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Johnson Controls

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US$35.16 - OUTPERFORM

Financials
Year to 30 Sep 10A 11A 12CL 13CL 14CL
Revenue (US$m) 34,305 40,833 43,041 47,401 53,104
Ebitda (US$m) 2,606 3,087 3,585 4,334 5,190
EPS (US$) 1.99 2.40 2.66 3.35 4.20
CL/consensus (28) (EPS%) - - 97 99 104
EPS growth (% YoY) 265.5 20.9 10.7 26.0 25.4
PE (x) 17.7 14.6 13.2 10.5 8.4
Dividend yield (%) 1.5 1.8 1.8 2.6 3.6
FCF yield (%) 3.1 (0.7) 1.0 6.1 7.8
PB (x) 2.3 2.1 1.9 1.7 1.5
ROE (%) 14.5 16.2 16.2 18.2 20.0
Net debt/equity (%) 27.3 42.7 40.8 30.6 20.6
Source: Credit Agricole Securities (USA); FactSet for consensus data. CL = estimate
CLSA HAS MOVED TO A NEW RECOMMENDATION STRUCTURE AS OF 1 JAN 2012. PLEASE SEE IMPORTANT DISCLOSURES AT THE END OF THIS REPORT.
The group of companies that comprise CLSA are affiliates of Credit Agricole Securities (USA) Inc.
For important disclosure information please refer to page 36.
Emmanuel Rosner, CFA
emmanuel.rosner@clsa.com
(1) 212 408 5618
Andrew Fung, CFA
(1) 212 408 5846













22 February 2012
USA
Autos

Reuters JCI.N
Bloomberg JCI US
Priced on 17 February 2012
S&P 500 @ 1,361.2

12M hi/lo US$42.92/24.29

12M price target US$39.00
% potential +11%
Target set on 22 Feb 12

Shares in issue 680.4m
Free float (est.) 99.7%

Market cap US$24,229m

3M average daily volume
US$174.5m

Major shareholders
Capital World Investors 6.0%




















Stock performance (%)
1M 3M 12M
Absolute 8.3 18.1 (17.1)
Relative 4.1 5.5 (18.2)

25
30
35
40
45
50
Feb 10 Oct 10 Jun 11 Feb 12
88
93
98
103
108
113
118
123
128
133
Johnson Controls (LHS)
Rel to 500
(US$) (%)
Source: Bloomberg
www.clsa.com
Positioning for the future
Johnson Controls is a leading auto seats and interiors supplier with a
unique multi-industry profile due to its battery and HVAC businesses.
While traditionally recognized for its strong execution, recent operational
hiccups have dented the companys reputation and squeezed its
valuation. These headwinds are likely to persist for some time, but we
believe management is taking the right steps for the long run. Given the
recent pullback, we initiate at Outperform with a US$39 target price.
The right strategic move
Johnson Controls, the global leader in seating assembly, has also built up a
No.1 position in seat components, a crucial move to maintain leadership and
profitability as the market undergoes a fundamental shift, with much of the
added value migrating from assembly to component supply. Recent
operational issues leave us cautious on near-term margins, but we believe
managements strategy is the right one for the long run and forecast a gradual
expansion to 6.8% in 2016, just shy of the companys target of 7-8%.
Charging forward with AGM
Johnson Controls is the No.1 auto battery maker globally. The Power
Solutions unit generates significant cash and is the companys highest-margin
business. Notably, the segment is also becoming a growth engine due to
rising adoption of higher revenue and margin absorbent glass mat (AGM)
batteries. We forecast five-year sales and Ebit Cagrs of 11.6% and 16.6%.
Building blues
The Building Efficiency unit faces a slow-growth environment in the near term
due to stalled product demand in mature markets and margin contraction
from the Global Workplace Solutions business. Longer term, however, we
expect a cyclical recovery in mature markets, growth in emerging markets
and pricing initiatives in the service businesses to lead the segment out of its
current slump and support five-year sales and Ebit Cagrs of 9.5% and 17.5%.
Pullback creates opportunity
The stock typically trades at multiples well above auto peers and closer to
multi-industry conglomerates, but headwinds may keep the stock pressured
in the near term. Still, we see upside given the post-earnings pullback and
over time expect valuation to recover as the company demonstrates
sustained operational improvements. We initiate coverage with an Outperform
rating and a US$39 target price, based on 11.6x 13CL EPS (average of 13.1x
historical mean multiple and 10.0x quant-derived fair multiple).
Part of our US auto parts
Beyond the rebound
report package
Prepared for - W: achopra@apolloLP.com

Johnson Controls - O-PF

2 emmanuel.rosner@clsa.com 22 February 2012
Johnson Controls - US$35.16 - OUTPERFORM
The business Competition & market franchise
Johnson Controls is a multi-industry company that
manufactures automotive seating, interiors and batteries in
addition to designing and servicing building heating, ventilation
and air-conditioning (HVAC) and control systems. Of the three,
the autos segment is the largest businesses. Based in
Milwaukee, WI, the company employs about 162,000 people
globally and generated total revenue of US$40.8bn in 2011.
The company is the No.1 seat maker globally, with dominant
share in North America, Europe and China. Its two largest
competitors are Lear and Faurecia. The company also holds
the No.1 position in automotive battery (36% global share),
selling primarily to aftermarket distributers. The Building
Efficiency segment is focused on non-residential buildings and
services. Competitors include Honeywell and Siemens.
Valuation history
PE bands

PB bands

Comment
7.8x
12.6x
17.3x
33.6x
56.3x
5
12
30
73
180
Oct 07 Oct 08 Oct 09 Oct 10 Oct 11 Oct 12
log (US$)

0.6x
1.2x
1.9x
2.3x
2.8x
9
14
23
37
60
Oct 07 Oct 08 Oct 09 Oct 10 Oct 11 Oct 12
log (US$)
Even with current pressures,
we see upside given the post-
earnings pullback, and over
time expect the valuation to
recover as the company
demonstrates sustained
operational improvements.
Bands (from the top): max, +1sd, avg, -1std, min. Source: IBES

AsiaXposia
TM

We expect Asia ex-Japan/Korea to account for 68% of the increase in
global light-vehicle production over the next five years, including 53%
from China alone, as urbanization and a growing middle class lift the
currently low vehicle density.
Through its joint venture with Yanfeng, Johnson Controls has built a
dominant position in China, with 45% market share in automotive seating,
up from 36% several years ago. In addition, the company is the No.2
interiors supplier in the country.
We believe the companys China auto revenue (mainly unconsolidated)
could more than double from US$4.0bn in 2011 to US$9.6bn in 2016, well
above company guidance of US$7.4bn which we view as conservative
given growth prospects in the country and the companys strong backlog.
China share of seat assembly

Global autos growth to 2016 by region
Other
29%
Lear
26%
JCI
45%

0.7 0.8 1.9 1.9 2.9
3.7
13.5
101.9
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Source: Company, Lear, Credit Agricole Securities (USA)
China auto revenue could
more than double from
US$4.0bn in 2011 to
US$9.6bn in 2016
Prepared for - W: achopra@apolloLP.com

Section 1: The right strategic move Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 3

The right strategic move
Johnson Controls, the global leader in seating assembly, has also built up a
No.1 position in seat components, a crucial move to maintain leadership and
profitability as the market undergoes a fundamental shift, with much of the
added value migrating from assembly to component. Recent operational
issues leave us cautious on near-term margins, but we believe managements
strategy is the right one for the long run and forecast a gradual expansion to
6.8% in 2016, just shy of the companys target of 7-8%.
Global leader in the seating business
Johnson Controls is the largest US automotive supplier and among the
biggest globally, with revenue in its Automotive Experience segment of
US$20.1bn in 2011.
The segment specializes in seating, interior components and electronics, of
which seating products account for the lions share of the business at 80% of
the segment. In total, Automotive Experience represented half of the
companys consolidated revenue in 2011. The companys two other segments
(detailed in later sections of this report) are Power Solutions, which
manufactures automotive batteries, and Building Efficiency, which primarily
provides commercial HVAC equipment and services.
Figure 1

Figure 2
Auto Experience revenue by product

Johnson Controls revenue by segment
Seating
80%
Electronics
6%
Interiors
14%

Building
Efficiency
36%
Power
Solutions
14%
Automotive
Experience
50%
Source: Company
Figure 3

Figure 4
Johnson Controls automotive seats

Johnson Controls automotive interior

Source: Johnson Controls
Johnson Controls is the No.1 automotive-seats supplier on a global basis, with
29% market share in complete seat assembly. Its two largest competitors are
Lear and Faurecia.
Once past its operational
issues, Auto Experience
has a solid mid-term
outlook
Johnson Controls is the
largest US auto supplier,
specializing primarily in
complete seat assembly
In addition to seats, the
company also sells
interior and electronic
components
Prepared for - W: achopra@apolloLP.com

Section 1: The right strategic move Johnson Controls - O-PF

4 emmanuel.rosner@clsa.com 22 February 2012

Globally, the seating market is fairly concentrated with an estimated
Herfindahl-Hirschman Index (HHI) of around 1,500. HHI is the sum of the
squares of the market share of competitors; economists consider HHIs above
1,800 to be evidence of a highly concentrated market, while HHIs between
1,000 and 1,800 reflect moderate concentration.
By region, the seating market is exceptionally concentrated with two or three
players holding around 75% share in North America, Europe and China.
Johnson Controls has leadership positions in those regions, key to the
companys ability to maintain future market share as automakers increasingly
migrate onto global platforms and eye emerging-markets growth.
Figure 5

Figure 6
Global share of seat assembly

NA share of seat assembly
Faurecia
12%
Lear
19%
Other
36%
JCI
29%
Magna
4%

Lear
32%
JCI
42%
Other
11%
Faurecia
4%
Magna
11%
Source: Faurecia, Credit Agricole Securities (USA) Source: Lear, Credit Agricole Securities (USA)
Figure 7

Figure 8
EU share of seat assembly

China share of seat assembly
Faurecia
23%
Other
21%
Lear
26%
JCI
30%

Other
29%
Lear
26%
JCI
45%
Source: Lear, Credit Agricole Securities (USA)
Value shifts to components
Beyond the traditional full-seat-assembly business, we believe that seat
suppliers need to be increasingly active in the seat-components business
through vertical integration, in order to maintain profitability and respond to
the trend of unbundling by automakers.
Historically, automakers awarded a seating contract to the assembly supplier,
which included sourcing responsibility for the various components of the
seats. This enabled an assembler such as Johnson Controls to capture a profit
not only on its own design and just-in-time assembly activity, but also on the
various components it bought from suppliers and then resold to the
automakers as part of a complete seat system. Over the past few years,
automakers have shifted to awarding components contracts separately from
seat assembly and directing their complete seat assemblers to purchase
specific components from other suppliers with which they negotiated directly.
The full-seat-assembly
market is fairly
concentrated globally
Johnson Controls and
competitors need to be
increasingly active in
seat components
The company is the No.1
auto-seats
supplier globally
Johnson Controls has
dominant share in North
America, Europe as
well as China
Prepared for - W: achopra@apolloLP.com

Section 1: The right strategic move Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 5

This new way of doing business was originally motivated by the need to
control rising costs and quality as content on seats grew, but it is now mostly
a crucial part of automakers global sourcing and standardization strategies.
Because seat frames and components are not visible to the end consumer,
automakers are aiming to standardize them completely across their entire
global lineups. Many automakers now have just two or three different seat
frame platforms across their entire global product offering, making it crucial
to directly source their components from key global suppliers, regardless of
who does the ultimate seat assembly. According to Johnson Controls, nearly
90% of new business is now awarded in this manner, up from around 10%
just several years ago.
The side effect of this unbundling is that it reduces the profit opportunity in
the complete seat assembly business and makes the manufacture of
components an important element to maintain margins. We believe that the
seat industry is facing precisely the sort of challenge described by Clayton M
Christensen et al in Product Modularity, Vertical Disintegration And The
Diffusion Of Competence (1999, Harvard Business School working papers):
[ . . . ] when the predominant product architecture in an industry
becomes modular rather than integral, the ability to earn a
disproportionate share of industry profits migrates from firms that design
and assemble end-use products, to those that supply scale-intensive
components and subsystems to the assemblers. Hence, while many
experts and academics are touting the benefits outsourcing those elements
of value-added that lie outside a firm's core competencies, our evidence
suggests that this strategy can lead to unattractive outcomes.
Recognizing this trend, Johnson Controls has been aggressively expanding its
components capability, realizing three mid-size European acquisitions in 2011.
Keiper and Recaro - Metal seat components, structures and mechanisms,
specialty seats
C Rob Hammerstein (CRH) - Seat structures, tracks and height adjusters
Michel Thierry - Textiles and integrated trim
Figure 9

