buy software companies for the sake of software companies. They have to have a linkage to what we do, To our devices, to the relevance in our customers, they have to bring a level of expertise and provide an ROI in the industry.
And that's the world that we start to look at as we think about adjacencies, which are the next layer and ultimately to some of the broader opportunities that we have out there. A lot of work being done in this area. We put a target of 20% of our revenue Out there as we look forward in this plan around software, but one that is a very important opportunity for us as a company. David spoke earlier about digital transformation, tremendous amount of work going on here. And it's been slightly over a year since we Set up the group that Stuart runs.
He presented a year ago, if you recall, in New York City. And we've participated in many conferences as we've gone through the year with many of you. So on two dimensions that I'll highlight here, the first being technology. On the technology front, We've now created an operational software platform around our optics, where we've taken diverse pieces of software that we've had across the company Instinctively created one unique language where all our software platform works together, Communicates together, looks the same, feels the same for our customers. Tremendous work by the team in Austin and Minneapolis to get that done very quickly.
But we continue to innovate on the sensor level as well. There are two examples here, 1 around vibration, very successful, which we released earlier this year. And the second, around location awareness. A wireless heart based location awareness system, which is significantly more accurate and cost effective to standard Wi Fi use systems that are out there in the plants today. So again, continuing to innovate around the sensor piece And the opportunity is obviously over here on the software piece, very important.
But we also have done a lot of work on the selling side, on the channel side. We have over 10,000 customers today that are at the early stages of their digital transformation journey. They're just getting started. Interestingly enough, we have 45 sites where we have at least $2,000,000 of installed base of digital solutions and at least 3 Stinked solutions in place. We have aggressive plans to take those 45 sites to 100 this year, to take our installed base So $5,000,000 from $2,000,000 and to increase the breadth of solutions that we offer our customers.
There is momentum here in many ways, as we've discussed in the past And David referenced at the front end, this market continues to define itself. It continues to find its way, but we have a good hand to play in doing so. We equally have a great hand to play around the sustainability journey. Michael is going to come up and talk about that in length. I feel really excited.
This is a future that we have that we can create a lot of value around. We play across the entire energy value chain as you look at this from left to right, Whether it's enabling the transition to renewable fuels, to clean fuels and energy sources on the left side through our digital top quartile efforts, Whether it's the optimization of the energy supply through transmission and distribution, and I'll speak about that a little bit more in a moment, ultimately in the efficiency of how we use our around power generation and power transmission and distribution. It has an incredibly relevant hand to play both around sustainability and around it is A great fit culturally for our company. The management team delivered a great Q1 and there's momentum in the business. We're going to globalize the company's presence in utilities across the United States into the transmission distribution and our hand to play in the transition to ADMS here.
And I think that Our opportunity here is vast. What I'm also excited about is the additional market that it brings to the table. It brings a $1,300,000,000 sensor market in transmission distribution that we did not have access to before. And there are opportunities to make further acquisitions or internal developments in that space as we go forward. So much like we did on the power generation side that I referenced earlier, where we expanded our global participation by 12 points with Ovation over since acquisition.
We have the opportunity here to 2x or plus the market participation of this great company with these great technologies that they brought to the table going forward. So that's the elements of the strategy that you'll hear today. We start with a market growth of about 3% as I'll highlight in a moment. We'll drive industry diversification. We'll continue to invest both organically and through acquisitions in software and digital.
And we have a great hand to play around environmental and sustainability. Very exciting plan that will deliver Underlying sales of about 4% going forward in the plan. So next, I'll cover the Emerson financial plan and the details of it and as we go through 'twenty one first and then into the in the longer term. As David highlighted, the V shape recovery is clearly underway. The Acceleration out of the box of the commercial residential business has continued as we've gone into January.
The 3 order run rates at 16% In January and the recovery in the automation business, although slight, has continued as we've gone through January as well, down about 12% now at the January endpoint. Emerson now in that down 3%, so slightly recovering again from where we were in the December time period. I would expect the Commercial and Residential business to continue to be strong through the year and modulate between 8% and 15% or so as we go through the remainder of this year. The early cycle business in Commercial Residential, as David highlighted, is that U. S.
Residential. But Jamie also has some medium and longer cycle businesses, particularly around commercial and professional tools, which we'll see Come in later in the cycle. So in that 8% to 15% ban. In terms of automation, the pace of recovery, as we highlighted at the earnings call, continues to be around North America, the speed at which North America will come back at the rate at which it will recover. What I will say is that the discrete early cycle businesses have are recovering on a global basis now.
If you recall, Back at the earnings call, I spoke about just about every world area with the exception of North America. But we're seeing those early positive signs in the discrete markets in North America now as well. That's what changed for us in January and is giving us more confidence of the recovery in the automation markets as we go forward. This is the guidance that we gave on the February 2 earnings call. No change to the guidance.
We're looking at underlying sales growth of flat to 4% for the corporation for the year. Automation down 3% to plus 1% and Commercial and Residential at 8% to 10%. We've identified about $200,000,000 of restructuring, and I'll update Where we are on that, but we're well on our way to spend, close to that number. We'll generate $3,150,000,000 of operating cash flow, Spent about $600,000,000 or so of capital as we look at the plans across the businesses. And between share repurchase and acquisitions, $500,000,000 to $1,000,000,000 and then $1,200,000,000 of the dividend.
The commitment that we made was adjusted EPS of $3.70 plus or minus a dime and we've not changed that. The key headwind and David highlighted that I want to speak about is material. Whether it's steel, copper, resins, electronics or logistics challenges, we're fighting those right now, particularly in the Commercial Residential Business as you heard at the earnings call. We it's not the first time that we faced this. We have a long history of addressing material inflation in the business, and we believe that with the strong efforts of our supply chain teams and working with our suppliers, We will continue to mostly mitigate those impacts.
Part of that will come from the COVID savings that we had assumed, But obviously, we continue to be in an environment that's curtailed in terms of travel and entertainment. And so most a lot of those savings that we thought we would give up through the year. We'll still be on the P and L as we highlighted during the earnings call. But that's the key challenge that we've got to be very aware of. Ultimately, over time, that will come back and will unwind the other way over the next 3, 4 quarters.
But this is the challenge that we have in the business today, and it's not unlike many industrials out there are facing. I want to spend a few minutes talking about the cost reset plan that we presented a year ago and rolled out across the platforms in corporate. Tremendous work. Tremendous work by the platforms, tremendous work by corporate, by all our teams around the world. It's not the first time we've done We did it in early 2000s.
We did it again in the 2008, 2009 time period, where we've looked at our cost structure very aggressively and put programs in place to execute, but we've made tremendous progress this year. We will hit our adjusted EBITDA or will equal Our adjusted EBITDA prior high in 2021. It will take us to 2023 to get to the adjusted EBIT record, But we're well on our way, as I'll show you in a moment. What's interesting about this plan versus the plan that we showed you and shared with you in New York a year ago is that we're doing this with $2,000,000,000 lower sales in the 2023 period, but we're still getting out there. We didn't move this out to 2024.
We We committed to that year, but the strong execution that we have in the base company really enables us to deliver those EBITDA and EBIT commitments as we get out there in 2023. So I feel very good about that and the work that's been done there. So here are the details. In terms of restructuring spend, we committed to $600,000,000 as part of this program That generates $650,000,000 plus of savings. It's a better than 1 to 1 payback here as we think about the programs.
80% of the spend is already complete. And you'll hear from Jamie and myself a little bit later, that's consistent across the two platforms. So really good work. And by the end of fiscal 2021, we'll basically be completed with this program. And we'll get back into Normalized restructuring activities that we have in the business and we've had in the business for a long time.
The savings are hitting the P and L. You've seen that Over the last 2, 3 quarters as they impacted, we've realized about $220,000,000 of savings already, but we have a phenomenal future benefit Heading our way as well. We went after the structural headcount actions early. We're now in the midst of the execution around the plants. And both Jamie and I later will give you some more color around where we are in our plants.
But they're being managed, And we're being very cognizant of us returning to growth and how we move things around during that period of time. I feel really good about the execution here, and I feel very energized by the work that the management teams have done around the world to get us to this point. Just great, great work. So let's walk across the EBITDA bridge. You're familiar with this.
We shared essentially a similar bridge a year ago. Let me walk you from the 2019 period, which is where we made that commitment to the 2023 endpoint. We're at 21.5 percent adjusted EBITDA in 2019. The volume assumption that we made here is 30% leverage. We assume the volume coming at 30%.
That's aligned with our historical numbers. You've seen in our recent results that the leverage is a little higher than that. Obviously, we have the benefits of our cost reset already flushing through the P and L and hence why. But we assumed the 30% for the basis of this plan. The red bar of almost $900,000,000 are the headwinds that we face in the business, the biggest of which is wage inflation, valued at about $500,000,000 and other inflation, including freight and as a secondary headwind of about $200,000,000 as we go through this cycle.
We have positive price cost In the plan, despite the short term challenges that we have in the business today of $365,000,000 The cost reductions in productivity of $485,000,000 this includes also the investments that we're making in the business, The technology investments, the selling investments, the marketing investments that we have across this are embedded into that bucket right there. And then there's the $650,000,000 of the cost reset across the business. All that gets us to that 24% commitment on adjusted EBITDA that we've made as part of the cost reset program. So Feel good. We're well on our way.
There's momentum in execution, and I feel very positive of making this commitment as we go forward. Let me spend a few moments now talking about the top line and the sales. Our plan is to grow organically 4% on a market that we estimate to grow around 3% going forward. Organic growth about delivers about dollars 2,500,000,000 But as David said, there could be opportunities there depending whether we do have we do find $1,000,000,000 of revenue for the acquisitions. OSI represents approximately $300,000,000 of revenue in this on this bridge.
So there's another $700,000,000 of acquisition revenue that we've embedded in the PS road map to $4.75 to $5 is driven significantly by the execution of the base company. That's the biggest driver that we have. The net headwinds, if I step back and walk us from 2021, are predominantly Around the COVID savings that we've experienced over this year that obviously get restored, partially restored as we go forward. There's the base company execution. And then we'll flex.
We have flexibility between share repurchase and acquisitions as we go forward. It is important to note again that this plan has a cumulative $7,000,000,000 less sales in it and the plan we presented last year. But because of that strong execution in the core company, we have a path to that $4.75 We have a path to our peak margin performance, cost reset plan performance in 2024 in 2023. That's very exciting for us, And that's a reflection of the hard work and that's been done across the organization. Shifting now to cash and the sources and uses of cash.
We will generate over $15,000,000,000 of cash through this planning cycle. The dividends will remain an important component of returning cash to our shareholders, and that commitment will be unwavering as David and I joked about it a little bit ago, very serious. The share repurchase will modulate. We'll modulate between acquisition opportunities and share repurchase in total to return 50% to 60% of our operating cash flow to our shareholders over time. The cash flows that we have in the business support the acquisition plans that we have.
We have about $6,000,000,000 but we have a strong balance And that balance sheet will bring the flexibility that we need if we need to do different things or the right opportunity presents itself for us. We'll be disciplined as we look at things in our processes, and we'll continue to invest in our businesses. Our businesses are thriving. We'll continue in that 3% of sales CapEx spend. Turning now to free cash flow.
We have a strong path to deliver free cash flow every year. The corporation made a commitment during the repositioning to the dividend. We went outside of the band of 40% to 50% target that we set and then we grew ourselves back into it. That was the strategy that David laid out back in 2016, 2017, and we've executed that. Now We are trending more in that 40% to 45% area on the dividend as a percent of the free cash flow, and that's where we're targeting the company going forward.
