Good afternoon. I'm Steve Wetzel, Vice President of Investor Relations and Treasurer for Rockwell Automation. Welcome to everyone who has come today's event. It's our Investor Day, of course, but it's also held as part of a bigger event, which is Automation Fair. And I know most of you here in the room actually took the tour.
So hopefully, that was very exciting. Also, welcome to those of you who are listening in our webcast. As a reminder, as you can see on the screen, our presentation will contain forward looking statements. These statements should be read and understood in the context of the risks and disclosures that we have made in our public filings. The presentation will also have non GAAP reconciliations at the end, and so you should refer to those as well when reading the numbers that are in the presentation.
So put your mobile phones on mute. And then with that, I think we're ready to start. So I'll welcome Blake and the management team to the stage.
So this is also going to be an opportunity to showcase some of our management, especially for those of you who are attending their first Investor Day. I'm Blake Moret, Chairman and CEO of Rockwell Automation. And joining me on stage is Patrick Gorris, our CFO Sujit Chan, our CTO Fran Wodarczyk, who runs our Architecture and Software Business segment and Frank Kulesiewicz, who runs our Control Products and Solutions Business segment. We're going to talk about our vision for Rockwell Automation, bringing the connected enterprise to life. We're going to have a customer panel, so you can hear in our customers' own words what their challenges are and the role that we play, why we win, financial update from Patrick and then we'll have some final remarks as well as a question and answer session.
So bringing the connected enterprise to life is our sole focus. We're a pure play. What that means is that we integrate control and information across the enterprise to help industrial companies and their people be more productive. And it's all we do. And that pure play status, we believe, gives us the efficiency internally as well as the agility with our customers to be their best choice.
We have a long history of value creation, and we've really rode the waves of automation through the years. And maybe to demonstrate that, I'll bring up an application that's familiar to me and think of a bottling plant. So think of bottling soda pop. Way back, the filling process was automated because it was just going to be really hard to get any kind of volume and scale if you didn't have an automated filler that would fill the bottles of the cans up with the beverage. And then there was additional use of automation, programmable controllers and drives, to automate some of the upstream and downstream processes to depalletize those empty bottles rather than having somebody every day do that repetitive manual back breaking labor of pulling the same bottles out of the same boxes and to put them on a conveyor that could run at the optimal speed to ensure that you could stop the conveyor or slow the conveyor if the filler was having problems.
And then at the back end, to be able to automatically put the full bottles back into boxes, hopefully with the caps screwed on. And now what we're seeing is after a lot of those basic processes have some level of automation to be able to take the data that's a natural byproduct of those control processes and to turn it into useful information, to be able to compare multiple lines in a facility, to be able to benchmark OEE across a worldwide fleet of what might be 200 or 300 different lines to compare, maybe to use artificial intelligence, to pinpoint the problems and to bring the overall productivity up. And so that and 1 or 2 long rambling sentences is kind of the path that we're on. There's still a lot of opportunity each step of the way. Our exposure to a wide range of different industries is also something that we think bodes well for the future.
The vision in which we try to incorporate a lot of these elements has remained consistent for the last few years. It starts with our approach to bringing the connected enterprise to life with an understanding of our customers' best opportunities for productivity and describing our value in their language. It's the combination of the technology as well as the expertise. And it's the simplification. And you're going to hear us talk a lot about simplification.
I think that over the next decade, simplification is going to sort out the winners and the losers in this space. We'll talk about some of the reasons why, but automation has been complex. And we believe with what we're doing with technology, ours, with our partners, certainly PTC is in there, as well as business models that make it easy to buy the technology bundled with the support, We think that that's going to be a huge step forward in unlocking additional capability and for our customers to see additional opportunities that now become feasible and generate an attractive return for their investment. We keep score and revenue by continued share gains in our core platforms, those smart products that are the building blocks for the connected enterprise. That's where the data comes from.
It's double digit growth in the new value from information solutions, connected services, those higher level analytic tools and visualization tools. And then it's a point or more growth from inorganic investments on average, and that will be lumpy, but that's an important way that we use all of our strengths to win. And finally, it continues to come out in superior returns. EPS higher than revenue, attractive return on invested capital, really good free cash flow, and Patrick will talk more about some of these things, and then, of course, the consistent return of cash to share owners. There's a lot of trends that make this a particularly attractive time to be in this business.
And if you felt a little bit of additional energy on the floor today, I think some of these trends tend to feed that. The fundamental thesis that we've talked about for a long time is the growth of the middle class in emerging markets. People want more choices in food. They want clean water. They want drugs that are going to help them and their families live longer, healthier lives.
They want more cars. Having abundant energy remains important to power this move. But at the same time, the people who are running the factories are aging out. They're hitting retirement without sufficient numbers of people to replace them. And you couple that with the basic low unemployment that we see in the U.
S. And other places, And it's a driver for automation. It's also a driver for us in our heightened efforts to participate in our customers' workforce development efforts. And we've talked before about what we're doing with veterans, but a much larger general effort is to partner with our customers to help them find and prepare trained workers who are comfortable with the advanced technology that we can supply. We're going to talk a lot about ITOT convergence.
That's not a trend in the future. That's here right now. And hopefully, you recognize that on the show floor today with the predominance of software and communications as being some of the key ways that our customers are getting that next level of productivity. And the cycle remains strong. At the same time, there's a lot of aging equipment out there that simply isn't going to be capable of being maintained for very much longer.
Now we inserted kind of an interesting slide in here. This is something I came across and caught my eye because it's pretty close to my span with the company. I actually started a few years before this, I have to say. But this is our revenue over that period of time. And if you look at that, something that we sometimes forget is that while the general economic cycle has been going on for a while, we emerge from a manufacturing recession only in 2016.
So this is only our 2nd year of growth. And it's one data point. It's not conclusive on its own, but I thought it was interesting, so I wanted to share that with you. So we're going to be going around, and we're going to have multiple of the people up here talking, and there'll be a little bit of back and forth. And so with that, I'm going to ask Frank Coucheus to say a few words.
Thanks, Blake. Good afternoon.
So I want to talk a
little bit about what we're doing with the Connected Enterprise. You heard Bob Murphy this morning talk about that and some of the consulting efforts we have. We've kind of in earnest been involved with customers for about 4 or 5 years now. And that's been a lot of the folks you see up here who've been having those conversations and talking to executives at different companies. When we talk to customers about the connected enterprise and those business outcomes they're trying to generate, we find they fall into these 4 value streams.
And they by the way, represent not everything we talk to folks about, They are representative. And so when we try to focus the organization, these value streams and these outcome based solutions are important internally as well as externally. And so as a provider of automation and information, we've kind of pivoted the company to really focus in these areas of value. So the things we invest in, the things that we build, the things we deliver, whether they be technologies, products, solutions or services, or the consultation services now that we're providing customers, they're focused at these values. So everything we do is focused at delivering the connected enterprise for our customers.
We have a unique opportunity. We were talking a little bit during lunch about some of our competitors and how they view the market and things we do. Our understanding of what our customers do in our target industries is an important part of our current and future success in delivering the values of the connected enterprise. We understand the language they use in their businesses. We understand how they approach their markets.
And we truly understand the types of outcomes that they're trying to deliver. And so if we can take that understanding, that domain expertise, if you will, and combine it with these new technologies and new partners like PTC, that gives us a real edge on being successful. And we're starting to see those things happen. I mentioned that we're working with a lot of customers over the last 4 or 5 years. This is a small number of the folks we're working with, and they represent some of the best customers and companies in the market.
And we align them to those value streams I talked about.
And so that gives you
a sense if you kind of go down that left side, the types of things that are important for these customers in these industries and these markets. And so the last time we were up here, we were talking a little bit about consulting engagements. Every one of these requires some type of consultative approach at the front to define those business outcomes based on the company's business goals and objectives. And so those are new muscles and new partners for us that we're driving. The other thing I think that's important is we've seen a transition happen in moving from that consultative work and that pilot work into projects, programs and rollouts.
And so when we talk a lot in the past about how are people adopting that journey to the connected enterprise or their digital transformation, in a number of the customers that are more mature, we're kind of seeing that tipping point happen. So I'll talk about 1, and I'm not going to spend a lot of time on it because we have a couple of slides later that we'll go into a little bit more detail. But we'll talk about Ford. You see Ford in the upper left. Ford has been a long time customer, and we've had long time very good relationships with them.
They're also a little bit advanced in their thinking about information and analytics. And so we started engagement with them in the past around manufacturing execution systems. And so we've been rolling them out in over 40 of their plants over the last 3 to 5 years. But now they're seeing the digital environment in their plants and they're understanding the data better. And it's a real opportunity for them to kind of move into this space of IoT and analytics.
