ITT at Bank of America Conference: Strategic Growth and Innovation

On Tuesday, 18 March 2025, ITT Inc. (NYSE: ITT) presented at the Bank of America Global Industrials Conference 2025, showcasing a robust performance in 2024 and outlining a strategic roadmap for 2025. The company highlighted its strong growth, strategic initiatives, and market challenges, balancing optimism with caution.

Key Takeaways

• ITT surpassed its 2026 margin targets two years early, driven by 7% organic growth and 11% total growth in 2024.
• The company invested $900 million in acquisitions, including Casaria Interconnect and Svanhoei, and divested its Wolverine business.
• ITT plans to leverage its strengths in aero and defense markets while addressing challenges in the automotive sector.
• Strategic focus on innovation and M&A to drive future growth and margin expansion.
• ITT will host an Industrial Day in May to unveil new long-term targets and strategies.

Financial Results

• ITT achieved 7% organic growth and 11% total growth in 2024.
• The company exceeded its long-term margin target, initially set for 2026, ahead of schedule.
• Approximately $900 million was deployed in acquisitions, including Casaria Interconnect and Svanhoei.
• Motion Technologies is expected to achieve a 20% operating margin in Q1 2025.
• Strong cash flow generation will be used to repay debt and buy back shares.

Operational Updates

• ITT divested its Wolverine gasket and shims business.
• Emphasis on short cycle trends in pump and industrial sectors, with distributor business remaining strong.
• Mitigation strategies are in place for potential impacts from non-ounce tariffs.
• Key R&D projects include the embedded motor drive (EMD) and geopolymer brake pads.
• A high-performance facility in Terminally is ramping up, with production expected to accelerate in 2026 and 2027.

Future Outlook

• ITT anticipates continued organic growth and margin expansion in 2025.
• Expects structural tailwinds in aero and defense markets, while automotive remains a structural headwind.
• Plans to unveil new long-term targets at the Industrial Day in May.
• Focused on expanding market share through execution, innovation, and strategic partnerships.
• Aims to increase its defense business, particularly in the US.

Q&A Highlights

• Discussion of demand trends, with aero and defense cited as tailwinds and automotive as a headwind.
• Assessment of the impact and mitigation of tariffs, emphasizing a strategy of "in the market for the market."
• Insights into capital allocation, with continued M&A expected due to successful past integrations.
• Examination of R&D projects, particularly the EMD and geopolymer technology, and their potential impact on market share and margin.
• Exploration of ITT’s success in China and plans to scale up other platforms beyond Motion Tech.

In conclusion, ITT remains confident in its ability to outperform the market through strategic execution, innovation, and disciplined capital allocation. Readers are encouraged to refer to the full transcript for more details.

Full transcript - Bank of America Global Industrials Conference 2025:

Operator: minutes.

Andrew Obin, Analyst: Thanks so much for joining us. I’m Andrew Obin. I cover multi industrials in The U. S. And with us, we have the management team from ITT.

We are big fans of ITT. We think this is one of the most capable managements in our coverage universe and deep operating experience and really have their hands their fingers on the pulse of what’s happening, great operators. And we have Lucas Havi, company’s CEO and President. And we have Emmanuel Capre, our Senior VP and CFO. And I think, Emmanuel, you are going to read some disclosures.

And I think we’re going to go through a couple of slides, and then we’re going to jump into Q and A. Thank you.

Operator: Thank you, Andrew.

Emmanuel Capre, Senior VP and CFO, ITT: And good morning. Our presentations and comments may contain forward looking statements, which are based on our best view of the world and our businesses as we see them today. These assumptions and expectations can change, and we ask you that we ask that you view them in that light. We encourage you to review the latest risks and uncertainties in our Form 10 ks and other SEC filings available on our website. Thank you.