The earnings quality of this company is incredibly high, and we're looking forward We continue to convert over 110% of our net earnings to free cash flow in the plan. The balance sheet of the business is strong, as I highlighted, And we'll give us that flexibility as we go forward to maintain the dividend and to do different things with the business from a strategic perspective. So in summary, this is the financial plan. I've talked about 2021 in terms of the guidance that hasn't changed, but here are the numbers on 2023. Sales growth, dollars 20,000,000,000 expansion of margins to the cost reset plan we covered an opportunity to get to the 4.75 The $5 EPS range, an important commitment for us.
The balance sheet ratio is very strong. Maintaining our debt rating where we've been essentially for 20 years now to give us that flexibility going forward And total debt to adjusted EBITDA of 1.7x. With that, I'll conclude with this chart. I feel really good about where the company is. I feel very, very positive about the strategies that we've identified to generate growth and create value.
We have a phenomenal hand to play with our technology and our people around software, digital, sustainability and the diversification of our industry segments. We have a path with a strong balance sheet within strong cash generation to create value for the shareholders going forward, and I'm very excited about our future as a business and the path forward. I'd like to now turn it over to Mike Train to cover the sustainability opportunities for the business. Good morning, Michael.
Good morning, Lal. Nice job.
Thank you very much. Thank you very much.
We're running a little ahead of schedule. That's okay. We'll take our time. Maybe I'll get a few bonus stories out of the deal there. So we'll see how things of course, you get to come back up again, Lal, and his horse.
Good. Well, first of all, let me hearken back to the tribute with David. I think I'd speak for a lot of the management team members, both in this room and beyond out in the world that We've all been personally touched by David's leadership, by his training, by his coaching and ultimately by his friendship. My personal story is David and I moved to Hong Kong in the end of 1993, set our path in Asia and ultimately for, I think, a lot of the globalization work that we did Beyond that. And I was very young, very raw at the time.
And David was younger at the time as well, but has been a great coach. And ever since then, ever since then, he's given me opportunities to develop myself. He's taught me how to develop others. We've all had to learn how to develop others in Company has been a massive team effort. So I want to salute David on that and appreciate everything.
Again, on behalf of really everybody in this room and beyond this room from that point of view. Lal, we welcome you as our new Chief Executive Officer. Of course, we all know you extremely well. You've been around here for 20 almost 25 years. I think we're really excited about our future here.
We love the portfolio that you just laid out for us, really important as we go forward. I get the pleasure today to talk about our environmental sustainability efforts. And this is something that's not overnight or brand new. We've been working on this. We felt it was the right time this year to really present this in a structured way to share with everybody.
Our employees We're passionate about environmental sustainability. It came through the work that survey that Lal referenced, the 17,000 employees as We crafted our purpose and our causes. This topic ranked at the top. Our employees have a passion for this. They want to be making a contribution.
They want to be making a difference in the world. And in Emerson, they can make that difference. And I do want to share some of that with you today. We have investors that are very interested in this topic. They also want to understand what our relevance is.
I'm here to say today, I think we're highly relevant as we go forward into the future here. And ultimately, we have customers here, customers that need to make their progress. And again, the enabling technologies around the broad automation capabilities of Emerson, I think we're really going to land for them. And I think already we're seeing them pull on us to work on some of those early novel solutions. We'll share some of those examples with you today.
So my agenda is kind of to walk you through the greening of Emerson and what we're doing in our four walls. I want to spend some time really on that sources and uses of energy. A little bit of a learning that comes from that and also how it relates Really, I would say every piece of our portfolio and what we do, greening by Emerson of our customers and greening with Emerson as we work with others around the world To make real, actionable, practical progress. So let me start with our environmental sustainability framework. This is our greening of Emerson, our greening by Emerson with customers and greening with Emerson.
The left hand side of this chart Extremely important. In fact, when we had our management's discussions the past 2 years, David was adamant on this topic that we had to make sure that we put the focus on greening of Emerson. Back in August of 2019, we issued our target, Lal, our objective to reduce our greenhouse gas emissions intensity By 20% over a 10 year period. And we did that by baselining 185 of our major sites, manufacturing sites, large office complexes, Really, almost the entirety of what we spend in the energy space in those 185 sites. We capture that information.
We audit that information. We have modeled our energy mix. We've modeled our greenhouse gas intensities. We understand Our activities are extremely well and we're working on those things. So we're really focused there.
Greening Bayh with our customers, We put it in the center of the chart. I use a little terminology at the bottom here called Scope 4. It's really the lever for Emerson is the impact we can make with our solutions With our customers. I'm going to walk you through these four strategies here in a moment. And then ultimately agreeing with our constituents around the world, whether it's governments, Industries, academic associations and so forth.
So big role to play here. This is our framework. We introduced this to our employees. We're very excited about this, And we want to continue to drive this. So let's start with the greening of Emerson and our commitments.
We introduced our metric around this. Again, it's a greenhouse gas intensity reduction metric. It's related to sales. We started off at 39 with our baseline. We're on the journey to 31.
We've got 2 principal strategies here. 1 is to reduce in our four walls the energy that we utilize. And we're very focused on that. We are working on that. And secondly, we will increase the mix of what we purchase from a renewable or a low GHG energy sources.
This has been led by our Board of Directors. We just had a very robust discussion in our last Board meeting to talk about this. Our Board of Directors are very passionate about this topic, And we had a great dialogue on this. I lead our Environmental Sustainability steering committee. Several of my fellow members are here in the room.
We have others beyond the room around the world. Really important focus that we've brought to the company on environmental sustainability and driving our strategies there. We're embedding it in the management process. So all the different has a very direct representation of those activities. And ultimately, and the place I'm really taking this to is to every individual site.
We're creating environmental sustainability site teams with a leader. They are the ones, just like everything else we do in our management process, that are going to drive our progress, and we're going to enable them to be able to do that. In addition, we're having engagements beyond our four walls with our energy suppliers, our supply chain partners, our logistics Providers and making sure they understand where Emerson is coming from. We want to understand what they're up to. We want to collaborate with them as we go forward.
Just a couple of highlights on the greening of Emerson. You can see them listed down the right hand side of the page here, some of the things we're up to. One of the really great tools that we're using right now is our energy treasure hunts. And this is where we ask the sustainability team of a facility And we bring some subject matter experts to the site to participate to go walk through the site for 2 days. First day is typically on maybe a Sunday when there's not a lot of activity in the facility, eyes, ears, listening, watching, learning, And then going back into that facility when it's at full pace operating and again doing the same thing and finding those opportunities and learning What we can do from strategies.
I've highlighted 6 of sort of what we've seen so far. LED lighting, Control systems, air, compressed air is a huge topic for us. I didn't realize this, Lal. We have a lot of older air systems in our own factories. If you update those systems, we actually have the ability with Ventex to measure air compressor, leakage and these kinds of things.
Air is a tremendous expense and a tremendous opportunity for us as we go forward. Same with industrial cleaning, same with our temperature chambers and so forth. So You go down the right hand side, we've got an on-site solar project going in Dubai. Makes kind of sense. You're in the desert, David.
We've got 3 buildings there. We're using that roof space. Should provide over a majority of the energy we consume ultimately when that's put in place by the end of the summer. Renewable energy purchases, equipment, But beyond the commitments around our emissions intensity, we're working chemicals, we're working organic compounds, we're working recycling, we're working waste. Our employees are so energized by this topic and we're getting a lot of feedback.
One of the big pieces here is kind of a hub to connect everybody's activities, Do the education, making sure that they have access to our tools and ultimately celebrating success. I think that's what's going to be really important as we go forward. So I want to now turn you to discussing sources and uses of energy in the U. S. I don't know if anybody's ever presented this chart to you.
This is a tremendous chart. It's not my chart. This comes from the Lawrence Livermore Labs, part of the Department of Energy. And it's a full depiction of the energy complex across the United States. I use this as repaying raw energy, oil, gas, coal, geothermal, wind, solar, hydro, nuclear and so forth.
As you move to the middle of this chart, you go through conversions. As you move to the right hand side of the chart, you go through its uses. And I want to walk you through this. The other reason I really love this Chart is it just happens to add up to about 100 as you look at this and you think about what's going on here. So let me kind of walk you through some of these.
We'll start on the left hand side of the chart, sources of energy. Again, you can see where we're starting from As the United States, there's decarbonization. Working on the left hand side of this chart to have sources of energy with less carbon associated with them. Three kind of critical strategies here: low carbon power, that's your solar, wind, nuclear, hydro. We touch and are involved in all of those.
Low carbon fuels, Biofuels, big category, using waste from agriculture and other products as biofuels. LNG still has a huge role to play And that switch away from coal towards gas from an emission standpoint. And then ultimately, and you're using our Ovation, our Power and Water Solutions capabilities To get those assets on and off of the grid properly, just the way we would switch a 600 megawatt fired plant Faust, right now, renewable natural gas, we're working on this in Europe, in the U. S, in Canada, In China and other parts of the world. And this one for me I love because it combines everything Emerson does.
It takes compression, sensing, edge computing, Ultimately, analytics combines it in a solution and allows us to be able to go out there and really utilize some of these waste resources, if you want to call them that, And turn them into energy, clean them up, put them back into grids and get them transported to where they can help go provide an energy source to somebody else. And then finally, on the right hand side is the next generation around hydrogen. This one happens to be talking to ammonia for storage and transport. Again, using every really every capability across the company to be able to deliver on something like this. So this is the energy source decarbonization.
Emerson is right in the middle of every one of these type of solutions today. If you move towards the middle of this chart, where we're looking at both the primary sources and the conversion To electricity, emissions management comes up as a big strategy. This is not our strategy. This is the world strategy. Emissions monitoring Control, we have every capability you need that our customers need to focus on this, improve on this.
Some of the novel solutions like carbon capture utilization and storage You take that carbon, you sequester it, you either store it or maybe turn it into potentially a usable form for something. And then I think a really big and important one, Jamie, that you'll talk to a little bit later is being able to enable natural low or 0 GHG. Want to feature the ADNOC, the Abu Dhabi National Oil Company. They have one of the very few so far at scale implementations of carbon capture, 800,000 tonnes of CO2 a year. And it just happens to have Emerson system, Emerson valves, Emerson engineering.
We it was a real pleasure to support that And continue to support that facility. The fun thing about that particular application is they're abating a steel plant in the UAE And moving its CO2 out to the geology that the UAE has to put it into the ground and actually enhance oil recovery at the same time. So Great project. I think a great example. I think you're seeing many of our customers lean into this specific type of application as we go forward here.
I I think it's going to grow substantially. The middle case here, fugitive emissions reduction, big topic for our customers. I just saw some news articles again this week, circling back on that strategy. And we have it every layer. We have it in our devices.
Our devices are being built to reduce or eliminate fugitive emissions. We have monitoring for fugitive emissions. So we have the analytics to detect it and to help see it, manage it and so forth. And then on the right hand side, our CO2 natural refrigerants, One of my favorite applications, we're working with Hydro Quebec. It's in a lab right now, but it's looking very good for kind of an industrial sized A heat pump that could be used in commercial office buildings eventually with green source power in Canada with their hydroelectric business.
So Really exciting to be on the forefront, again, engaged at the very beginning of these type of activities and helping develop them as we go forward. If you move to the 3rd strategy now, it's around electricity and how energy is being utilized and more electrification in the future, Pulling away and taking out combustion processes and replacing them with electrified processes. I just mentioned heat pumps, end use electrification, Big activity there already launching and we'll share some of that with you today. Energy supply optimization and energy storage, That's still a big question mark technologically in a lot of places and grid management. 3 use cases here on the left It's a rendering of what we're helping customers do in Europe right now with heat pumps.
