Q4 2021 ITT Inc Earnings Call

Speaker 1: for the prior 12 months.

About a month.

We continue to improve our safety performance this year.

Speaker 1: Our injury frequency rate and our injury severity rate both declined compared to 2020 despite more

Our injury frequency rate and our injury severity rate both declined compared to 2020, despite more output.

Speaker 1: We will continue to drive better safety performance with diligence and passion until all our sites, not just 50% have zero income.

We will continue to drive better safety performance with diligence and passion until all our sites not just 50% zero incidents.

Speaker 1: Our focus will deliver a better and more sustainable operational performance over the long term. And above all, it simply...

Our focus will deliver a better and more sustainable operational performance over the long term.

And above all is simply the right thing to do.

Before discussing highlights from 2021, let me share some details about the environment, we have been living in the past few months.

Speaker 1: Before discussing highlights from 2021, let me share some details about the environment we have been living in the past few months.

Like most industrials, our operations have been significantly constrained by supply chain disruptions.

Speaker 1: Like most industrials, our operations have been significantly constrained by supply chain disruption.

Speaker 1: during Q4, I experienced firsthand the mass the global supply chain is in today.

During Q4, I experienced firsthand the mess that global supply chain is in today.

When I was in <unk>, Germany, just before year end the team there to deal with a brand new machining center for contacts that was idle.

Speaker 1: When I was in Weinstadt, Germany, just before your end, the team there had to deal with a brand new machining center for contacts that was idle.

Just because a semiconductor chip was missing.

We were also impacted by heavy absenteeism as cover the infections hit our shop floor employees at record high numbers.

Speaker 1: We were also impacted by heavy absenteeism as COVID infections hit our shop floor employees at record high numbers.

Especially in our sites in North America and Europe .

Speaker 1: especially in our sites in North America and Europe .

Then.

Backup plans kicked in the resilience of ITT went into high gear.

Speaker 1: backup plans kicked in, the resilience of ICT went into high gear, and senior management joined the team on the shop floor like in Winestead, where Alan, our GM in Europe , packaged connectors to ship to customers over the holidays. Thank you, Alan.

And senior management has joined the team on the shop floor liking widespread what Allen our GM in Europe package connectors to ship to customers over the holidays.

Thank you Alan and thank you one stat.

Despite all these <unk>.

Speaker 1: Despite all this, ICT delivers solid first-quarter results and our full year operating margin and adjusted EPS far surpassed 2019 pre-pandemic levels. This is resilience.

<unk> delivered solid fourth quarter results and our full year operating margin and adjusted EPS fast surpassed 2019 pre pandemic levels.

This is resilience.

Moving to demand.

Demand is strong in all our end markets.

Speaker 1: ICT's innovative products and technologies draw a 20% increase in organic orders for the FULIA, with broad strength across all three segments.

<unk> innovative products and technologies drove a 20% increase inorganic orders for the full year with broad strength across all three segments.

10% organic revenue growth, including a 21% growth.

Speaker 1: 10% organic revenue growth, including 21% growth in auto with strong outperform.

With strong outperformance.

This is remarkable if you think about the demand volatility created by the chip shortage in the second half of the year.

Speaker 1: This is remarkable. If you think about the demand volatility created by the chip shortage in the second half of the year.

Speaker 1: And finally, 20% organic growth in ICT's reignited connector.

And finally, 20% organic growth in Itt's reignited connector business.

Speaker 1: On profitability, we deliver 16% operating margins, 120 basis points above 2019, and a new record for IT.

Unprofitability we.

We delivered 16% operating margins 120 basis points above 2019, and a new record for ITT.

Speaker 1: We worked hard to overcome $18 million of raw material inflation with price and product

We've worked hard to overcome $18 million of raw material inflation with price and productivity.

We continue to invest in growth and innovation in friction to support new automotive braking platforms in connectors to expand our product offering.

Speaker 1: We continue to invest in growth and innovation, in friction to support new automotive braking platforms, in connectors to expand our product offering, and in industrial process to redesign our PAM portfolio.

In industrial process to redesign our pump portfolio.

Notably research and development expense was again over 3% sales of sales this year as it has been the previous two years.

Speaker 1: Notably, research and development expense was again over 3% of sales this year, as it has been the previous two years.

Last but not least on capital deployment.

Speaker 1: We deployed $600 million in 2021 on dividends, ITT share repurchases, and the strategic asbestos divestment.

We deployed $600 million in 2021 on dividend ITT share repurchases.

And the strategic asbestos divestiture.

Speaker 1: This amounted to two times our annual adjusted free cash flow in 2021.

This amounted to two times, our annual adjusted free cash flow in 2021.

All in we delivered 27% growth in adjusted earnings per share versus 2026.

Speaker 1: All in, we deliver 27% growth in adjusted earnings per share versus 2020 and 6% growth versus 2019.

6% growth versus 2019.

In the fourth quarter, which was the worst environment, we saw all year from a supply chain perspective.

Speaker 1: In the fourth quarter, which was the worst environment we saw all year from a supply chain perspective, we continued to execute pricing actions to counter over $0.30 of raw material headwinds. This was the worst environment we saw all year from a supply chain perspective.

We continue to execute pricing actions to counter over 30 of raw material headwinds.

We executed with an all hands on deck approach like Ellen to deliver for our customers and we generated adjusted segment operating margin that exceeded 18%.

Speaker 1: We executed with an all-hands-on-deck approach like Ellen's to deliver for our customers, and we generated a just-examined operating margin that exceeded 18%.

A big part of the improvement came from CCT, which grew over 500 basis point at an incremental margin of 60% to 18, 4% segment margin.

Speaker 1: A big part of the improvement came from CCT, which grew over 500 basis points at an incremental margin of 60% to 18.4% segment margin.

Speaker 1: As they look ahead, the Q4 challenges will persist in 2022.

As they look ahead, the Q4 challenges will persist in 2022.

Still we're being capturing the strong demand and more in all our businesses to power Itt's revenue growth in 2022.

Speaker 1: We are capturing the strong demand and more in all our businesses to power ITT's revenue growth in 2021.

These will support the expected, 10% organic sales growth, while continued productivity and pricing actions will drive nearly 100 basis points of segment margin expansion.

Speaker 1: These will support the expected 10% organic sales growth, while continued productivity and pricing actions will drive nearly 100 basis points of segment margin expansion.

Speaker 1: Together, our performance will drive earnings per share growth of 11% at the midpoint of our 2022 guidance.