Figure 10
Keiper seat component

Recaro seat

Source: Johnson Controls
Automakers have
unbundled most seat
contracts to control costs
and quality. . .
. . . as well as
standardize frames and
components globally
The company completed
three component
acquisitions in 2011

Keiper and Recaro: Metal
seat components and
specialty seats
Seating added value is
migrating from assembly
to component supply

Prepared for - W: achopra@apolloLP.com

Section 1: The right strategic move Johnson Controls - O-PF

6 emmanuel.rosner@clsa.com 22 February 2012

Figure 11

Figure 12
Structure with CRH & Keiper technology

Michel Thierry fabric


Source: Johnson Controls
By component, Johnson Controls holds the No.1 position in the three primary
component categories - metals and mechanisms, foam and upholstery. Of the
three, we view strong share in metals and mechanisms as most important, as
these components offer the highest technology and value within a seat due to
the need to meet safety and comfort requirements.
Figure 13

Figure 14
Global share of complete seat systems

Global sales of metals and mechanisms
0
5
10
15
20
25
30
35
JCI Lear Faurecia Magna
(%)

0
1
2
3
JCI Faurecia Brose Lear
(US$bn)
Source: Faurecia, Credit Agricole Securities (USA) Source: JCI, Credit Agricole Securities (USA)
Figure 15

Figure 16
Global sales of seat foam

Global sales of seat fabric
0
1
2
JCI Woodbridge Grammer Fehrer
(US$bn)

0
0.1
0.2
0.3
0.4
JCI Aunde Sage Guilford
(US$bn)
Source: Faurecia, Credit Agricole Securities (USA) Source: JCI, Credit Agricole Securities (USA)
The build up of components capabilities has been a cause of recent margin
weakness as Johnson Controls incurs launch costs and operational hiccups in
a less-familiar market. Most recently, management blamed the inefficiency
costs associated with the start-up of a metals fabrication plant for
disappointing North American margins in fiscal 1Q12. Nevertheless, we see
the companys expansion of its components capability as a crucial strategy for
the long run.
CRH for seat structures
and Michel Thierry
for textiles
Johnson Controls has
built a No.1 position in
each of the primary
components categories
While the company has
seen inefficiencies as a
result of expanding into
components, it is a crucial
long-term strategy

Prepared for - W: achopra@apolloLP.com

Section 1: The right strategic move Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 7

A pause in 2012, but solid mid-term growth potential
With over 50% exposure to Europe and a more back-end loaded three-year
backlog, the Automotive Experience segment is likely to see limited top-line
growth this year.
Figure 17
Automotive Experience revenue by region
Asia
12%
Europe
51%
North
America
37%

Source: Company, Credit Agricole Securities (USA)
The companys European presence represents a double headwind for 2012
sales performance. Specifically, we are modeling a 5.6% decline in the euro (to
current exchange rate of US$1.32) and 7.3% fall in European volumes (versus
IHS at negative 8.5% and company guidance at negative 3.5%), which add up
to a total headwind of around US$1.2bn. On the positive side, the roll on of the
remaining revenue from the 2011 acquisitions should largely offset the
European headwinds. In addition, we expect a combination of a consolidated
backlog of US$710m (US$1bn including unconsolidated), continued recovery in
North America and catch-up production in Asia post-natural disasters to
support a 5.6% YoY increase in consolidated revenue to US$21.2bn.
In China, which is largely unconsolidated, we are forecasting a 14.1% YoY
increase in revenue to US$4.6bn, somewhat below guidance of US$4.8bn as
we are modeling a more modest 5.6% YoY increase in industry volumes
versus the companys 8.0%. In total, we expect Automotive Experience
revenue including China to grow by 7.0% to US$25.8bn.
Figure 18
Automotive Experience 2012CL revenue walk
(US$m) Revenue YoY % change Comments
2011 consolidated 20,065
NA volume 861 4.3 11.6% industry increase
EU volume (747) (3.7) 7.3% industry decline
Asia volume 213 1.1 ex China
Backlog 710 3.5
Acquisitions 1,200 6.0 Roll on of 2011 acquisitions
Currency (471) (2.3) Primarily 5.6% decline in euro
Other (642) (3.2) Primarily annual price downs
2012CL consolidated 21,189 5.6
China unconsolidated
2011 4,015
2012CL 4,581 14.1
Total cons. + uncons 25,770 7.0
Source: Company, Credit Agricole Securities (USA)
The companys high
European exposure
creates a double
headwind in 2012
We expect China (mostly
unconsolidated) to
continue to grow
at a solid pace
We are forecasting
consolidated sales to
grow at 5.6% in 2012

The segment is most
exposed to Europe,
followed by North
America
Prepared for - W: achopra@apolloLP.com

Section 1: The right strategic move Johnson Controls - O-PF

8 emmanuel.rosner@clsa.com 22 February 2012

While we expect Johnson Controls to be negatively impacted by its European
exposure in 2012, the region will support a significant portion of the mid-term
growth in Automotive Experience. Indeed, although we see only a cyclical
recovery to historical industry volumes in Europe (five-year Cagr of just
1.8%), three acquisitions in fiscal 2011 are expected to contribute an
additional US$3bn in revenue by 2014, of which only US$700m has rolled on
as of 2011. Furthermore, within the companys US$4.2bn three-year backlog,
Europe represents US$2.2bn or 53% of the total. Combined with the modest
cyclical recovery, we are forecasting European auto revenue to achieve an
8.4% Cagr to US$15.4bn by 2016, up US$5.1bn from 2011 levels.
Figure 19

Figure 20
Automotive 2012-14 backlog by region

Automotive 2012-14 backlog by product
Asia
34%
Europe
53%
North
America
13%

Electronics
10%
Interiors
17%
Seating
73%
Source: Company
We anticipate that emerging markets will largely drive the remainder of mid-
term growth. As shown Figure 21, we find a high correlation between a
regions GDP and its vehicle penetration on a per-capita basis. The Chinese
vehicle market stands out in particular, because despite being already the
largest market in the world (currently 50% larger than the USA), it still has
one of the lowest penetrations in the world at around 4%. India, Brazil and
Russia also have low vehicle penetrations, suggesting robust long-term
growth in demand as their economies expand.
Figure 21
Vehicle density versus GDP per capita by region
y = 51.39x + 2848.5
R
2
= 0.8807
0
10,000
20,000
30,000
40,000
50,000
60,000
0 200 400 600 800 1,000 1,200
Personal vehicles per 1,000 people
US
Japan
Western
Europe
Eastern
Europe
Russia
Brazil
China
India
G
D
P

p
e
r

c
a
p
i
t
a
(US$)
Source: JD Power, World Bank, Credit Agricole Securities (USA)
According to a McKinsey study, China is expected to have the third-largest
middle class in the world by 2020, giving us confidence that despite the
recent slowdown in sales, it is not a reflection of China running out of steam
following several years of high growth, but rather a short-term pause.
Emerging-market demand
will also drive mid-term
growth
Europe will contribute
significantly over the mid
term due to a solid
backlog and acquisitions
We believe the recent
slowdown in China is just
a short-term pause
Majority of backlog
is in Europe
We find a high correlation
between GDP per capital
and vehicle penetration

Prepared for - W: achopra@apolloLP.com

Section 1: The right strategic move Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 9

Figure 22

Figure 23
China passenger car SAAR

Private domestic consumption by country
0
2
4
6
8
10
12
14
16
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
(m units)

0
2,000
4,000
6,000
8,000
10,000
12,000
U
S
J
a
p
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x
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C
a
n
d
a
2007 2020E (US$bn, 2000)
Source: CLSA Asia-Pacific Markets Source: PSA Peugeot Citroen
All in all, we expect China light vehicle production to reach 31m units in 2016,
up 13.4m units versus 2011 levels and representing 53% of the increase in
global light-vehicle production over the next five years.
Figure 24
Global light-vehicle production forecast
(000 units) 2011 2016CL Volume
change
% of global
change
5Y Cagr
(%)
Greater China 17,538 31,000 13,462 53 12.1
South Asia 6,814 10,500 3,686 15 9.0
North America 13,126 16,000 2,874 11 4.0
Europe 20,089 22,000 1,911 8 1.8
South America 4,318 6,200 1,882 7 7.5
Japan/Korea 12,451 13,200 749 3 1.2
Middle East/Africa 2,233 3,000 767 3 6.1
Global total 76,569 101,900 25,331 5.9
Source: IHS Automotive, Credit Agricole Securities (USA)
Through its joint venture with Yanfeng, Johnson Controls has built a dominant
position in China, with 45% market share in seating, up from 36% several
years ago. In addition, the company is the No.2 interiors supplier in the
country. Notably, Johnson Controls has a diverse mix of customers in China,
including both foreign automakers and indigenous ones, which in combination
with its strong market shares, should enable the company to benefit from
industry growth regardless of which automakers ultimately win or lose in the
country. We therefore believe China revenue could more than double from
US$4.0bn in 2011 to US$9.6bn in 2016, well above company guidance of
US$7.4bn, which we view as conservative given growth prospects in the
country and the companys strong unconsolidated backlog in China.
In total, we expect Automotive Experience consolidated revenue to reach
US$29.9bn by 2016, implying an 8.3% Cagr over the next five years, ahead of
our 5.9% Cagr forecast for global production. Including unconsolidated China
revenue, we forecast a 10.4% Cagr to US$39.5bn for Automotive Experience.
Johnson Controls is the
No.1 seats and No.2
interiors supplier in China
We expect China
production to rise to
31m by 2016
We estimate that China
will represent 53% of
total global increase in
production through 2016
Prepared for - W: achopra@apolloLP.com

Section 1: The right strategic move Johnson Controls - O-PF

10 emmanuel.rosner@clsa.com 22 February 2012

Figure 25
Automotive Experience revenue walk 2011-16CL
(US$m) Revenue % change Comments
2011 consolidated 20,065
NA volume 2,004 10.0 27% industry increase
EU volume 819 4.1 8% industry increase
Asia volume 441 2.2 ex China
Backlog 5,580 27.8
Acquisitions 2,050 10.2 Roll on of 2011 acquisitions
Currency (471) (2.3) Primarily 5.6% decline in euro
Other (595) (3.0) Primarily annual price downs
2016CL consolidated 29,895 49.0
China unconsolidated
2011 4,581
Volume 3,252 71.0 71% industry increase
Backlog 2,129 46.5
2016CL China 9,618 110.0
Total cons + uncons 39,513 76.8
Source: Company, Credit Agricole Securities (USA)
Figure 26
Automotive Experience revenue forecast
(US$m) 2010 2011 12CL 13CL 14CL 15CL 16CL 5YCagr (%)
North America 6,766 7,423 8,215 8,631 9,190 9,661 9,844 5.8
Europe 8,011 10,266 10,018 11,195 13,102 14,344 15,391 8.4
Asia 1,833 2,375 2,956 3,264 3,656 4,118 4,660 14.4
Total consolidated 16,610 20,065 21,189 23,090 25,949 28,123 29,895 8.3
China (unconsolidated) 3,135 4,015 4,581 5,686 6,817 8,174 9,618 19.1
Total Auto Experience 19,745 24,080 25,770 28,776 32,766 36,298 39,513 10.4
Source: Company, Credit Agricole Securities (USA
Operational concerns leave us more cautious on margins
Johnson Controls track record of solid operational performance has been put
into question in recent quarters as mounting operational problems plague the
automotive segment. With issues extending beyond Europe into North America,
management has reduced its earnings outlook for the year (a first for the
company) and instituted several initiatives to address the underperformance.
Recreated the automotive COO position, filled by Rainer Schmuecle, who
was formerly COO of the Mercedes Car Group.
Hired 300 Six Sigma black belts to improve profitability.
Reductions in SG&A to more efficient levels (US$250m company-wide, with
US$100m between Automotive Experience and Power Solutions).
We find the initiatives encouraging and see the slower growth in 2012 as an
opportunity for the company to retrench and focus on internal improvements.
We believe that issues will ultimately be fixed, but also expect full resolution
to be slow with work lingering past 2012. For example, benefits from recent
European acquisitions appear to be more muted than anticipated, leading us
to err on the side of caution around the margin progression to the companys
mid-term target of 7-8% (versus 4.1% achieved in 2011).
Indeed, Johnson Controls reported European automotive margin of 0.8% in
fiscal 1Q12, up 80bps versus the previous year, but down 210bps sequentially
despite recent cost actions and a slight increase in revenue. Management
noted that synergies from the acquisitions have been slower to realize than
anticipated, but remained confident in the longer-term improvement in the
region. Likewise, North American margins have been on a sequential decline
since fiscal 2Q11, in part due to launch costs associated with a new metals
components plant in the USA coming in higher than planned.
Management is taking
several steps to remedy
the problem, but
resolution will take time
Both North America and
Europe have seen
significant margin
contraction
Backlog and industry
growth could help double
the companys China
revenue by 2016
Auto Experience should
grow ahead of production,
with China seeing the
strongest growth
Operational issues have
piled up in recent
quarters, in stark contrast
to its track record of solid
operational performance
Prepared for - W: achopra@apolloLP.com