We're doing the same thing in China. We're having those discussions with Department of Energy in the United States. This is going to be a big theme as we go forward. In the middle of this, managing grids. This happens to be gas and liquid grids, the molecular part of this equation.
Emerson's all over that with our capabilities, Our ability to manage them, keep them safe, obviously help make sure globally that all of those resources are managed properly. And then finally, on the right hand side, this is the electrical grid. And this is where OSI, Lal just pointed to that. And again, I will double down on his comments. I think OSI is going to prove to have been Such a timely way to expand our Power and Water Solutions business and be able to take this all over the world.
The grids of the world We're 80 years old. They need a lot of modernization. Now we're having all of these distributed energy resources being brought to the party. And we need that ADMS, That advanced distribution management system brought to these different countries around the world, and I think can be a lot of fun for us as we go forward. And finally, the 4th strategy, energy efficiency and optimization.
Look at this piece of the Sankey diagram right now. The pink parts are where we utilize energy. The darker grays are what actually get used, what actually gets to the finish line. So if you go back to the beginning of the chart, 33% of what we started with Actually makes it to its intended use. 2 thirds of the world's energy is lost in the middle of this process.
So energy efficiency and optimization It's still a critical strategy as we go forward. Again, advanced controls, analytics, simulation and then waste management and those types of things. So a couple of examples in energy efficiency. Our SINCE smart thermostats continue to make great progress and doing very well around the world, and we're Expanding our capabilities there. We've augmented that with acquisition to top that off.
This middle one for me is really exciting. This is the whole space of simulation, Making sure that the people that are operating are well trained when it matters. We depict a bioreactor here. This might be something you use maybe in a life sciences You might use the mimic software in this particular one tied to our Delta V and our Syncate capabilities. But the value of what's in these batches is $5,000,000 $8,000,000 $10,000,000 And you don't want an operator to make a mistake In the middle of that.
So this whole simulation field, the process modeling that we can do and making sure that our customers can And we do this across all kinds of different industries, life sciences. We do it with pipelines. We do it with reservoirs under the earth, all kinds of applications there. And then finally on the right, this is our cold chain. We just announced our Lumity brand, branding for this.
I think we're very excited about this. And again, our ability to have all those touch points through the value chain, making sure that food is basic quality and doesn't get wasted and doesn't become waste energy As depicted on that last chart that I shared with you. So you now know how to navigate the Sankey diagram. I encourage you to pull this out once in a while. Start following the lines on this chart.
You'll find where there's the EVs are on this chart. You'll find where different Things go to different places. Ultimately, hydrogen will come onto this chart. It's so small, it's not detectable today, but we're going to start converting Primary sources of energy to hydrogen to be moved and then utilized on the right hand side of this chart. So I want to take just a moment to talk about hydrogen.
It's been in the press a lot lately in the last year and a half about hydrogen, the promise of hydrogen, roadmaps for hydrogen. I want to make sure people understand the use cases for hydrogen. So I've outlined 4 use cases on this particular chart, 4 distinct use cases And Emerson is participating in every one of them on real projects right now. The first one is blending of hydrogen into natural gas. This is to inject into existing infrastructure.
Again, we got to keep finding ways to leverage those 1,000,000,000,000 of dollars of existing infrastructure. Blends of 5% to 30% hydrogen are out there, make sure the turbines can take them, to make sure the pipe materials can take them, Make sure they're safe. Emerson has a huge role to play there. And ultimately, this will help build the market. So we get more hydrogen out there.
This build the market for hydrogen and then all of those sources of hydrogen will follow. The fuel infrastructure for transportation, the fuel cell case, This has been around for 20 years. It's being worked on, picking up pace. I think we're going to see it personally in commercial trucking, fleets, That type of thing, maybe we'll get to residential vehicle ownership eventually. Emerson has great technologies here.
Our Coriolis meter We'll be absolutely perfect for this. Our ASCO capability, our solenoids, perfect for this use case. So we're right there with all the OEMs and all the different people who'll be involved in that particular process. The third one here I really want to highlight. This is the hard To abate industrial processes.
This is where if the world's going to make it to the finish line, this is what they've got to solve. And this is where you transition from using a high temperature fossil Fuel, could be it coal or gas today and using hydrogen to fire that process in steel, cement making, petrochemical furnaces, That sort of thing. Again, we're very involved in the conversations around that. We have a lot to offer from a portfolio standpoint. And finally is the Nirvana case, The last case.
This is your green hydrogen power generation, where you use an electrolyzer with With an electrical source and using electrolyzer to convert water to hydrogen, then you store it and then it becomes a dispatchable Opportunity to then run it through a turbine and create electricity for it. You need geology for this to work so far. We haven't gotten beyond the geology cases for the storage yet. But there are active projects on this right now. We're involved in them.
Again, the world needs to build some of these at scale, so we can all learn from them as we go forward. On the right hand side of this chart is our hydrogen outlook. This is not my outlook. This is the IEA, the International Energy Agency's outlook. This happens to be under one of their scenarios called the Sustainable Development Scenarios.
And what the expectations are for hydrogen, growth, absolutely growth, but also the parts The economy and where that growth will come from, I think are interesting here. And that's why you're seeing a lot of conversation about this going into the roadmaps. And I think as we get future Proves more of it going into the roadmaps into the future for environmental sustainability. Energy source decarbonization, Emissions Management, Electrification and System Integration, Energy Efficiency Optimization and a lot of those novel solutions underneath those That I highlighted for you a moment ago. Again, I think Emerson is highly relevant in a lower carbon future when you contemplate these strategies.
As a bit of a proof here, I've laid out for you all of the novel solutions that I referenced here, biomethane biofuels, emissions monitoring, the grid, Carbon capture, industrial hydrogen operation across our two platforms today. And we very much have the ability to combine our technologies to help create These solutions for our customers. So I think we're very relevant as we go forward here. I think we're very excited about it. Where you don't see a dot on here is where you don't need to have a control You don't need to have a compressor or you don't need to have a meter.
I'm really tickled by this and I think our organization sees Where we are, what we can do and how we can really enable customers and enable the world as we go forward. I want to land finally on a little bit of a forecasting thing here. I showed you the U. S. Same thing here.
I showed you the U. S. Energy complex and what its mixes look like. This is the worldwide the world energy outlook, again from the IEA And it's primary sources and how those sources will move over time. I picked the 2 of their scenarios.
The stated policy scenario, which kind of says what is in Placed today from a regulatory aspect or near term, it's got the rules already established. That's kind of where the world's headed to in 20 years. 20 years equals like one David Farr CEO shift. So this is out there, but it's not scenario. There's more energy required To satisfy everybody, the mixes move around a little bit as you'd anticipate already with a lot of the momentum that's going on.
The challenges are everybody I would love to make the second scenario happen. That's a sustainable development scenario. This is the one that will tie to Paris, kind of achieve or at least be on the path to achieving the targets for Paris. And again, IEA has published a scenario what that might look like as we go forward. Less energy required because of efficiency and having more Used energy and not wasted energy.
And then, of course, how maybe some of these different areas will move around. There are challenges in either one of these scenarios. And I've listed some of those challenges down the side. Earth, minerals and processing, big deal for us. We want them for our alloys and our Fuel valve or in our valves, our customers want catalysts, somebody wants them in their battery, somebody else wants them in the magnetic for the wind.
Big topic, big collaboration area required. Energy storage, no great solution yet. I personally don't believe that battery is going to solve that. We all got to keep working on that. Maybe pumped hydro has a role to play there.
There'll be other ways that people will try to work that. And then as you kind of go down this list, Energy access and energy security for a lot of the countries of the world is still a primary topic. So they're listening to this conversation, but they want to make sure they create energy access for their people. So again, finding those practical, actionable steps that we can all take together to work forward as we go here requires a lot of collaboration. So in that light, the greening with Emerson, that area of our sustainability road map And framework is really important to us.
So we have been actively working as Emerson with a number of parties around the world, different world areas To be in the middle of the conversation, we have a unique perspective with our automation and our technology foundations, also just participating and being So broadly around the world, in the relationships we've created over decades with these different people. So we're in there talking to governments about what's possible, Policy pieces, what's practical? If you're designing a new product, what's a practical way to do it? What's a way we can get everybody to maybe adopt As we go forward, innovation, technology and ultimately trying to get these at scale in. So finally, I want to kind of wrap it up with a chart really Tying together, Lal, some of your great comments on culture, the work we're doing around social, the governance, the way this company runs From the Board down, the integrity we have and then our ability to deliver on the greening of Emerson, greening by Emerson and greening with Emerson.
So I think we're in a great place. Again, our people are so excited about this. I think our customers are really interested in having these conversations. And we want to see the world succeed. We're going to do our part to make that happen.
So with that, I think we will Move to a break at 10 past the hour. 10 past the hour. Thanks, everybody. Appreciate it.
All right. Good morning, everybody, and welcome back. I'm Jamie Frodege, and I helped lead the Commercial and Residential Solutions business. Before we jump into the broader presentation, I wanted to share a chart with you because I think The pandemic has been obviously a challenging time period for all of us, but it's also revealed a lot of things that I think will drive progress in the future. One of the things that is revealed is how important the integrity is of our critical supply chains and value chains around the world.
On this chart, you can see some of the data points in regards to the presence that our Commercial and Residential Solutions business has in some of these critical markets, Whether it's the $250,000,000,000 plus of perishable product that we help protect annually with our monitoring, sensing and software products Or it's the 8,000,000,000 data points that we collect for critical medicines and vaccines within the health care industry. We play a vital role in these critical value chains. But I think it's more than that. I think it's more than just the solutions that we've been able to help out. I think a lot of companies, a lot of citizens, we've all rallied To help each other during the pandemic.
So there's another thing that's happened during this time frame, which is it's really crystallized our thinking And our strategies and our purpose. And as we've talked about today, companies with purpose, they deliver more value. People are excited to come to work. It's easier to recruit, retain and develop people, and it's exciting to tell your friends, your family and your kids the difference that you're making in the communities that you serve. It's also helped crystallize for us the markets that we want to develop faster and the adjacent markets that we can expand into.
We've been playing in these spaces for a long time. It's great to see a new and increased focus on sustainability And all the great things that Mike and Lal have talked about today. The fact of the matter is that the Commercial Residential Solutions portfolio has been playing in these markets For some time, in stewarding changes in efficiency, stewarding changes in more environmentally friendly refrigerants. And so This is really a boost to us, a window to our sales to drive more positive change. So let's here's what we'll cover today.
I'll give a little overview of the portfolio, And then we'll talk a little bit about the financial plan, a little bit more detail than what Lal shared in regards to specifically this platform, this part of the business. And then we'll shift gears, and we'll get into the growth and the market dynamics that we're seeing, specifically as it pertains to the Commercial and Residential Solutions business. So let's look at the first of a couple of profile charts. We serve broadly residential, commercial, a variety of commercial markets. We have a huge presence in the food Industry, both retail and service.
We play a large role in transport, industrial, and we have an increasing position in the health care market. As you can see, we've talked about some today. We have a large position in the residential marketplace, about 47% of our business. And And we play very different roles within that residential marketplace, and we'll talk about that today because we play roles in our home products, tools and home products business. We also play a major role in the HVAC and refrigeration space within those industries.