Together, our performance will drive earnings per share growth of 11% at the midpoint of our 2022 guidance.

Adjusted free cash flow margin would be approximately 11% as the strong income generation is tempered by increased working capital requirement.

Speaker 1: Our adjusted free cash flow margin will be approximately 11%.

Speaker 1: as the strong income generation is tempered by increased working capital requirements taken to support our customers.

Second to support our customers.

As already mentioned our guidance assumes that supply chain challenges and high raw material prices are with us.

Speaker 1: As already mentioned, our guidance assumes that supply chain challenges and high raw materials prices are with us through at least the first half of 2022.

At least the first half of 2022.

Speaker 1: modestly abating in the second half of the year.

Modest abating in the second half of the year.

If the market conditions improve sooner than we anticipate there is a path towards the upper end of our guidance, which Mario will discuss further in a few minutes.

Speaker 1: If the market conditions improve sooner than we anticipate, there is a path towards the upper end of our guidance, which Emmanuel will discuss further in a few minutes.

About 2022, I want to highlight three main points related to Itt's priorities.

Speaker 1: About 2022, I want to highlight three main points related to ITT's priority.

Speaker 1: First, our products are winning in the marketplace, and we see that in the order rates and in the back of today.

First our products are winning in the marketplace and we see that in the order rates and in the backlog today.

Speaker 1: Organic orders growth for the past three quarters was 47%, 27% and 10% respectively.

Organic orders growth for the past three quarters was 47%, 27% and 10% respectively.

Speaker 1: This drives an 18% increase in backlog that will convert in 2022 and beyond.

These drive an 18% increase in backlog that will convert in 2022 and beyond.

We're seeing broad based demand across industrial process in our long cycle pumps business.

Speaker 1: We are seeing broad-based demand across industrial process in our long-cycle pumps business and across our short-cycle offices.

And across our short cycle offerings.

Speaker 1: the project funnel continues to increase and we are seeing larger opportunities emerge.

The project funnel continues to increase and we are seeing larger opportunities emerge.

Orders in connect and control increase with a gradual recovery in commercial aerospace with strong organic growth for the second straight quarter.

Speaker 1: Orders in connecting control increase with the gradual recovery in commercial aerospace. We struck organic growth for the second straight quarter.

Our connectors continue to grow in the marketplace alongside the EV infrastructure built out, helping our CCT backlog to grow 16% organically for the year.

Speaker 1: Our connectors continue to grow in the marketplace alongside the EV infrastructure built out, helping our CCT backlog to grow 16% organically for the year.

In motion technologies, we continue to position <unk> as the brake pad supplier of choice to Oems, including electric vehicle manufacturers around the world.

Speaker 1: In motion technologies, we continue to position ITT as the break path supplier of choice to OEMs, including electric vehicle manufacturers around the world.

We won't content on 33 electric vehicle platforms in 2021, with Ford <unk>, Neil and Tesla among others.

Speaker 1: We want content on 33 electric vehicle platforms in 2021, with Ford, Rivian, NIO, and Tesla among others.

This and our leadership in EV platforms will drive long term sustainable growth as they transition to electrification gains momentum.

Speaker 1: This and our leadership in EV platforms will drive long-term sustainable growth as the transition to electrification gains momentum.

Second.

Speaker 1: Second, we are accelerating innovation across IT.

We are accelerating innovation across ITT.

Speaker 1: We see the benefits of these in our EV wings, as well as in AP and CCT, where we are advancing the VAV activities across our portfolio.

We see the benefits of these EV wins as well as in IP and CCT, we are advancing the activities across our portfolio.

We are increasing our growth capex to support customer demand and wins.

Speaker 1: We are increasing our growth capex to support customer demand and win.

And our ramping green Capex investments to further our sustainability initiatives globally.

Speaker 1: and our ramping green capex investment to further our sustainability initiatives globally.

Finally, we are carving out and cultivating certain disrupted technologies, where we see outsized returns to ensure these initiatives received the investment and attention they need over the long term.

Speaker 1: Finally, we are carving out and cultivating certain disruptive technologies where we see upsized returns to ensure these initiatives receive the investment and attention they need over the long term.

Third and finally <unk>.

Speaker 1: Third, and finally, ITT is poised to execute strategic and accretive M&A in 2022.

<unk> is poised to execute strategic and accretive M&A in 2022.

We have revamped M&A team a solid strategic focus.

Speaker 1: We have a revamped M&A team, a solid strategic focus, and plenty of firepower to deploy.

And plenty of firepower to deploy.

Speaker 1: With asbestos out of the way, the number and size of deals we are looking at is increasing and the team is ready.

With asbestos out of the way the number and size of deals. We're looking at is increasing and the team is ready.

Speaker 1: This is on top of our share repurchases plan and a 20% increase in our debit.

This is on top of our share repurchase plan and a 20% increase in our dividend.

Speaker 1: capital deployment continues to be a top priority for 2020.

Capital deployment continues to be a top priority for 2022.

Let's turn to slide five to preview some of the most exciting wins across ITT in 2021.

Speaker 1: Let's turn to slide five to preview some of the most exciting wins across ITT in 2021.

ICT operates in end markets, which are poised to grow over the next several years.

Speaker 1: ITT operates in end markets which are poised to grow over the next several years.

Speaker 1: rail, supported by our shock absorbers and couplers, will become even more important as public investment increases to support a greener and more sustainable world.

Rail supported by our shock absorbers, and couplers will become even more important as public investments increased to support a greener and more sustainable world.

Similarly, the rapid rise of electrified vehicles will further bolster our global automotive production and the demand for our braking products.

Speaker 1: Similarly, the rapid rise of electrified vehicles will further boost their global automotive production and the demand for heart-breaking products.

Our aerospace business is at the forefront of a long term recovery as people, who assumed travel domestically and internationally.

Speaker 1: Our aerospace business is at the forefront of a long-term recovery as people resume travel domestically and internationally.

Our connectors business is actively participating in award with 82 vacation and Digitization of taking over.

Speaker 1: Our connectors business is actively participating in a world where electrification and digitization are taking over.

And our pumps and valves are already playing a significant role in energy markets to build a greener future.

Speaker 1: And our pumps and valves are already playing a significant role in energy markets to build a greener future.

Regarding future growth platforms at ITT.

Speaker 1: Regarding future growth platforms at ITT, our global OE market share for our friction business is up considerably compared to 2020.

Our global OE market share for our friction business is up considerably compared to 2020.