Section 1: The right strategic move Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 11

Much of the recent margin expansion in Automotive Experience has come
from higher Asia margins, both as a result of operating leverage in the Asia-
ex China region (primarily Japan and Korea) as well as stronger equity
income from the companys unconsolidated Chinese joint ventures, which are
reported in segment income but without the associated revenue on a
consolidated basis. Over the mid term, we expect Asia to continue to drive
the majority of the increase as China equity income grows.
Figure 27
Automotive Experience Asia summary
(US$m) 2009 2010 2011 12CL 13CL 14CL 15CL 16CL
Revenue
Consolidated 1,098 1,833 2,375 2,956 3,264 3,656 4,118 4,660
JCI portion of unconsolidated 956 1,568 2,008 2,290 2,843 3,409 4,087 4,809
Total 2,054 3,401 4,383 5,247 6,107 7,064 8,205 9,469
Segment Ebit
Consolidated (58) (1) 74 161 158 175 193 215
JCI portion of unconsolidated 63 119 169 194 243 295 356 423
Total 5 118 243 355 402 470 550 638
Margin (%)
Consolidated (5.3) (0.1) 3.1 5.4 4.8 4.8 4.7 4.6
JCI portion of unconsolidated 6.6 7.6 8.4 8.5 8.6 8.6 8.7 8.8
Reported 0.5 6.4 10.2 12.0 12.3 12.9 13.4 13.7
Source: Company, Credit Agricole Securities (USA)
Margins are likely to remain challenged in 2012 as management implements
cost initiatives to address inefficiencies in North America and Europe. Over the
mid term, we concur with management that Automotive Experience, with good
execution, could see margins approach 7-8%. In support of this view, we note:
1) Lear, a main seating competitor, currently generates returns that are in
the 7-8% range, peak margins for the seating segment, according to
management. Indeed, margins in the past have peaked several times
around 7%. In 2003, margins expanded by 120bps to 6.9%, but then
contracted in 2004 to just 6.0% despite 9% sales growth. Again in 2007,
Lears Seating business generated its highest revenue ever, but full-year
margins only reached 7.0%. More recently, margins reached 7.5% in
2010 but have been down since then, as operational execution, especially
around new business launches, has been weaker in recent quarters.
Figure 28
Ebit margins: Johnson Controls Automotive Experience versus Lear Seating
(3.5)
4.1
3.7
5.1
3.2 3.0
3.3
3.9 4.0
3.6
5.3
4.7
7.3
7.5
4.8
6.0
6.9
4.1
7.0
5.6
3.5
5.4
4.7
5.7
(6)
(4)
(2)
0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Johnson Controls Lear (%)
Source: Companies, Credit Agricole Securities (USA)
Lear, a main seat
competitor, also has peak
margins pegged at 7-8%
Johnson Controls
margins have trailed
Lears, in part due to low-
margin interiors business
Asia margins have
improved, largely due to
unconsolidated China
joint ventures
Prepared for - W: achopra@apolloLP.com

Section 1: The right strategic move Johnson Controls - O-PF

12 emmanuel.rosner@clsa.com 22 February 2012

2) Although Johnson Controls Automotive Experience business includes the
lower-margin interiors business, it also benefits from unconsolidated
equity income from its Chinese JVs, which we expect to achieve a 20%
Cagr over the next five years. As a result, we view Lears performance as
a fair benchmark for Johnson Controls.
3) While the seating business is highly concentrated in North America,
Europe and China, with the top three players controlling at least 75% of
the market in each of these regions, we believe that automakers are
taking advantage of a greater fragmentation in seating components. By
unbundling their seat purchases from complete seats previously to
directed component purchases now, automakers are taking advantage of
better negotiated pricing on each component, capping the overall margin
potential for tier-1 suppliers such as Johnson Controls.
Over the next five years, we see margin expansion in all three regions and
forecast segment margin to reach 6.8% in 2016, just below the companys
target of 7-8%, which is appropriate, in our view, until the segment
demonstrates sustainable improvements in operational performance.
Solid mid-term revenue growth, supported by a strong backlog, recent
acquisitions and growth in China, nevertheless implies meaningful earnings
growth even off our more modest margin assumptions. We estimate that
segment income (including equity income) will improve at a 19.7% Cagr to
reach US$2.0bn by 2016, up from US$829m in 2011.
Figure 29
Automotive Experience forecast summary
(US$m) 2009 2010 2011 12CL 13CL 14CL 15CL 16CL
Revenue
North America 4,631 6,766 7,423 8,215 8,631 9,190 9,661 9,844
Europe 6,287 8,011 10,266 10,018 11,195 13,102 14,344 15,391
Asia 1,098 1,833 2,375 2,956 3,264 3,656 4,118 4,660
Total 12,016 16,610 20,065 21,189 23,090 25,949 28,123 29,895
Memo: China (unconsolidated) 1,913 3,135 4,015 4,581 5,686 6,817 8,174 9,618
Segment Ebit
North America (249) 387 406 410 479 561 613 630
Europe (181) 105 180 198 336 544 667 770
Asia 5 118 243 355 402 470 550 638
Total (425) 610 829 964 1,216 1,574 1,830 2,038
Memo: China equity income 63 119 169 194 243 295 356 423
Margin (%)
North America (5.4) 5.7 5.5 5.0 5.6 6.1 6.4 6.4
Europe (2.9) 1.3 1.8 2.0 3.0 4.2 4.7 5.0
Asia 0.5 6.4 10.2 12.0 12.3 12.9 13.4 13.7
Total (3.5) 3.7 4.1 4.5 5.3 6.1 6.5 6.8
Memo: China 6.6 7.6 8.4 8.5 8.6 8.6 8.7 8.8
Incremental margin (%)
North America 29.8 2.9 0.6 16.5 14.6 11.2 9.0
Europe 16.6 3.3 (7.4) 11.7 10.9 9.9 9.8
Asia 15.4 23.1 19.3 15.0 17.4 17.3 16.4
Total 22.5 6.3 12.0 13.3 12.5 11.8 11.7
Memo: China 4.6 5.6 4.5 4.4 4.5 4.6 4.6
Source: Company, Credit Agricole Securities (USA)
Margins are capped by the
automakers efforts to
reduce costs and directing
component purchases
Margins can near the
companys target of 7-8%
over the mid term

We see strong mid-term
performance, with
segment income up 19.7%
over the next five years
Prepared for - W: achopra@apolloLP.com

Section 2: Charging forward with AGM Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 13

Charging forward with AGM
Johnson Controls is the No.1 auto battery maker globally. Power Solutions
generates significant cash and is the companys highest-margin business.
Notably, the segment is also becoming a growth engine for the company due
to rising adoption of higher revenue and margin AGM batteries. We forecast
five-year sales and Ebit Cagrs of 11.6% and 16.6%.
A cash cow that counters the more cyclical autos business
The traditional lead-acid automotive battery market is highly fragmented with
numerous competitors capturing just a small slice of the market. The one
exception is Johnson Controls, which is the undeniable leader with 36% share
of the global market.
Figure 30
Global share of automotive batteries
Exide
6%
GS Yuasa
7%
Other
37%
Johnson
Controls
36%
Fiamm
2%
Fengfan
3%
Camel
3%
East Penn
6%
Source: Johnson Controls, Credit Agricole Securities (USA)
Power Solutions is the companys smallest segment in terms of revenue, but
the most profitable with consistently double-digit Ebit margins. In 2011, the
segment accounted for 14% of consolidated revenue and 33% of segment Ebit.
Figure 31

Figure 32
Johnson Controls revenue by segment

Johnson Controls Ebit by segment
Building
Efficiency
36%
Power
Solutions
14%
Automotive
Experience
50%

Power
Solutions
33%
Building
Efficiency
32%
Automotive
Experience
35%
Source: Company
The battery business has a class-leading cost structure and management
continues to improve it further through vertical integration. As an example,
by adding a second lead-recycling plant in North America, Johnson Controls
will have capacity in place to meet 50% of its lead needs in the region,
reducing dependence on external sources and price volatility.
Adoption of AGM batteries
should enable meaningful
sales and earnings
growth over the mid term
The company has a best-
in-class cost structure
Johnson Controls is the
clear leader in batteries
with 36% global share of
a fragmented market
Power Solutions is the
companys highest-
margin business
Prepared for - W: achopra@apolloLP.com

Section 2: Charging forward with AGM Johnson Controls - O-PF

14 emmanuel.rosner@clsa.com 22 February 2012

Although the company does sell to automakers, the bulk of the business
(approximately 80%) is to aftermarket customers. This mix creates strong
seasonality in the business, but importantly offers a counter-balance to the
more cyclical Automotive Experience segment.
Figure 33
Power Solutions aftermarket battery brands

Source: Johnson Controls
The greatest benefit of the battery business, in our view, is the segments
strong cash generation, which helps fund acquisitions and the companys
more capital-intensive businesses like autos.
Mid-term growth potential with AGM adoption
In the past, Johnson Controls has grown its battery business through
acquisitions and new business wins. However, over the mid term, the
company has an opportunity to meaningfully expand both revenue and
margin through rising demand for AGM batteries, which are used for
start/stop applications (also referred to as micro-hybrid vehicles).
To eke out additional fuel efficiency, automakers are turning to start/stop
technology, which shuts the engine down when a vehicle comes to a full stop
and requires a more robust battery to quickly restart the engine for
acceleration. Fuel-efficiency gains are typically around 5%.
Importantly, the adoption of start/stop technology is not reliant on
government incentives (like electric vehicles are) as the current cost
associated with start/stop is relatively reasonable (usually several hundred
dollars per vehicle). Required content typically includes a more robust starter
and alternator, a higher capacity battery and additional electronics to manage
the technology.
Start/stop is currently most prevalent in Europe, where penetration has
reached about 40% in 2011, as the New European Driving Cycle (NDEC) better
rewards for the technology than other tests such as the US CAFE standards.
However, all major automakers in the USA, Europe, Japan and Korea as well as
several Chinese automakers have indicated plans to implement start/stop
technology over the next five years. Based on its backlog and discussions with
automakers, Johnson Controls expects start/stop penetration in Europe to
reach 75% by 2015, while North American penetration could jump from 7% in
2011 to over 50% during the same period.
The segments cash
generation helps fund
acquisitions and capital-
intensive businesses
All major automakers
have indicated plans to
implement start/
stop technology
Majority of business is to
aftermarket distributors

Start/stop turns off the
engine when the vehicle
is stopped, resulting in
5% fuel-efficiency gain
Prepared for - W: achopra@apolloLP.com

Section 2: Charging forward with AGM Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 15

Figure 34

Figure 35
European lead-acid auto battery mix

North American lead-acid auto battery mix
25
31
39
46
60
79
75
69
61
54
40
21
0
20
40
60
80
100
120
2010 2011 2012 2013 2014 2015
Traditional lead-acid Advanced lead-acid (%)


41 43
51
76
93
98
7
24
49
57 59
2
0
20
40
60
80
100
120
2010 2011 2012 2013 2014 2015
Traditional lead-acid Advanced lead-acid (%)

Source: Company
Globally, we estimate that annual start/stop volumes for new vehicles could
exceed 40m units by 2016, representing roughly 40% penetration of total
new vehicle production. With AGM battery life comparable to traditional lead-
acid battery life at around 36-48 months, aftermarket demand should begin
to see critical scale as we approach mid decade.
Figure 36
Global start/stop light vehicles
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2011 12CL 13CL 14CL 15CL 16CL
('000s)