We're seeing an increasing presence And growth opportunities across the three platforms and globally. We see a great opportunity for global expansion Within many of our market spaces that we play in today, we have a large Americas presence to build off of, but I see a lot of growth opportunities in Europe, Asia and across the Middle East, And we'll talk about those as we go through the presentation today. All right. This chart drops dives a little more deeply into the products and the solutions That we have across these three pieces of the platform. We primarily have a heating and AC business, which has a foundational Compression, leadership and stewardship position that we've had for many, many years over several decades, and we've augmented that capability With our SINCE, our Verdant, smart thermostat energy management product lines as well as our SINCE PEDICT product that does diagnostics and monitoring across the HVAC industry and product lines.
We have a cold chain business That is also foundational in compression for refrigeration, but increasingly, we've added to this portfolio temperature, Humidity, location, sensing, tracking capabilities augmented with software solutions that give you real time access as you track critical goods across the value chain globally. Our Tools in Home Products business is led by leadership, Signature brands like Insinkerator, Rigid, Greenlee, these are brands that are leaders, as Lal said, in our space, It's not only from a top line sales standpoint or profitability standpoint, but a product quality standpoint. We have deep, deep and very important relationships with our customers there As we advance these industries, both in the home product side with our wet dry vac business or in sinkerators or our professional tools business, where we have a broad capability across the mechanical, electrical and plumbing trades. We drive things like human health and comfort, energy management, Sustainability. We're protecting food quality, sustainability, safety, and we're helping drive productivity and safety As we build and maintain the world's infrastructure, and we'll talk about some of the growth areas we have in each of those spaces as we move forward here today.
Let's spend a little bit of time on the financial summary. Okay. So we're off to a good start this year. We in the last earnings call, we increased The outlook of what we saw from a top line sales standpoint, we're now outlooking 8% to 10%. That still looks very much In line with what we see for the remainder of the year, which is very positive.
So we're going to have double digit sales, double digit margin growth In 'twenty one, yes, it was led by residential, but I'm going to show you in a couple of charts, it's not maybe the same residential kind of bounce back that we've seen Historically, the drivers behind it are very interesting, and I think there's more growth to come in the residential space medium term in the markets that we serve, and I'll show you why we see that. As David and Lal talked about, there's some crosswinds, there's some headwinds on the Materials side. Again, this is nothing we haven't seen before. We'll manage through it in over 3 to 4 quarters. It unwinds, so we still feel very good about improving our adjusted EBIT and EBITDA margins this year.
And as we go through the cycle, 5% to 7% underlying growth. I think one of the things that's very interesting about this cycle, Lal talked about it, it's a multi phase cycle. It's led out by residential, but we saw industries like transportation, coal chain various coal chain markets, The food retail marketplace. Some of our industrial markets, we've seen them come back sooner. We've seen some of our world area markets come back faster, Really cold winter in China and other parts of Asia.
Europe is accelerating some of the rollout of their more sustainable Heating offering. So we've seen those markets come back sooner. Behind those markets, we're going to see an actual real and sustainable growth In the industrial space. And then you're going to see some opportunity for growth that comes later in commercial, hospitality and other markets. So Because of those trends, we see good opportunity midterm.
In this cycle, we should achieve our historic highs in sales this year. Adjusted EBITDA will either happen next year on a pro form a basis, so after the Tools and Test acquisition we did or in 'twenty three on a reported basis. And operating cash flow, we will achieve our high either this year or next. It's very close this year, so we might get there this year. But if not, we'll get there next year.
Just a minute or 2 here on the cost reset plan. We've really shifted to execution and growth. You can see most of the spending is complete, as Lal talked about. It's just coincidentally, Lal, 80% of the recent spend in each of the platforms, as he mentioned. But this means that we've got that work behind us.
We obviously, the top line went down in 'twenty, but we still improved EBITDA percentage by 40 basis points during that period. We reset the cost structure. We put a lot of great plans in place around footprint optimization, organizational optimization, And now we're in execution mode. You can see on the bottom right that we still have a lot of future benefit to come in 'twenty one, 'twenty three, But most of the planning is already in place. For example, our footprint optimization activity, 75% of those actions are completed or underway.
But the financial benefit will largely come in the back end of the plan. So we think we have a really good runway here to the 28% adjusted EBITDA percentage. The teams are focused on growth and execution and keeping our customers happy and product in their inventory so that we can meet this incredible demand that we're Let's shift gears and start talking a little bit more about our growth dynamics, our market dynamics and our strategies. So I've talked about some of these trends already. And just to give you a little bit more detail, residential, the marketplace, There was more people wanted to buy a home than could recently.
Inventories have been fairly low. It's driven pretty dramatic remodeling demand. And in fact, most of the forecasts that I've seen expect that, that demand to continue over the next 2 to 3 years. There's also an emerging Thought process that the millennial generation will start to be much more active in home purchasing. And so I'm not sure that we're done With this first wave, there's definitely a bounce back.
There's definitely a replenishment of channel inventory, but there's a lot of trends here that support a more sustained Solid residential marketplace. Food retail has changed dramatically. I'll talk more about that as we go. The pandemic changed the way fundamentally that most of us Bye Food. It's had obviously a large near term impact on foodservice, but we'll see that around hospitality and foodservice turning around.
And then we talked about the fact that our commercial marketplaces the commercial buildings will take a little bit longer to come back, but that actually Gives us a little bit more growth runway in the back half of our cycle, which is good for the business. All right. This is an important chart for us. This chart, if you look at the left side of this chart, these are the 4 fundamental strategic imperatives of the business. When our teams wake up around the world and we think about where are we building products, where are we serving customers, where are we delivering value, these are the 4 areas that focus all of our energy and attention.
Energy efficiency optimization, emissions management, decarbonization and sustainability. You heard Mike talk about it. It's a common theme across the two platforms. We're working aggressively in this space. In fact, we've been a leader and a steward in this area for many, many years, And I'll talk more about that as we go forward.
Human health and comfort. We get there in a variety of ways, Whether it's in the health care field or whether it's in residential and home products, and so we'll talk about those solutions. Food quality, Safety and Sustainability, we have a $1,700,000,000 sales top line position in these food markets. We'll talk to you about what our strategies are there. And in infrastructure management, really driving productivity and safety, largely around our professional tools presence.
All right. So let's start out with that first strategic imperative. This is really around energy efficiency, sustainability. This chart, the blue line is the trailing 3 month Order trends that goes all the way back to 2,008 for the overall Commercial Residential Solutions platform. But because of our very large presence In the HVAC and Refrigeration spaces, you can see the impact that major refrigerant and efficiency changes have on our business.
Now the 2010, 2011 bounce back maybe a little higher peak because we had the 2009 financial crisis, but you can see as you move forward In 2015, with the efficiency change that occurred, you see, again, another big spike in our growth. Well, This V shaped recovery that David and Lal have spoken about so far is not driven by those changes currently. It was driven by the trends that I've talked about So far in the presentation today, fundamental changing behaviors that drove residential demand. We still see, over the next several years, major, major changes coming. January 23, the new DOE efficiency standards will go in place, And that always drives big change in our industry, especially in the year leading up to it.
AIM Act was signed into law December 2020, And we will start to see HFC reductions across our commercial, across our residential, across our refrigeration businesses. This is very important because these new laws, these new regulations will provide clarity to how the market will evolve. At first, we were focused on eliminating flooring based products that had ozone depleting challenges. Now we're trying to limit the amount of HFCs that are out there, the high GDP refrigerants and other chemicals That can create a warming effect for our environment. Change is coming.
I see it accelerating around the world, and we are well positioned to help steward this change. Staying within the efficiency and sustainability and building on the last chart, let's look a little bit closer at what kind of change we're talking about. I mentioned to you on the right side of the chart, you can see the timing of the efficiency changes as well as the changes around low GWP, Elite low GWP refrigerant transitions. But let's look at the left side of this chart. The last big change we had was 2015, Which was primarily driven by efficiency changes.
Today, we're managing efficiency redesign and low GWP refrigerant redesigns. And you can see that just in the U. S. Alone, this is driving OEM system redesigns at 50% to 60% greater than what we've seen in the previous cycle. What does that mean for our business?
This is where our global scale, this is where our global scope, our engineering and manufacturing capabilities really help us partner with Our customers and our end users to steward and drive change, not only participating in the important committees In groups like AHRI or the Alliance Group, but working closely with our OEM partners to make sure that we have the right product there available to our customers When they need them to manage these changes, historically, during these transitions, our businesses have gained market penetration because of those capabilities, and we believe that we'll do so again in this cycle. Staying within efficiency sustainability but then starting To trend into Human Health and Comfort, I want to talk to you a little bit about what's going on in Europe and in our China business. The regulations, the incentives, the subsidies around Europe decarbonization are accelerating, and we're seeing it evidenced in our business. On the left side of this chart, you can see how fossil fuel boilers are being replaced with other alternatives, the primary alternative Being heat pumps, which is one of our leading product capabilities, is growing faster than we expected even this year. We're on track For 25% growth, we grew more than 40% in the Q1.
But you fast forward and we've not reached the big cliff, the big inflection point for growth here. It's still to come Around the 2030 time frame, where we see a reasonable share expectation of $400,000,000 type opportunity for this business And as large as a $700,000,000 opportunity for just this solution alone in the next 30 years. In China, it's not as driven by regulations, incentives and Subsidies today, we've seen periods of that in the past, and there's still some that exist. But it's fundamentally being more driven by just The need for better air quality and overall decarbonization. And we're seeing the growth come across district, industrial, sanitary and individual type solutions, especially around the heating market, which we think will help us drive double digit growth in this space during this cycle.
Let's talk a little bit more about Human Health and Comfort. I chose this specific example around our Healthcare and our Life Sciences Value Chain. We talked about the very beginning of the presentation here the importance of the integrity of the value chain, and we've seen that Really in spades. We've got many examples of how we've helped our customers and worked closely with them. Whether it's signaling, the refrigeration going out and giving real time insight To a partner that's been able to make sure that vaccines are not wasted and that are distributed or it's our ability to help that last mile distribution With groups like some of the Veterans Affairs groups that we've worked with across the Midwest, we're very excited about those partnerships.
There's more room in this space to connect the dots. One thing that's become very clear as we've gone through the pandemic is the data Across these pieces of the value chain is disparate today for the most part. It's isolated in too many cases. And we have unique capabilities across compression controls, monitoring, different types of ultra low temp Compression and control we can provide for ultra low temperature refrigeration as well as temperature and environmental monitoring, both in transit And when it's stationary within cold storage or hospital facility where that medicine is staged. So we're very excited about the opportunities to And our capabilities here, and we're already seeing double digit growth this year expected as well as through the cycle.
Let's shift gears and talk about food quality, safety and sustainability. As I mentioned to you before, we have a $1,700,000,000 top line presence In the food value chain. The food value chain has changed dramatically. I don't know about your own personal shopping behaviors, but A majority of people around the world purchase food online during the pandemic and still are. And all the research indicates and the surveys We're doing is that most people intend to keep doing that.
Now when you move from a go to the grocery store and buy it to a click and collect or someone is delivering it to you, It changes fundamentally the architectures that house and keep that food at the quality level that it's supposed to be at. It changes the architectures required because people are coming in and out of those cold storage facilities more frequently to prepare those Folks pulling up to give them their food or to give to the person that's going to deliver it to the individual. And not only that, but as I mentioned to you earlier, The focus on efficiency and the change in the refrigerant policies are also going to drive new store architectures. There'll be limits on how much GDP, GWP, a particular food retail source will be able to put out there as part of their operations, we can help them Navigate that change. The cargo monitoring space, I think the visibility, we've been looking at this space for several years.