Electrified vehicles in 2021 represented more than 20% of friction sales.

Speaker 1: Electrified vehicles in 2021 represented more than 20% of friction sales.

Speaker 1: We will grow this to over 30% over the next two years.

We will grow these to over 30% over the next two years.

Kony was it one its first award for our new Hydro right product for the defense sector.

Speaker 1: Corning won its first award for our new hydrolyzed product for the defense.

Speaker 1: This solution offers better handling capability for military vehicles as the vehicle travels over rough terrain.

This solution offers better handling capability for military vehicles as the vehicle travel over rough terrain.

We're ordering launched a ground breaking new development tool that simulates sheen performance.

Speaker 1: Wolverine launched a groundbreaking new development tool that simulates sheen performance.

Speaker 1: This is a great example of customer centricity that will improve R&D efficiency for our customers and internally in IT.

This is a great example of customer Centricity that will improve R&D efficiency for our customers and internally in ITT.

In industrial process, our ILS platform was selected to monitor 270 pumps over 5000 miles of pipeline in the U S.

Speaker 1: in industrial process, our ILR platform was selected to monitor 270 pumps over 5,000 miles of pipeline in the U.S.

Speaker 1: The algorithm-driven asset intelligence solution will enable, through more than 10,000 rules, the predictive monitoring of customer pipeline pumps and the identification of issues and potential failures, whilst providing recurring revenue for IP in service subscription, pump repairs, and upgrades.

The algorithm driven asset intelligence solution will enable through more than 10000 rule, the predictive monitoring of customer pipeline pumps and the identification of issues and potential failures widespread <unk> recurring revenue for IP in service subscription pump repairs and <unk>.

Upgrades.

Speaker 1: We also had notable wins related to the new semiconductor plant projects in the U.S., while green projects added more than 200 basis points of growth to IP orders in 2021.

We also had notable wins related to the new semiconductor plant projects in the U S.

While green projects, adding more than 200 basis points of growth to Ip's orders in 2021.

Yeah.

Finally in connect and control we were awarded a contract to provide actuators for the <unk> hundred 21 year.

Speaker 1: Finally, in Connect and Control, we were awarded a contract to provide actuators for the A321neo.

Speaker 1: This is a multi-year agreement beginning in 2022 on a growth platform used by leading airlines around.

This is a multiyear agreement beginning in 2022 on a growth platform used by leading airlines around the world.

In summary.

Speaker 1: In summary, we positioned the company for a strong performance with the backlog and shared gains generated in 2021. We are driving innovation.

We positioned the company for a strong performance with the backlog and share gains generated in 2021.

We are driving innovation across the portfolio.

Speaker 1: and we are accelerating our capital deployment plan with a smart and strategic approach across our businesses and plenty of firepower to deploy. I'm really excited.

And we are accelerating our capital deployment plan with a smart and strategic approach across our businesses and plenty of firepower to deploy.

I'm really excited about the year ahead.

Speaker 1: and siamo pronti. Emmanuel, over to you. Thank you, Luca, and good morning.

<unk> and.

Emmanuel over to you. Thank you Luca and good morning.

Speaker 1: Looking at the quality results, motion technology's sales growth was tempered by an unusually strong Q4 in 2020, when friction OE grew 19% organically, and due to the ongoing OE

Looking at the quarterly results motion technology sales growth was tempered by an unusually strong Q4 in 2020, when friction OEM grew 19% organically.

And due to the ongoing OE chip shortage this year.

Vehicle inventory levels remain at historic lows in North America, and Europe , which suggest that as the chips situation improves.

Speaker 2: Vehicle inventory levels remain at historic lows in North America and Europe , which suggests that as the chip situation improves, growth will accelerate in MT.

<unk> will accelerate in empty.

The teaming empty continues to drive price realization in partnership with our customers.

Speaker 2: The team in MT continues to drive price realization in partnership with our customers.

Speaker 2: Price was a positive 250 basis points in the fourth quarter.

Price was a positive 250 basis points in the fourth quarter.

Speaker 2: As Luca and I can tell you, this is not an easy task.

As Luca and I can tell you. This is not an easy task.

Speaker 2: It shows the persistence of our teams and the value our customers place on the performance and quality of our breakthroughs.

It shows the persistence of our teams and the value our customers place on the performance and quality of our brake pads.

Speaker 2: Despite our efforts, we estimate that supply chain disruption

Despite our efforts, we estimate that supply chain disruptions.

Speaker 2: lowered top-line growth by over 450 base years.

Lowered top line growth by over 450 basis points with the most with the most pronounced impact in industrial process.

Speaker 2: with the most pronounced impact in industrial processes.

Speaker 2: And based on what we saw in January , this dynamic is continuing into 2020.

And based on what we saw in January this dynamic is continuing into 2022.

Speaker 2: In Connecting Control, strength in distribution and conversion of our healthy backlog drove a 26% organic revenue increase in Connecting.

In connect and control strength in distribution and conversion of our healthy backlog drove a 26% organic revenue increase in connectors.

Speaker 2: Our teams drove productivity in the quarter of roughly 350 basis points.

Our teams drove productivity in the quarter of roughly 350 basis points through a combination of shop floor, and sourcing actions, which partially offset 500 basis points of material inflation.

Speaker 2: through a combination of shop floor and sourcing actions, which partially offset 500 basis points of material inflation.

Speaker 2: As Luca mentioned earlier, margins and EPS were impacted by higher growth investments, which we are

As Luca mentioned earlier margins and EPS were impacted by higher growth investments, which we are always happy to do.

From an earnings perspective, we grew EPS by 5% versus 2020, and 7% versus 2019, despite 5% less revenue.

Speaker 2: From an earnings perspective, we grew EPS by 5% vs. 2020 and 7% vs. 2019, despite 5% less revenue.

Speaker 2: Growth investments were more than offset by lower share count, foreign currency and taxes.

Growth investments were more than offset by lower share count foreign currency and tax rate.

Speaker 2: While segment operating income was higher, our working capital requirements, given the supply chain disruptions, continued to weigh on our free cash flow generation.

While segment operating income was higher.

Working capital requirements, given the supply chain disruptions continue to weigh on our free cash flow generation still.

Still we delivered 11% adjusted free cash flow margin within the range of our previous outlook.

Speaker 2: Still, we delivered 11% adjusted free cash flow margin within the range of our previous outlook.

Speaker 2: and we are consciously investing in working capital given the supply chain disruptions.

And we are consciously investing in working capital given the supply chain disruptions.