And so Ford is one of the first customers that we've engaged in with PTC in driving out a solution for them. And I'm not going to go into any further than that because we've got some content that we'll share later. But it's a great example of that. The other thing I wanted to talk about as an example is cybersecurity. So we've heard about cybersecurity in the office environment, but cybersecurity is becoming a bigger and bigger key topic in our customers' operational environments.
In fact, we've had customers that have had adverse impact from cybersecurity breaches. And so pretty much every one of the engagements we have talking about the connected enterprise and digitization has a security element. But some are more important than others. And so if you think about how important security might be in a regulated industry, one that's validated like pharmaceutical or medical device. Think about food.
Blake talked about people wanting more choices in packaged food. Think how important secure operational environments are for food safety. So we've got a lot of interest in cyber security recently. And in fact, one of the companies is here, Pfizer, is a recent one where taking a look at many of their plants from a cybersecurity perspective is something we're working on right now. So Blake is going to talk a little bit about different industries, and then we're going to come back to talk about Ford again in the future.
Blake?
Thanks, Frank. We've talked with a lot of you about one of our fundamental strengths, and that is our exposure to a wide variety of industries. And we can take what we learn in one industry and often apply it in another, but also having the same fundamental technology platform that works across these industries drives internal efficiency for us as well. You think about it. It's one architecture to be able to maintain and improve upon, one architecture to manage compatibility with.
So that's an important element of our own internal efficiency as well as the value we'll bring into customers. And when we talk about the specific value to different customers, when you talk about the automotive industry, it's about our ability to help these companies get into electric vehicle production and our move that we've talked a lot about into more exposure to powertrain through our relationship with Fanuc and our own advancing technology. In Consumer Products, it's our new independent cart technology that I hope a lot of you saw out on the floor, motion control that helps give a whole new level of throughput in basic machinery, especially packaging machinery, but not just. When talking about Life Sciences, Frank just mentioned what we're doing for Pfizer with cybersecurity. MES, that's probably the single biggest vertical industry that benefits from our manufacturing execution systems.
Net so, I can't do any better job than Jani did this morning in talking about the things that we can do in the mining industry. And you're going to hear a little later on from Schlumberger about some of the value that we provide in oil and gas. We've got as we talk about the ways that we grow our business, we've got the home field advantage of a well supported installed base with multiple opportunities in basic automation as well as the new value to build on that base, but also new ways in to new customers as well. And again, it shows up in share growth in our core platforms, double digit growth in the Information Solutions and Connected Services and then inorganic investments and the growth from that. And now we're going to dive a little bit deeper into these different aspects.
Fran? Thanks, Blake. Good afternoon, everyone. So our core products are the foundation of the connected enterprise, We're investing in technology, not only to capture market share, but also expand the available markets to us. And our investment in LOGIX is a great example of this, and hopefully you saw this on the show floor, but there's a new controller on the show floor.
It's called the 5,480. This is actually our fastest controller that we've ever released. And it's the performance is for both automation and information applications. If you heard Jani talk this morning, he talked about the need for compute power on the edge. This is one of those applications because our customers can actually run Windows applications primarily developed with our partner, Cisco.
It's primarily developed with our partner, Cisco. This year, on the show floor, I hope you saw some great security features and products as well as a brand new network management software. Blake talked about simplification. We designed this in mind to simplify our customers' actions that they need to do to configure and manage their network infrastructure. That was kind of pain point that they pointed out to me personally.
So we worked with Cisco and put together the software just for that to simplify that experience. And if you look how we're expanding our VUE portfolio, our visualization platform, a few things that we're doing: 1, we want to integrate it to LOGICS. So we want our VUE portfolio to work better with our controller than anyone else's. Think of plug and play, those types of things that you hear with the commercial market. And then we also want to improve time to market for our customers.
So we really want to eliminate the engineering hours and design phase as much as possible. Then once these applications are deployed, we want to improve operator effectiveness, so they get more information to run the machines and processes. Next, our Kinetics platform is for motion control. With our current portfolio investments, we've been seeing double digit growth, very good customer reaction to that platform. We've also made a few acquisitions.
And so we're now market leaders in independent cart technology. I hope if you didn't see it in the tour, you get to see it. But we look at that technology as game changing and actually enabling machine builders to achieve new levels of flexibility, speed and throughput for their machines. So we're working with a lot of customers, and they're doing some really neat things with that technology. And then last, PowerFlex.
We're investing there to maintain our number one position in standard and compact drives, But we're also opening up new market share new markets for us with the premium drive segment. I hope you got to see that on the show floor, some of the bigger, higher performance drives. So the growth in our Information Solutions and Connected Services business can be thought of as a metric or an indicator of the adoption of the Connected Enterprise. And if you look at our current portfolio and the investments we've made, we've actually fueled double digit growth with that portfolio. Now with our collaboration with PTC, adding those software products into the portfolio, we believe we're going to more than double that business by fiscal year 2022.
And if you look at where that growth is going to come from, it's going to come from software sales as well as solutions and services delivered by Frank's team.
So you can kind of see how the segments line up in this space. Fran talked a lot about our software portfolio. I feel really good about the strength of our software portfolio right now and the partnership with PTC. There's a time to market element here that we would have never achieved had we not done that partnership. Fran Tal also talked about double digit growth in our software portfolio.
That same phenomenon is happening in our Connected Services business. That's a business that's relatively new for us, about 5 years old, that's been going double digit. And we talked about the combination of these 2 now exceeding $300,000,000 and so pretty material in a short period of time. I wanted to draw the linkages between that technology portfolio kind of on your left and that services that professional services portfolio on your right. The reason that's important, if you think back to the earlier slide I did, I talked about consultative engagements.
Pretty much every one of the connected enterprise engagements we're on requires some upfront education and consultative engagement. And so that's why, as you heard from Bob Murphy this morning, we've created an organization to help us talk to our customers about that. But when we have those engagements, it's really about helping customers define those business outcomes. They know their business objectives. They understand the things that are going well and that aren't going well.
But trying to simplify that and define the outcomes is important. Because once those outcomes are defined, we can design, we can deploy and we can optimize those solutions for them to try to get the most return on their investments. And so also when we work directly with customers like that, it's an opportunity for us to provide life cycle services. So think of that as manage and maintain those solutions over time and help them optimize. We do a lot of that in our connected services organization, even to the extent of managing factory infrastructure for customers and making sure from a cybersecurity standpoint, they stay healthy and active.
So this combination of the technology on the left and those professional services on the right is one of the reasons we believe we can accelerate the opportunities around the connected enterprise. And it's also an example of why we think we can accelerate our revenue growth. And so Blake's going to come up next and talk a little bit about that revenue growth and kind of how we see that opportunity from our traditional business and then those new business goals. Blake?
This is a real example. And this is a customer that many of us are quite familiar with. And it's an example of showing the kind of opportunity that some of this new value provides as we add additional productivity to a large installed base that built up over, in some cases, many decades. So this customer in the food and beverage industry, in a typical year, might buy a couple $1,000,000 to upgrade and expand, modernize, change the new products in their operation, including some of the core products that Fran talked about, programmable controllers, visualization, motion control and so on. But when you add in some of the new value from the connected enterprise that Fran and Frank just talked about, many of which, as Frank pointed out to me, didn't exist 5 years ago, then we can see an annual additional stream of profitable revenue of as much or more as that base.
It also increases the productivity for the customer, so it's additional value to them, not just additional revenue to us. And because many of these services and the software subscription based are recurring, then it allows a certain amount of base amount of business that we can count on as long as we continue to do a good job, and we, of course, are. So this is an example. It's real, and we see the opportunity at existing customers as well as for some of those new services really to give us another way in to customers that might be standardized on somebody else's control. And that's happening today as well.
So we've done some things with our software branch, and we're going to have Fran talk a little bit about that now.
Thanks, please. So hopefully, you noticed, but we're expanding our software brand. So it's FactoryTalk by Rockwell Automation. I want to think of this as integrated software suites designed to connect our customers to enterprises. Myrna developed software for the each phase of the automation lifecycle, design, operate, maintain.
There's a 4th suite listed on there. So that's Factory Talk Innovation Suite. It's powered by PTC. This is a combination of software from both companies, both Rock Automation and PTC. This is probably going to be the initial focus of the innovation, the collaboration that we're going
to do, and we're going to
work together to develop innovative applications and software to help drive productivity in those three phases, design, operate, maintain. You can see augmented reality maybe helping a maintenance person, right? So there's something that there's an issue with and being able to give instructions right on top of that device that's out there. So those are the types of things we're going to work on and combine our domain expertise and make sure that we drive productivity in all three phases. And with adding PTC's products to FactoryTalk, it's the most comprehensive and innovative software portfolio in the industry.
And we're really looking forward then to actually make some very nice products for our customers.