Operator: Good morning, and thank you, Andrew, for having us here. I’m going to spend a couple of minutes on few slides, and then we go straight into Q and A. So ITT, we are an engineering and a manufacturing company of components, components that are used in harsh environment across different industries. You’re talking about automotive, rail, aero, defense, general industrial, energy. We have historically outperformed the market we are playing in, and the way we outperform is really through differentiation in execution and and innovation.

If you look at the last five, six years, we created a lot of value for our shareholders, and that value has really been based on organic growth and and margin expansion. And only recently, we started doing more and more m and a. Now when you look at our businesses, is we have three, we call them BioCentre, three line of businesses. One is Motion Technologies, where we are making brake pad for vehicles, for for cars, and the shock absorbers. Shock absorbers are mainly used in in in rail.

Then we have our flow business, our pumps and valves. And, here we have pumps, centrifugal pumps that are used in general industrial, in pulp and paper, in mining, in in energy, as well as twin screw pumps that are used also in the traditional energy, but also in the in the energy transition for green energy, talking about carbon capture or stopping gas gas flaring. And then CCT, our connectors and components technology value center, where we make valves and components for air and defense and connectors. These are really our three main businesses. When you look at 2024, it was a good year for us.

You can see it from from the numbers, was 7% organic growth, 11% in total. We had good orders. The long term target at ITT level that was, we were supposed to reach by 2026, We eclipse it in 2024, so two years ahead out of plan, and we will continue to improve the margin in in the years to in years to come. And that was also important from a portfolio point of view because we shifted our portfolio. We divested Wolverine, our gasket and shims business that was purely automotive.

And we invested in two companies, Casaria Interconnect, playing defense, mainly US market, and Svanhoei, a cryogenic pump in the marine in the marine industry, deploying roughly $900,000,000 of of capital. When you look at when you look at 2025, I think that the value creation through organic growth and margin expansion will continue. And because we will continue differentiating from the competition always through execution and innovation, and we add to that our M and A. In terms of the M and A, it’s getting more and more momentum. And when you look at our pipeline of M and A, it’s still good and active.

When you look at q one, the orders the orders are up. I think that the sales are tracking. We continue to improve our margin, and we will have motion technology that will hit 20% operating margin in 2024 in 2025 and in Q1. The EPS is lined with consensus and that the good cash flow that we are generating will be used to repay the debt as well as to buy back share. And with that, we’ll have more to Q and A.

Andrew Obin, Analyst: Sure. Just maybe just for first quarter, you’re not making any changes to the first quarter outlook, right? Yes. Okay. So maybe I will jump because we’re here and I’ve been asked to ask this question.

So I’m just just maybe you started talking about overview of demand trends that maybe expand. Where are you seeing particularly, just give us an overview because that’s at the top of everybody’s mind. Where are you seeing structural tailwinds and where are you seeing structural headwinds?

Operator: Sure. So as I said at the beginning, we are playing in different markets. So when you look at our connectors and our components, the aero and defense market. This is definitely a a tailwind. So, because of everything that’s happening in the world, our defense market, we are is is growing is growing nicely.

And also, aero will be, you know, with the recovery of Boeing that we see more for us impacting the the second half of twenty twenty five. So def definitely is a is a tailwind. When when we look at our project business in IP and our short cycle in IP, the short cycle is staying at a very robust level. Twenty twenty four was good for us. We grew, and not just because of price, but it was a growth in in volume.

And when we look at 2025, you know, we see the shore cycle staying at the elevated level, and the project business is is still very healthy. And so we are growing on the project side as well. When we move Emotion Technologies, the rail business is healthy as well, and there are structural tailwinds on the on that one across all the different regions. And the headwind that we see in our portfolio is really in the automotive market. We see automotive as still challenging a challenging market in 2025.

We expect to continue to outperform like we’ve done it for the last five years, but that probably is the structural headwind that we see in 2025.

Andrew Obin, Analyst: And maybe just a little bit more detail on short cycle trends across pump and short cycle industrial. And specifically, if you look at the latest PMI data and lots of debate about it, people didn’t like the order number. But if you sort of look at it, right, you can see construction is a headwind, maybe consumer driven business is headwind. As you’ve alluded, order is a headwind. But within industrials, there is a number of fairly broad based positive activity.