We've made investments And a couple of businesses many several years ago, the and they've grown exponentially. And we've been very focused on it. I think now with the pandemic, we'll hit another inflection point, where people's understanding of the holes and the gaps and the integrity of the food value chain is so clear now That there's huge opportunity for us. And then as we go into the food waste piece of the equation, our in sinkerator capability, The ability to turn that waste and send it to advanced water treatment facilities that can turn that into good energy or turn the solids into fertilizer It's a great way for us not only to drive sustainability here, but across the world, and we'll talk about some of those global expansion opportunities here soon. And if unfortunately that waste gets into a landfill, one of the solutions, commercial residential solutions has, It's our filter product, which allows us to, as Mike talked about, compress it, clean it, turn it into a clean energy source.
So we play A very broad role across the space, and we're looking forward to expanding our capabilities here as we move forward. Let's build on that. So let's look at the global waste disposer industry. On the left there, you can see the U. S, 68,000,000 installed base, About 54 percent of household penetration.
But there's still a lot of places in the country that are underpenetrated from the standpoint of Posers. And we're making good progress in helping drive policies and education, make it easier for the product to be used and installed and understood, Overcome some of the misconceptions about where a disposer can and cannot be used, both in those underrepresented areas and specifically in folks that have septic Infrastructure. And so there's still growth runway in the U. S. But let's look at our global expansion opportunity.
China has been very aggressively putting in waste classification regulations, really focuses on the separation of waste classes And how you'll properly dispose of that waste. And over the next decade plus, hundreds of cities in China will put these waste classification regulations into practice. And one of the main ways they're finding to address these new requirements is to use a disposer. And we've seen tremendous growth the last few years. But look at how much of the market there is still to be developed.
2,000,000 total installed base today expected to grow 10x will still only be 3% to 5% Of household penetration. So we have a long runway for growth in China in this business that we're very excited about. Let's switch gears here now and talk about our 4th Focus area, which is really around our drive to lead productivity and safety as it pertains to infrastructure management. We play a broad role across mechanical, electrical and plumbing trades. I've given you some examples here on the chart where in some cases we can improve efficiency by as much as 85 Why is this so important?
There is a global skilled trade shortage in the U. S. And other places around the world. Some of the studies show that more than half of those workers are greater than 45 years in age and maybe 25% plus or greater than 55 years in age. And so we need to do things to make the work more productive.
And you can see on this chart many examples of that. We need to make the work smarter. So if you look at that leading conduit bending technology there with the what we call BIM, Building Information Modeling, That's an AutoCAD plug in that allows us to take 3 d modeling, use our standards, turn that into usable work, very precise work, automate it, Enable prefabrication, reduce scrap, improve productivity. This is a huge advancement in our industries. And it's mega press.
Pressing is still underpenetrated in the U. S, about 20%. It's about 70% in Europe. It's only 3% to 5% in China. There's a long runway in the U.
S. And other parts of the world to use pressing to replace traditional methods that aren't as safe and that I've talked about this solution before on earnings calls, but the fully it's the industry's first fully insulated battery hydraulic tool, up to 1,000 volts of protection It helps prevent up to 60% of common accidents. And then our remote cutter as well. So look, we have There's trends in our marketplace where customers are increasingly wanting tools that are smarter, more connected, Battery operated. And one of the big trends that we see is the higher voltages of tools, the larger tools, there's a long term trend of transitioning from corded So cordless and battery across that market today, and we're expanding that portfolio very, very quickly.
All right. So we talked about our 4 major strategic imperative and focus areas. Across the portfolio is the acceleration And development of software enabled solutions, leveraging our large and diverse installed bases. Look, we have a great position in our markets, Whether it's residential, insuring today, we are barely scratching the surface, in my opinion, of what we can do with that data to unlock value for our customers and to meet our strategic imperatives. So whether it's when we do industry surveys, they don't feel very comfortable most of the time at work Or at the office.
In fact, a large percentage will tell you that they've actually left a location because they weren't comfortable in that shop or at that home or in that office. There's still a lot of work to do there around precision humidity control, around temperature control, around efficiency and friendly refrigerants. So There's a lot of work to be done there. The cold chain, we talked about the ability to connect the dots across the supply data management as it pertains to driving productivity and safety across our commercial industrial marketplaces. One of the other strategies that we have is this clarity that we have around our strategic imperatives has really where do we go next?
You can see The markets we play in today, the traditional market for heating and AC we play in would be about $19,000,000,000 $8,000,000,000 for cold chain, about $11,000,000,000 for tools and home products. But some of the areas there you see within those dotted boxes are spaces that we have a small presence in today. As you move to A2L or lower GWP refrigerants that are slightly more flammable, environmental sensing and remediation becomes increasingly important. That's a space that we think we can play a very important role. We've talked about in the middle, connecting the dots in the life sciences, pharmaceuticals and food value chains.
And we talked on the right here about some of our professional tools products that do metering and monitoring, including high voltage. The test and measurement space is a market that could make a lot of sense as part of our overall corporate strategy, and it's a space that we're looking at and we've been looking at for a long time. So we have a lot of opportunity to expand the Portman into as well as get into adjacent spaces. So I'll finish similar to I'll now finish here with a key messages chart. But essentially, 5 key messages: sustainability, health, productivity and safety trends.
It's a great time for our portfolio. If you look at our portfolio, it's always been focused in these areas. But the new desire to drive these things faster, we're really well positioned to help folks get there and create value. Our global leadership Position in the HVAC Refrigeration Industry positions us well this year. And again, the regulations, the subsidies, incentives around the world are accelerating.
And so we're uniquely positioned as that occurs. And our installed base across industries, applications creates terrific runway for us to build out our software enabled solutions. And market trends, core strengths of ours align really well with our path to 28% EBITDA in 2023, and we're going to hit some of our historic highs financially even before that time period. So thanks for letting me take some time with you today. I know we'll do some Q and A later.
And with that, Peter, we head into Thanks, Lal.
Thank
you. Great job. And tremendous momentum in this business and giving us a path Today, we're going to continue with a 4 plus EPS pathway that we see right in front of us here to execute. Very excited about what's going on in Commercial and Residential. And now we'll spend a few moments on Automation Solutions as well.
We'll talk about the financial summary and then talk about the drivers around what's going on in our market and how we're going to generate growth and value in this planning cycle for the business. It's a very unique business. I used to say it was the best $1,000,000,000 in sales, Very $11,000,000,000 in sales and participating across the device layer, The control layer and the software layer with sizable product categories in technology leaders Across many categories, Final Control, Instrumentation and really differentiated by the software offering. It is a global business with 55,000 global employees serving a $123,000,000,000 installed base. We have over 130 manufacturing facilities, over 210 service centers around the world.
Very important set of investments, particularly when it comes to the service capability of this team, which then fuels the KOB through strength of the business. We play in a $203,000,000,000 sandbox in discrete markets, all of which we have a strong hand to play in. A lot of work on the diversification of our markets, again, with the investments both organically And with acquisitions in the hybrid and discrete spaces, in the software assets that have brought power in the renewables markets and made those larger for us as well. KOB 3 is the core is a core as we closed out 2020. It's at 58% of sales as we closed out December of the 1st fiscal quarter of 2021.
So it continues to be very strong. A lot of the investments that we've made over time have put us in that position today. And then ultimately, to drive into the modernization and upgrade opportunities that are captured in the KOB 2 environment. What's interesting about those two categories is they're not very CapEx dependent. That's really where the OPRE, that's the KOB 1.
But where we live in this business through the cycles is in the KOB 3 and the KOB 2 opportunity. We've had a strong hand to play through this very challenging period of time for the world. Across the top are various solutions that we provided through the COVID pandemic in 2020 2021. We're involved in it in Europe. So there's a very high chance that Basically, just about everyone on this call that when you do have the opportunity to get the shot, you'll have one made by Delta V.
We've been involved in PP and E manufacturing with masks surgical masks, differentities and others. And of course, with our valve, pinch valve, ASCO business in the manufacturing of ventilators and oxygen therapy devices. We play an equally strong hand in maintaining in via power generation, which we've talked about already, with 20% of the global power generation capacity of the world. We're now expanding with OSI to transmission and distribution And already 41% of the top U. S.
Utilities use OSI. And what a great opportunity to globalize that for us. And then pipelines. Huge as Michael described, be that methane as a transition fuel right now Or ultimately, Hydrogen will be incredibly important. We have a very strong hand to play with our device capabilities, but more importantly, with our software capabilities around pipelines.
We've spoken through the earnings calls about The shape of this recovery in the particularly as we close the year, and I feel good about where we are today. It's being led by the right types of businesses that you'd expect and the short cycle instrumentation businesses within the process side of the equation. That's where we see some of that momentum accelerating. Clearly, we continue to have some challenges around site access, although improving. And very and I'm very optimistic that the Spring STO schedules are holding, which is an encouraging growth in North America as we go forward.
Slowly, as people get back on sites And so thinking about modernizations and upgrades, we'll see that KOB 2 business accelerate, which should then fuel more activity across the business. So we're watching North America very carefully growing in the business, and I continue to believe that we are on the path to a cycle recovery here And as demand recovers across the areas for the business, as we covered in the earnings call, has not changed, down 3% to plus 1%, But it's built on solid of adjusted EBIT margin improvement this year and 100 basis points of adjusted EBITDA margin improvement. Tremendous momentum across the world around the cost reset plan that's generating those kinds of returns. For 2023, we'll grow this business in a 3% to 5% underlying basis as we go forward, And we'll hit that adjusted EBITDA number
at
that run rate record sales in late 2022, we'll print it in 2023 and we'll hit our record adjusted EBITDA and operating cash flow in that year as well. The execution, as Jamie covered in commercial. Over 80%, again, by chance, by pure mathematical chance, 80% of the spend is complete through Q1 of 2020 set activities, very likely at the end of this fiscal year. That's really good work there. A lot of the early structure stuff was done early in 2020, and now we're really focusing on the execution of the facility work within this plan.
82% of those actions are already underway with 30% of the facility activities. We will have completed 60% of all the facility activities. That's important in this business because it coincides with the growth of the business returning. So very important for us. We will, much like in Commercial and Residential and the total Emerson, have a tailwind of benefit impacting the P and L as we continue to execute these actions in 2021 and 2022.
And you can see that on a total basis and a good path to get to that 24% adjusted EBITDA in 2023. I feel really good about the plan cycle we're in and the opportunities, but more importantly, the opportunities that we have to further differentiate ourselves using our phenomenal people in technology in the business. A quick perspective of where we We sit today depicted here in 3 stabilizing force across automation solutions as we've gone through a challenging period of time here. The investments we made there have paid dividends for us. It is obviously a less violent cycle in KOB 3.
A lot of that spend It's done to keep things running $1,000,000,000 installed base. We'll see KOB 2 returning ahead of KOB 1, which will be more of a late cycle Phenomena for us is attractive, looks pretty good. Everybody is lined up to return to growth. All the world areas are in the good part of the cycle right now as we see it. With North America slightly lagging, it's showing that positivity already in the our diversity really helps us.
We have exposure to different cycles as depicted in the chart, some of which are about to are still in a trough As we've talked about, particularly around Upstream and Refining, but others have started to grow. And of course, with transmission and distribution, adding diversity into the portfolio as well. I want to talk about oil and gas first because it is a little bit of the elephant in the room, And I think it's important to speak about and really oil and gas production is curtailed. It is Still a very important element of the entire value. The axis on the left, I believe, says 1,000,000,000,000 At its over $1,000,000,000,000 at its peak, and it's still a very large number.