I hope each of you had a chance to see the early efforts of the collaboration between us and PTC on the floor out there because that's certainly we can talk about workflows and mashups and all those things all we want. But it doesn't really hit home until you see it actually there or you hear what customers say about it, and then it starts to register. We each contribute significant value to each other. And when Jim Heppelmann and I, the CEO of PTC, started talking over a year ago, we were struck by that. It wasn't hard to determine what each of us had to contribute that was valuable in terms of technology or business model or experiences to the other.
But more important than that is the reaction that we're seeing from customers. We had a growing number of customers who even before anything about our alliance became public, had come to us and said, we'd really like to see the 2 of you working together. And this was at some of our big accounts. And so we were happy to oblige. We've seen some early orders from that.
Some of you, I think, were at the Packaging Expo in Chicago a month or 2 ago when Harpak Olma, a Spanish machinery builder, talked about I can talk a lot about it, but I can talk a lot about it, but what I would rather is to bring up somebody from the front lines, who is involved in some of our early efforts, to talk a little bit more and go a bit deeper. And so with that, I'd like to introduce Greg Schmidt. Greg is one of our Information Solutions sales executives, and he's going to give you a little bit of a view from the front line and what he's seeing at customers. So Greg?
Thanks, Blake. Yes, absolutely. Appreciate the opportunity to talk to you guys today. So I'm going to cover just 2 slides. It'll be very brief.
And one of those slides I'm going to cover is to maybe understand a little bit more about why customers get some value and see how these 2 technology platforms come together, specifically PTC ThingWorx and Rockwell's analytics platform. And the second will be on a level set, before you start to understand the technology of what it means inside of our products, let's talk about the use case and the timing of this. So what's happening in an industry, and I've been selling manufacturing software for Rockwell for almost 20 years. It's all I've done. And I've never seen a time like right now where our executives are the ones driving the digital strategy within manufacturers.
So they own it and they're the ones that are held accountable of whether it's successful or not. And for us to sell into that environment, it's much easier. Instead of having to feed up that need in their organization, they're driving it. The other piece of the timing aspect is that the knowledge workers walking into the plant have new expectations on technology. So think about this in your own personal life.
And I'll give you an example for me. So my expectations are all new around what this technology can do, because all of a sudden this phone starts to recommend to me things I should buy and it almost creeps me out. So think about it for a second. And I don't know if you guys have seen this in any of a social media app, but it knows very well what I like. And it's getting very good at making those recommendations.
So the point that I have to laugh how many times I'll be inside of my social media feed and it'll surface a product that just happens to be something I talked about last week or that I know is I have interest in. And then I have to click on it. And then it makes it super easy for me to 2 clicks later buy it, right? So that's the expectation that these knowledge workers are having as they walk into manufacturing plants and they don't want to see having to work with clipboards and type things into the computer. They want the systems to be able to understand it.
So in that analogy, if you think about what happened, this phone and the social media app that's on it is a platform that has connectivity. It knows that I walked into REI. It knows that I liked these kind of things on my social media feed. And it also knows that I said that I like rock climbing or mountain biking. And it puts all that together and starts to give me what it thinks I want to buy.
And then it makes it very easy for me to buy it. So 2 clicks later, and this platform and that application have delivered value to a retailer. Once you understand that technology, we can talk about what we're applying in manufacturing when we really bring these two things together. So if you think about the connectivity side, when you look at ThingWorx and their Kepler product, PTC and their Kepler product, and you look at Rockwell and what we have in factory talk to connect to, this is a very big deal for our customers because it provides an extremely broad range of connectivity to all the things and devices within a plant environment in addition to all the systems that we'll have to connect to. So connectivity and what we bring to the table, very big deal to our customers.
And then you start to think about the platform and ThingWorx brings us an IoT platform where we can start to connect these things and build applications on it. And Rockwell's analytics products can be the brain behind it to look for these patterns of what is happening on my manufacturing lines and starts to prescribe, you need to do this maintenance, you need to take this quality action. And so now we can bring up the technology to the expectations of the knowledge workers walking in. And finally, when you bring that together, in my story about, okay, it's really cool that it can surface an ad that means something to me, it works because it's easy for me to click through the ad into PayPal and pay for it into UPS and have it shipped to my house. And I get out of that application 2 clicks later and I've just done that.
So we have to accomplish the same thing within manufacturing apps to be able to make it user friendly and be able to surface all those systems through one window.
Okay.
So I think it was Frank that mentioned earlier the Ford win. And we're very proud of this because in my mind, Ford represents a very complex customer in IT space. And they're very advanced with analytics, if you think about what they're having to solve with autonomous driving. So they represent a very advanced customer for us. But what we saw with them and what we see across other customers is very similar.
So every one of our customers has the same needs. They all want to connect these systems. They all want to drive new intelligence and they want to make it easier and faster to run their plans. And so when I look at why they chose us and I compare it with all the other customers that we're working with right now, you start to see the pattern. And those patterns include, they want it to be a platform.
And the reason they want it to be a platform and why this word means something is because they want to attack these business issues by use case and they want it to be fast. They want to say I have this issue around WIP or I have this issue around material utilization and they want to attack that use case very fast, stand up an application, get business value and move on to the next one. So the fact that it's a platform we can build those applications on rapidly is a big piece of it. They want it to be scalable. So they don't want to have to push everything to the cloud right away.
They like that capability. They want to work with big data, but they also want to keep it within the four walls of the plant at times, so that they can get the speed and the security that they feel comfortable with around scalability. And then finally, the point I wanted to make around why we see people choosing us today is domain expertise. And I can't stress this to you enough because when you get into these machine learning applications where it's trying to do predictions and prescriptions, a lot of it is about understanding the data. And the people that we have to work on these projects understand process data.
And it's a different kind of data than my phone knowing the location of where I went. You're looking at what kind of value came out of my control system when it filled up this cup of pudding or when it created this part of on a car. And then I want to make one more point for you, which I think is really interesting knowing this customer. Even our largest best customers don't always use our control platform for everything. So, in this case, they said to us, we have this whole half of the business where we don't use you guys for our control platform, we're going to test you.
Yes, we chose you on the technology, but the first test we're going to give you is actually on a competitive control platform. So for us, it actually looks like net new business that we can go expand with a customer, completely different area that we can't do business today.
So I
think that's what I'm going to cover. Appreciate it. Thanks for the time.
Well, Greg, we're looking forward to having you up here with another tale next year about the more conquest or additional rollout. So thank you for that. Just a little bit more about the structure of the partnership. So the focus of it is in the IoT or Internet of Things space. We're going to market under a common factory talk brand, And we have a joint technology road map to continue to simplify and to bring together the various pieces that a customer might want to use there.
We get a return from the growth of that software and the associated high value services. And software is primarily sold as subscriptions. We also expect to get additional pull through of other products because we're in there, we're able to meet a large part of that customer's needs, we have thought leadership, And we're able to command more attention and at a higher level than we might have otherwise. And so that synergy is an important part of it. And then finally, there's the capital appreciation on our investment in PTC.
I sit on the board, and that's an additional opportunity to make sure that, that investment is being looked after and to participate in those discussions. When you value Rockwell, I think it's important not only our earnings and cash flow streams, but also the value of the PTC shares. And that's about $7, $8 per share if you look at our shares outstanding. So we're happy with the early days of this relationship, and we're looking forward to good things to come with it. Our customers, they have to be able to compete and win against some very strong companies.
Kama is a privately owned company. It was started by a gentleman named Paolo Volante. He was a designer. CAMMA serves a very wide range of customers on a global basis, from your multinational companies down to your sole proprietors.
By taking our knowledge of real time control processes and marrying it with information software from PTC, we're able to unlock an additional level of productivity and bring the connected enterprise to life.
Over the last 10 years, we've obviously invested heavily in making sure that our devices are smart.
We're really good on the mechanical, electrical programming side, but we need the componentry and modularity on the control side to help us develop these solutions. Kamala wants to implement condition monitoring, analytics and augmented reality into our systems. That provides a good of customer adoption. I see
augmented reality as a way to serve of customer adoption.
I see augmented reality as a way to serve up information in a faster and easier way.
Now you take that information up to an IoT platform like ThingWorx. You can connect to multiple sources of data and CAMO looks to our
partners Rockwell and PTC for analytics because we want to focus on what we do best, which is machine design and building.
By integrating control and information all around the world, we're able to help customers unlock additional levels of productivity.
We pride ourselves in being very innovative and that innovation is coming through creating a higher speed, more flexibility, more user friendly, where we're taking proven designs, adapting those designs to a customer driven application.
So it's all about understanding the business problem and putting the right technology platforms and suites needed to solve that business case.
Grokla and PTC are experts in augmented reality, analytics and things that we don't do well and that we need for our customers.