How would you characterize what you’re seeing versus the latest PMI data? Does it surprise you? What trends have you seen in the first quarter? Just maybe unpack the Industrial verticals a little bit more.

Emmanuel Capre, Senior VP and CFO, ITT: So when we look at our distribution because for us, short cycle is closely aligned with our distribution business, both in industrial process and also in connect and control technologies. When we look at our distribution business, we see a pretty strong, so not showing tremendous growth, but pretty remaining pretty strong and remaining at elevated levels. We do not see particularly high level of inventory at our distributors and demand. So point of sale information from our distributors is showing pretty strong trends. Keep in mind, Andrew, that we have been focused over the past few years in gaining market share.

Operator: Yeah.

Emmanuel Capre, Senior VP and CFO, ITT: And this has been happening in connect and control technologies with our connector business where we’ve been expanding our SKU offering as well and so putting more product on the shelves of distributors as well as in the IP and the spare parts we’ve been drastically reducing our lead times in order to be able to be there for our customers with spare parts faster than anybody else. And as a result, we’re maintaining 95% plus on time delivery metrics with our customers for spare parts, which is allowing us to gain a lot of market share.

Andrew Obin, Analyst: Got you. And do you think just you’ve asked my question already, but in terms of your distributor business, any sense if there was a pre buy because that’s another big debate pre buy ahead of the tariffs? What’s your view of what your channel has done?

Emmanuel Capre, Senior VP and CFO, ITT: We didn’t see any of that. And nor our distributors talked to us about that.

Andrew Obin, Analyst: Yeah. No, that’s and maybe, obviously, you’re going to get this question, but just maybe size your exposure to the non ounce tariffs. Is there a tariff impact embedded 25 guide? The usual stuff, how much of it is covered by USMCA? And what’s the action plan?

I know you and I have this debate.

Operator: Sure. So well, yeah. So when when you look at when you look at tariffs, I would say our first thing, our strategy has always been to be in the market for the market. So for instance, our plants in Europe are serving the European plants. Our plants in China are serving, you know, China and Asia, and our plant in North America serving North America.

So that is overall our our strategy. On top of that, at the last year in 2024, we divested our Walgreens business, which was the one that was impacted the most from tariffs in the past. That was a portfolio strategy, but that was also good, I think, from when you think because what was happening with the strategy that would have impacted us heavily in 2025. So with the portfolio that we have today, how it would have been impacted? So different for the different businesses.

So if we start with IP, for example, IP will be exposed mainly to the tariffs from from China because what is happening in the flow is you tend to import castings from China or India. These are the best quality castings and machine, the best quality supplier, and the best service that you can have. So that will continue to be their way. Now there will be a tariff and that the action to to ensure that we mitigate the impact is really a commercial action. So that will, this is a is a it would be a pass through Right.

On on that front. We have already taken action, and we already communicated with our customers and with our distributors. And it’s not gonna modify, you know, our supply supply chain strategies because those are the best supplier and the best service. When you look at Emotion Technologies, the, impact could be on the Mexico plant because we have a plant in Mexico that serves the North America. Now the majority of our contracts are ex works.

So the customer will pick up at our shipping so that we will not be exposed to that. And the few contracts that are not ex works, we are certified US MCA. So with the tariff that are the way that they’re structured today, no impact there. But in order to be ahead of the game, we’ve already talked to some of our customers just in case there will change in terms of this will be a pass through as well. Then is CCT.

When you look at CCT, we have our connector business, and our major plant is in Nogales, Mexico, just across the border and together with many of the other connectors company. And in these cases as well, we got the majority of our product US MCA approved, And we’ve already spoke to all our customers in terms of if their regulations will change, there will be commercial actions to take place. So I think that when you look at overall the impact of tariff, we have action in place to cover and to mitigate if things deteriorate from what they are today.