So it continues to be part of that equation. Whether You're looking at the state of policy scenarios or the SaaS U. CapEx has been significantly curtailed, But OpEx continues to be relatively steady. The bulk of our business and what drives that KOB 2 and KOB 3 sits in that OpEx number. And it's what drives percent of the automation business.
CapEx is important because you got to put capacity in, you got to move things around. But OpEx is an engine for the business as well. And then thirdly, our technology is incredibly well positioned To drive the types of investment efficiency, they'll be focusing on cost reductions. They'll be focusing on production reliability. And that's exactly where our top line is.
So I feel really good about the hand we're dealt. We're going to go through this journey. These customers are important for us, And we believe that there is opportunity to create value as an organization in this market as well. Distant with what I spoke on an Emerson level and what Jamie covered for Commercial and Residential. But they're driven around 4 megatrends that are impacting the automation markets today.
Sustainability, Michael did a great job of walking us through the opportunities to the table. That's the clean fuels, that's the renewable energy over 60 years old in Western Europe and in North America. Great opportunity there. Digital transformation across our customer base and our industries. The move from remote operations to autonomous operations, that is a cycle we're in today.
That is a development of technology. And lastly, the infrastructure modernization, particularly as it relates To safety of people, usage of labor, Jamie talked about professional trade stresses on labor availability. It is what I'll speak about. Industry Diversification, Software Strategies and Electrification and Decarbonization. A lot of work.
A lot of work has been done Around our organically space, around power generation in this example, and then chemicals and clean fuels. The work that we the position of these vaccines in record time is been done early on 30 years ago in Marshalltown, Iowa in acquisitions as well as internally as we went through it. The work we've done with Badrna has been phenomenal. We've been able to reduce Moderna's cycle time manufacturing down 40% as we move there. In Power and Renewables, the journey of 20% to 20% to
20% to 20% to 20% to 20% to 20% to 20% to 20% to 20% to 20% to 20% to 20% to 20% to 20% to 20% to 20% to 20% to 20% to
20% And the growth that we've had in the business, the power generation at the Tennessee Valley Authority Power Plants, better technology and better solutions we've been able This brings in the opportunity for clean fuels and biotechs in Finland around fermentation processes in the plant. Software, We've spoken about it a couple of times already. Jamie spoke about it. I saw $1,000,000,000 of standalone software and associated services. So a very strong hand to play, which we continue to invest in, in both by the recurring revenue associated with our standalone strategy that we can play As we convert and take advantage of SaaS as we go forward.
Soft hours spent as well as acquisitions. I'll cover the internal developments first and give you really into 3 stacks. The first stack is automation control based HMI for control systems, which I've already covered in the digital piece. And then on the right, those are the manufacturing execution systems At Cinque, for Pharma, we have leverage points. We leverage cyber security as well.
On the left, a list of acquisitions we've made Over the last 3 plus years, all very relevant expertise across our customer domain. And that is very embedded in the applications that they bring. And they focus on reliability into our company, whether it's visualization, the analytics automation. They bring in ITOT connectivity, which is incredible and the leverage across many of our businesses. I'll share with you two examples of How we make an acquisition and then we leverage, OSI did the development of that historian to really help our custom premise to the cloud.
They also bring a lot of plant native historian called Inmation, again, playing it.
So So I
want to turn to the sustainable work. It's really two sides of the equation for us. This across the top are the conditions, management and energy efficiency and optimization, $1,000,000,000 business already. That's made up of the categories that you see there as planned. On the right hand side of the chart around emissions management, the problems I was in Odessa, Texas 3 weeks ago.
So it's not the most exciting environment right now. What I saw was encouraging. The conversations we had were around these elements. This is where they have to invest. They made commitments around sustainability.
Highly, highly differentiated and I feel great about the opportunities that we by the evolution of green hydrogen. At 70,000,000 tons per annum By 2,050, what's depicted on our chart here, it represents a $750,000,000 opportunity for Emerson. You see there The electrolyzer all the way through to the so lots of engagement already by our global teams It's a chemical process. I feel really good about the hand that we have to play here as an organization. It's a unique business.
It's that we see in the marketplace. It's ex half to the 24% adjusted EBITDA Commitment in 2023 on software and digital, and we'll continue to work on sustainability. But before I give the break, So we can set up the Q and A. In the audience and having the energy of the room, it makes a difference for all of us. It's not quite the same experience.
It's all teams that come to work every day and make us UK will give us. We're going to make our own future as we drive. With that, we'll do a 10 minute break so we can reset the room and set up the Q and A and for Okay. Welcome back, everyone. This will we will begin our Q and A session now.
And I believe I'll turn it to the operator to kick us
off. Thank you. We will now begin the question and answer session. The first question today comes from Andrew Obin with Bank of America. Please go ahead.
Hi, yes. Just the first question I'll ask the first question on ESG actually because it's very interesting to hear you guys talk about it and more Players in the energy industry actually talk about sort of the green aspect of making things more efficient. I was just wondering how much Feedback have you received from shareholders? And from your perspective, what do you think is the most misunderstood aspect of ESG operates at Emerson as the Street proceeds them.
So I'm going to have David talk about shareholders, and I'm going to ask Michael to speak about the industry.
So Andrew, first of all, it's good to hear from you. I would say over the last 18 to 24 months, We've heard a lot from our shareholders. When Sarah Bosco, the General Counsel and a couple of my directors went out and met with shareholders, as you know, in 2019, We started hearing the feedback about our program around the total ESG, but very much focused around that area. We have Continue to hear it throughout the last 12 to 18 months. And the more we've communicated, the more they're picking up.
And I would expect this is going to be a very important topic. And for us as a company, as you saw the presentation and also the engagement, and I would say the most A misunderstood area about it and I'll let Mike answer this, but from my perspective, I think people don't realize how broad base of help we can make for our customers And from the standpoint of what we bring to the party, and I think this is the first time we've tried to communicate externally. I think Lal has worked extremely hard on this, Jamie And then through Mike, and I think that's been very important for us for the first time to show, okay, this is what we can do and get our employees engaged across the company. So A lot to learn, but I think the engagement is quite significant and I think the opportunity is very significant for us to help our customers. So Mike?
Yes. I'd just add from the industry and the customer point of view, these past 2 years, especially last year, just prior to the pandemic, This was dominating the discussion. And I think a lot of our traditional energy companies were really leaning into it. We've seen their statements in the past 12 months. We've seen the strategies starting to emerge from these companies and forward.
I agree, David, with your remarks. I don't think people understand. That's why I really wanted to use and teach the Sankey diagram today, so people have a perspective on our starting points, what's relevant, what the strategies are. And I think as we go forward here, I think Emerson is really excited about how we can contribute.
Absolutely. It is. And as I think you both said, an evolving story for us, both with shareholders and the expectations there and with industry. But I like where we sit today and the investments we're ready to make as an organization going forward to capitalize on this.
And I think the other thing I would add is one of the areas our customers are focusing very, very hard on right now is around the emissions. I think they're starting to realize, As Mike showed in his chart, admissions is a huge area of improvement. And we actually have very, very unique solutions there. And we've worked with BP, we've worked with Shell, ExxonMobil and all these are very much focused on that. But it's not just oil and gas.
I would also say Jamie. Jamie has been working with the industries relative to CO2, relative to the refrigerants, and I think your organization has an equally important place to play across this from the standpoint of what you can do to help reduce the carbon footprint at our customer level. So anything else?
Yes, David. I mean, it's a great look, we As I said in my part of the presentation, we're really excited about what's going on right now because this is really where the business has been focused for a long time. And we would help drive these regulatory changes with our customer. We kind of connect the dots, right, between the contractors, the OEMs, the end users, the There's the government bodies, and we've been doing that for a long time. And I'll tell you what we've seen the last 12 to 24 months is an acceleration, Absolutely an acceleration.
And some of the regulatory environment and the changes that will happen, our customers will have to adapt to the new changes. And so we want to get out in front of that with them, make sure we do it in a way where they create value for their businesses and for their customers as well as Driving sustainability. But it's going to be one of the most active, I think, 3, 4 year periods we've ever seen across the HVAC and Refrigeration
Yes. And just and to build on that, Andrew, and I'm sure you have, if you peel through sustainability reports that our customer base has issued, Some, yes, use a lot of color and not a lot of substance, but there are a few out there that specifically speak to what they're going to do. And when you really look into what they're saying, it's really aligning around the technologies that both the commercial residential business and the automation business bring to the table today.
And just a follow-up question, maybe it's tied to it a little bit. Talking about Automation Solutions, when you talk to your Oil and Gas customers, I mean, you definitely talked about where the cycle is. But when you talk to the customers, are they thinking Differently between mix of spending longer term between growth and efficiency and digital transformation, How different is their thinking post COVID versus pre COVID? Thank you.
Yes, Andrew, great question. Absolutely. We just came out of a very significant Kent really at the tail end now of a very significant LNG wave where a lot of capital investment occurred. We came out of that very well. We've won over 50% Slightly over 50% of all the automation dollars related to 8 LNG jobs, and we have one additional one In Qatar, that's yet to be finalized.
But so that's been a heavy capital wave. What our customers are thinking about today is really around The issues that enabled the move towards renewables and sustainability, emissions monitoring, those elements that we discussed, And that brings in the modernizations, the digital investments and the upgrades of their facilities. We see some projects around clean fuels, so conversions of refining capacity From traditional feedstock to biodiesel and others, that's going to have some momentum as we go forward, particularly in Europe and North America. And at the detriment of what we'd call some of the traditional refining type of investments, things like in the industry, Andrew, and you're familiar with it, we call bottom of the barrel type So that's basically been scrapped in lieu of the biofuels and other things. So it is shifted.
I think we're in a wave where we'll see smaller projects until we get the next capital wave that will hit us. But at this point, it will be absorbing the capacity that will be built with this LNG wave, Using gas as a transitionary fuel, we're really focusing on those differentiating efficiencies, safeties and Environmental Strategies across the base. That's what I've been hearing across the automation space as I've talked to the teams around the world and customers around the world.
I would add one thing. I would say just recently, Andrew, you saw the announcement of Shell, Clatt and VP. And so I think you're seeing these customers make a shift in the type of liquids to gas. And the other thing that's quite interesting is they're going to have less investment in the liquids, which will just maintain it. They want efficiency, which we'll be able to help them quite a bit with relative to our products.
But the other interesting thing that you've seen from the as they shift to gas, they want to become energy power producers. So now they're going to go into the power industry and they want to produce electricity using some of the renewables and some of their gas and things like that. So I look at that as an opportunity, 1, because of the gas, but also because of OSI. They're going to have to manage that power generation and they're going to have to figure out how to manage that, something they've never done before. And given their big customers are, Lal, I think they're going to have to come to us and say, hey, how do you help us manage that?
As we generate that power, how do we manage that power? And I think that so not only the traditional, but I see as you go into To Generation Power, and you keep hearing all the major oil companies, be it the BP, you're hearing Shell, you're hearing the guys And France, and what's Total. Total. They all want to be power suppliers. And so they're going to need OSI to help from that standpoint.
Good opportunities.
The other thing too, Lal, we talked about skilled trade shortages in the ComRes side, but I know when working on the auto sell side, the other thing is people are going to want to do less. They're more with less. There's skilled trade shortages in the automation space as well. So even in those traditional industries, They want to automate more, right? They want to get more productive by using that data.
And they also want to outsource more of the services that they may have performed in house over time Two vendors like ourselves that can provide those services. So I think those are good trends for us. Very good.
Well, Andrew, you got almost a third of our time there. Thank you.