It's about taking that technology and expertise to truly expand human possibility.
Next, we'll talk about Rockwell's Connected Enterprise solution for oil and gas industry. As most of you know, oil and gas tends to be very capital intensive, a lot of waste, significant amount of downtime. And these oil and gas companies are tremendously data rich. When you talk to an oil and gas company, they talk about petabytes of data. When you think about a petabyte, imagine if you could download a petabyte of data on your iPhone, MP3 songs.
Can you guess how long it would take to listen to those 1 petabyte of songs? 2000 years. That's how much data 1 petabyte is. The issue that oil and gas companies have is they've been stuck in this mentality of collecting data, storing data, using machine learning and artificial intelligence to find the needle in the haystack for the data and then driving business outcomes. What we are telling them is this really needs to be flipped around.
They need to start with business outcomes first, figure out what analytics drive those business outcomes, and then collect the data that matches the analytics. Sirocco Automation's connected enterprise platform, Core Connected Production, is designed for oil and gas companies. It leverages our understanding of the oil and gas market, our domain knowledge in the oil and gas market to create software templates, to create specialized utilities and tools to allow oil and gas companies to model the data that's generated in the control environment. When I talk to oil and gas companies, I start out with an apology. I tell them that we are the source of the big data.
A lot of the big data is generated in the devices and the controllers that Rockwell has in the oil and gas installations. For example, a typical compressor will put out 500 gigabytes of data in a day. Do you need to pump all of this data into the cloud? No. I think what the right solution is, is to take a lot of this data, pre model the data, aggregate the data, and then decide what data drives analytics to drive business outcomes.
So the connected production platform is an open software platform that allows oil and gas companies to collect data, organize the data, model the data and run analytics with that data. The PTC partnership is really exciting for the connected production platform because what it allows us to do is expand the connectivity to third party devices using the ThingWorx Connectivity platform, which is the Kepware platform that some of you may know. And then the ThingWorx software itself enriches the data modeling capability in connected production. Also, the augmented reality capability allows us to visualize this data in a new way and a very exciting way for oil and gas companies. The connected production software also allows us to integrate with 3rd party software that may be used for reservoir optimization, for example, such as from Schlumberger.
You can now provide end to end solutions for oil and gas to our oil and gas customers. To demonstrate this differentiated capability in our connected production platform, we'll now move to a quick video.
Connected production is Rockwell's solution for the digital oilfield. Every oil and gas customer globally is somewhere in the digital oilfield journey.
So one of the greatest challenges in implementing the digital oilfield is accessing information. Are you accessing the right information? Is that information in context? And often, information is disconnected. The data is not stored locally.
It's not always connected to a network. So connected production solves that problem by connecting information to the stakeholders in a meaningful contextualized way, which allows them to make those informed business decisions.
So when a customer is starting their digital transformation journey, they've typically made large investments. One of their primary concerns is how do they leverage those investments to the fullest extent. One of the benefits with connected production is that it's an open platform, meaning that it can adapt and connect to multiple technologies.
So using that data, operators and production managers can predict when equipment might be trending towards a failure, and then they can mobilize support resources to fix that equipment before the equipment is actually failed. This approach actually provides for a safer environment, provides for a higher quality environment and allows operators to keep their productions running for longer periods of time. And it does that in a way that's reliable, provides high integrity data, which is properly contextualized and has meaning. And that platform provides an
environment.
Welcome our panelists to a discussion on bringing the connected enterprise to life. All 3 of our panelists are leading digital transformation efforts within their companies. What I'm going to do is focus questions in 4 areas. We're going to talk about what is the business value that these companies are looking for from the connected enterprise. Next, we'll talk about what differentiates companies or how do you win in the connected enterprise space.
We'll also talk about next steps. So I'm just going to focus for about 20 minutes my questions in 3 or 4 areas, and then we'll open it up to you for your Q and A. So let's start with discussing the business value from the connected enterprise. I'll start with Jeff. So Jeff, what outcomes are you expecting from digital transformation, and what have you seen so far?
So at P&G, we've gone through a fairly significant reconfiguration of our physical supply chain. So in the coming years and directly we're working on digitizing automating that same supply chain. So as we reconfigured physically, we now need the visibility and the productivity that comes from the intelligence. In addition, we have a huge quality obligation that moves from us working in labs and physical sampling to digital quality and online quality. So we see that we have to have the visibility in our supply chain that drives the productivity from those physical changes along with the quality confidence that we need from intelligence.
Perfect. So Mike, Pfizer is on the journey to becoming a digital biopharma company. So from your perspective, what business value is Pfizer looking for from connected enterprise and digitization? Sure. So at Pfizer, we've been
on the digital journey now in manufacturing and supply for about 2, two and a half years. And we're really looking to transform our operations. So if we think about connected enterprise is gain access to information and data that we could not get to before. For us, a lot of our automation layer systems previously were locked away. And what this is allowing us to do is to free that information up levels and to build in that machine learning artificial intelligence capability to drive throughput gains, yield gains and overall efficiency gains that we couldn't see before.
Chetan, from your perspective, in the oil and gas sector, is digitization a real trend? And if so, what is the business value that oil and gas is looking for from digitization?
Yes, I think so Samaje is largely in the upstream, a little bit in the midstream space in oil and gas, and we are, like P&G and Pfizer, a technology company, a services company in this space. So what we see is kind of and Blake talked about the small industrial sector downturn. We've been through a brutal 4 year downturn in upstream oil and gas has affected everybody in the space. So interestingly, it now happens that digital has gone from being something that would be nice for an operator to distinguish themselves with somebody else to almost a business imperative, right? Structural cost reductions in project costs for our operator customers are predicated on having some technology led transformation in what they do, right?
So we see now maybe as a side effect, an important side effect of the industry downturn that there's a lot sharper focus on what digital shall bring as everybody is expecting service and equipment pricing because of demand to come back up. So some of the gains made, cost savings made by the operators in the last few years may go away in the face of increased demand. And so digital comes at the right inflection point for them.
Okay. So clearly, the train has left the station on digitization. We all see major benefits from digitization and the connected enterprise. So the next question, the obvious question is how do you see the digital component of investment evolving in the next 3 to 5 years? And Chetan, let me start with you.
So in the oil and gas sector, do you see a greater component of investment in the digital element of oil and gas? Yes.
So it's interesting. I think oil and gas, particularly upstream, has a very strong, long established technology services base, right, the OFS sector, the equipment suppliers serving the OFS companies and the end operator customers. So we have seen a very measurable change, and Schlumberger is one example of this. We have now moved maybe about half of our R and D investment into software over the past few years, which is significant in our industry. We see that happening across the board.
So I would say the technology companies are definitely pivoting to real investment in digital. I think for the operator customers, the trend that we see is there is a move past the kind of initial POCs and stuff. We see a lot of CDOs in the organizations being appointed. We see lots of centers of excellence, small, maybe midsized data analytics teams coming into being all the way from the big IOCs to independents in North America land. And so I think people have our customers are going to have tasted the fruits of early pilots and are probably now at the next step of how big an investment they are willing to make to kind of get to the next level.
Of course, now the challenges facing them past the early POCs are a little bit different. So they are going to encounter another wave of adoption hurdles as they go forward.
So half the investment at Schlumberger is in digital. That's a pretty significant investment. So Jeff, how do you see the capital investment evolving at P&G and what percentage of that and how do you see the digital percentage of that changing in the next 3 to 5 years?
Well, I think it's clear at P and G, we have a stated strategy all the way up through our product supply officer of digitize and automate. P and G's percentage of capital is always subjected to how much outside NOS are we generating, but we're always a pretty consistent percentage of NOS, of capital. But to talk about digitize or automate or the potential, we are clearly investing a much higher percentage of that capital spend into the digital environment, into the intelligence, into being able to be demand driven supply chain. The only way you can do so is to have the complementary digital visibility of the movement of those assets. So I would say, although our capital will be consistently as a percentage of our NOS, the digital component is clearly growing as a larger percentage.
We have stated strategies, even my particular role in the company as a smart platforms leader coming from engineering is a statement of the commitment they have to lead and to generate value in this area.
And Mike, from a Pfizer perspective, how is the
investment changing? I came from a biopharmaceutical conference last week for IT professionals, and we were talking about this last week, talking about digital shift and how a lot of our companies are all focusing on digital transformation. We're a little bit ahead of the game in terms of having 2 years behind us on our strategy, but what we're starting to see across our company and others in the industry is a focus on bringing in outsiders from other industries to wake our industry up a little bit to the digital transformation journey. In terms of investment, 2 years ago, my position didn't exist, right? We started off with 1 person, now we're up to 30.
If we look at the percentage of investment, we started off with 0% 2 years ago, we're up to about 30% of our portfolio of investments in IT projects, all towards this digital shift in investment, whether it's IoT or the types of things we're doing with advanced analytics.