Let's now turn to slide seven.

I want to highlight a few additional points from Q4, which will impact our outlook for next year.

Speaker 2: I want to highlight a few additional points from Q4 which will impact our outlook for next year.

First an empty the lower vehicle production. We saw this quarter was due to year end customer plant closures that occurred ahead of schedule in Q4, given the chip shortage.

Speaker 2: First, in MT, the lower vehicle production we saw this quarter was due to year-end customer plan closures that occurred ahead of schedule in Q4 given the chip shortage.

Speaker 2: This stands against a very strong production in Q4 of 2020 as we were exiting the first wave of the pandemic.

This dense against a very strong production in Q4 of 2020 as we were exiting the first wave of dependent.

We also experienced delays in the start of production of some new auto platforms, mainly in Europe .

Speaker 2: We also experienced delays in the start of production of some new auto platforms, mainly in Europe .

Our friction business was exemplary with 100% on time delivery despite supply chain disruptions.

Speaker 2: Our friction business was exemplary with 100% on-time delivery despite supply changes.

Speaker 2: On the commodity side, the inflation impact increased sequentially in the fourth quarter.

On the commodity side, the inflation impact increased sequentially in the fourth quarter above our expectations.

Speaker 2: and we expect prices will remain at these elevated levels through at least the first half of 2020.

And we expect prices will remain at these elevated levels through at least the first half of 2022.

Speaker 2: This will cause a significant year-over-year headwind, particularly in...

This will cause a significant year over year headwind, particularly in energy.

At industrial process topline growth was constrained by supply chain, despite strong demand across project and short cycle.

Speaker 2: At industrial process, top-line growth was constrained by supply chain despite strong demand across project and short-term.

We are encouraged by the demand we see in orders given the sequential increase every quarter in 2021.

Speaker 2: We are encouraged by the demand we see in orders, given the sequential increase every quarter in 2021.

As a result, we are entering 2022 with significantly higher backlog still the challenge continues to be the timely conversion of these orders.

Speaker 2: As a result, we're entering 2022 with significantly higher back...

Speaker 2: Still, the challenge continues to be the timely conversion of these orders.

Speaker 2: IP's margin expanded 70 basis points to 15.8% driven by favorable mix from the higher proportion of short cycle.

Ip's margin expanded 70 basis points to 15, 8% driven by favorable mix from the higher proportion of short cycle sales.

Speaker 2: This was partially offset by labor and material inflation, as well as expedited free trade.

This was partially offset by labor and material inflation as well as expedited freight charges.

The latest footprint optimization actions, we announced in Brazil was completed successfully this quarter and he will provide savings into 2022.

Speaker 2: The latest footprint optimization action we announced in Brazil was completed successfully this quarter, and it will provide savings into 2022. CCT had a very strong quarter in August .

CCT at a very strong quarter in all aspects.

Orders continued to be robust.

Speaker 2: Organic sales growth was above 10% and margin exceeded 18%.

Organic sales growth was above 10% and margin exceeded 18%.

Speaker 2: We see strong demand in distribution with orders up 55% for the four-year. And our distribution customers are not reporting higher stocking levels.

We see strong demand in distribution with orders up 55% for the full year.

And our distribution customers are not reporting higher stocking levels.

Speaker 2: As a result, distribution should again be a big driver for CCT's performance in 2022. With that,

As a result distribution should again be a big driver for Cct's performance in 2022.

With that we are turning the page on 2021.

On slide eight we discuss our current outlook across our major end markets.

Speaker 2: On Flight 8, we discuss our current outlook across our major landmarks.

Speaker 2: My message to you is demand is strong across the portfolio and we're winning in the market.

My message to you is demand is strong across the portfolio and we're winning in the marketplace. We see that in our backlog our order rates Our awards and our project funnel.

Speaker 2: We see that in our backlog, our order rates, our awards, and our project funnel.

The challenge, we see in achieving the 10% organic growth for the full year is mainly a first half dynamic we see most prominently received as most permanently in the chemical and industrial verticals in.

Speaker 2: The challenge we see in achieving the 10% organic growth for the four-year is mainly a first-half dynamic.

Speaker 2: we see most prominently, we see this most prominently in the chemical and industrial vertebrae.

Speaker 2: In both instances, the long-term trends are very attractive and we feel confident ITT is well positioned.

In both instances the long term trends are very attractive and we feel confident ITT is well positioned here.

In auto the first half will be slower due to a combination of chip shortage impacts as well as raw material availability.

Speaker 2: In auto, the first half will be slower due to a combination of chip shortage impacts as well as raw material availability.

Speaker 2: But with OEM inventory at very low levels, we expect a top-line acceleration in MT in the second half of 2020.

But with the OEM inventory at very low levels.

We expect the top line acceleration and empty in the second half of 2022.

Speaker 2: Regarding aerospace, demand is improving, but we're still well below sales level from 2019.

Regarding aerospace demand is improving but we're still well below sales levels from 2019.

Speaker 2: We expect this market to start to accelerate in the second half coinciding with a further increase in global travel and a reduction in aero OEM events.

We expect this market to start to accelerate in the second half coinciding with a further increase in global travel and a reduction in Aero OEM inventory.

Let's turn to slide nine to discuss our financial guidance given the dynamics.

Speaker 2: Let's turn to slide 9 to discuss our financial guidance given this dynamic.

For 2022, we expect to grow organic sales roughly 10% at the midpoint.

Speaker 2: For 2022, we expect to grow organic cells roughly 10% at the...

Speaker 2: However, unlike 2021, we expect that all businesses grow at a similar rate, with empty slices

However, unlike 2021, we expect that all businesses.

Grow at a similar rate.

With empty slightly above IP and CCT.

Our outlook for 2022 assumes the continuation of the challenges related to the global supply chain.

Speaker 2: Our outlook for 2022 assumes the continuation of the challenges related to the global...

Speaker 2: From a segment margin standpoint, CCT will expand margins more than any other business.

From a segment margin standpoint, CCT will expand margins more than any other business followed by IP.

We expect <unk> margins to be only slightly up given the raw material headwinds in the first half.

Speaker 2: We expect empty margins to be only slightly up given the raw material headwinds in the first half, and the time to receive price returns.

And the time to receive price recovery from customers.

Speaker 2: Industrial process margin expansion will be impacted by the ongoing supply chain disruptions, which will continue to constrain deliveries in the first

Industrial process margin expansion will be impacted by the ongoing supply chain disruptions, which will continue to constrain deliveries in the first half.