Source: Company, Credit Agricole Securities (USA)
The preferred battery for start/stop applications is the AGM battery, which is
similar to a conventional lead-acid battery but utilizes a glass mat that
absorbs the batterys acid, resulting in greater charge efficiency within the
same battery volume.
Figure 37
AGM battery cutaway

Source: Johnson Controls
The predominant battery
used for start/stop is
the AGM battery

Start/stop could reach
40% global penetration of
new vehicle sales by 2016

Aftermarket demand
should begin to see
critical scale around
mid decade
Prepared for - W: achopra@apolloLP.com

Section 2: Charging forward with AGM Johnson Controls - O-PF

16 emmanuel.rosner@clsa.com 22 February 2012

Due to its scale and ability to add capacity, Johnson Controls is the leader in
AGM batteries globally. In Europe, the company holds roughly 85% share of
the original equipment market, while it has 100% of the growing original
equipment market in the USA. The company is investing over US$400m in the
technology, including plans to rapidly increase capacity to meet growing
demand. By 2015, it plans to have production capabilities between 18-20m
units, up from around 4m units at the end of 2011.
Figure 38
Johnson Controls AGM capacity
0
4
8
12
16
20
2012 2013 2014 2015
Production capacity Approved expansion (m units)
Source: Company
AGM batteries offer a meaningful revenue and margin opportunity for Power
Solutions over the mid term. Based on discussions with management, we
estimate that a typical AGM battery sells for roughly double the price of a
conventional lead-acid battery and contributes about three times the Ebit.
As shown in Figure 39, we expect an 11.6% segment revenue Cagr over the
next five years to US$10.2bn in 2016, supported by a growing and aging global
car parc as well as rising new vehicle sales. This year is likely to see the least
growth as an unseasonably warm winter has eliminated the need for restocking
at aftermarket distributers while Johnson Controls also faces lost volumes due
to the indefinite shutdown of its Shanghai plant (in 2H12, management expects
to meet demand by shipping from other facilities).
We believe that vertical integration in the traditional lead-acid battery
business and higher AGM volumes should support 320bps of margin
expansion over the next five years to 16.3%, in line with the companys mid-
term target of 16-17%. As a result, we estimate that segment Ebit will
exceed US$1.7bn in 2016, up meaningfully from US$771m in 2011.
The company is the No.1
AGM battery maker and is
increasing capacity to
meet demand
Importantly, AGMs sell at
double the price and earn
3x the Ebit of a traditional
lead-acid battery
In 2012, warm weather
and the closure of the
Shanghai plant will
reduce growth
Over the mid term, we
expect strong sales and
margin expansion as AGM
volumes grow
Johnson Controls plans to
expand AGM capacity to
18-20m units by 2015
Prepared for - W: achopra@apolloLP.com

Section 2: Charging forward with AGM Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 17

Figure 39
Power Solutions forecast summary
(US$m) 2009 2010 2011 12CL 13CL 14CL 15CL 16CL 5Y Cagr (%)
Revenue
Traditional lead-acid 3,905 4,723 5,528 5,611 6,240 6,773 7,316 7,878 7.3
AGM 83 170 347 531 812 1,196 1,689 2,297 46.0
Total 3,988 4,893 5,875 6,141 7,052 7,969 9,005 10,176 11.6
YoY change (%) 22.7 20.1 4.5 14.8 13.0 13.0 13.0
Units (m units)
Traditional lead-acid 102 114 126 125 138 146 154 161 5.1
AGM 1 2 4 6 9 13 18 24 43.1
US$/unit
Traditional lead-acid 38 41 44 45 45 46 48 49 2.2
AGM 83 85 87 88 90 92 94 96 2.0
Ebit
Traditional lead-acid 389 598 701 753 869 970 1,068 1,172 10.8
AGM 17 34 70 108 167 249 355 487 47.4
Total 406 632 771 862 1,037 1,219 1,423 1,659 16.6
Ebit margin (%)
Traditional lead-acid 10.0 12.7 12.7 13.4 13.9 14.3 14.6 14.9
AGM 20.0 20.0 20.2 20.4 20.6 20.8 21.0 21.2
Total 10.2 12.9 13.1 14.0 14.7 15.3 15.8 16.3
Incremental margin (%)
Traditional lead-acid 25.5 12.8 63.5 18.4 19.0 18.0 18.4
AGM 20.0 20.4 20.8 21.0 21.2 21.5 21.8
Total 25.0 14.2 34.0 19.2 19.9 19.6 20.1
Lead (US$/MT) 1,463 2,123 2,503 2,500 2,575 2,652 2,732 2,814
YoY change (%) 45.1 17.9 -0.1 3.0 3.0 3.0 3.0
Source: Company, Credit Agricole Securities (USA)
Focus shifts away from lithium-ion
With enthusiasm around AGM adoption, management has de-emphasized
lithium-ion as the mid-term growth engine in Power Solutions. Looking back
several years, Johnson Controls appeared to be gaining traction in the
automotive lithium-ion market as it announced production and development
contracts with several automakers including Ford, GM, Daimler and BMW.
Furthermore, in 2009 as part of the American Recovery and Reinvestment Act
(ARRA), Johnson Controls was awarded US$299.2m in grants, out of a total
US$2.4bn, to companies manufacturing advanced vehicle-battery technology.
Since then, electric-vehicle volumes remain extremely low, as the need for
further development of battery technology with the range and economics
required for wide-spread adoption is likely to keep mass penetration of
electric vehicles for the distant future, in our view. We would agree with IHS
Automotive that purely electric vehicles will remain a niche product over the
next five years while gas and diesel powertrains remain the dominant choice
for the foreseeable future. At this point, Johnson Controls does not anticipate
meaningful electric-vehicle adoption before 2020, as the industry continues to
develop the technology and reduce associated costs.
Lithium-ion has been de-
emphasized and is likely a
long-term opportunity
for the company
Prepared for - W: achopra@apolloLP.com

Section 2: Charging forward with AGM Johnson Controls - O-PF

18 emmanuel.rosner@clsa.com 22 February 2012

Figure 40
Global vehicle production mix by fuel type
(%) 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E
Gas 75.7 76.1 78.4 77.9 77.0 78.0 77.8 77.7 77.9 78.2
Diesel 24.0 23.6 21.1 21.5 22.4 21.4 21.3 21.4 21.1 20.9
Electric 0.0 0.0 0.0 0.0 0.1 0.2 0.4 0.5 0.5 0.6
Other 0.3 0.4 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.4
Source: IHS Automotive
In addition, the lithium-ion business has grown increasingly commoditized as
automakers seek to develop in-house battery integration capabilities and rely
on suppliers to simply manufacture battery cells. From that angle, Johnson
Controls and other US battery companies face fierce competition from
Japanese and Korean companies who have an established history of making
lithium-ion batteries for consumer electronics.
Johnson Controls remains active in lithium-ion development and sees
opportunities to utilize lithium-ion batteries jointly with AGM batteries for next-
generation start/stop applications. The company has also taken steps to
expand its scope beyond just automotive applications. In October 2010, it
announced a partnership with Hitachi, Ltd to collaborate on advanced energy-
storage development for both motive and non-motive applications. More
recently, Johnson Controls and Saft have dissolved their lithium-ion joint
venture. The two companies had differing views on the future direction of the
joint venture, with Johnson Controls indicating interest in expanding into other
energy storage solutions such as the electrical grid storage market. In
September 2011, Johnson Controls acquired Safts shares for US$145m in cash
and received the rights to use technology developed under the joint venture.



Johnson Controls is
expanding beyond just
auto lithium-ion use,
including non-motive
energy storage
Electric vehicles is
expected to remain a
niche product over
the next decade
Prepared for - W: achopra@apolloLP.com

Section 3: Building blues Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 19

Building blues
Building Efficiency faces a slow-growth environment in the near term due to
stalled product demand in mature markets and margin contraction from the
Global Workplace Solutions business. Looking forward, however, we expect a
cyclical recovery in mature markets, growth in emerging markets and pricing
initiatives in the service businesses to lead the segment out of its current
slump and support sales and Ebit five-year Cagrs of 9.5% and 17.5%.
Not immune to the current environment
Within Johnson Controls, Building Efficiency is the companys second-largest
segment at 36% of consolidated revenue in 2011. Segment Ebit was 32% of
the companys total.
Figure 41

Figure 42
Johnson Controls revenue by segment

Johnson Controls Ebit by segment
Building
Efficiency
36%
Power
Solutions
14%
Automotive
Experience
50%

Power
Solutions
33%
Building
Efficiency
32%
Automotive
Experience
35%
Source: Company
The company offers a mix of products and services, including new HVAC
equipment and controls, maintenance and service of existing systems as well
as outsourced facilities management. The segment is also increasingly
focused on offering software and virtual solutions for building management.
Figure 43

Figure 44
Commercial HVAC unit

Commercial chiller



Source: Johnson Controls
Figure 45
Johnson Controls Panoptix building-management platform

Source: Johnson Controls
Near-term outlook is
uncertain, but Building
Efficiencys long-term
potential is promising
Building Efficiency is the
companys second-
largest segment
The company offers a mix
of products, services and
facilities management
Johnson Controls is
increasingly focused on
software and virtual
solutions
Prepared for - W: achopra@apolloLP.com

Section 3: Building blues Johnson Controls - O-PF

20 emmanuel.rosner@clsa.com 22 February 2012

The business model centers on energy and cost-efficient solutions that offer
an attractive payback to the customer. As a result, the business is positively
correlated to rising energy costs and benefits from the trend for green
solutions that minimize a buildings carbon footprint.
Building Efficiency is exposed primarily to non-residential buildings, which
account for 90% of the segments revenue. In addition, due to a focus on
retrofit, service and management, only 17% of its revenue is attributed to
new construction. By region, nearly half of revenue comes from North
America. Asia, Latin America and the Middle East now account a combined
24% of revenue, almost in line with Europe at 28%.
Figure 46

Figure 47
Revenue: Non-residential vs residential

Revenue: Recurring vs new construction
Residential
10%
Non-
residential
90%

Services
and
recurring
revenues
83%
NA new
construction
9%
Other new
construction
8%
Source: Company
Figure 48
Building Efficiency revenue by region
Europe
28%
North
America
48%
Asia
14%
Latin America
and Middle East
10%

Source: Company
While its lower exposure to new construction and residential HVAC helps
reduce the cyclicality of the business, the company has not been immune to
the challenging environment over the past few years. Segment revenue fell to
a low of US$12.5bn in 2009 (down 11.5% year over year), but have since
recovered to US$14.9bn last year (above US$14.1bn in 2008).
By business, North America systems and services both stayed fairly stable
throughout the downturn, while the regions residential business declined
significantly from 2007 peak levels and remains pressured by the weak
housing environment (the business will require an upturn in new construction
to recover as the company lacks a significant distribution network for repair
and service work). Outside North America, emerging markets like Asia
continue to expand, while Europe remains depressed versus prior peak levels.
The business is positively
correlated to rising
energy costs, as its focus
is on green solutions
Although less cyclical
than some of its
competitors, revenue still
fell 11.5% in 2009
By region, it is most
exposed to North America
The segment is primarily
exposed to non-
residential buildings
Prepared for - W: achopra@apolloLP.com

Section 3: Building blues Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 21

Figure 49
Building Efficiency revenue by business
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2007 2008 2009 2010 2011
North America Systems North America Service
North America residential Global Workplace Solutions
Asia Europe
Rest of world
(US$m)
Source: Company reports, Credit Agricole Securities (USA)
The rise and fall of Global Workplace Solutions
To maintain revenue during the downturn, management focused on growing
its services and management businesses as customers were reluctant to lay
out cash for retrofits and other capital-intensive projects.
The segments fastest-growing business over the past few years has indeed
been Global Workplace Solutions (GWS), Johnson Controls facilities-
management business. Companies were attracted to the opportunity to
reduce costs by outsourcing building management to Johnson Controls
(including functions such as security, cleaning and landscaping for the
building) while Johnson Controls benefited from securing multi-year contracts.
The higher mix of low-margin services business has compressed total Building
Efficiency margin over the last several years. More troublesome, however, is
that within services it appears that the growth in those businesses came at
the expense of margins. In GWS, margins have deteriorated year after year
from the mid-3% range in 2006 and 2007 to just 0.4% in 2011. Similarly,
margins in the North America Service business dropped 450bps from a peak
of 9.4% in 2009 to 4.9% in 2011, as customers continue to defer more
expensive service work for cheaper short-term solutions.
Figure 50
Global Workplace Solutions (GWS) financial summary
(US$m) 2006 2007 2008 2009 2010 2011
Revenue 2,046 2,677 3,197 2,832 3,288 4,153
Ebit 67 79 59 45 40 16
Margin (%) 3.3 3.0 1.8 1.6 1.2 0.4
Source: Company reports
In contrast, margins in the companys systems businesses declined at the
depths of the downturn but have since largely recovered to historical levels.
Consequently, while segment revenue as of 2011 has exceeded prior peaks in
2008, total segment Ebit and margins remain below 2008 levels.
GWS grew meaningfully
during the downturn as
customers were attracted
to outsourcing costs . . .
. . . at the same time, the
business has seen
significant margin
compression
Segment revenue has
recovered, but certain
businesses like residential
remain pressured
Prepared for - W: achopra@apolloLP.com