Andrew Obin, Analyst: Thank you. I think capital allocation is an important skill for multi industrials. You have been ramping your M and A in recent years, Spanhoy and Caesarea. So a couple of things. A, what are the big lessons learned from getting more active in M and A?

And then the follow-up, should we expect the company to continue doing more M and A? Or do you just need to take a pause to integrate the announced acquisitions? Okay.

Operator: So now first of all, when we look at the value creation, as I said at the beginning, a lot of the value creation that you’ve seen in the last five years has been organic organic growth and margin expansion. And we have just starting building the muscle on the m and a with the acquisition of, Habonim, which is a valve company based out in in Israel, Svalenhoi, you know, cryogenic pumps based in Denmark, and the Qisaria interconnect solution, mainly defense business out of the out of The US. All these acquisitions have been successful. Just to give you an example of Habanim, Habanim, we purchased Habanim at EBITDA multiple of 12. When you look at the actual, it’s something less than eight.

So a great success. I mean, the lesson learned across all these three is that when you buy a company that has got a strong position in the market and all three had that, had a strong management team and you’re able to retain the management team and we haven’t lost any member of the management team in these three companies, I would say, you know, the chances of success are are much higher. And all three, granted, Caesarea is early is just early, but have been a success today. I would say on the on the other side lesson learned, I would say probably in some in some area on some key KPI, probably we should align with our ITT of looking at things earlier. So to give an example, we are very focused on safety.

Our framework is SQDC, safety, quality, delivering cost. And I would say that, for example, the safety performance of of Savaniot was not up to the standard that we we were used to. And, therefore, if earlier alignment when it comes to some important indicators was a lesson learned that we had in in that case. Now on the second part of the question, do we need to pause? No.

I think that just because this exactly because this company are successful, they got a good market leadership position, strong management team, I would say that we are able to go and make more acquisition. Financially, we do not have any constraint, but also from managerial point of view, no constraint as well.

Andrew Obin, Analyst: And and and who integrates the deal? Is it the business unit team, or is it the corporate team that sort of goes in and does

Operator: It’s a it’s a it’s a business it’s the business unit. It’s the business unit team. And, but at the same time, I would say is a is a is an integration that goes both ways. So just to give you an example, I mean, Svanhoe working capital of Svanhoe is

Emmanuel Capre, Senior VP and CFO, ITT: 8%.

Operator: Seven, eight %. So we must learn from from Svanhoe. Right? Because if you look at our working capital in AP is around 20

Emmanuel Capre, Senior VP and CFO, ITT: We need to

Operator: find 24. 20 three, 20 four. So we need to learn from Svanio how to do it. But it’s the business unit that goes through the integration process.

Andrew Obin, Analyst: Thank you. And maybe as you’ve pointed out, I think you’re really good at bringing capabilities to your customers and clearly a terrific track record of organic growth. Can you maybe talk about the key R and D projects that ITT is excited about to keep driving this organic outperformance? Sure.

Operator: Let me talk about two. One is the EMD, the embedded motor drive in IP, and the other one is the geopolymer on the on the brake pad business. So if you look at the EMDs, the embedded motor truck. I mean, when you look at the the pumps and you have the motor with the pumps, the motor always always run. And, if you want to save energy, what has happened in the last twenty, thirty years is you put a variable speed drive so that you you run the motor at 50% of the speed, 80% of the speed, depending on what you need.

But when you look at these variable speed drive application, you always need a clean room. You always need space. And, therefore, the variable speed drive, they are used only in 20% of the cases when instead of the 100% where you will save energy, etcetera, because you don’t have the space or because it’s incredibly dirty. If you go into a pulp and paper environment, god, it’s it’s dirty. You you can’t have a variable speed drive there.

So what we have done at ITT, we’ve invented a a motor called embedded motor drive together with the university here in The UK. And, our we own our the patent. And practically, you can swap a normal motor with a new motor, a little bit bigger, but with this variable speed drive practically in it. So, we will launch this product. We have already the prototype.