The next question is from Andy Kaplowitz of Citigroup. Please go ahead.
Good morning, guys.
Good morning. Hi, Andy.
So Lal, I know this is your presentation because there's no redacted slides anymore.
It's kind of hard to react in this kind of forum, wasn't it? We talked about it, Andy.
That gives you some consolation. My whole presentation would be back.
So core growth in this year's presentation is higher than last year's. Is that just a function of the starting point During the pandemic, when you think about the pieces, the 5% to 10% growth in C and RS, ANS up 3% to 5%, especially with C and RS, that growth seems higher. So Maybe you can give us some more color into the assumptions you're making to achieve the growth in that business?
Yes. Speaking to Commercial and Residential specifically, Andy?
Yes. Yes.
Okay. I'll let Jamie take the cut there, and then I'll add a couple of comments on it.
Yes. I mean, look, you said it's the starting point. Big drop to 'twenty and Not quite double digit, but we got close to it, right? So we're building back off of that bottom. And if you look at a lot of our traditional markets, they could grow in the 2% to 4% range in normal cycles.
Well, we got the benefit of a lower starting point and I do see an acceleration of some of the drivers, trends, regulations and incentives that I think will give us a little boost. But Look, that plan of 5% to 7%, it's 1 point to 1.5% kind of faster than the market is our expectation. And from everything we looked at, we feel like that's pretty reasonable. Look, Nobody can we can't anticipate exogenous events. We're living in one right now, right?
But The plan based upon normal conditions, I think, is pretty sound.
Yes. I feel good about it. I think Jamie touched on the refrigerants Changes that are coming our way, those will be impactful in the cycle in your business, Jamie. But we obviously, Andy, as you hit on, we cannot discount the starting point. 21% is in the planning window.
Yes, got it. And then maybe just a follow-up to that. You obviously You reduced your acquisition focus revenue growth a little bit in the walk versus organic. Is that a function of actually redirecting investment opportunities inwardly Or maybe higher valuations, it's a little harder to find good opportunities. Give us a little more color on what you're seeing in sort of the acquisition pipeline Yes.
Internal investment versus external?
Yes, sure, Andy. So both, we're very focused. We think that we get a Very high return on our internal investments that we make in the company around technology, but we also have to be cognizant of where the pipeline on acquisition sits today. We're going to be very measured as we look at the opportunities that line up to the strategic the 3 strategic initiatives we discussed today. And we expect that post COVID, that funnel will strengthen as we look at it.
There will be good assets that become available to us. We've had to have a solid grounding understanding of the markets so that we can act quickly when they become available. But I feel that, that will ultimately develop a little bit better than we're seeing. It is. We have about $700,000,000 of sales value in the bridge Related to additional acquisitions, again, you can fluctuate that between the base company growth and the acquisition revenue.
It doesn't mean that we're taking our focus away. We continue to see that as a very important driver for us, but we're also being cognizant of the environment that we're in. David, you want to add anything there?
I think the only thing I would ask is, I would call this more planned, more derisked. If you're looking at the core growth, which I think both businesses Have a potential growth period here because of effort that our customers have underspent for a couple of years and the fact that so we feel more opportunity will go into the internal growth. And there's right now the opportunities within acquisitions are somewhat limited. And as Lal said, they will open up again. But I think we have a lot of internal opportunities right now around the investments to help our customers around the world deal with the sustainability as they try to shift to lower carbon industries.
And also, as Jamie said, they're going to need our help because they don't have the expertise. And so I think that right now there's a unique opportunity to have more internal growth and put more money back into that. And that's a richer growth for us, so I call that more of A derisk plan, a less risky plan for us to execute on.
Thanks, guys. Appreciate all the color.
Thanks, Andy.
The next question comes from Jeff Sprague of Vertical Research. Please go ahead.
Thank you. Good day, everyone.
Hi, Jeff. Hi, Jeff.
Hey, 2 from me. First, I know you don't want to make Lal, I know you don't want to make Dave Farr look like a slacker, but you're now CEO and Head of Automation Solutions. So I just wonder what your thought is About managing that piece of the portfolio, should we expect somebody to be named to run that division in the near future?
You think I've thrown my name in the hats, Jeff?
I've been trying to think about great question. I've been trying to think of the best use for David. He wants to buy one of our impact partners in the Carolinas. Maybe that could be a better path, David. We'll see.
But I don't want to negotiate stock discounts with Mr. Far here. No, absolutely, Jeff. Great question. It's not sustainable for me beyond another day or Tohoku Division Solutions.
So expect, expect in short order an announcement of leadership and how we start to shape the management team of the company going forward.
And secondly, just thoughts on the portfolio, maybe not The bigger kind of breakup question, which has been addressed recently, but just kind of the maybe the pruning and tweaking around the edges, If you will, I mean, there's some speculation out there on Appleton. There's been some chatter in the channel here and there about tools once in a while. Should we expect under your leadership here some more kind of fine tuning of the portfolio?
Jeff, good question. I felt terrible when I saw the Appleton Article because those people work in that business, people go to work, they create value and it's disruptive to management teams and employees to see that come across Tremendously in his time as CEO and will continue to do so under my time as CEO as well. We'll be proactive. We'll manage it. There'll be opportunities on both divestitures and acquisitions.
But we really got to have the opportunities To add before we think about subtracting as well, I think that's important as we think about the company. And I think there are many, Jeff. I think there are many opportunities to think about unifying the segments we have, the platforms Around some of the dimensions we discussed today, we're going to work as a team to really think through that. And over time, I think you'll find that it will change. First, maybe at the edges and ultimately in a more relevant way.
Great. Thanks for the color. Best of luck.
Thanks, Jeff.
The next question is from Steve Tusa with JPMorgan. Please go ahead.
Hey, guys. Good morning.
Good morning, Steve.
Dave, congrats again, and we're definitely going to miss you. Best of luck in the future, of course.
Thank you. Okay, Steve.
On OSI, you guys had mentioned, I think, dollars 300,000,000 of sales or something like that by 'twenty 3 in that bridge. I think historically, you said when you
Absolutely, Steve. It's been we're off to a great start with OSI. As we talked In our earnings call, we booked nearly $95,000,000 of business in the Q1. And what's implied in the numbers is a 20% growth On a compounded basis for OSI between now and the end of this planning cycle. Great momentum.
Steve, first of all, Thank you very much for your nice comment. I appreciate it. Hopefully, we'll get to see each other one more time. Just once? Just once.
I mean, not in the hockey rink, that's for sure. Steve, the comment I have was one of the comments he put the TVA after that, Jager and his team have won the last Place, install base. And now we're going to start working on OSI for TVA, because that's a big opportunity for us. And I think one of the unique things that we've seen in Both presentations and also Mike's presentation talk about the opportunities we see with OSI, there's software opportunities out there, not just the core business we bought, But the technologies and capabilities they bring to the table right now relative to managing through this transition For less lower carbon to the new energy uses. And I think that those are just starting to come into play.
And as Lal said, I think we have a lot more opportunities. And they've only been on board
for about quarter and a month.
So I think we see a lot more growth opportunity with that and definitely the profitability is rock solid.
It is, David. And to hit on that point, Steve, I actually reviewed the first acquisition opportunity in that space following the OSI acquisition. It wasn't something that fit us really well, but there's going to be a whole game to be played there from an acquisition perspective as well in Control and in Devices around and Sensors particularly in that transmission distribution space. So we'll look forward to yes, go ahead, Steve.
And hopefully, that kind of looks like it's going to turn into a very quickly into kind of a mid teens EBITDA, along with a Roughly kind of 5% free cash flow yield on that deal, kind of in a run rate when you hit 23%.
Agreed. Agreed. Right about that.
Yes. Okay, great. That's really all I had. Thanks a lot.
Thanks, Steve. One more time.
The next question is from Joe Ritchie with Goldman Sachs. Please go ahead.
Hey, good morning, everybody. And Yes, Dave, hope to see you one more time as well.
You're going to invite me to EPG and be your guest speaker, your Entertainment, isn't that right? Entertainment. I
think you have like I think you have a lifelong invitation to EPG whenever you want to come.
Yes. That's nice.
The question is whether Lal will let you.
Good point.
So So you guys gave a lot of great information today. Thank you for that. I do want to focus a little bit on the investments. I know there's been some discussion around M and A. But when you're thinking about internal versus external investments, I guess it's not entirely clear at this point where your potential gaps are.
I'm curious, Lal, how are you thinking about the hypothesis? Where do you plan to put your dollars?
Great. Yes, sure, Joe. So Across the technology layers, we're not idea limited in any way internally in terms of development. And we have a great hand to play off of in terms of the technology that we already have. So whether that's expansion around the software layer with what What OSI, for example, brought to the table, I mentioned the historian as an example of that.
Whether that's new technology Around instrumentation, a next generation transmitter, for example, or the advancements around our Final Control businesses, Those investments are funded and they're in our plan. They're in that $485,000,000 category that I described in the bridge. I'm going to ask Jamie to comment on commercial residential specifically, but there are incredible opportunities there as well from adjacency perspectives.
Yes. It's like Lal, we're not idea limited, so excited about what's in that funnel. And it aligns very tightly with the strategy That we laid out today. But as you saw in that last chart, one of the last charts I put up there, there's a number of new or adjacent spaces that we're looking at getting into. There's areas like environmental sensing, there's connecting the dots across the life sciences, pharma and food value chains, there's areas around test and measurement that are very interesting that complement Portfolio.
So I think under Lal's leadership, the new management team, we're going to look at all those ideas and we'll prioritize and Lal And the Board will make decisions around it, but we've got a lot of options, I think.
Well said, Jamie. We do. And I'm going to be very focused on maintaining the technology leadership that we have. That's the key differentiator, one of the key differentiators we bring to the table and to our customer base. David, you wanted to add your
next question?
Couple of comments I'd add here, Joe. Around Jamie's business, the commercial residential, I think right now we're going through a phase where Efficiencies are coming into play. So I think the big run is going to happen here and then they're going to say what's next, probably not economical. Same thing on the refrigerants. I think the move is going to be around sensing.
I think what's going to happen is the in particular in the United States, they're going to come back and say, okay, how do we know these systems are Aiming the efficiency and the leakage, and that's we're really investing in sensing right now. It's an area that I think we need to invest more. I know, Jamie, you've been looking at this for a while. We've been looking at it before you got in the job. I think that's a big area.
The other area that I think we're still a little low on from a standpoint is, as we've looked at the Talking to our customers, going back to sustainability and the change in the power, the power needs, the generation power, be it hydrogen or be Biogas, I think you're going to see that we're going to have to invest in some additional control. We're going to have to invest in some different, I would say instrumentation and sensing, that's not the same that we have today. And I think they're going to have to take some additional investments there. Our customers are starting to work with us on this area and it's really very, very important to us at this point in time. So I think that I think as Mike's gone through this and looked at all these areas to new power, you're going to see a lot more opportunity for us to invest in technologies.
And I think it's I think there's a lot of great places for us to go here. But there's a lot to learn from where the big customers are going to, and they're going to tell us where they need help, and we're going to help them.
You're absolutely right. And what's been encouraging, Joe, in the journey has been That we can walk and chew gum at the same time. We're taking a tremendous amount of cost out of this structure of this company that's freed up dollars for us to invest in key Technologies. And both Jamie and in the automation piece, we covered the new technologies that we brought to market in this tough challenging period of time, while we're executing on the cost structure very seriously.
I think that's a great point. Lal, there's a clarity in both groups about where we want to focus and spend our dollars. And that's driving value.