Section 3: Building blues Johnson Controls - O-PF

22 emmanuel.rosner@clsa.com 22 February 2012

Figure 51
Building Efficiency margins by business
(4)
(2)
0
2
4
6
8
10
12
North America
Systems
North America
Service
Global
Workplace
Solutions
Other Total segment
2006 2007 2008 2009 2010 2011 (%)
Source: Company, Credit Agricole Securities (USA)
Investors have increasingly questioned the importance of GWS, as some
believe the business may be taking management focus away from higher-
margin product businesses. While the counter-cyclicality of GWS makes it a
compelling addition to Building Efficiencys portfolio of businesses, we echo
investors concerns around the weak margin performance.
To defend GWS, management has pointed to the high ROIC and negative
working-capital characteristics of the business, which provide the company
with strong cashflow as customers pre-pay for the outsourced contractors
Johnson Controls hires. Furthermore, the company estimates that GWS pulls
in around US$400m annually of incremental revenue (eg, new equipment,
additional service) for Building Efficiency.
Nonetheless, management acknowledges the need to improve pricing. The
company has little competition at this point (likely as aggressive pricing has
made it unattractive for competitors to enter the market) and has hired a
consulting team to evaluate opportunities to share in the cost savings its
solutions generate for customers. We expect margins to revert towards the
historical range of 3%-plus, but as service contracts are generally multi-year
in nature, anticipate that improvement will take several years to fully realize.
Glimmers of hope for the near term
While we expect GWS and emerging markets to continue to grow ahead of
the segment, Building Efficiency overall is facing a slow-growth environment
in the near term, as demand for higher-margin products remains stalled in
mature markets. Recent signs point to a potential uptick in late 2012, but we
remain cautious as fiscal austerity in Europe and the USA (roughly 70% of its
North American business is to government, schools and other public
buildings) may keep capital-intensive projects under pressure.
In the USA, growth in new construction has indeed been tepid over the past
two years, as reflected in the horizontal movement of the Architecture Billing
Index (ABI). The December 2011 ABI reading was the second consecutive
month at 52.0 (a score above 50 indicates expansion in billings), an
encouraging sign that the non-residential construction environment could
improve towards the end of 2012 (the ABI is a leading indicator of spending
Investors are concerned
that GWS is taking
management focus away
from other businesses
Management argues that
the company benefits
from GWS high ROIC and
negative working capital
Pricing initiatives will
take time, as contracts
are multi-year long
Recent signs suggest
Building Efficiency may be
entering a time of a more
robust recovery
While product margins
have largely returned to
historical levels, GWS
margins continue to fall
Prepared for - W: achopra@apolloLP.com

Section 3: Building blues Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 23

activity in 9-12 months). We note, however, that the index movement is
reminiscent of the readings in fourth quarter 2010, which was followed by a
weakening in the first half of 2011.
Figure 52
Architecture Billings Index
30
35
40
45
50
55
60
65
70
Jan 06 Nov 06 Sep 07 Jul 08 May 09 Mar 10 Jan 11 Nov 11
(Index)

Source: American Institute of Architects, Bloomberg
Throughout the past few quarters, the companys own backlog, which is
mainly comprised of products, has hinted at a strengthening environment,
albeit at very measured pace. Indeed, products revenue has been slow to
materialize and on the fiscal 1Q12 earnings call, management noted that the
timeline for many of the companys booked projects are longer than historical
norms, suggesting that recently bookings should support stronger revenue
generation in the later part of 2012. As of December 2011, the Building
Efficiency backlog stood at US$5.3bn, up 4% sequentially and 8% YoY.
Figure 53

Figure 54
Building Efficiency backlog

Building Efficiency quarterly revenue - Product vs services
0
1,000
2,000
3,000
4,000
5,000
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YoY % change
(US$m) (%)


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1
1
Products Services (US$m)
Source: Company, Credit Agricole Securities (USA)
We are modeling revenue in the products portion of Building Efficiency to grow just
3.8% YoY in fiscal 2012, as we remain cautious on retrofit and new construction
demand in mature markets, but see continued growth in Asia (both from China
and post-quake work in Japan). We expect the services businesses to post
stronger growth of 6.8% in 2012, primarily driven by continued expansion in GWS.
All in all, we forecast a 5.5% YoY increase in Building Efficiency revenue for this
year, below company expectations of high-single digits (previously 9-11% which
were revised down due to a weaker euro and poor residential HVAC demand).
Johnson Controls backlog
has also expanded, but
revenue has been slow
to materialize
We are modeling 5.5%
growth in 2012, as we
remain cautious on the
pace of recovery
The ABI index, while
higher in recent months,
has had trouble remaining
at the improved levels
Prepared for - W: achopra@apolloLP.com

Section 3: Building blues Johnson Controls - O-PF

24 emmanuel.rosner@clsa.com 22 February 2012

Awaiting mid-term recovery
Building Efficiency has a robust mid-term outlook, in our view, as a cyclical
recovery in mature markets, development in emerging markets and pricing
initiatives in the service businesses should combine to generate material
improvements in both sales and Ebit.
As a result of the recent economic downturn, North American businesses have
been pressured by deferred maintenance and temporary solutions that limited
capital outlay for customers. This has likely created meaningful pent-up
demand as well as the need for potentially costlier repair and retrofit projects
due to neglected maintenance over the last few years.
As such, we are modeling North American systems to achieve a 6.2% Cagr
over the next five years, with likely a couple of years of above-average
double-digit growth. We believe the higher volumes will also support stronger
margins and estimate that the business could revert back to prior peak levels
in the mid-11% range. In the North American Services business, we estimate
that revenue will increase at a 5.3% Cagr over the same time period. Building
in a return of higher-margin service projects, we are forecasting 260bps of
margin expansion from 4.9% in 2011 to 7.5% by 2016.
While the bulk of Johnson Controls non-service business is currently retrofit
business, we expect higher new construction exposure over the mid term as
development in emerging markets like China and the Middle East spur on
strong growth in the segments Asia and rest of world businesses.
In particular, the urbanization trend in China is expected to drive nearly half of
the global increase in new commercial building space over the next 10 years,
which gives us confidence in continued double-digit revenue growth in Asia.
We are modeling Asia revenue to rise at a 14.4% Cagr through 2016 and Ebit
margins to reach 14.3% over the next five years (versus 13.5% in 2011).
In Johnson Controls Other business, which groups the companys rest of
world regions and the small residential HVAC business, we are forecasting a
10.5% Cagr for revenue and 170bps of margin expansion to 5.0%, supported
by development in the Middle East and a cyclical recovery in Europe and
residential HVAC.
Figure 55
New commercial building space through 2021
Europe
9%
North
America
9%
Middle
East
17%
China
46%
Axia ex China
and India
8%
India
7%
Africa
1%
Latin
America
3%
Source: Company
Deferred maintenance is
likely to support strong
demand in the future
Development in emerging
markets will also support
strong growth over
the mid term
China in particular is
seeing a strong
urbanization trend
It is estimated that nearly
half of new commercial
buildings through 2021
will be in China
Prepared for - W: achopra@apolloLP.com

Section 3: Building blues Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 25

GWS growth is likely to moderate to historical rates (still strong around 10%),
as an improved economic environment relieves pressure to outsource costs.
We also expect over the mid term that better pricing on new business and
renegotiated contracted on existing business to drive GWS margins upward.
As a result, we are modeling a 10% revenue Cagr over the next five years
and Ebit margin of 3.5% in 2016, in line with historical levels and up from
only 0.4% in 2011.
In total, we estimate that segment revenue could surpass US$23bn in 2016,
representing a 9.5% Cagr over the next five years, somewhat below company
guidance of 10-15% over the mid term. We expect segment Ebit to more
than double to US$1.7bn, as better pricing and volumes support stronger
operational performance. Our forecast implies Ebit margin of 7.2% by 2016
(8.7% ex GWS), with margin expansion of around 50bps per year. At the
same time, as we wait for evidence of a sustainable recovery (both in
products demand and service margins), we note that our 7.2% forecast is
conservatively below managements target of 8.5% (10% ex GWS). Figure 56
details our full forecast for Building Efficiency.
Figure 56
Building Efficiency forecast summary
(US$m) 2010 2011 12CL 13CL 14CL 15CL 16CL 5Y Cagr (%)
Revenue
North America Systems 2,142 2,343 2,368 2,486 2,735 3,008 3,158 6.2
North America Service 2,127 2,305 2,320 2,436 2,631 2,842 2,984 5.3
Global Workplace Solutions 3,288 4,153 4,565 5,022 5,524 6,076 6,684 10.0
Asia 1,422 1,840 2,057 2,365 2,720 3,128 3,598 14.4
Other (NA resi, Europe, ROW) 3,823 4,252 4,401 4,949 5,577 6,266 7,005 10.5
Total Building Efficiency 12,802 14,893 15,711 17,259 19,187 21,320 23,429 9.5
Excluding GWS 9,514 10,740 11,145 12,237 13,663 15,244 16,745 9.3
Segment income
North America Systems 206 239 242 261 301 346 370 9.1
North America Service 117 113 110 134 162 193 222 14.5
Global Workplace Solutions 40 16 54 108 149 188 234 71.0
Asia 178 249 271 319 375 440 514 15.6
Other 132 139 153 198 251 298 350 20.3
Total Building Efficiency 673 756 830 1,020 1,238 1,465 1,690 17.5
Excluding GWS 633 740 776 912 1,089 1,276 1,457 14.5
Segment margin (%)
North America Systems 9.6 10.2 10.2 10.5 11.0 11.5 11.7
North America Service 5.5 4.9 4.8 5.5 6.2 6.8 7.5
Global Workplace Solutions 1.2 0.4 1.2 2.2 2.7 3.1 3.5
Asia 12.5 13.5 13.2 13.5 13.8 14.1 14.3
Other 3.5 3.3 3.5 4.0 4.5 4.8 5.0
Total Building Efficiency 5.3 5.1 5.3 5.9 6.5 6.9 7.2
Excluding GWS 6.7 6.9 7.0 7.5 8.0 8.4 8.7
Incremental margin (%)
North America Systems 16.4 11.2 16.3 16.0 16.5 15.7
North America Service (2.2) (17.5) 20.4 14.3 14.9 20.5
Global Workplace Solutions (2.8) 9.2 11.8 8.2 7.1 7.5
Asia 17.0 10.2 15.6 15.8 15.7 16.0
Other 1.6 9.3 8.2 8.4 6.8 7.1
Total Building Efficiency 4.0 9.1 12.3 11.3 10.6 10.7
Excluding GWS 8.7 8.9 12.5 12.4 11.8 12.0
Source: Company, Credit Agricole Securities (USA)
GWS growth should
moderate to still strong
levels, while profitability
should improve with
better pricing in place
Over the mid term, we
expect revenue to grow at
a 9.5% five-year Cagr
Prepared for - W: achopra@apolloLP.com

Section 4: Pullback creates opportunity Johnson Controls - O-PF

26 emmanuel.rosner@clsa.com 22 February 2012

Pullback creates opportunity
The stock typically trades at multiples well above auto peers and closer to
multi-industry conglomerates, but headwinds are likely to keep it discounted
to its historical range in the near term. Even with current pressures, we see
upside given the post-earnings pullback, and over time expect valuation to
recover as the company demonstrates sustained operational improvements.
We initiate coverage with an Outperform rating and a US$39 target price,
based on 11.6x 13CL EPS (average historical mean multiple of 13.1x and our
quantitatively derived fair multiple of 10.0x).
Headwinds likely to limit near-term upside
Last year was not a good year for autos stocks, with automakers averaging a
40% decline and auto suppliers dropping 24%, versus flat performance for the
S&P500, as investors actively de-risked their portfolios amid uncertainty around
the global economic outlook. Within auto stocks, Johnson Controls ended down
17%, better than the supplier average of down 24%, as investors favored
perceived quality and lower-beta names in a rocky market. Gentex was the
best-performing auto stock in 2011, ending the year 1.7% higher.
Since then, growing optimism around US vehicle demand, combined with an
overall market rally, has driven the auto sector meaningfully higher in 2012.
Year to date, both automakers and suppliers are outperforming the S&P500
by around 1800bps. Johnson Controls stock price moved in line with other
auto suppliers ahead of the companys earnings release on 19 January. With a
guide down from management and a growing list of operational issues, the
stock has since given up much of its year-to-date gains and now significantly
lags both its peers and the S&P500.
Figure 57