We have the industrial prototype that have been tested in the market with our customers for more than a year and a half, and we will launch this product in q two of this year. We’re already producing the, the product. We are, with there is a counter manufacturer, a motor manufacturer that is producing this motor for us, And we will go to the market with this, as I said, in q two. I’m extremely excited about it because, first of all, it increases our addressable market. We are not in the motor manufacturing, and now we are opening, you know, the markets we are addressing.

And, this is gonna be a huge opportunity. And, think about it not just as a motor for everything that rotates like pump or fan or a mixer, but also think about the synergy that you have. I mean, if you want one of these motor, maybe you need to buy a good pump as well. So extremely excited about that. And then, the geopolymer on the brake pad.

You know, when you make a brake pad, you prepare the mix, you go through a line, and you there is a press, and then there is an oven. An oven where practically you bake these brake pads. And, this oven consumes a lot of energy, but make the the the brake pad performing the way it’s supposed to be. And you have this oven because the mix that you have in the brake pad has an organic binder, something organic that keeps all the mix together. We have invented a mixer with an inorganic binder, which allows us to eliminate the oven in the production line.

This means that in a line that usually is a CapEx of $1,215,000,000 dollars, you eliminate the oven, $1,520,000 of CapEx out of the way. But it’s not just a CapEx thing. From an operational point of view, there is a lot of energy and a lot of cost in consumption of energy. So you are making this product also more cost competitive. We own the patent.

We’re the only one that have this, and this product has been tested for the last couple of years in as a aftermarket in China. You’re testing the aftermarket before putting on the OE because you want to show you want to know exactly how it works before putting on a on a project on a platform. We’re already talking to two OEM in in Europe to test this with as as an OE platform in a couple of pilots, and this will be a game changer in the break in as well as like the MD is in in flow.

Andrew Obin, Analyst: No, thank you. And I remember sort of you explaining me the importance of material science within your sort of product strategy. I think it was one of the first things you taught me when you started and actually I really appreciate it. Maybe Asia Pacific previously been highlighted as a platform for growth back in 2022. Can you describe what the formula is here for growth?

I think where you’re expanding now it’s a little bit tricky because 8% of your Asia business is in motion tech, and it’s just been a machine. Pardon my pun. But I think one of the topics that we’re supposed to highlight at this conference, a potential for China exposure and maybe explain to investors why you have been able to deliver what you have been able to deliver in Motion Tech in China, but also what are the plans to scale up IP and CC and T there? Sure. So I guess three questions.

What’s happening in China macro?

Operator: Yeah. You

Andrew Obin, Analyst: know, what has enabled you to outperform in motion tech? Sure. And, you know, what happens to the rest of the company in China?

Operator: So, when you look when you look at our Asia Pacific business, we have we’re exposed across all the three value centers. We have a plant in Shenzhen for the connector business. We have a motion technologies plant, brake pads and shock absorbers in Wuxi, China, and then we have a pumps factory in in Korea. And all these three plants are top notch, are some of the best plans that we have in the world. When you’re talking about the performance, the fundamentals is safety in terms of quality, in terms of the delivery, in terms of cost.

So top top performer. As you said, 80% of our business in Asia is is motion technologies, is automotive. And, Ray, think about it. You know, China is the largest automotive market in the world, but also the largest rail market in the world. So we got a great market share in terms of when you talk about high speed train and rail in China as well as good market share in, in the in the vehicles or in cars for the brake pads.

Last year, we closed the market share in brake pads above 30, around 31% when we opened the plant in 2014. So until 2014, our market share was zero. So, incredible success. I mean, what, what we have been differentiating ourselves there is the same the same rule is we differentiate it through execution and through innovation. And the management team that was quite enlightened in 2014 when we opened because they started working with the Chinese OEMs.

This must be obvious today. But when you were in 2014, working with a Chinese OEM was not an obvious choice. And that that working with the Chinese OEMs proved a very good strategic move. Today, 65% of what we are making in China are for the Chinese OEMs, so we are winning with the with the winners. And the reason why we keep on winning is simply is execution.