Speaker 2: Additionally, the growth in IPís project business will tamper margin. However, we still expect IP to approach 16% margin for the year after a lower figure.

Additionally, the growth in Ips project business will temper margin. However, we still expect IP to approach, 16% margin for the year after a lower first half.

At the midpoint of our range EPS will grow 11% or 16%. If you exclude the 16 to 20 headwind related to unfavorable currency and an expected higher effective tax rate of 21, 5%.

Speaker 2: At the midpoint of our range, EPS will grow 11% or 16% if you exclude the 16 to 20 cent headwind related to unfavorable currency and an expected higher effective tax rate of 21.5%.

If the supply chain disruption improve.

Speaker 2: If the supply chain disruption improves and raw materials inflation does not get worse, there is a path towards the high end of the race.

And raw materials inflation does not get worse, there is a path towards the high end of the range.

Speaker 2: We're planning to take further steps in the event this does not prove to be the case, including limiting non-

We're planning to take further steps in the event. This does not two proved to be the case.

Including limiting nonessential spend.

Speaker 2: executing additional footprint actions, and most importantly, incremental pricing actions that we would expect to compensate for the higher raw material price.

Executing additional footprint actions and most importantly incremental pricing actions that we would expect to compensate for the raw material the higher raw material prices.

In terms of the cadence for the year, we anticipate Q1 will be the toughest quarter of the year.

Speaker 2: In terms of the cadence for the year, we anticipate Q1 will be the toughest quarter of the year.

Given the strength in the first quarter of 2021 stemming from pent up demand in auto exiting 2020.

Speaker 2: Given the strength in the first quarter of 2021, stemming from pent-up demand in auto-exiting 2020, our Q1 organic sales growth will be in the low single-digit range, thanks mainly to the growth in CCT. We expect the other two...

Our Q1 organic sales growth will be in the low single digit range.

Thanks, mainly to the growth in CCT.

We expect the other two businesses will be roughly flat.

Margins will likely decline to around 17% in Q1 due to the first half headwind stemming from elevated raw material prices.

Speaker 2: Margins will likely decline to around 17% in Q1 due to the first half headwind stemming from elevated raw material.

Margin will then increase on a sequential basis in every quarter in 2022.

Speaker 2: Margin will then increase on a sequential basis in every quarter in 2022.

As a result, EPS is expected to decline in the first quarter.

Speaker 2: As a result, EPS is expected to decline in the first quarter in the high single digits.

In the high single digit range.

Speaker 2: Following Q1, EPS is expected to grow on a sequential and year-over-year basis for all remaining quarters in 2020.

Following Q1, EPS is expected to grow on a sequential and year over year basis for all remaining quarters in 2022.

Given our capital deployment capacity in the market pullback, we have been and will continue repurchasing shares of ITT.

Speaker 2: Given our capital deployment capacity and the market pullback, we have been and will continue repurchasing shares of IT.

Speaker 2: We expect this will drive a further 1% reduction in our weighted average share count in 2020.

We expect this will drive a further 1% reduction in our weighted average share count in 2022.

Speaker 2: However, our preference remains to deploy capital to growth investments and smart acquisitions, and we remain confident in our ability to execute acquisitions in 2022, given the active and growing pipeline.

However, our preference remains to deploy capital to growth investments.

And smart acquisitions, and we remain confident in our ability to execute acquisitions in 2022, given the active and growing pipeline.

Speaker 2: on 5.10, just a few things I want to highlight.

On slide 10, just a few things I want to highlight.

You can see that we expect to generate approximately 80.

Speaker 2: you can see that we expect to generate approximately $0.80 of operationally driven growth, net of $0.70 of material infusion.

Operationally driven growth net of 70.

Of material inflation through a combination of backlog conversion share gains price and productivity.

Speaker 2: through a combination of backlog conversion, share gains, price and product.

Speaker 2: This will be partially offset by the impact of favorable non-recurring items.

This will be partially offset by the impact of favorable nonrecurring items, which.

Speaker 2: which we highlighted each quarter in 2021, as well as higher discretionary costs. One additional point.

Which we highlighted each quarter in 2021, as well as higher discretionary costs.

One additional point on raw materials inflation.

Speaker 2: 60 of the 84 million dollars of inflation in 2021 occurred in the second half of the

60 of the $84 million of inflation in 2021 occurred in the second half of the year.

Speaker 2: There was essentially no impact in the first quarter of 2021, which means we will see continued year-over-year headwinds through the first two quarters of 2020.

There was essentially no impact in the first quarter of 2021, which means we will see continued year over year headwinds through the first two quarters of 2022.

Speaker 2: I would also point out the $0.16 to $0.20 of headwind from currency and tax.

I would also point out the 16 to 20 of headwind from.

From currency and tax.

With that let me pass it back to Luca to wrap up thanks.

Thanks Emmanuel.

ICT performed extremely well throughout 2021.

Speaker 1: ITT performed extremely well throughout 2021.

Speaker 1: We reached new records for adjusted segment margin and adjusted EPS, which were both comfortably above 2019 prior to the pandemic.

We reached new records for adjusted segment margin and.

And adjusted EPS, which were both comfortably above 2019 prior to the pandemic.

Speaker 1: This would not have been possible without the resilience of our IT tier.

This will not have been possible without the resilience of our ITT ers.

Speaker 1: we are seeing demand across the portfolio continue to increase.

We are seeing demand across the portfolio continued to increase.

Speaker 1: We saw this in order rates throughout the year and exit in 2021.

We saw these in order rates throughout the year and exiting 2021.

And we are entering 2022 with a very healthy backlog of orders to convert.

Speaker 1: And we are entering 2022 with a very healthy backlog of orders to convert.

And while we ramped our capital deployment in 2021 deploying two times, our adjusted free cash flow to asbestos divestiture dividends and share repurchases. There is still much more to do.

Speaker 1: And while we ramped our capital deployment in 2021, deploying two times our adjusted free cash flow to our asbestos divestiture, dividends, and share repurchases, there is still much more to do.

With a heightened and intense focus on M&A.

Speaker 1: with a heightened and intense focus on M&A. We're building and cultivating an active pipeline of acquisition candidates.

We are building and cultivating an active pipeline of acquisition candidates.

Speaker 1: and we have the right team in place to execute this deal.

And we have the right team in place to execute these deals.

Speaker 1: Lastly, I am happy to announce that finally ITT will host a Capital Markets Day for investors on June 16 in New York City.