Figure 58
JCI stock performance versus peers and S&P

JCI stock performance versus peers and S&P
0
5
10
15
20
25
30
30 Dec 11 8 Jan 12 17 Jan 12 26 Jan 12 4 Feb 12 13 Feb 12
Johnson Controls Supplier avg
Automaker avg S&P500
(%)

(50)
(40)
(30)
(20)
(10)
0
10
20
Dec 10 Mar 11 Jun 11 Sep 11 Dec 11
Johnson Controls Supplier avg
Automaker avg S&P500
(%)
Source: FactSet, Credit Agricole Securities (USA)
While we concur that some discount to its historical multiple is warranted as
we await progress around the companys operational fixes, we believe there is
upside in the near term given the sharp post-earnings pullback in the stock.
Specifically, the stock is trading at just 10.5x 13CL EPS of US$3.35, a
meaningful discount versus its five-year average multiple of 13.1x. On an
EV/Ebitda basis, Johnson Controls is trading at 6.9x 13CL Ebitda of
US$4,334m, also well below its five-year average of 8.0x.
Despite near-term
pressure, the recent
pullback leaves valuation
attractive
YTD 2012, Johnson
Controls has trailed peers,
due to a guide down and
disappointing fiscal 1Q

Johnson Controls
outperformed peers in
2011 as investors favored
lower-beta names
Prepared for - W: achopra@apolloLP.com

Section 4: Pullback creates opportunity Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 27

Figure 59
Johnson Controls trading multiple summary
Current price (US$) 35.16
2013CL EPS (US$) 3.35
2013CL Ebitda (US$m) 4,334
Current Trough 5Y average 10Y average
PE FY2 (x) 10.5 7.7 13.1 12.7
EV/Ebitda FY2 (x) 6.9 5.6 8.0 7.2
Source: FactSet, Credit Agricole Securities (USA)
Figure 60

Figure 61
Johnson Controls PE FY2 multiple history

Johnson Controls EV/Ebitda FY2 multiple history
6
8
10
12
14
16
18
20
Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
PE Long-term avg
5Y avg LT avg - 1 std
LT avg + 1 std
(x)

2
4
6
8
10
Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
EV/Ebitda Long-term avg
5Y avg LT avg + 1 std
LT avg - 1 std
(x)
Source: FactSet, Credit Agricole Securities (USA)
Mid-term prospects remain appealing
Beyond the companys near-term pressures, we are constructive on Johnson
Controls outlook and see the current price as an attractive entry point for the
longer-term investor. We expect to stock to revert back to its historically
above-average multiple as the company shows sustained progress in its
operational fixes. We would argue that Johnson Controls historically above-
average multiple is well deserved given its solid balance sheet and track
record of high sales and earnings growth. Furthermore, the companys
diverse set of businesses warrants comparison to multi-industry peers that
trade at meaningfully higher multiples than pure auto suppliers do.
Indeed, over the mid term, we believe the companys earnings growth will be
among the best of the supplier group. Specifically, with stronger volumes and
operational improvements, we expect an impressive 18.7% EPS Cagr over the
next five years.
Figure 62

Figure 63
US auto suppliers 2011-16CL revenue Cagr

US auto suppliers 2011-16CL EPS Cagr
5.9
6.2
9.2
10.4
12.3 12.1
0
2
4
6
8
10
12
14
American
Axle
BorgWarner Tenneco Johnson
Controls
Dana Lear
(%)

7.9
14.8
15.2
17.1
18.7
20.5
0
5
10
15
20
25
Tenneco Johnson
Controls
BorgWarner Dana American
Axle
Lear
(%)
Source: Companies, Credit Agricole Securities (USA)
Stronger volumes and
operational fixes support
above average mid-term
earnings potential
Over the mid term, we
believe Johnson Controls
deserves an above-
average autos multiple
The stock is trading well
below its historical
multiples
Prepared for - W: achopra@apolloLP.com

Section 4: Pullback creates opportunity Johnson Controls - O-PF

28 emmanuel.rosner@clsa.com 22 February 2012

Figure 64
Johnson Controls income statement
(US$m) 2010 2011 12CL 13CL 14CL 15CL 16CL
Net sales 34,305 40,833 43,041 47,401 53,104 58,449 63,499
Cost of goods sold 29,005 34,663 36,544 40,021 44,481 48,701 52,679
Gross profit 5,300 6,170 6,497 7,380 8,623 9,747 10,820
Gross margin (%) 15.4 15.1 15.1 15.6 16.2 16.7 17.0
SG&A 3,600 4,075 4,267 4,598 5,151 5,670 6,159
Operating income 1,700 2,095 2,230 2,782 3,472 4,078 4,661
Operating margin (%) 5.0 5.1 5.2 5.9 6.5 7.0 7.3
Net interest expense 170 174 227 217 192 167 142
Other expense/(income) 0 0 0 0 0 0 0
Equity (income)/loss (215) (261) (426) (491) (559) (640) (726)
Pre-tax income 1,745 2,182 2,429 3,057 3,840 4,551 5,245
Pre-tax margin (%) 5.1 5.3 5.6 6.4 7.2 7.8 8.3
Provisions for/(benefit from) tax 314 410 467 611 799 983 1,185
Tax rate (%) 18.0 18.8 19.2 20.0 20.8 21.6 22.6
Less non-controlling interests 75 117 131 138 147 158 166
Less preferred dividend 0 0 0 0 0 0 0
Net income/(loss) attributable to JCI common 1,356 1,655 1,831 2,308 2,894 3,410 3,894
Effect of dilutive securities 0 0 0 0 0 0 0
EPS (excluding special items) (US$) 1.99 2.40 2.66 3.35 4.20 4.95 5.65
Consensus (US$) 2.76 3.37 3.99 4.47 na
Source: Company, Credit Agricole Securities (USA)
On an Ebitda basis, the companys margins, although towards the lower half
of the group currently, should reach double digits by 2016, as the company
realizes benefits from restructuring actions and operating leverage. We
forecast a strong 16.8% Ebitda Cagr over the next five years, the highest rate
among our coverage.
Figure 65

Figure 66
US auto suppliers - 2016CL Ebitda margins

US auto suppliers - 2011-16CL Ebitda Cagr
8.2
9.2
10.6
12.3
13.2
17.4
0
2
4
6
8
10
12
14
16
18
20
BorgWarner American
Axle
Dana Johnson
Controls
Tenneco Lear
(%)


8.5
9.6
10.4
12.3
14.5
16.8
0
2
4
6
8
10
12
14
16
18
Johnson
Controls
BorgWarner Tenneco Dana American
Axle
Lear
(%)

Source: Companies, Credit Agricole Securities (USA)
Solid and consistent balance sheet
While not in a net cash position like some auto suppliers such as Dana and
Lear, Johnson Controls balance-sheet health justifies an above-average
multiple, in our view. The companys net debt balance of US$5.7bn may be
higher than other suppliers under our coverage, but it is well within
proportion relative to the size of the business and balance sheet. Indeed, net
debt represented 19% of the companys enterprise value, not far from other
high-quality names like BorgWarner and well below American Axle, the
supplier under our coverage that is most pressured by its debt load.
We also expect
compelling Ebitda growth
over the mid term
The companys balance
sheet and cashflow have
been a consistent
strength
Prepared for - W: achopra@apolloLP.com

Section 4: Pullback creates opportunity Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 29

Furthermore, Johnson Controls net debt/Ebitda leverage ratio has been
consistently stable over the past decade, only rising temporarily for large
acquisitions or the recent recession. With management indicating that it will likely
not pursue any acquisitions this year as it refocuses on internal operations, we
expect earnings growth and strong cash generation to reduce leverage in 2012.
Figure 67

Figure 68
US auto suppliers net debt/(cash) positions

Johnson Controls leverage history and forecast
(3,500)
(2,500)
(1,500)
(500)
500
1,500
2,500
3,500
4,500
5,500
6,500
American
Axle
Tenneco Johnson
Controls
BorgWarner Dana Lear
(% of EV) (US$m)
(35)
(25)
(15)
(5)
5 %
15
25
35
45
55
65


0
1,000
2,000
3,000
4,000
5,000
6,000
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
1
2
C
L
0.0
0.5
1.0
1.5
2.0
2.5
3.0 Net debt (LHS)
Net debt/Ebitda
(US$m) (x)

Source: Company, Credit Agricole Securities (USA)
Figure 69
Johnson Controls balance sheet
(US$m) 2010 2011 12CL 13CL 14CL 15CL 16CL
Assets
Cash and cash equivalents 560 257 791 844 857 1,363 2,264
Accounts receivables 6,095 7,151 7,363 7,922 8,875 9,768 10,612
Inventories 1,786 2,316 2,300 2,412 2,681 2,935 3,175
Other current assets 2,211 2,291 2,425 2,425 2,425 2,425 2,425
Total current assets 10,652 12,015 12,879 13,603 14,838 16,492 18,476
Property, plant and equipment - net 4,096 5,616 6,237 6,816 7,333 7,812 8,262
Goodwill 6,501 7,016 6,955 6,955 6,955 6,955 6,955
Other intangible assets - net 741 945 941 941 941 941 941
Investments in partially-owned affiliates 728 811 896 896 896 896 896
Other non-current assets 3,025 3,273 3,311 3,311 3,311 3,311 3,311
Total assets 25,743 29,676 31,219 32,522 34,275 36,407 38,841
Liabilities
Short-term debt 75 596 348 348 348 348 348
Current portion of long-term debt 662 17 109 109 109 109 109
Accounts payable 5,426 6,159 6,286 6,908 7,678 8,406 9,093
Accrued compensation and benefits 1,122 1,315 954 954 954 954 954
Other current liabilities 2,625 2,695 2,787 2,787 2,787 2,787 2,787
Total current liabilities 9,910 10,782 10,484 11,106 11,876 12,604 13,291
Long-term debt 2,652 4,533 5,526 4,726 3,726 2,726 1,726
Postretirement health and other benefits 235 1,102 788 788 788 788 788
Other non-current liabilities 2,573 1,819 1,706 1,706 1,706 1,706 1,706
Total liabilities 15,370 18,236 18,504 18,326 18,096 17,824 17,511
Equity 10,267 11,302 12,574 14,048 16,024 18,420 21,159
Noncontrolling interests 106 138 141 148 155 163 171
Total equity 10,373 11,440 12,715 14,196 16,179 18,583 21,331
Total liabilities and equity 25,743 29,676 31,219 32,522 34,275 36,407 38,841
Cash and cash equivalents 560 257 791 844 857 1,363 2,264
Total debt 3,389 5,146 5,983 5,183 4,183 3,183 2,183
Net debt/(cash) 2,829 4,889 5,192 4,339 3,326 1,820 (81)
Total capitalization 13,202 16,329 17,907 18,536 19,505 20,403 21,250
Gross debt/capital (%) 26 32 33 28 21 16 10
Net debt/capital (%) 21 30 29 23 17 9 0
Gross debt/Ebitda (x) 1.3 1.7 1.7 1.2 0.8 0.5 0.3
Net debt/Ebitda (x) 1.1 1.6 1.4 1.0 0.6 0.3 0.0
Source: Company, Credit Agricole Securities (USA)
Johnson Controls
leverage ratio has
remained consistently
stable
Prepared for - W: achopra@apolloLP.com