So we shift gears and talk about what does it take to win in this space? It's a complex space. There's a lot of players. So for companies like Rockwell Automation, what does it take to win in a space like this? So let me go back to Mike.
Mike, do you expect one company to provide a complete end to end solution for the connected enterprise?
I think every company is on its own journey. So for us, we were looking for open platforms. And what we liked about Rockwell and PTC and also OSI is the fact that the companies on their own came together to create a holistic end capability that we could take advantage of. We came to that conclusion independently. We were one of the early adopters of Rockwell Industry specific MES systems, the security that Blake mentioned before, the security services.
But then if you look at what we were trying to do with IoT, PTC was the clear front runner. So the combination of the 2 companies together and what they bring to bear for us is that openness and connectedness that we were seeking.
So Jeff, how does P&G select its partners? And how are you creating the partnerships to realize the connected enterprise at P&G?
So similar to Mike, we want to look at multiple dimensions, right? For the most part, the most important is speed to value, right? We're talking about use cases where we can bring both the power of the platform, the power of the subject matter experts and deliver value. It doesn't do us any good to be proud of our digital infrastructure if it's not something that we can immediately pivot and create multiple use cases. So being able to deliver the true use case to our people is job number one.
Then collectively, we want a total cost of ownership that we can manage as a platform across multiple years and also coexist with others in our ecosystem. So as we think about Rockwell, we've been very proud of what we've been able to do with ControlLogix and Logix, right? We like the simplicity. We like the ability to have it be in one environment, and we're excited to see that this is where you're taking the PTC relationship with the FactoryTalk Innovation Suite. So obviously, it's a cost, it's speed to value and then how are we as an enterprise going to be able to drive future use cases and maintain that platform through our own mastery.
And as we talked earlier, the mastery in this space is a limited resource. And so if we want to gain value, we ought to have a partner who can stand with us and complement our resources or allow us to do this in the most simplified way.
Great. So Chetan, now from an oil and gas perspective, how do you see the digitization solutions evolving, and what does it take to win in that space?
Yes. I think my message here would be that for all the industrial verticals that the 3 of us represent here, we shouldn't go from being followers to very quickly, probably in the first inning, picking winners and losers. It's too early. I think what's going to happen is there is a place for platforms to emerge. And I say platforms because in our contemplation, it may not be one.
There are too many different commercial and technical vectors in a space like upstream oil and gas for it to be all kind of coalesced and standardized down to 1. But there are inherent technical attributes of a platform, openness, extensibility, ability for other innovators to participate. These are going to be critical decision factors. And we hear this not just from the IT suites of the client organization, but even from the lines of business that have existing long life cycle CapEx investment in their oil fields, unwilling to suddenly break ranks and go adopt a completely new digital platform just for the sake of it, right, because it would leave behind a lot of legacy investment. So I think openness, extensibility and a platform strategy makes sense.
I think there is a room for a lot of these start ups that are coming into oil and gas also, I think, across all the industries with data driven analytical kind of statistical analytical approaches to problems. What we think as an OEM of equipment, as a service company that uses its own equipment over its entire life cycle that maintains it in a peculiar way for upstream. We think there is a huge component of domain knowledge. People talk about data analytics suddenly kind of eating everybody's lunch and bringing magic dust. The fact is that we work in a high reliability industry.
If I give you a data stream and there is no failures in that data, we don't have many failures in oil and gas, by the way, on equipment. So where do you go looking for the thing that is going to drive your analytical model? This is not manufacturing process data. This is equipment that is already highly reliable, reliable, yes? And we are trying to dial the knobs on nonproductive time by 1%, 5%, which would be game changing financially for the industry, but it's very difficult analytics to pull off.
So we think the marriage of physics, domain insights with data is the right idea. So I think there are a couple of one technology and one kind of ecosystem approach that are going to pick a set of winners, if you will, in the future versus one winner.
So oil and gas companies are not waiting for the next Watson or next big machine learning software to solve our problems?
So far, we don't see it.
So now we're going to move on to talk about next steps. Jeff, let me start with you. So what are the next steps at P&G in your end to end digitization strategy? And what would you like to see from companies like Rockwell Automation and PTC?
So I think we're very proud of our digitization transformation, but my observation, it's still happening in silos. So they're very disciplined specific investments that are generating value in that activity system. But the big breakthrough is going to come through convergence, right, whether it's IT, OT or how these applications work together. So from my viewpoint of Rockwell and even the PTC partnership is there's extreme power in freeing up the data from the things and having it be contextualized as a part of a larger ecosystem of information. So we're going to have strength from our partners above in ERP, and we're going to want that to coexist well with what we have in the strength from our operating environment in the plants.
So what we want is an ecosystem that Rockwell will respect and bring their own value and then bring that their own value in a way that's simplified speed to value and help us manage that in our own enterprise. So I want convergence. I don't want discipline specific value. I want entire business value in each of our categories. So my role as smart platforms architect, I'll be leveraging Rockwell along with our other larger incumbency that comes from the ERP and have that work together in a well converged value creating set of use cases.
So Mike, would
you agree with that? What are your next steps? I completely
agree with what Jeff was just saying. So for us, it's also about execution. So we're proud of our vision, our strategy. We've had a lot of proof of concept work or even pilot work out there in the field, but it's all about making it happen now and really driving it to a new level of value creation. A lot of investment over the next 3 to 5 years in making this reality for us.
It's exciting. We want to see the same things. For me, it's much more on the IT, OT convergence side, ERP riding on top of course, but we have a lot riding on the ability to free up that base level equipment information, drive it through analytics models to really transform what's going on, serve it up through personalized experience, whether it's augmented reality or just personal dashboards that people have on the floor to really drive efficiencies. That's what it's all about for us. It's all execution now.
So, Chetan, in oil and gas, are we ready to scale up from proof of concept to rollouts enterprise wide? Where are we at in that journey?
So I think investments are coming. Like I said, we see the clear trend. So I would say if we are to put kind of three things about how does the adoption escalate, investments are coming. People are getting retrained. New people are being brought into the industry to support the skills gaps in this area.
So that's happening. Could go a bit faster on that front, but it's happening. I think the big challenge that upstream customers have today is how do you scale, right? And this idea of scaling from a pilot that does something on one asset, one field somewhere to all lower 48 or asset spread all over the world in terms of fields of operation. This is the difficult bit now.
So I would say the 2 nuts that need to be cracked first is about scale. That is a technical issue. And probably dominating all these three factors would be change management because the kinds of things that we are talking about using digital for now is transforming the work itself. It's not digitizing an existing workflow and somehow making like RPA has done for back office operations. We're not talking about that in upstream oil and gas.
We're talking about transforming the work itself. But here, you have a big change management issue. These are long established procedures, practices, people competencies, standard work, a lot of safety considerations. So to move on the change management front is probably the single biggest hurdle to kind of the next step of scale out. But I think the investment and people component are being tackled.
The technology is coming to market. I think our customers and us jointly, it's a shared responsibility, how to take the industry through this change cycle, which is probably going to be an important task.
So I'm going to open it up now for questions from the audience. I know you have the app to submit questions. I've got a couple of questions already, so please go ahead and submit the questions through the app. And if you're having trouble downloading the app, just raise your hand, and we also have microphones as a backup. So here's a question.
What is the most interesting and helpful technology you have encountered in your digital journeys?
So maybe I'll start first. I think part of my growth over the last 10 years is to not be so technology focused, but to be more human centered or delivering these technologies to your people. So much of the ARVR technologies, some which Rockwell now is deeply involved in and others that I've explored, really give us a chance to really deliver the full value through our people, right? I think sometimes we get a bit too enamored about the different layers of the technology stack. That only matters once you've delivered that final 18 inches or the experience for the user.
So I'm extremely excited about what's going on with Rockwall and PTC and other things that we're working on to really bring to life this intelligence through the people in each of the key roles in the organization. So there's so much emerging in this space. It's tough to pick the winners and the losers from that, but I think it is going to be a big opportunity for us as end users to really achieve the value through our people. So mixed reality, ARVR in a way to really deliver human experience. Because as Greg talked about earlier, we're a bit spoiled in our personal lives.
When we come to our manufacturing roles or industrial roles, we're very dissatisfied. So I think we have to close that gap rapidly
to get the full value of the entire technology stack. I couldn't agree more. So that phone has really changed the game for us in terms of selling solutions into our business, but it's user centered design principles that really allow us to do that. We're not taking big monolithic solutions anymore and enforcing them upon the user base. We're designing the experience that they need to have.
So that could be on a screen or that could be an augmented reality experience, which really is a game changer when you're walking around in the field. So augmented reality coupled with real time data, that's a game changer.