Lastly, I am happy to announce that finally.

<unk> will host a capital markets day for investors on June 16 in New York City.

Speaker 1: This is ITT's first event like this since 2011.

This is itt's first event like this since 2011.

And you don't want to Miss it.

Speaker 1: As ever, it has been my pleasure speaking with you all this morning, and we will happily take your questions now. Charlie, please open the line for Q&A.

As ever it has been my pleasure speaking with you all this morning, and we will happily take your questions now Charlie Please open the line for Q&A.

Yeah.

Speaker 3: The floor is now open for questions. At this time if you have a question or comment please press star 1 on your touchtone phone. If at any point your question has been answered you may remove your question by pressing start followed by 2. Again we do ask while you pose your question you please pick up your headset to provide optimal sound quality and please limit your questions to one question and one follow-up.

The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your touch type thing.

Any point. Your question has been answered you may relieve your question by pressing star followed by <unk>.

We do ask will you pay your question you. Please pick up your headset to provide optimal sound quality and please limit your questions to one question and one follow up question.

Speaker 3: Our first question comes from Andrew Obin of Bank of America. Your line is open. Please go ahead. Yes, good morning.

Our first question comes from Andrew <unk> of Bank of America. Your line is open. Please go ahead.

Yes, good morning.

Good morning, Andrew Good morning, Andrew.

Speaker 4: Yeah, good morning, Luke, Emmanuel, Mark. Pretty impressive operational performance by the ITT team, particularly given the volume headwinds. Kudos to everybody. The question I have, you know, how are you and the board are looking?

Hey, good morning, Mark.

Pretty impressive operational performance by the execution, particularly given the volume headroom is kudos to everybody.

The question I have.

No.

You and the board are looking.

Speaker 4: at the future, you know, sort of specifically growth costs, you know, investments, you did highlight the second point you made, you know, raising R&D and CapEx. As you talk to the board, Luca, you know, how different do you think the world will look like over the next several years versus the prior cycle? And as I said, how sustainable should we think these increases in R&D and CapEx, and what else can you do? Thank you.

At the future sort of specifically growth costs.

<unk> you did highlight the second point you made.

Raising R&D and Capex as you talk to your to the board.

How different do you think the world will look like over the next several years versus the prior cycle and as I said, how sustainable should we think these increases in R&D and Capex and what else can you do.

Speaker 1: Okay, thank you, Andrea. So this is a conversation that we have regularly with the board. We have one event on the yearly basis, which is a strategic client review that we have in September , October . And then every meeting with the board we're actually reviewing the strategy of the different.

Okay.

Thank you Andrea So this is a conversation that we have regularly with the board we have that one event on the yearly basis, which is the strategic plan review that we have in September October and then every meeting with the board. We are actually really viewing the strategy of the different businesses. So this is a discussion that happens on there right.

Speaker 1: So this is a discussion that happens on a regular basis.

Dealer basis, so when we look at the business that we're in and the business that we have we feel positive as that most of our business that are actually at the very beginning of a growth a growth cycle. So we have a good investment that they are going to feed. These growth there is a lot of <unk>.

Speaker 1: So when we look at the business that we're in and the business that we have, we feel positive as most of our business are actually at the very beginning of a growth cycle.

Speaker 1: So we have a good investment that are going to feed this growth. There is a lot of conversation on innovation.

This station on innovation.

Speaker 1: this is really probably the biggest conversation that we're having with the board and our investment in innovation and you will have seen that probably in our presentation there is one specific venturing that we are doing internally that we are detaching from the business and we were managing centrally just roughly in order to give the proper focus and the proper attention.

He is really probably the biggest conversations that we're adding with the board and our investment in innovation and you will have seen that probably in our presentation that is one specific.

Venturing debt that we are doing internally that we are touching from the business and we're managing centrally rapidly to in order to give you the appropriate focus and the proper attention and you have seen also our starting of the venture investment of ITT in external companies. So these are.

Speaker 1: and you've seen also our starting of the venture investment of ITT in external companies.

Speaker 1: So this is a regular conversation. I will add to that that a lot of attention with the board is also on China and the geopolitical environment.

Is a regular conversation I will add to that that a lot of attention with the board is also on China and the geopolitical environment. This is something that we are discussing and we are also looking for external speaker coming and talking to us.

Speaker 1: This is something that we are discussing and we're also looking for external speakers coming and talking to us.

Speaker 2: And, Andrew, just to put a final point on what Luca was saying, so a lot of our 2022 assumptions include a step up in capital.

And Andrew just to put a finer point on what Luca was saying so a lot of our 2022 assumptions include a step up in Capex.

Speaker 2: uh roughly from around 90 million to more than 100

Roughly from around $90 million to more than $150 million of Capex and some of that is dedicated to growth and to R&D, because it's really important for us to be able to maintain the gaps that we have with the competition and to maintain our competitive advantages.

Speaker 2: of CapEx, and some of that is dedicated to growth and to R&D, because it's really important for us to be able to maintain the gap that we have with the competition, and to maintain

Speaker 2: So we're going to be expanding in R&D in Italy, also in China. And we have many initiatives, like you said, to really invest in innovative.

So we're going to be expanding the R&D in Italy.

Also in China.

Many initiatives like Luca said to really.

Invest in innovative products.

Speaker 4: Thank you. And just a follow-up question, specifically on slide 9, you know, you highlighted supply chain disruption in industrial process, and I'm just comparing your outlook on chemical and industrial pumps.

Thank you and just a follow up question specifically on slide nine.

You highlighted supply chain disruption.

<unk> process and I am just comparing your outlook on chemical and industrial pumps.

Speaker 4: versus energy, what specifically are you basing on chemical and industrial pumps versus energy because it seems a more conservative outlook for the first half? And on the energy side, is it as simple as just the difference, the connectors of the difference? Just provide some color as to exactly what's happening in the supply chain. Thank you.

<unk> energy.

What specifically are you facing on chemical and industrial pumps versus energy because it seems more conservative.

For the first half and on the energy side is it as simple as just the difference that connectors or the difference just provide some color as to exactly what's happening in the supply chain. Thank you.

Speaker 2: So in IP we're facing, I would say, the supply chain disruptions across the board. If you look at what has happened in Q4, unfortunately the impact was worse than what happened in Q3. You remember in Q3 we had 350 basis points of top line impact. And that was, a lot of it was due to IP. Unfortunately in Q4, that situation was...

So in IP, we're facing I would say supply chain disruptions across the board.