Section 4: Pullback creates opportunity Johnson Controls - O-PF

30 emmanuel.rosner@clsa.com 22 February 2012

Johnson Controls has a long history of paying a dividend, putting the
company among a select group of US auto stocks. With confidence in its
cashflow, the company maintained its dividend even during the downturn and
continues to pay one of the highest yields in the auto sector.
Figure 70
US autos stocks - Dividend yields
2.3
1.6 1.6
1.2
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
2.8
0.0
0.5
1.0
1.5
2.0
2.5
3.0
A
u
t
o
l
i
v
J
o
h
n
s
o
n
C
o
n
t
r
o
l
s
G
e
n
t
e
x
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d
L
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r
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s
t
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A
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e
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G
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a
l
M
o
t
o
r
s
T
R
W
(%)
Source: FactSet, Credit Agricole Securities (USA)
Figure 71
Johnson Controls cashflow statement
(US$m) 2010 2011 12CL 13CL 14CL 15CL 16CL
Cashflows from operating activities
Net income 1,356 1,655 1,831 2,308 2,894 3,410 3,894
Depreciation 648 682 864 984 1,076 1,158 1,233
Amortization of intangibles 43 49 66 76 83 89 95
Equity in earnings of partially-owned affiliates 5 (15) (102) (102) (102) (102) (102)
Deferred income taxes (85) (144) 60 60 60 60 60
Change in working capital (769) (1,202) (494) (49) (452) (419) (397)
Other 316 123 (270) (237) (84) (30) (32)
Net cash from operating activities 1,514 1,148 1,955 3,040 3,475 4,166 4,752
Cashflows from investing activities
Capital expenditures (777) (1,325) (1,713) (1,564) (1,593) (1,637) (1,683)
Sale of property, plant and equipment 47 54 3 0 0 0 0
Acquisitions/divestitures (61) (1,226) (11) 0 0 0 0
Other (177) (212) (85) 0 0 0 0
Net cash from investing activities (968) (2,709) (1,806) (1,564) (1,593) (1,637) (1,683)
Cashflows from financing activities
Increase/(decrease) in short-term debt - net (575) 510 0 0 0 0 0
Increase in long-term debt 519 1,829 1,090 0 0 0 0
Repayment of long-term debt (526) (764) (282) (800) (1,000) (1,000) (1,000)
Equity issuance/(repurchases) 0 0 0 0 0 0 0
Cash dividends (339) (413) (436) (623) (868) (1,023) (1,168)
Other 26 77 (18) 0 0 0 0
Net cash from financing activities (895) 1,239 354 (1,423) (1,868) (2,023) (2,168)
Effect of exchange rate changes on cash 148 19 31 0 0 0 0
Net change in cash and cash equivalents (201) (303) 534 53 14 506 901
Prior period cash and cash equivalents 761 560 257 791 844 857 1,363
Net change (201) (303) 534 53 14 506 901
Current period cash and cash equivalents 560 257 791 844 857 1,363 2,264
Free cashflow 737 (177) 242 1,476 1,882 2,529 3,069
FCF per share (US$) 1.08 (0.26) 0.35 2.14 2.73 3.67 4.45
Source: Company, Credit Agricole Securities (USA)
The company has a track
record of maintaining
a dividend
The stock has one of the
highest payout ratios
among US auto names

Prepared for - W: achopra@apolloLP.com

Section 4: Pullback creates opportunity Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 31

Valuation details
We initiate coverage of Johnson Controls with a US$39 target price, based on
11.6x 13CL EPS of US$3.35. Our target multiple is the average of Johnson
Controls 13.1x mean multiple over the past five years and our quantitatively
derived fair multiple of 10.0x based on the companys growth and
profitability outlook.
As discussed in our industry initiation piece published concurrently, we find a
solid correlation (r-square of 75%) between a suppliers FY2 valuation
multiple and a metric of its profitable growth outlook, designed as the sum of
a companys mid-term Ebitda Cagr and its mid-cycle Ebitda margin. Applying
the equation of this trendline to Johnson Controls 16.8% Ebitda Cagr over
2011-16CL and 9.1% Ebitda margin in 13CL, we derive a fair multiple of
5.5x on an EV/Ebitda basis and 10.0x on a PE basis.
Figure 72
Correlation between suppliers valuation multiples and profitable growth outlook
AXL
BWA
DAN
JCI
LEA
TEN
MGA
ALV
GNTX
VC
DLPH
y = 15.734x + 1.4211
R
2
= 0.7497
0
2
4
6
8
10
12
15% 20% 25% 30% 35% 40% 45% 50% 55% 60%
(x)
Note: Profitable growth is the sum of a companys 2011-16CL Ebitda Cagr and its 2013CL Ebitda margin.
Source: FactSet, Credit Agricole Securities (USA)
Alternatively, our US$39 target price implies an EV/Ebitda multiple of 7.5x our
2013CL Ebitda of US$4,334m. Over the past five years, Johnson Controls has
traded at an average EV/Ebitda FY2 multiple of 8.0x.
Figure 73
Johnson Controls valuation summary
EV/Ebitda valuation (US$m) PE valuation
2013 Ebitda 4,334 2013 EPS (US$) 3.35
Implied target multiple (x) 7.5 Target multiple (x) 11.6
Enterprise value 32,510 Target price (US$) 39
Debt 5,983
(Cash) (241)
Net debt/(cash) 5,742
Equity value 26,768
Diluted share count (m) 689.1
Target price (US$) 39
Source: Credit Agricole Securities (USA)
We initiate coverage of
Johnson Controls with a
US$39 target price and
O-PF rating
Our US$39 target price is
based on an 11.6x 13CL
EPS of US$3.35

We find a 75% correlation
between a suppliers
multiple and its profitable
growth outlook
Prepared for - W: achopra@apolloLP.com

Section 4: Pullback creates opportunity Johnson Controls - O-PF

32 emmanuel.rosner@clsa.com 22 February 2012

Investment risks
Johnson Controls is subject to the cyclicality of the auto and HVAC markets,
which are highly correlated to macroeconomic conditions. It is particularly
sensitive to conditions in North America and Europe, which represent
approximately 37% and 51% of Automotive Experience revenue and around
48% and 28% of Building Efficiency revenue. While we are modeling a slowdown
in Europe in the near term, a more significant decline in the region, both in terms
of volume and currency, or an associated slowdown in North America could
meaningfully hamper the companys ability to grow sales and earnings.
Raw materials account for a significant portion of Johnson Controls costs and
thus can be adversely affected by cost inflation. In autos, the company is
most exposed to steel, while the Power Solutions segment is affected by lead
prices. While historically customer recoveries have helped partially offset
higher material costs, and the company is expanding its lead-recycling
capabilities to reduce exposure to external pricing, large or rapid fluctuations
in raw material prices could meaningfully impact earnings.
Recently, Johnson Controls has accumulated operational missteps across all
three of its segments. With a history of a being well-run company with strong
operational performance, our forecasts assume a gradual but complete
resolution of current issues. To the extent that management is unable to fully
resolve operational problems, the companys sales and earnings outlook could
come in materially below our and the streets estimates.

The company is exposed
to the cyclicality of the
auto and HVAC markets
Inability to reverse recent
operational issues would
significantly reduce the
earnings outlook
It is particularly sensitive
to conditions in North
America and Europe
Prepared for - W: achopra@apolloLP.com

Appendices Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 33

Appendix 1: Risks & drivers

Investment by numbers
Modeling in Johnson Controls' backlog and our industry volume assumptions, we estimate
YoY sales growth of 5.4% in 2012, below the average for suppliers under our coverage as
we expect the company to face European auto headwinds and a still stalled HVAC
environment in mature markets. Longer term, we forecast a 9.2% revenue Cagr to
US$63.5bn in 2016.
While the company has a track record of strong earnings growth, we expect 2012 results to
be negatively impacted by a list of operational issues that will take time to resolve. As a
result, we are forecasting 2012 EPS of US$2.66, which is below the street at US$2.76 and
company guidance of US$2.70-2.85, as we are more cautious on margins and European
volumes than the company is.
Longer term, we believe the companys earnings growth will be among the best of the
supplier group, as it benefits from resolution of its operational issues and strong revenue
growth. We expect an impressive 18.7% EPS Cagr over the next five years.

Risks to our view
The company is subject to the cyclicality of the auto and HVAC markets, and in particular
conditions in North America and Europe. While we are modeling a slowdown in Europe in the
near term, a more significant decline in the region, both in terms of volume and currency, or
an associated slowdown in North America could meaningfully hamper the companys ability
to grow sales and earnings.
Raw materials account for a significant portion of Johnson Controls costs, In autos, the
company is most exposed to steel, while the battery segment is affected by lead prices.
While historically customer recoveries have helped partially offset higher material costs and
the company is expanding its lead-recycling capabilities to reduce exposure to external
pricing, large or rapid fluctuations in raw material prices could meaningfully impact earnings.
Recently, Johnson Controls has accumulated operational missteps across all three of its
segments. With a history of a being well-run company with strong operational performance,
our forecasts assume a gradual but complete resolution of issues. If management is unable
to fully resolve issues, the companys sales and earnings outlook could be materially weaker.

Key earnings drivers
Production (000s) 2011A 2012CL 2013CL 2014CL 2015CL
Europe 20,089 18,600 19,250 20,750 21,500
China 17,538 19,000 22,000 25,000 28,000
Japan/Korea 12,451 14,000 13,500 13,300 13,200
Middle East/Africa 2,233 2,350 2,500 2,650 2,800
North America 13,126 14,198 14,900 15,600 16,100
South America 4,318 4,575 5,000 5,400 5,800
South Asia 6,814 7,400 8,100 8,800 9,600
Global total 76,569 80,123 85,250 91,500 97,000
Source: IHS Automotive, Credit Agricole Securities (USA)
Sales (US$m)
0
10,000
20,000
30,000
40,000
50,000
60,000
2010 2011 12CL 13CL 14CL
Ebit (US$m)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2010 2011 12CL 13CL 14CL
Ebit margin (%)
0
1
2
3
4
5
6
7
8
2010 2011 12CL 13CL 14CL
Free cashflow (US$m)
(500)
0
500
1,000
1,500
2,000
2010 2011 12CL 13CL 14CL
EPS (US$)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2010 2011 12CL 13CL 14CL
Net debt (US$m)
0
1,000
2,000
3,000
4,000
5,000
6,000
2010 2011 12CL 13CL 14CL
Prepared for - W: achopra@apolloLP.com

Appendices Johnson Controls - O-PF

34 emmanuel.rosner@clsa.com 22 February 2012

Appendix 2: Summary financials
Year to 30 September 2010A 2011A 2012CL 2013CL 2014CL
Summary P&L forecast (US$m)
Revenue 34,305 40,833 43,041 47,401 53,104
Op Ebitda 2,606 3,087 3,585 4,334 5,190
Op Ebit 1,915 2,356 2,655 3,273 4,032
Interest income - - - - -
Interest expense (170) (174) (227) (217) (192)
Other items 0 0 0 - 0
Profit before tax 1,745 2,182 2,429 3,057 3,840
Taxation (314) (410) (467) (611) (799)
Minorities/pref divs/affils (75) (117) (131) (138) (147)
Net income 1,356 1,655 1,831 2,308 2,894
Summary cashflow forecast (US$m)
Net income 1,356 1,655 1,831 2,308 2,894
Operating adjustments - - - - -
Depreciation/amortisation 691 731 930 1,060 1,159
Working capital changes (769) (1,202) (494) (49) (452)
Non-operating adjustments 236 (36) (312) (279) (126)
Net operating cashflow 1,514 1,148 1,955 3,040 3,475
Capital expenditure (777) (1,325) (1,713) (1,564) (1,593)
Free cashflow 737 (177) 242 1,476 1,882
Acq/inv/disposals (191) (1,384) (93) - -
Net investing cashflow (968) (2,709) (1,806) (1,564) (1,593)
Increase in loans (582) 1,575 808 (800) (1,000)
Dividends (339) (413) (436) (623) (868)
Net equity raised/other 26 77 (18) - -
Net financing cashflow (895) 1,239 354 (1,423) (1,868)
Incr/(decr) in net cash (349) (322) 503 53 14
Exch rate movements 148 19 31 0 0
Opening cash 761 560 257 791 844
Closing cash 560 257 791 844 857
Summary balance sheet forecast (US$m)
Cash & equivalents 560 257 791 844 857
Debtors 6,095 7,151 7,363 7,922 8,875
Inventories 1,786 2,316 2,300 2,412 2,681
Other current assets 2,211 2,291 2,425 2,425 2,425
Fixed assets 4,096 5,616 6,237 6,816 7,333
Intangible assets 7,242 7,961 7,896 7,896 7,896
Other term assets 3,025 3,273 3,311 3,311 3,311
Total assets 25,743 29,676 31,219 32,522 34,275
Short-term debt 737 613 457 457 457
Creditors 5,426 6,159 6,286 6,908 7,678
Other current liabs 3,747 4,010 3,741 3,741 3,741
Long-term debt/CBs 2,652 4,533 5,526 4,726 3,726
Provisions/other LT liabs 2,808 2,921 2,494 2,494 2,494
Minorities/other equity 106 138 141 148 155
Shareholder funds 10,267 11,302 12,574 14,048 16,024
Total liabs & equity 25,743 29,676 31,219 32,522 34,275
Ratio analysis
Revenue growth (% YoY) 20.4 19.0 5.4 10.1 12.0
Ebitda growth (% YoY) 88.8 18.5 16.1 20.9 19.8
Ebitda margin (%) 7.6 7.6 8.3 9.1 9.8
Net income margin (%) 4.0 4.1 4.3 4.9 5.4
Dividend payout (%) 26.2 26.7 24.1 27.5 30.5
Effective tax rate (%) 18.0 18.8 19.2 20.0 20.8
Ebitda/net int exp (x) 15.3 17.7 15.8 20.0 27.1
Net debt/equity (%) 27.3 42.7 40.8 30.6 20.6
ROE (%) 14.5 16.2 16.2 18.2 20.0
ROIC (%) 10.5 11.3 11.3 13.2 15.5
EVA