Especially since you got the bad leg CEO out of the way, you can walk and chew gum at the same time. Thanks.
Well, you know what? Thanks for the comprehensive answer. I'm just going to leave that one question.
Take care, John.
Appreciate it.
The next question is from Markus Niedemeyer of UBS. Please go ahead.
Yes. Hi, good morning, everyone. Just one for me, a follow-up, asking the M and A question slightly differently. You have the 20% target for software revenue in the mix. What time line should we think about here, start on the 2023 time line as well?
And then what's the base that we look at here? Is that the Software standalone as you defined it, the 1.1, do we grow off that base? Or do you include the embedded software here in that target?
Yes. So hi, Marcus. So yes, we put that target out there. It's a little bit longer term. We're going to work aggressively towards it.
The way I'm thinking about it is a stand alone software piece. We have $1,100,000,000 today. That 20% Refer to that particular segment of the software business. There's going to be more and more embedded software In our technologies, in tools, in instrumentation, in valves, but really that stand alone piece is where the target was aimed at.
Great. That's helpful. And then maybe one on OpEx and CapEx, and I get your point around KOB 23, and so where we are in the cycle at the moment. But if I look at the slide that you had in the deck, I think it was Page 106 around CapEx and OpEx in Upstream Oil and Gas. It just reminds me sort of like Situation that you had in 'sixteen going into 2017 'eighteen, would you say that this is kind of reflective of the broader CapEx, potential growth, not only in oil and gas, but also in other end markets.
What's Qbvdevcoating levels that you see among our customers and their plans over the next maybe not 6 months, but 1.5 years, 2 years, if any.
No, it's a good question, very insightful as well, Marcus. Clearly, we're in a demand shaped environment right now We just declined significant decline of demand across just the transportation segment alone has curtailed a significant number of investments there. Secondly, we came we just came off a huge wave of investment as we talked about. That's going to take time to digest. Many of those assets that were funded and are being built, and it will take 3, 4, 5 years for them to be completed.
I think the energy equation, as you look then beyond that time period, ultimately, we will have KOB1 investment? Correct. There will be refining, particularly in India, in China. There will be chemical In the United States, as we have a differentiating opportunity there, and there will be those investments that enable the manufacturing and transportation of Hydrogen, which will be small at first and will pick up speed as we go through the next 20 plus years. Go ahead, Dave.
If you think about this You think what Mike laid out, if they are able to figure out how to bend that curve down and lower that energy and change that mix, it's going to take some major investments. And I think that's going to that's the new KOB 1, and that's why we need to figure about where we want to invest to help them make that happen. But that's going to take major investments. It's going to take Government supported investments too, because right now the formulas haven't been figured out how to make money on this. And so I think there's going to be some new waves of KOB1s They're coming at us in the next 2 or 3 years.
And the question is, are we working with the right people right now and make sure we stay out in front of that? And I think Lal and his team and Mike and his team are working like that, just like Jamie has been for years in the industry in the commercial residential area.
Good, Marcus.
The next question is from John Walsh with Credit Suisse. Please go ahead.
Hi. Hello to everyone.
Hello, John.
Hi. I guess just a question on the hydrogen opportunity first. When you guys The LNG opportunity a couple of years ago, it was pretty easy. You kind of gave us a dollar amount per one train of LNG. The hydrogen opportunity seems like there's a lot more degrees of freedom and it's a little bit more nuanced.
You talked about Transportation, and you gave us a couple of your opportunity sets. But is that $750,000,000 kind of really a Starting point and particular to transportation or kind of how do we think about that growing over time?
Yes, John. Hi, good question. If you think about the $750,000,000 the right way to think about it is around the visible project Funnel that we have today across the entire hydrogen value chain. So that goes from the renewable source at the front end all the way through the use on the back end. Obviously, the production element, whether the electrolyzer and the transportation element are a broad take a broad piece of that spend.
It's really across that entire value chain. If we did give you some very interesting number you're exactly right, 2 years ago interesting numbers around Dollars per refinery, dollars per LNG train. Obviously, these numbers are different. They're a different scale. They're in a different SEIS.
One electrolyzer opportunity is about for a gigawatt is about $15,000,000 But there's a whole bunch of other stuff that you have to invest in to then move that hydrogen. So that's our C right now, John. Obviously, that's going to change and be and fluctuate over some time here.
What I would add is, John, you have to understand, the LNG industry, the refining industry, all the industry We're mature and we understand the process. I think in the hydrogen industry right now, it's still young. They're still trying to figure out what to do. But I think the key issue here is We have to figure out what do we need to offer to this industry, 1, to help them get there, but secondly, what to make more revenue for us. And I think it's still early stages.
And so hopefully, Over time, we'll be able to expand that, again, with the investments that we're talking about. But there's still a lot to come here. But I think that we will be able to give you a number just like we did with LNG, just like we did with refinery, just like we did with other chemical plants or things like that. But it's still pretty early from that perspective.
Understood. And then I guess going back to that ESG opportunity, You talked about multiple years, right, helping your kind of customers extract hydrocarbons responsibly. Is every Project different or is there a way to kind of create a turnkey solution here? How should we think about that? Because you did frame it as a multiyear kind of journey here with your customers.
Michael, you want to take a swing here? Yes.
So I think a lot of the first of all, I talked about the novel solutions. Take carbon capture as an example. And Carbon capture is a gas processing process. It's not a mystery what that process is necessarily. We need to get some of these at scale solutions built, so we kind of understand Some of the technical limits and more importantly, what the economics are going to look like in those projects.
Then of course, there's advocacy working with governments for the incentives and the regulation and Kind of the directionality on some of these things. So I think there's going to be a lot of clarity maybe over the next 3, 4, 5 years as we get some of these early At scale implementation is put in place. I think collectively as industry, we'll get learning from that. And then I think the visibility and kind of Maybe the opportunity to put more standardized solutions in place will follow.
I would say right now Great.
Appreciate you taking the questions.
I would say right now that it's pretty much one off. I think you see a lot of different example opportunities. People are trying to learn right now. That's what's going on, John. And I think that's going to continue for at least 2 or 3 years, as we all try different scenarios and figure out which one's economical, which one can be scalable.
And I think the game plan for us is to make sure our organizations Are engaged with them at all levels in learning, because it is going to be it's going to take several years before you see the real the right answer. And I think right now, they're all different a little bit different.
Great. Thank you for taking the questions.
We got to find a question for Frank. He's sitting right here next to me. Come on, Dean.
The next question is from Dean Dray with RBC Capital Markets. Please go ahead.
Hey, you guys put me on the spot there. I do have a question For Frank.
So definitely. Absolutely.
So I just wanted to make sure Lal Knows that, and I bet Dave has reminded you that a long time ago, at one period, he was both CEO and Head of Automation.
I was.
I
worked for a little bit. He did.
And then I brought John Baer in. I actually was COO for a few weeks too before I brought Ed Monser in.
You're president
too. I think you had many hats then.
Yeah. It was a simpler We're back in those days, Dean. People didn't have all these other problems about span and control.
Exactly.
All right. So for Frank and just so Frank and I have talked about this at your prior meetings that it's a sign of a smooth Financial Planning Organization, where he does not need to be part of the presentation and you don't normally get any questions, but
That's the reason why.
Did want to put him in the spotlight. So Frank, on Page 40 3,
Pete. All
right. The partial restoration of the COVID cost Savings, that's $0.16 of headwind. What's the time frame where that comes back? And what is Permanent there, but what actually starts coming back and when?
So it's hard to know. I mean, we originally framed the savings at about $150,000,000 We thought, I think we said back in November, 70 or 75 would come back in. We think that number is lower now. It's more like 30 to 40. And it really depends on How quickly we can get back to doing the things everybody wants to do and resume something more like a normal customer engagement, normal business activity.
So our best guess now is that probably over the next couple of years, 80% of that fully comes back in and the 20% I view as learning, Things that we will do differently, more efficiently, that simply don't have to be in person and can be done in a way that is more economical.
Great. And then Frank, would there be just given all the new ESG initiatives, would there be an opportunity for Emerson To issue green bonds here?
We have looked at it at some point. I'm sure we'll, we may consider going down that path, I would think now. They come in kind of 2 flavors. 1 is kind of tied to certain metrics and the other is used for green, the proceeds used for green Investments, we'll cross that bridge at some point. I think right now there's as much PR as there is substance into many of those.
But when it makes sense, I'm sure we'll give it a serious look.
Great. That's it for me. Thanks for all the color today.
Take care. Thanks,
team. Thanks, team.
The last question today comes from Tommy Moll with Stephens. Please go ahead.
Good morning, all, and thanks for taking my question.
Good morning, Lal. I
wanted to talk About your oil and gas and the market. So we've now got WTI bidding distance from $60 a barrel. But clearly, in the North American market, the end market has recovered slowly just in terms of the rate of spend For your customers. And so I wonder if you could give us any insight into what the decision making process looks like. Has it changed?
It clearly feels like the pace of a recovery, notwithstanding the commodity, may be delayed a little bit versus what we may have seen in the past. And there's a big knock on impact there for your higher margin KOB 3 sales. So any kind of context you could give us there on the pace of that recovery would be helpful.
Yes, Tommy, great. Yes, we're sitting at about 92,000,000 barrels per day globally right now from an oil production perspective. I think we troughed it right around 91%, I think, at this pandemic. So that's very significant. From a perspective of the production environment, It's stabilized.
So we went from a scenario as we went through the spring summer where it was almost like catching a falling knife in terms of what was being taken offline and Knife in terms of what was being taken offline and curtailed to one where we're in a forecastable environment around our oil and gas business, which means our KOB 3 business has stabilized, albeit still at a low levels, but we saw production levels, more importantly in the fields, stabilized over that time period. We've made an assumption in our planning For 'twenty one of sitting between $45 $55 WTI, it's conservative potentially, But it's all dependent on the pace of demand returning. It really depends. I mean, if you take just jet fuel consumption as an example, The thousands of barrels utilized by a single airline in a day and the impact that, that has to what comes out of the ground and needs to be refined. So that's really where that demand equation comes in.
And that's where these producers are trying to guess and maintain production at least to be ready for that acceleration in demand.
So I think I'd add
to this, Tom. I've talked to a lot of CEOs in the space, as Lal knows, I know many, many, many of these CEOs. They're being very cautious. I think they really want to wait to make these calls. I think that they're trying to figure out how they can be more efficient with the investment this cycle.
As you know, We all wasted some capital in this area in the last cycle and I think they're very, very cautious. But I fundamentally believe there's going to be some investments in this area around efficiency, Around getting more out of the current investments in the ground, and not necessarily new investments in the ground, but getting more out of the current investments in the ground. I think that it's We thought we'd start seeing it by now. And I know there's conversations around some KOB 3 and KOB 2 in the space, but it still seems to be A little bit away. I think you're right.
I think I would say 3, 6 months away. Maybe by the time we get out towards the second half this calendar year, You'll start hearing things from the people. When you're down in Odessa, they're talking, but they're very, very cautious.
But what you see in a place like Odessa, and maybe that's a macrocosm for the U. S. Shale environment is a stable 3,800,000 barrel a day type of environment, not curtailed beyond that. It's Depleting wells replaced by new wells, but that changes the pace of the drilling, obviously. And there's elements around The kinds of drilling they do, but it is stable right now.
And we're able to forecast that KOB 3, the business over the last, let's say, 4, 5 months.
All very helpful context. Thanks for the time. I'll turn it back.
Thank you, Tommy.
And I think that concludes our session for today. Thank you, everyone. Thank you.