Think about it. More than 99.9% of on time delivery, And this has been consistent every single month, every single quarter for the last five, six years despite the despite COVID, despite the supply chain and shit show, despite everything that has happened in the last five, six years, we deliver with that on time delivery. In terms of quality, we measure quality in PPBs, in parts per billions. So is, you know, few hundreds PPBs, which means that and no none of our competitors is able to match the level of performance. They are, you know, in the up to twenty, fifty PPMs in parts per million.

So that differentiation, those flawless launches that the team is able to execute enable us to keep on winning market share there and to outperform the market.

Andrew Obin, Analyst: And maybe, what is happening? I mean, I think automotive market in China, but maybe comment. What are you seeing about just recovery in China and the ability to scale up your other platforms in China outside of Motion Tech?

Operator: Sure. So when you look at our performance in China has been incredibly good. If you look at the automotive and and rail, those markets

Andrew Obin, Analyst: That’s unbelievable.

Operator: Is that they they’re very they’re very resilient. So if, if you look at the if you get rail, rail keeps on expanding. I mean, if you go to Shanghai and you take the train out of Shanghai going to to Wuxi and you get out of Hunchal Train Station, you will see the high speed train depot on your on your right and all these incredible high speed train and plenty of that. And, you know, in 2026, they will come out with a 450 kilometers an hour high speed train, and we’re the only shock absorber that today is certified to go on the train. I’m sure there would be another one at least, but as of today, we’re the we’re the only one.

So the investment will keep on happening and, and and that is good for us. On auto, auto, it was a very resilient market. When you look at production in in China in 2024, that was thanks to the incentive scheme that were put in place by the Chinese government in terms of, you know, the scrap you know, you you scrap your old car and get the new as well as the export. So very resilient market and continue to be in in that way. It looks also for 2025.

Now when it comes to expanding our our scheme from ultra technology to the other plants, our Shenzhen plant in Connectors is performing incredibly well as well, as well as our pump factory in Korea, according to many of our customers in The US, is one of the best pumps factory that they’ve seen in their lives. So more and more to come on those businesses too.

Andrew Obin, Analyst: Good. And I know you’re gonna host your twenty five Industrial Day in May, and Mark is not here. So maybe you could give us a little bit preview what you’re going to talk going into the event.

Emmanuel Capre, Senior VP and CFO, ITT: Yeah. Sure. So it’s going to be a great event. And so what we intend to showcase is obviously show how we differentiate, as Luca mentioned, through execution, through innovation, through M and A, but also through our people. And specifically on our people, we intend to expose, people in the of the ITT, management team Yep.

To, to the broader public because it’s important that they know who are there to deliver the numbers. Right? We have another, another exciting event where we’re gonna showcase all the innovation that we have. And so Luca talked about the EMD, which is going to be branded as Vidar. And you’re going to everybody’s going to be able to see and touch this device, this motor.

We’re going to talk about geopolymers also. So it’s going to be a great way for everyone to understand what’s in the hopper in order to fuel further future growth. And then we’re going to release new targets, new long term targets because as we mentioned, we already have achieved two years ahead of schedule our targets that we set in 2022. And so it’s important to for each of our business to come up with new ambitious targets for the next few years.

Andrew Obin, Analyst: So maybe in remaining time talk a little bit more about the businesses. So in the industrial process business, right, your core margins, X, Sanhoy, have showed material expansion exiting 24% was legacy margins north of 24%. So what sort of productivity investments have you made? What’s been driving the strong performance? And how much opportunity is there in the core business?

Emmanuel Capre, Senior VP and CFO, ITT: So if you look at industrial process, as you mentioned, we were able to maintain our IP margins above largely above 20% despite the dilutive impact of Van Horn. And so here there was a lot of work that has been done. Obviously, the share gains that we’ve been having both in projects and short cycles are converting into revenue and this is driving a lot of revenue increase but also margin expansion because this is very profitable business. We’ve been working also on driving lean through the rest of our factories. Luca mentioned that Korea is one of the best in class factories and we’re trying to really replicate that.