Maybe just a quick comment. Sujeet mentioned that oil and gas is a data rich industry. I would say the fundamental, if I were to cite 1, technology that we think allows us to do something different than in the past has to do with big data technology in the cloud today. And a lot of people attribute the cloud technology as far as data is concerned to just large volumes of data. It's much more significant than that.
That is a reason why our data rich industry has its data sitting in all kinds of silos today. It is not that those people designing those applications and systems were stupid in the past. There is a stupid in the past. There is a technical reason for it to be that way. And so just making new databases would not help us solve that problem.
So I think fundamentally, big data technologies and the elasticity of cloud storage is game changing when we try to solve the problem of oil and gas.
So next question. In percentages, how would you break down the total value creation from digital transformation? And the 4 categories here are operating cost savings, capital savings, revenue generation and other. So do you have thoughts on how does the value break down by these four areas: operating cost savings, capital savings, revenue generation and other. Maybe we can start with what's most important.
So maybe I'll start again. We have a very direct measure that we declare as net structural savings. So one of the things that P and G's product supply organization is very proud is the year on year net structural savings that we're able to offer back to the company for innovation and growth of our customer facing investments. So the digital component of net structural savings is growing year on year. I would say, years ago, you would have struggled to really account for its contribution.
But now it's really obvious that much of the low hanging fruit on productivity and other measures and structural savings are not going to come from just eliminating people, right? You're going to need to amplify the contribution of their work. So I would say it's growing. It's tough to put an exact percentage, but I would say it's at least a third to more growing in its contribution to how we're going to generate net structural savings.
That resonates with me. I think it would be split evenly across those categories. It depends upon what part of the business you're in as well. So if you're in the manufacturing side of the business, your contribution to revenue creation is new product launches and getting into the market faster. So you can have a contribution there through digital technologies, enabling that journey.
For us, it's the technology transfer from a pilot plant into a full scale production. A lot of it is about operational efficiencies in driving those costs. We see a lot of potential there for us.
So I think for Schlumberger, given that we are not just an end user of the technology, if you will, we make products and services that go out to our customers using this technology, I would say the overarching theme would be efficiency, I would say. Efficiency translated to our service businesses means cost reduction for us where we operate the equipment and provide a technical service to our customer. Efficiency when we translate it to products and things we bring to our customer translates to revenue for us, right, because it's market share. So this is in a competitive landscape for oilfield services. We think digital fundamentally goes after efficiency, both bottom line efficiency and client delivered efficiency, which results in some top line value.
I think these are the 2 primary drivers of why we see the energy inside our company to go after these investments.
So next question. What separates Rockwell from historically process centric automation providers, given that domain expertise was highlighted as critically important. So a lot of other automation providers also highlight the availability of domain expertise and what separates Rockwell.
I think it's really important. So in life sciences, there's a very deep expertise in what Rockwell brings to the table for us in manufacturing execution to the point where the product is being built to serve the industry. And that means a lot to us because our industry is highly regulated. Our process manufacturing is a little bit different than other processes. And having experts available to you on that journey is important because you can't just find them on the street corners, right?
Like it's not an ERP implementation. It's a very specific implementation of a life science process. And when you have that in your consultative workforce, it's a huge value to your customer.
I guess I would say, I come from a more of an assembled converting packaging world. So I'm used to a broad set of diversity of equipment, right, and a diversity of data models. And for many, many years, at least the last decade, Rockwell has not shied away from simplifying that diversity and still serving up the integration and the data. If you're inherently a DCS or a process, you already have it in your system. So Rockwell's courage, Rockwell's ability to navigate the diversity of systems and bring those systems together in a way that you can deliver application that you can design, you can maintain, and they're not afraid you're not afraid of taking on the diversity of those different pieces in your value stream.
And I depend on that because I have a complexity budget mindset and I can only afford so much complexity. And so you guys have been able to help me simplify that level of integration at the control system level to coordinate those machines and now to give me the hope of doing the same thing on an intelligence basis.
Perspective, Chetan?
Yes. I think, to me, domain people use the term domain. I use it maybe slightly differently than how Rockwell is using it. But the one thing that I recognize, not just from today but our work previously with Rockwell, is that for controls, equipment and systems provider serving many, many verticals, the very clear strategic shift or addition that you have done to your corporate strategy around software is marked difference, right? And this is not easy to do.
We see it inside Schlumberger in this investment shift that we have made, right? So I see that as a significant choice made by Rockwell, which has a compelling value proposition. And that has to do with not treating software like an adjunct thing to selling off PLC, DCS, CADAR systems, right? In the future, when we talk about digital, the value of that hardware will remain. We are a large hardware manufacturer ourselves of functional equipment for oil and gas.
But yet we see that the value delivery to the client is going to go through a lot of digital capability, and that means a lot of software. And so that needs to kind of we've seen Rockwell make the shift, and to us, that is differentiated in the marketplace compared to some of the other equipment suppliers that we see.
We're out of time for the panel. So I just want to thank our 3 panelists. Thank you very much for coming and sharing your insights with us this afternoon.
Thank you.
All right. We're good.
So it's us again to bring you home. Going to take a few minutes now to talk about some of the differentiation and what we think are going to be important challenges that customers around the world face over the next decade. First of all, complexity. I think you just heard a lot about that. We've always focused on simplification.
We're putting that even into even higher gear. So we've got a single logics platform. It's our fundamental control platform for discrete and hybrid and process applications. This single platform drives productivity, not only for able to work on multiple areas of the plant. But it also drives efficiency and productivity and profitability for us because we can put our efforts into that single platform that's really good for a wide variety of applications.
And by the way, as you go up the technology stack, the ThingWorx software that PTC provides is known for its usability. It's rapid time to value. That was a fundamental design philosophy in the creation of that set of tools. Connectivity and security along a similar theme. We were Ethernet before Ethernet was cool, and it continues to provide an openness.
And as IT and OT converge, Ethernet has been the de facto standard, of course, in the IT world for a long time. It's home field for us. It's easy to integrate. We complement that with a defense in-depth security strategy, beginning with hardened products that are resilient to direct hacking attempts, to networks where we provide tools along with partners like Claroty and Cisco, security built into our software and then really importantly, an understanding of insider risk that we use as we engage in consulting arrangements with our customers because that's a really important part of it as well, the human aspect of it. Reducing cyclicality.
And I'm going to talk a little bit more about how we're reducing our own cyclicality. You've heard a renewed focus on subscription based software and recurring services. For the customer, this provides level cost loading. For us, it begins to dampen those cycles a bit. As we increase our exposure to process industries, and you know from our recent earnings release, we had a really great year in terms of process growth.
That increases our participation in later cycle businesses to complement our traditional strengths in early cycle businesses like automotive. And to have that across the spectrum, we think, is helpful. And by the way, process companies typically buy a real high percentage of recurring services. So growth in process helps us back on the services part of the equation as well. We're an asset light business.
Our capital expenditures as a percentage of total revenue are pretty low. And as Patrick will talk about in a minute, our free cash flow is resilient to the cyclicality, and we'll show that in a minute. We're agile, and we're getting more agile. And that's important because not only is the ITOT convergence bringing down technologies from the IT level, it's also bringing new business models, buying practices and maybe a little bit of an accelerated pace than the manufacturing floor has been familiar with. We're a pure play.
Industrial productivity is all we do, so we can move to those opportunities. A strong partnering network, a capacity for acquisitions, all of those things help with our agility. Talk about partnering, Sujit will offer a couple of additional comments.
So we talked about the importance of data to realize the value from Connected Enterprise. Data flows through several layers. It starts at the lowest level, obviously, goes through the control layer, goes through the MES layer, makes it into the IT space. And as the data goes from the lowest level up into the IT levels, we need end to end security, we need analytics at the lower level as well as the enterprise or cloud level. And this clearly highlights the need for an ecosystem, partners and ecosystem.
This clearly is a differentiator for Rockwell, because as Blake said earlier, we differentiate with simplicity. Our ecosystem focuses on simplifying the interfaces, simplifying the workflows between tools, between data. Because when you look at an industrial type application, data is trapped in many, many different places. It could be in legacy systems, multiple databases and historians. The formats are different.
So if all of this data were to be worked with bespoke solutions, we would not have scale. So the ecosystem and partnerships are all about creating the scale and creating the simplicity for digitization. We've highlighted some of our strategic partners here. Earlier, Fran talked about the FactoryTalk Innovation Suite, which integrates Rockwell software offerings with PTC software. With a lot of the strategic partners, we have developed we have co developed products that simplify commissioning, simplify installation, maintenance in the automation domain.
We are also working on partners who provide us the domain knowledge. You heard from Netso this morning, and another example would be Schlumberger in the oil and gas space. So as a summary, partners allow us to focus on what we do best and offer our customers a solution that's more end to end and provides a scale as well as ease of use. So let me now turn it back to Blake.