If you look at what has happened in Q4. Unfortunately, the impact was worse than what happened in Q3, you remember in Q3, we had 350 basis points of topline impact and there was.

A lot of it was due to IP. Unfortunately in Q4 that situation worsen and more than 450 basis points topline impact that we had due to supply chain and labor availability was mostly due to IP, so roughly $25 million to $30 million of revenue was missed in IP and we think unfortunately that this situation.

Speaker 2: And the more than 450 basis point supply and impact that we had due to supply chain and labor availability was mostly due to IP. So roughly 25 to 30 million of revenue was missed in IP. And we think, unfortunately, that this situation is not gonna abate and it's not gonna improve until the end of the first half of 2022.

He is not going to be.

And he's not going to improve until the end of the first half of 2022. So those supply chain disruptions are impacting a lot of our end markets.

Speaker 2: So those supply chain disruptions are impacting a lot of our energy.

Speaker 1: If I may add just one brief point, Andrew, if we look at Q4 revenue for IP, the most impacted one was the project revenue.

If I may add just one brief point Andrea if we look at our Q4 revenue for IP.

Most impacted one was the project revenue our revenue for projects that in Q4 was the lowest that we add in the last couple of years was that on the show cycle was the highest revenue that we had in the last couple of years also because the show cycle you are probably more in control of your of your <unk>.

Speaker 1: Our revenue for projects in Q4 was the lowest that we had in the last couple of years, while on the short cycle was the highest revenue that we had in the last couple of years. Also because the short cycle, you're probably more in control of your supply chain.

<unk> chain. So that is probably the biggest difference that you would be able to see big projects out of more difficult to manage.

Speaker 1: So that is probably the biggest difference that you will be able to see. Big projects are more difficult to manage.

Okay. Thanks, so much.

Thank you Andrew comes from Joe Giordano of Cowen. Your line is open. Please go ahead.

Speaker 3: The next question comes from Joe Giordano of Cowan. Your line is open. Please go ahead. Good morning. This is Michael.

Good morning, This is Michael Alaska ceiling for Joe.

Hi, Michael.

Speaker 5: Great. This is a two-parter. So looking at the M&T, you mentioned there was an acid sale that helped margins for the quarter. Can you quantify that sale and what exactly it's related to?

Great.

Two parter so looking at the MMC mentioned, there was an asset sale.

Margins for the quarter can you quantify that sale and what exactly is related to.

Speaker 2: Yeah, Michael. So every quarter, you know, as you know, there are one time items that affect our results. And also, we highlight those in the segment margins on a regular

Yes, Michael So every quarter as you know.

They are one time items.

That affect our results.

And also we highlight those in the segment margins on a on a regular basis in Q4.

Speaker 2: In Q4, there was a lot of one-time items in MT, including the land sale that you referred to, and roughly $1 to $2 million was above our forecast, and we had included this benefit in our budget from the bid.

There was a lot of one one and one time items in empty, including the land sale that you referred to and.

Roughly $1 million to $2 million was above our forecast and we we had included this.

These benefits.

Budgets from the beginning.

Speaker 2: And this added, if you look at versus what we were expecting in our forecast, this added roughly 50 basis points of margin to MT in Q4.

This.

This added if you look at versus what we were expecting a forecast. This added roughly 50 basis points of margin to empty in Q4.

Speaker 2: For the four year, the net of all that is the non-operational items is around a 10 basis points benefit. So really many more animals.

For the full year, the net of all let's say the non operational items ease around 10 basis points benefit so really minimal any material.

Great. Thank you for the color there and one more if I may.

Speaker 5: Great. Thank you for the color there. And one more, if I may mention that the company is poised for organic growth. What areas are you finding most favorable at this time? And what do you see in terms of the market multiples and such? Thank you.

You mentioned that the company is poised for organic growth.

Areas, where you're finding most favorable at this time and what are you seeing in terms of the market multiples such thank you.

Speaker 1: Sure, maybe I start addressing the first part of the question and the Emmanuel if you want to follow up. Yes, we are ready.

Sure maybe I start addressing the first part of the question and I don't know if you want to follow up.

Yes, we are ready.

Speaker 1: With asbestos out of the way, we can really focus on M&A. We have a talented and experienced team.

With those vessels out of the way, we can really focus on M&A, we have a talented and experienced team.

Speaker 1: and we have good strategic deals at different stages in the funnel and mature opportunities. When you look at the different areas, we have a good pipeline in all the three businesses.

And we have a good strategic deals at different stages in the funnel and mature opportunities. When you look at the different areas. We have a good pipeline in all the three businesses, Michael we're talking about rail.

Speaker 1: We're talking about rail, we're talking also about flow, and good opportunities in CCT on the connector side of the business. So now we always though follow our rigorous process to ensure that both strategically and financially we will create value. But those are the areas.

We're talking also about flow and good opportunities in CCT.

On the on the connectors on the connector side of the business. So.

Now, we always do follow our rigorous process to ensure that both strategically and financially we will create value, but those are the areas.

Great. Thank you.

Speaker 3: The next question comes from Scott Davis of Meleus Research. Your line is open, please go ahead. Good morning, guys.

Thanks. My question comes from Scott Davis of Me Nice Research. Your line is open. Please go ahead.

Good morning, guys.

Hi, Scott I wanted to ask.

Yes, good morning, I wanted to ask about the I alert.

Because im trying to get a sense of how.

Speaker 6: how broad that product can go. You know, you talk about pipelines, but what are you measuring? And, you know, is it standard stuff, heat, vibration?

How broad that product can go talk about pipelines, but.

What are you measuring.

Standards staff heat vibration and temperature electricity usage as it is a pretty standard.

Speaker 6: Electricity usage is a pretty standard.

<unk>.

Speaker 6: And how are you aggregating that data and getting paid?

And how are you kind of aggregating that data and getting paid for it.

Speaker 1: Okay, sure. Thanks for asking the question, because I'm very proud and excited about this, we ain't got it. As a matter of fact, you know, our six ITTers in IP that work on the, the one the customer centric ITT award in 2021, they did a fantastic job.

Okay sure.

Thanks for asking the question because I am very proud and excited about about this meeting Scott.

As a matter of fact.

Sure.

Our six ITT ers.

In IP.

That work on these deal one the customers.

Centric ITT award in 2021, they did a fantastic job.

Speaker 1: ITT launched this iAlert a few years ago and took some time to take traction.