We have Saudi also, which is extremely, extremely good with 99% on time delivery, almost perfect quality. And then so we’re moving all those IP plans to that type of standard. This is resulting obviously in efficiencies. We’ve been working also in addressing cost structure items. So we’ve been looking for efficiencies where we can to reduce our fixed costs while we’re expanding our revenue.

And then lastly, I would say for us, because we have leadership in several of our product lines, we’re trying to understand, we’re trying to test how much we can push price also. And then price in IP has been a meaningful contributor of margin expansion and I think it will continue to be one.

Andrew Obin, Analyst: I know you sort of commented on it, but what are you seeing in terms of IP orders and specifically breakout projects and short cycle activity?

Emmanuel Capre, Senior VP and CFO, ITT: So, when we look at short cycle, as I mentioned a little bit earlier, the distribution piece is doing pretty well. It looks like our inventory at distributors are under control. So we continue to see good activity on the baseline pumps and spare parts are maintained at a high level of activity. So short cycle looks like it’s healthy for us and we don’t see any reason for this to not continue. And then when you look at projects, so a few things.

For projects, we continue to see expansion from an order standpoint, but also we continue to see a really healthy funnel of projects. When we look at the different projects that have that have passed the budget phase, this is, you know, it’s it’s not growing by 20% as it used to be, but it’s staying really at a high level of activity. So it gives us a lot of work in terms of quotation and also a lot of opportunity to continue to gain share.

Andrew Obin, Analyst: Okay. And maybe just a little bit more market detail. Any markets that are accelerating and any markets that are slowing?

Emmanuel Capre, Senior VP and CFO, ITT: So, we talked about automotive.

Andrew Obin, Analyst: Yeah, yeah, yeah.

Emmanuel Capre, Senior VP and CFO, ITT: Automotive, you know, so automotive, the only thing I would add to what Luca said is that it’s true that it’s declining mainly in Europe and in North America, but inventories are not super high. So for us, the demand is not good for sure, but we’re not running further risk by having destocking event that’s imminent. So for the automotive, we’ll see how it plays out. We continue to outperform, which is I think the bottom line here. The markets are going to do what the market do, but for us it’s important to continue to outperform.

And then I would say, defense, as we discussed, has been strong and it will continue to be strong. Aerospace, for the moment, is not driving growth. But this is something that we think will be addressed probably in the second half of this year. We are, on Boeing, for instance, we’re not seeing orders. The teams are telling us that they should we should start seeing orders in the second quarter, and then start to deliver in the third and the fourth quarter.

For us, the Boeing exposure is around $10,000,000 a quarter. So it’s a meaningful piece. But for the moment, we have other tailwind that we can compensate that headwind with.

Andrew Obin, Analyst: Excellent. And then maybe on Motion Tech in more detail, starting to ramp up high performance facility in Terminally. Is it Terminally or Terminally?

Operator: Terminally.

Andrew Obin, Analyst: Terminally. And it’s an entirely new market. So when does production start to accelerate? And when does it start to become margin accretive?

Operator: Sure. So, when we talk about high performance, you know, historically, we never addressed this this market. We’re talking about the high performance vehicles. So, you know, the top of the range, we’re talking about the BMW, the Dimitar, the Porsche, the Audi. And the reason why we never address this is because usually this is a low volume, high mix.

And when you look at one of our strength, our differentiation was being a standardized process that worked very well with the high volume, low mix. What the team has been able to do here is to use the same machine. So we didn’t change. We didn’t jeopardize the standardization, but they came up with a different solution from material flow that was able to produce with the same machines a low volume, high mix batches. And so this, we took the board to the site in October.

The site was completed. The machines are installed. We had started producing already the brake pads for our customer. We are launching platform now in q one. Now this is ramping up, so you will see in 2025, will be practically immaterial.

