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In this Research Note, we examine the Johnson Controls business, based on their 12th December Q4 earnings release, conference call, investor presentation and 10K, reporting financials year ending 30th September 2023.
Johnson Controls International plc (JCI), headquartered in Cork, Ireland, is a pure-play smart buildings player, serving a wide range of customers in more than 150 countries. They have a very significant market position across HVAC, building controls, fire, security and services, enhanced by a comprehensive equipment portfolio and substantial installed base.
Fiscal Q4 results were impacted by a cyber incident in September 2023, which resulted in $30 million lost/deferred sales and expenses in the quarter and a subsequent delay in reporting year-end results.
Johnson Controls FY 2023 Financials
Full-year net sales increased 6% to $26,793 million, due to higher organic sales ($1,997 million) and the favourable net impact of acquisitions and divestitures ($113 million), partially offset by the unfavourable impact of foreign currency translation ($616 million).
Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales increased 8% over the prior year, attributable to increased pricing in response to inflation pressures.
Segment Financials
Building Solutions North America revenues increased 10% to $10,330 million, due to organic growth, including higher prices ($979 million) and incremental sales related to business acquisitions ($29 million), partially offset by the unfavourable impact of foreign currency translation ($45 million).
Building Solutions EMEA/LA revenues increased 7% to $4,096 million, due to organic growth, including higher prices ($324 million) and the net impact of business acquisitions and divestitures ($29 million), partially offset by the unfavourable impact of foreign currency translation ($102 million).
Building Solutions Asia Pacific revenues increased 1% to $2,746 million, due to organic growth, including higher prices ($182 million) and the net impact of business acquisitions and divestitures ($19 million), partially offset by the unfavourable impact of foreign currency translation ($169 million).
Global Products revenues increased 3% to $9,621 million, due to the net impact of higher prices and lower volumes ($512 million) and incremental sales related to business acquisitions ($36 million), partially offset by the unfavourable impact of foreign currency translation ($300 million).
OpenBlue
In July 2023, Johnson Controls acquired FM:Systems, a Raleigh, North Carolina-based digital workplace management and Internet of Things (IoT) solutions provider for facilities and real estate professionals. We examined the acquisition in this article. FM:Systems is now part of Johnson Controls OpenBlue suite of software.
According to the FY 2023 10K report, the company completed its acquisition of FM:Systems for $540 million, net of cash acquired, which was comprised of an upfront cash payment of $465 million, net of cash acquired, and the estimated fair value at the acquisition date of contingent earn-out liabilities of $75 million.
The contingent earn-out liabilities are primarily based upon the achievement of certain defined operating results in the two years following the acquisition, with a maximum payout of $155 million.
Divestments
During fiscal 2023, the company concluded that its Global Retail business, which was previously presented as a divestment candidate in 2022, no longer met the criteria to be classified as held for sale.
The Company discontinued sales efforts based on market factors and other considerations and determined that it was no longer probable that the business would be sold within one year.
Memoori believes that Johnson Controls is at the beginning of a long journey to transform its large service business (around 24% of FY23 revenues) through digital technology. Like many of their competitors, the company is trying to accelerate the development of high-growth Software-as-a-Service business via their OpenBlue platform.
This article was written by Daphne Tomlinson, Senior Research Associate at Memoori.