/IC (%) (2.4) (1.6) (1.6) 0.3 2.6


Source: Company, Credit Agricole Securities (USA)
Backlog and emerging
market demand should
support solid growth.
Focus on operational
issues should enable
margin expansion.
We expect Johnson
Controls to generate
significant free cashflow.
Cash generation offers
the ability to repay debt
or make acquisitions.
Prepared for - W: achopra@apolloLP.com

Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 35

Notes




Prepared for - W: achopra@apolloLP.com

Important disclosures Johnson Controls - O-PF

36 emmanuel.rosner@clsa.com 22 February 2012
Analyst certification
The analyst(s) of this report hereby certify that the views expressed in this research report accurately reflect
my/our own personal views about the securities and/or the issuers and that no part of my/our compensation
was, is, or will be directly or indirectly related to the specific recommendation or views contained in this
research report.
Important disclosures
CLSA (which for the purpose of this disclosure includes subsidiaries of CLSA B.V. and Credit Agricole
Securities Asia B.V., Tokyo Branch)/Credit Agricole Securities (USA) Inc ("Credit Agricole Securities (USA)")'s
policy is to only publish research that is impartial, independent, clear, fair, and not misleading. Analysts may
not receive compensation from the companies they cover.
Regulations or market practice of some jurisdictions/markets prescribe certain disclosures to be made for
certain actual, potential or perceived conflicts of interests relating to a research report as below. This
research disclosure should be read in conjunction with the research disclaimer as set out at
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any recommendation, representation or warranty. Absence of a discloseable position should not be taken as
endorsement on the validity or quality of the research report or recommendation.
Neither analysts nor their household members/associates may have a financial interest in, or be an officer,
director or advisory board member of companies covered by the analyst unless disclosed herein. Unless
specified otherwise, CLSA/Credit Agricole Securities (USA)'s did not receive investment banking/non-
investment banking income from, and did not manage/co-manage public offering for, the listed company
during the past 12 months, and it does not expect to receive investment banking relationship from the listed
company within the coming three months. Unless mentioned otherwise, CLSA/Credit Agricole Securities
(USA) does not own discloseable position, and does not make market, in the securities.
The analysts included herein hereby certify that the views expressed in this research report accurately reflect
their own personal views about the securities and/or the issuers and that unless disclosure otherwise, no
part of their compensation was, is, or will be directly or indirectly related to the specific recommendation or
views contained in this research report or revenue from investment banking revenues. The analyst/s also
states/s and confirm/s that he has/have not been placed under any undue influence, intervention or
pressure by any person/s in compiling this research report. In addition, the analysts included herein attest
that they were not in possession of any material, non-public information regarding the subject company at
the time of publication of the report. Save from the disclosure below (if any), the analyst(s) is/are not
aware of any material conflict of interest.
CLSA and/or Credit Agricole Securities (USA) Inc and/or the analysts involved in the preparation of this
report have reason to know that an affiliate of Credit Agricole Securities (USA) Inc and/or CLSA received
compensation from BorgWarner Inc for non-investment banking products/services in the past 12 months.
CLSA and/or Credit Agricole Securities (USA) (and/or their respective affiliates) participated in a public
offering of Johnson Controls's securities or received compensation for investment banking services from
Johnson Controls in the past 12 months.
CLSA and/or Credit Agricole Securities (USA) (and/or their respective affiliates) managed or co-managed a
public offering of Johnson Controls's securities in the past 12 months.
CLSA and/or Credit Agricole Securities (USA) Inc and/or the analysts involved in the preparation of this
report have reason to know that an affiliate of Credit Agricole Securities (USA) Inc and/or CLSA received
compensation from Johnson Controls for non-investment banking products/services in the past 12 months.
Key to CLSA/Credit Agricole Securities investment rankings: BUY: Total return expected to exceed market
return AND provide 20% or greater absolute return; O-PF: Total return expected to be greater than market
Prepared for - W: achopra@apolloLP.com

Important disclosures Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 37
return but less than 20% absolute return; U-PF: Total return expected to be less than market return but
expected to provide a positive absolute return; SELL: Total return expected to be less than market return
AND to provide a negative absolute return. For relative performance, we benchmark the 12-month total
return (including dividends) for the stock against the 12-month forecast return (including dividends) for the
local market where the stock is traded. For example, in the case of US stock, the recommendation is relative
to the expected return for S&P of 10%. Exceptions may be made depending upon prevailing market
condition.
CLSA/Credit Agricole Securities changed the methodology by which it derives its investment rankings on 1
January 2012. The stocks covered in this report are subject to the revised methodology. We have made no
changes to the methodologies through which analysts derive price targets - our views on intrinsic values and
appropriate price targets are unchanged by this revised methodology. For further details of our new
investment ranking methodology, please refer to our website.
Prior to 1 Jan 2012, our investment rankings were: BUY = Expected to outperform the local market by
>10%; O-PF = Expected to outperform the local market by 0-10%; U-PF = Expected to underperform the
local market by 0-10%; SELL = Expected to underperform the local market by >10%.
Overall rating distribution for CLSA/Credit Agricole Securities Equity Universe: Buy / Outperform - CLSA:
58%; Credit Agricole Securities (USA): 70%, Underperform / Sell - CLSA: 34%; Credit Agricole Securities
(USA): 30%, Restricted - CLSA: 0%; Credit Agricole Securities (USA): 0%. Data as of 31 December 2011.
INVESTMENT BANKING CLIENTS as a % of rating category: Buy / Outperform - CLSA: 89%; Credit Agricole
Securities (USA): 67%, Underperform / Sell - CLSA: 11%; Credit Agricole Securities (USA): 33%, Restricted
- CLSA: 0%; Credit Agricole Securities (USA): 0%. Data for 12-month period ending 31 December 2011.
For a history of the recommendations and price targets for companies mentioned in this report, as well as
company specific disclosures, please write to: (a) Credit Agricole Securities (USA), Compliance Department,
1301 Avenue of the Americas, 15th Floor, New York, New York 10019-6022; and/or (b) CLSA, Group
Compliance, 18/F, One Pacific Place, 88 Queensway, Hong Kong.
2012 CLSA Asia-Pacific Markets ("CLSA") and/or Credit Agricole Securities (USA) Inc (CAS)
This publication/communication is subject to and incorporates the terms and conditions of use set out on the
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Important disclosures Johnson Controls - O-PF

38 emmanuel.rosner@clsa.com 22 February 2012
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Prepared for - W: achopra@apolloLP.com

Important disclosures Johnson Controls - O-PF

22 February 2012 emmanuel.rosner@clsa.com 39
produced in circumstances such that it is not appropriate to categorise it as impartial in accordance with the
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compiled by non-US analyst(s)) and /or CAS (for research compiled by US analyst(s)) in Singapore through
CLSA Singapore Pte Ltd solely to persons who qualify as Institutional, Accredited and Expert Investors only, as
defined in s.4A(1) of the Securities and Futures Act. Pursuant to Paragraphs 33, 34, 35 and 36 of the Financial
Advisers (Amendment) Regulations 2005 with regards to an Accredited Investor, Expert Investor or Overseas
Investor, sections 25, 27 and 36 of the Financial Adviser Act shall not apply to CLSA Singapore Pte Ltd. Please
contact CLSA Singapore Pte Ltd in connection with queries on the report. MICA (P) 162/12/2011
The analysts/contributors to this publication/communication may be employed by a Credit Agricole or a CLSA
company which is different from the entity that distributes the publication/communication in the respective
jurisdictions.
MSCI-sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI).
Without prior written permission of MSCI, this information and any other MSCI intellectual property may not
be reproduced, redisseminated or used to create any financial products, including any indices. This
information is provided on an "as is" basis. The user assumes the entire risk of any use made of this
information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the
information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability
or fitness for a particular purpose with respect to any of this information. Without limiting any of the
foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing
or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital
International and the MSCI indexes are services marks of MSCI and its affiliates. The Global Industry
Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital
International Inc. and Standard & Poor's. GICS is a service mark of MSCI and S&P and has been licensed for
use by CLSA Asia-Pacific Markets.
EVA is a registered trademark of Stern, Stewart & Co. "CL" in charts and tables stands for CAS estimates
unless otherwise noted in the source.

Prepared for - W: achopra@apolloLP.com




Research & sales offices
www.clsa.com




Australia
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Tel: (61) 2 8571 4200
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India
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Tel: (91) 22 6650 5050
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Philippines
CLSA Philippines, Inc
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The Enterprise Center
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Tel: (63) 2 860 4000
Fax: (63) 2 860 4051

USA - Boston
Credit Agricole Securities
(USA) Inc
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Suite 220
Boston, MA 02110
Tel: (1) 617 295 0100
Fax: (1) 617 295 0140
China - Beijing
CLSA Limited - Beijing Rep Office
Unit 10-12, Level 25
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Beijing 100004
Tel: (86) 10 5965 2188
Fax: (86) 10 6505 2209


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Tel: (1) 312 278 3604
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CLSA Limited - Shanghai Rep Office
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(81) 3 4580 5171 (Trading)
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1301 Avenue of The Americas
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Tel: (1) 212 408 5888
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China - Shenzhen
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USA - San Francisco
Credit Agricole Securities
(USA) Inc
Suite 850
50 California Street
San Francisco, CA 94111
Tel: (1) 415 544 6100
Fax: (1) 415 434 6140
Hong Kong
CLSA Limited
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Tel: (852) 2600 8888
Fax: (852) 2868 0189

Malaysia
CLSA Securities Malaysia Sdn
Bhd
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Menara Dion
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Tel: (60) 3 2056 7888
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United Kingdom
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120 London Wall
London EC2Y 5ET
Tel: (44) 207 614 7000
Fax: (44) 207 614 7070





CLSA Sales Trading Team
Australia (61) 2 8571 4201
China (Shanghai) (86) 21 2020 5810
Hong Kong (852) 2600 7003
India (91) 22 6622 5000
Indonesia (62) 21 573 9460
Japan (81) 3 4580 5169
Korea (82) 2 397 8512
Malaysia (60) 3 2056 7852
Philippines (63) 2 860 4030
Singapore (65) 6416 7878
Taiwan (886) 2 2326 8124
Thailand (66) 2 257 4611
UK (44) 207 614 7260
US (1) 212 408 5800

2012 CLSA Asia-Pacific Markets ("CLSA").
Key to CLSA/Credit Agricole Securities investment rankings: BUY: Total return expected to exceed market return AND provide 20% or greater
absolute return; O-PF: Total return expected to be greater than market return but less than 20% absolute return; U-PF: Total return expected to be
less than market return but expected to provide a positive absolute return; SELL: Total return expected to be less than market return AND to
provide a negative absolute return. For relative performance, we benchmark the 12-month total return (including dividends) for the stock against the
12-month forecast return (including dividends) for the local market where the stock is traded.

CLSA/Credit Agricole Securities changed the methodology by which it derives its investment rankings on 1 January 2012. The stocks covered in this
report are subject to the revised methodology. We have made no changes to the methodologies through which analysts derive price targets - our
views on intrinsic values and appropriate price targets are unchanged by this revised methodology. For further details of our new investment ranking
methodology, please refer to our website. 12/01/2012
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Prepared for - W: achopra@apolloLP.com

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