But when it comes to ’26 and ’27, you will start seeing an impact. The impact is not so much on the volume side as much on the margin because as you can expect in these low volume, high performance brake pads, you’re talking about brake pads that from a price point of view, are a multiple of a normal brake pad. So margin are expected to be higher, but the volume in terms of of revenue is gonna be shorter. So I will expect in the second half of twenty six and in ’27, you will start seeing the impact of that.

Andrew Obin, Analyst: And just going a little bit more, you have over 50 market share in Europe. China and North American business have been scaled up very nicely. I think over 30% global market share and friction at year end ’24. Yes. So what’s the plan to continue taking market share globally?

You’ve been relentless.

Operator: Yeah. And, listen, I think that there is still room to grow. So if you think talk about the high performance, that was a market where our market share was was zero. Right? And now we we start addressing, and there is no reason why in the next, I would say, probably, five years, we can get to a similar market share of what we have in Europe today.

China is 31% in 2024. North America was 20 between ’28, ’20 ’9 percent market share in 2024. So there is still room to grow. And the recipe, I know it may sound boring, but it’s still the same, To continue to perform, to have a a perfect execution, perfect flawless launches for our customers, quality in PPPs that differentiate from our competition, on time delivery 99.95% or higher that differentiate ourselves from the competition. And if we keep on performing this way, we will keep to outperform the market like we have done it for the last ten ten years.

Andrew Obin, Analyst: Understand. And what’s the attach rate for aftermarket? And do you have any plans to accelerate growth in the aftermarket business? So when

Operator: you look at the at automotive, we are we are mainly NOE NOE, player. So 75% of of our of our market is only 25% is aftermarket. And when you talk about the aftermarket, we mainly play in in the European in the European market. So I think that as it stands today, we we are sticking with this plan. We are looking at the China as a potential aftermarket business, and we are exploring different ways of working on on that front there.

But, you know, no major plans there as of today.

Andrew Obin, Analyst: Maybe going to CCT, I think European defense is a big topic, particularly today. Do you have enough European defense exposure to move the needle the next twenty four months?

Operator: I would say, yes, there is a lot of talking about European defense growing, and it will it will happen, of course. It has to happen. Now having said that, if you if you really want to be substantial, have an impact is The US defense where you you can really have the the the the focus. So we are working, to increase our defense business in Europe, but I would say the The US portion is really what is material and makes the difference.

Andrew Obin, Analyst: Thank you.

Operator: When you look at the Europe, the the play will be with the connector business and use some of our product from North America also here in Europe as well as with our shock absorbers. The shock absorbers that, we are making in out of Berlin in in, in Holland are used for military vehicles here in in Europe, and the most successful platforms of European vehicles have tend to use our KONI shock absorbers.

Andrew Obin, Analyst: Gotcha. And maybe in the remaining minute, maybe a little bit talk about Caesarea acquisition. Okay. What kind of revenue synergies are there?

Operator: When you look at Caesarea, Caesarea is, you know, when you look at the our M and A, m and A focus is in flow, pumps and valves, and connectors. And this is why we bought Habenheim, Svanhoe, and Kisari. Kisari is interconnect solution, mainly defense, mainly, you know, out North American business. And when you look at the synergies, is that many cases, the customer were coming to us, our connector business, asking us for solutions with the fiber cable, etcetera. And we were not able to address that, so we’re not able to answer our customer because we didn’t have a solution.

Now with Caesaria, we do. So that’s an opportunity. Second, if you walk on the shelf floor of Caesaria, we see this fiber cabling and this cabling with different connectors at the very end and not always our ITT Canon connectors. So, there is a synergy there in terms of the programs where we already qualified. It will be an easy swap.

For the program that we are not qualified, we can qualify if it makes sense. And therefore, we have a synergy in terms of putting more of our ITT canon connectors in this area.

Andrew Obin, Analyst: Excellent. Well, we are out of time. This has been fantastic. Thanks so much.

Operator: Thank you very much. Thank you, Andrew.

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