When we do make acquisitions for other inorganic investments, we've identified some clear priorities. Information solutions and connected services continue to be a focus area for us process expertise as we continue to add functionality into our Logix platform, that expertise, as was mentioned, as was questioned to the panel, remains critically important. And then market expansion in Europe and Asia. And you can see some examples of recent acquisitions in these spaces, and I'm happy to report they're performing well for us, And we'll do some more. So with that, I'll hand it over to Patrick for a recap of financials.
Thank you, Blake. Good afternoon, everyone. We've had a good performance over the last 10 years. Earnings growth driven by higher organic sales and productivity. During that period, segment margins expanded by 360 basis points, while at the same time, research and development grew at a 7% CAGR and moved from 3.5% of sales to over 5.5% of sales.
During this period, free cash flow conversion amounted to 110% of adjusted income or averaged 110% of adjusted income during this period, which has enabled us to return over $8,000,000,000 of cash to shareowners. And of course, it's our intention to build on this strong financial performance, and this is the framework that we shared with you last year. It all starts with our target of 30% to 35% earnings conversion assuming mid single digits of organic growth. This means that we expect continued upward momentum on our segment margins. From a free cash flow performance point of view, we continue to target 100% conversion.
That free cash flow performance combined with a very solid balance sheet gives us plenty of flexibility to invest in inorganic investments and return cash to share owners through dividends and share repurchases. You'll also see on this slide that, of course, we continue to target EPS growth at a higher rate than our share growth than our revenue growth and, of course, return on invested capital over 20%. I think it's fair to say that if you look back on our fiscal 'eighteen performance that we checked the box on every single one of the elements here on our framework, very much aligned with it. I'd like to talk a little bit about our free cash flow performance. And I think it would be fair to say that by any measure, our free cash flow performance has been very strong.
It's a reflection of our high margin asset light business model, but also the working capital improvements that we've made over the years. And as you heard this morning from Bob Murphy, we see continued opportunities from a working capital point of view within our company. And so we expect to continue the strength of strong free cash
flow performance.
This slide provides a comparison of our free cash flow performance with our adjusted earnings per share, and there are a couple of takeaways that I'd like you to have. The first one is, is our free cash flow performance tend to be less cyclical than our earnings per share performance. In addition to that, the growth rate for free cash flow performance is higher, 10% CAGR during this period compared to its 8% for adjusted EPS. Now if you would look at free cash flow performance per share, so our free cash flow per share during this period has grown by a CAGR of 12%. That's a 12% free cash flow per share CAGR in a 10 year period in which we had 2 industrial recessions.
And again, I think that is strong performance. The other thing I'd like to add on this slide, and you heard this several times during presentation today, is that we are focusing more on increasing our recurring revenue and cash flow streams. Some of the new software we're selling is on a subscription basis only, and some of the additional services that we're selling that Frank talked about earlier, again, are on a subscription bill and recurring revenue basis. So that, again, is an important focus for us going forward. Free cash flow, of course, is an important source of capital.
This is our capital deployment priorities. They have remained unchanged. 1st of all, we focus on accelerating our organic growth. To deliver that, it's mainly P and L investments. It goes back to our earnings conversion target of 30% to 35%.
We need limited capital expenditures to fund organic growth, as Blake mentioned just a little bit ago. Then, of course, our next priority is inorganic investments. Our financial criteria there remain unchanged. We target a free cash flow yield of over our WACC plus a risk premium between years 35. After that, we focus on cash returns to share owners through dividends and share repurchases.
Tax reform in fiscal 'eighteen has enabled us to get access to cash that was outside of the U. S. And, of course, has enabled us to deploy some of that capital. During fiscal 'eighteen, dollars 2,300,000,000 of cash outside the U. S.
Has been repatriated, and we put it to work very consistent with the priorities I just walked you through. We invested in inorganic growth, including the PTC investment. We twice increased our dividend by 10% for over 20% in total, and we increased our share repurchases to $1,500,000,000 in fiscal 'eighteen. Tax reform also enables us to move forward to a or to move towards a more efficient balance sheet, and this is the framework that we have for a capital structure point of view. If you look on the right side of the slide, we intend to maintain an A credit rating.
We target an adjusted debt to EBITDA capital structure of about 2x with the flexibility to temporarily move up to 3.5x for strategic acquisitions. Now for fiscal 'nineteen, we intend to deploy $2,000,000,000 of capital. Of the $2,000,000,000 $1,000,000,000 will be from our free cash flow, The other $1,000,000,000 will be from a combination of lower cash balances and a little bit higher leverage. The $2,000,000,000 we intend to deploy as follows: We currently have a placeholder for acquisitions for $500,000,000 Our dividend will cost us a little bit less than $500,000,000 And then finally, as we announced last week, we're targeting $1,000,000,000 of share repurchases in fiscal 'nineteen. Earlier today, and you may have noticed this, we announced that we renewed our credit facility.
Our new credit facility is, again, for 5 years. It's for $1,250,000,000 about $250,000,000 more than our prior facility. And again, it gives us plenty of financial flexibility to deploy capital going forward. This is my last slide. This is the guidance we provided last week.
In short, we're expecting another good year. We're expecting 5.2 percent organic growth at the midpoint of guidance. That's after a 30 basis point headwind from our the new rev rec recognition standard adoption. We expect margins to expand by about 0.5. To 22%.
And finally, we expect double digit EPS growth. At the midpoint, it's about 12% EPS growth. And again, we're targeting 100% free cash flow conversion. With that, I'll turn it back over to Blake.
So we've talked a lot today about increasing value for customers and shareowners. I want to mention a couple of other important stakeholder communities, beginning with our employees because they're the ones who make it happen, and also the communities that we're in. And those are important to mention because it's an important part of who Rockwell Automation is. And it's also an indication of our commitment to providing long term sustainable value and winning the right way. And we're very confident that we're going to continue to win the right way.
It's an attractive market. You've heard some indications from some big players in the industry about we're hitting an inflection point in terms of investment in this area. We are really well positioned in this market. We have a great combination of home field advantage, installed base and new capabilities that I find very exciting. We're a pure play.
It's all we do. And we have the financial strength and the flexibility to go where we need to go. I think most eloquently, it's from the customers that we've talked about and that you've heard from today across the many industries that we serve, companies like Ford and Transportation, P and G and Consumer Products, Pfizer and Life Sciences, Metso and Mining and Schlumberger in Oil and Gas. That is the strongest testament that they voted very compellingly in terms of who they want to work with. And finally, a continued commitment to long term superior value creation through total shareowner returns.
And so with that, we'll open it up to questions. I think we're going to use the same format that we did for the panel.
Thanks for taking my question. So I have two questions. 1 on the sales side. It looks like you're agnostic between partnering with an OEM equipment maker or an end customer. How do you go to market?
And is there any big difference in returns who the ultimate who the customer is?
I think it balances out. I welcome some comments from the rest of the team as well. But the question was the split and maybe the outcomes when we do business through machinery builders or the end user. And we do a lot of business with both. We're probably slightly skewed towards the end user side, but that OEM business is, of course, extremely important as in certain industries, the machinery builders carry with them the responsibility for specifying the equipment because they're signing up for production guarantees and so on.
I think one of the points that was made eloquently this morning by Mezzo is that we don't have to do it all. If we have a well OEM with strong capability, then we're very happy to work with them to provide the equipment and a certain amount of expertise. But if it's important for them to have that line of business directly with the user, then we're happy to work with them. In other cases, the user comes right to us and says, I don't want to have to coordinate different approaches from a whole variety of machinery builders. I'd really like Rockwell to take a coordinating position to put down specifications, and that's obviously good for us as well.
I think in terms of the desirability of the business, they both are because we have to address both sides of the food chain, if you will. And it's through a combination of products and expertise and complete solutions as needed. So are there any other comments to that?
The only thing I would add is, in some industries, end users will not allow any data to go to OEMs. So there's a role there for Rockwell to work with end users and OEMs to model the data and make the data that's driving business outcomes available to OEMs.
And I guess I could add, Blake, we have to serve both. So when we're developing our products, we're making sure we're taking both of those viewpoints in. And then I also talk to OEMs about they can differentiate their machine or whatever they're delivering by having it Rockwall enabled. If it's winding up and an end user that has the ThingWorx platform and all the things we're doing with an end user to get that ready if that machine comes in already enabled, that's a big differentiator for that OEM. So I talked to them about that as well.
Thanks. And one more question was regarding so it looks like the whole concept of connected in some ways is taking the risk away from the customer to Rockwell in terms of predictive maintenance and stuff. So how should we think about the risks actually coming through? Now I understand that it's the industry has not grown so much, but what is the risk of a tail event? And how should we think about that?
I don't think that the risk is necessarily greater on Rockwell, but I think the overall risk to us and our customers is reduced through the concept of combining the technology and the expertise. We talk a little bit more now than maybe we used to about the vital importance of having a well thought out plan ahead of time. And that's why we put some additional emphasis on consulting to help customers better define their business problems. Because in this area, with lots and lots of companies, every hour spent in advanced planning to help get a clear idea of what a definition of winning looks like is important. And so it's bringing in those additional experts to complement the technology helps to ensure a better outcome, which is obviously better for us as well as the end customers.
So I don't see the risk increasing. And in fact, with some of the technology and the focus we have on simplification to make sure it comes together easier, I see that as another way that we reduce risk.
Blake over here. One for Blake, one for Patrick. Just on PTC, you're clearly very positive on what you're seeing so far, and it's only been a few months. And how would you characterize the what's surprising you or where you're more optimistic with regards to key verticals where you can work with PTC where there's maybe more upside in comparison to your outlook for the next few years on the growth potential and that's doubling the Connected Services revenue? And then one for Patrick, just if we think about the longer term margin profile of the company as you're adding more services and solutions in the context that you said the PTC revenues are going to be above corporate average, but that's can be certainly interpreted as below 30% or 30% to 35%.
How do we think about the impact structurally on the incremental margin for the company over a longer period of time?
Thanks. Why don't we take them in reverse order?
Yes. So to date, the $300,000,000 the KPI that we share, the new value Information Solutions and Connected Services, it's $300,000,000 About a little over half of that is recurring in nature, and the margin is at about the company average. With the incremental growth we expect from PTC, We basically don't expect any difference there from a margin perspective because one will sell more software. That will be very margin accretive. But as Frank explained, we also expect to sell some services with that.
And so if you take the 2 combined, we still expect that revenue stream that will grow faster than it has been in the past will continue to grow at above company margins. So I do not believe that from a company perspective that this will have a material impact on our incremental margins. What we are very attracted to besides the incremental revenue and the earnings is the fact that it will increase our recurring revenue and recurring cash flow streams. And so that is something that we believe is a big plus as part of that.
Rich, did I?
So to your first question about, hey, what have been some surprises as we and PTC have started working together, any particular industries that are kind of breaking out of the pack in terms of their adoption. We really have seen opportunities breaking out all over. And we knew that this show was going to be a bit of a watershed moment. And I don't didn't get out on the show floor very much, but from a distance, as I looked down on the window of my office, looked like there was a pretty good crowd over by the PTC booth. And the feedback I got was good.
So I think that's across a wide range of industries. Certainly, one of our first wins together was with Ford and automotive and the applications and the things that they're trying to get out of it. While they've done a great job of defining what success looks like, they're certainly not unique in that area, either as a brand owner and certainly with tier suppliers, we have a number of qualified opportunities as well. Consumer companies. So the multinational consumer companies with large fleets of lines all over the world, it's no secret to this group that the big global consumer companies are under extreme pressure for productivity.
And there's some of them are getting some help in that respect as well. And so they're looking to try to drive down additional costs and for us to be able to help there, to be able to provide consistency. And one of the things Fran alluded to, rapid integration, vertical start up, being able to get into a market, have an interesting packaging style, a snack and to be able to be a 1st mover, that's really important to them. And so it's that simplification because in a lot of those places, there may not be the trained labor that they would like to have and the time to value. Those things are really important.
And so we're seeing that as another industry that's moving pretty fast.
Hi, Brad here. So Blake, maybe just following up on that discussion with PTC. Obviously, it sounds like things are off to a great start here. You've got the $1,000,000,000 equity investment that you've made. How do you see that evolving over time?
Do you think that you maybe would have to make additional investment to grow the relationship? How are you thinking about it today?
Well, our focus right now is to concentrate on that IoT space, that factory talk innovation suite as part of our overall software offering. And there's plenty to do there. There's development work to continue to bring the pieces together. There's full engagement, energization of our sales force, and we just made some organizational moves to accelerate that as well. And so that is our focus for the time being.
Obviously, with success on that, we'll continue to look for ways to expand and deepen that partnership based on each other's strategic focus areas and objectives.
And then maybe as a follow-up, you did mention inorganic investment either across the product portfolio, additional software, regional gaps. Maybe if you can tell us a little bit more about prioritization around what you think is most important today?
Well, we've got a good funnel. We added some additional resource a couple of years ago to focus on inorganic investments, and that's really maturing nicely. Importantly, in addition to our people whose day job it is, is to look for opportunities aligned with those focus areas, we've also got really good endorsement from our line businesses who recognize that it's part of their responsibilities to grow in all ways possible and to find new ways to win. And so it's also been helped quite a bit by the businesses within Fran and Frank's organizations to look at that. The priorities, the things and so we've got a number of each of those areas that I mentioned, information solutions, software.
It's a wide attack surface, and nobody can do it all. But we continue to look for areas that we think we should own and that we can differentiate in and that fit really well with our core. Connected services, high value connected services, so things to help in the area of remote monitoring, cybersecurity, safety services, we made some acquisitions in that area. Asset management, again, it's a big field. And by being able to infuse it with the technology we have, we can be the best owner for some of those offerings as well.
Process expertise. Again, Maverick's a good example of what we did there. Over 100 chemical engineers came to us, put us on the map in some accounts that previously we would have had a hard time getting into, and there may be more of that. We're not going to do a roll up of all our integrators. Integrators remain a really good channel, but there could be some, in different places, additional acquisitions there.
And then again, additional activity, particularly in Europe and Asia, looking at established channels to market for products, perhaps products that don't have a good technology link back into an overall control system that we know something about. And so those are some areas as well. It's a broad field, and we've got big ones and little ones at all stages of the funnel.
Blake, over here.
Hi. So domain expertise is clearly important. Everyone you bring up always talks about it as one of the major reasons as to why you guys win. I thought it was interesting that Schlumberger talked about the clear shift you have towards software as being one of the major determinants. And I wonder over time, what does that mean for the hardware?
When I think about the mode that you guys have in your business, does the installed base of PLC just become less relevant and the winners in what you do is who has the best software and can it that you could just layer on anyone's hardware because you guys are doing that now?
Sure. There continues to be a need, and in fact, there will always be a need for that last mile of the control that's best done on the factory floor with products that have to convert large amounts of power, things like mechanical properties, insulation strengths, surge suppression, all those things that go into our various products, that remains important for a fundamental control system. But the information software on top of that adds additional value to it. So it really goes together. And that's why we take care, we sometimes have our eye drawn to the new value from the connected enterprise.
But those traditional products are still fundamental to the Connected Enterprise because it's required for the basic control going back to that example of a bottling line. You still have to have the variable speed drives to move the conveyor and to provide different frequency modulation of electricity to the to the motors. You have to have the programmable controller, but you can add additional value on top of that.
Well, the other comment I'd make is much of the investments we make in R and D is in software, almost 70%. And in some cases, the hardware is kind of a means to the end. It's an envelope for the software that would be true in the case of our LOGICS platform to a great extent. And so the value of software within our platforms is just as important as the value of the software that provides more value to them.
And I'll just chime in because I was having a conversation earlier about this. You have to think
of the logic's controller.
There's a piece of hardware, it's a compute surface, but what is running on there is software. It's the firmware that we develop, and then a customer creates a software application, downloads it to the controller and runs, it's just another part of that software stack. What it does well is control those devices right on that machine. Next layer up, you have SCADA and then you have your analytics. But it is a piece of software running down there, but its definite purpose, it's for that application.
Question over here. You put up a slide earlier pointing out maybe an inflection point in 2016 in terms of industrial upcycle. And from the panel, it seems like maybe we're in the early innings of the digital transformation. Just wondering how long you're thinking that runway could last and what the potential market opportunity would be?
Well, our guidance reflects optimism through our fiscal year and continued growth. Beyond that, I really don't want to offer guidance or an opinion, but we think that, that was an interesting graphic. What we hear from our customers, our outlook for the industries shows continued strength.
Thank you. Justin Bergner with Gabelli and Company. My question relates to the information solutions and connected services. The doubling by 2022, I mean, that's close to a 20% CAGR. Is that contemplated to be an organic CAGR?
And if so, what accelerates that towards that 20% level? And I guess that would be contributing like 100 basis points per annum to your overall organic growth rate if it's organic.
Well, we're off to a good start even before the PTC relationship. We've been talking about double digit growth in that basket of offerings for the last couple of years. The single biggest accelerant of that is the PTC relationship. And with that, we're not necessarily requiring additional inorganic activity or investment to get to those figures. We may do some more inorganic investment in that area, but we've got a lot to sell right now.
Great. Well, with that, thank you so much for your attention and for your interest. I appreciate the questions as well. Thank you.