ICT launch these I alert a few years ago and took some time to take traction and the reason why it took time to take traction is because when you install it you need to have a maintenance team at the customer side, but also your maintenance team be able to read that data you need by duration analysts that look at the date that would be able to interpret and analyze.

Speaker 1: And the reason why it took time to get traction is because when you install it, you need to have a maintenance team at the customer side, but also your maintenance team be able to read that data. You need vibration analysts that look at the data, be able to interpret, analyze them, and see what's behind the data and create value then for the customer. So it took a little bit of time to gain traction. But this iAlert works on every rotating equipment.

And see what kind of data and create value for the customer. So it took a little bit of time to get to gain traction, but these I alert works on every rotating equipment.

Speaker 1: Right, so as a matter of fact, all these pumps are not good pumps, which makes it even nicer, I would say. And we have a vibration analyst engineer based in our Houston ProShop that is looking at the data, analyzing the data, look what is going wrong and provide report to the cost.

Right. So as a matter of fact, all these pumps are not goose bumps, which makes it even more.

Even nicer.

I'd say and we have a vibration analyst engineer based in our Houston.

Pro shop that is looking at the data analyzing the data look what is going wrong and provide report too to the to the customer you are right.

Speaker 1: Your right is really measuring the vibration and the temperature and is working on really more than 10,000 rules, based on a partnership with the company that we have on the north.

Really measuring the vibration and temperature and is working on really more than 10000 rules based on the partnership with a company that we have.

The northeast and.

Speaker 1: And as I said, it can work on every rotating compressor and engine.

As I said it can work on agri rotating comprised more than anything.

Okay. That's helpful and then.

Speaker 6: Are you sending out digital twins when you send out a couple?

Are you sending out digital twins when you send out.

A big project.

Speaker 6: custom pump. Are you sending out a digital twin with that? Is that something that you're already doing or something that you envision doing in the future?

Custom pump are you sending out a digital twin would add is that something that you're already doing or something that you envision doing in the future.

Speaker 1: Yes, in most of our projects, in most of our pump, actually the frame is really shaped in a way that I alert has got the exact position on that and it's almost by default position. The default is by default.

Yes.

Most of our in most of our projects most of our pump actually the frame is really shaped in a way that I alert.

Got the exact position on that and it's almost by default position the default.

Fault.

Speaker 2: And so we offer this to our customers, whether they have requested it or not. I think that over the past few months, because of the chip shortage, we haven't been able to do that necessarily on every pump. But as soon as this abates, we'll return to putting one eye alert for every pump that we ship.

And so we offer this to our customers whether they have requested it or not I think that over the past few months because of the chip shortage, we haven't been able to do that necessarily on every pumps, but as soon as this abates, we'll return to putting one I alert for every pump that we ship.

That's cool alright. Thanks, Good luck guys I appreciate it thanks, Thanks Scott.

Speaker 6: All right. Thanks. Good luck, guys. Appreciate it. Thanks, Scott.

Speaker 3: The next question comes from Jeff Hammond of T-bank capital markets. Your line is open. Please go ahead.

The next question comes from Jeff Hammond of Keybanc capital markets. Your line is open. Please go ahead.

Hey, good morning, guys.

Morning, Jeff.

Speaker 7: Hi Jeff. Can you hear? Oh good. So just back on MT margins, I guess even if you adjust for the game, really nice sequential improvement and I'm just trying to get a better sense of, you know, given all the moving pieces, kind of how you're thinking about, you know, margins in MT sequentially.

Oh good.

So just back on <unk> margins I guess, even if you adjust for the game really nice sequential improvement and I'm, just trying to get a better sense of.

Given all the moving pieces kind of how youre thinking about.

Margins in empty sequentially.

Speaker 7: And then just, you know, on, you know, friction supply chain, you know, we're hearing kind of, you know, optimism from some OEMs and pessimism from some OEMs and maybe just, you know, kind of what you're really seeing out there in terms of, you know, the auto supply chain, you know, starting to get better and why you think it gets better.

And then just on.

Friction supply chain, we're hearing kind of.

Optimism from some Oems pessimism from Oems and maybe just kind of what youre really seeing out there in terms of the <unk>.

Auto supply chain, starting to get better and why do you think it gets better.

Speaker 1: Okay, so let me start addressing the supply chain and then, Emmanuel, you can take the margin. So, as a matter of fact, the supply chain in Q4 was worse than what we saw in Q3.

Okay. So let me let me start addressing the supply chain and then Manuel you can that you can take the margin.

So.

As a matter of fact, the supply chain in Q4 was worse.

What we saw in Q3.

Speaker 1: I gave you some example in the prepared remarks, but I can tell you also that I've seen in Barge some lines that were completely stopped either because of the supply chain or because of the absenteeism as Omicron, you know, had a massive impact in December and in January .

I'll give you some examples in the prepared remarks, but I can tell you also that I see.

<unk> bio Jay.

Some lines that were completely stopped.

Because of the supply chain or because of the absenteeism as the Army Corps.

A massive impact.

In December and in January .

Speaker 1: So I haven't seen that situation improving in Q4, and not necessarily in general.

No.

I haven't seen that situation improving in Q4 and not necessarily in January .

Speaker 1: Now, considering all of that, the fact that our friction team was able to deliver 100% on-time delivery made that result even more remarkable.

Now considering all of that the fact that our friction team was able to deliver 100% on time delivery made that result, even more remarkable.

Speaker 1: We expect that situation on supply chain probably to improve towards the second half at the end of Q1 and in Q2 and be much better in the second half.

We expect that situation of supply chain, probably to improve towards the second half.

End of Q1, and in Q2 and that would be much better in the second half, Jeff and if you think about 2022. So obviously on a sequential basis in Q1 and in Q2, there's going to be a step down for the left from the level of.

Speaker 2: And if you think about 2022, so obviously on a sequential basis in Q1 and in Q2, there's going to be a step down from the level of Q4 margins for MT.

Q4 margins for empty.

Speaker 2: as we are really working with our customers to secure price recovery. And then as you go further along the year, you're going to see the impact of compounding productivity and pricing. That's going to really help drive up margins at MTA.

We are as we are really working with our customers to secure price recovery and then as you go further along the year youre going to see the impact of.

Compounding productivity and pricing that's going to really help drive up margins at MTS.

Speaker 2: to levels that we have seen probably to high teen levels.

Two two to two levels that.

We have seen.

Probably.

Two to high teen to high teen levels.

Yeah.

Speaker 7: Okay, excellent. And then you mentioned, you know, the labor issues in IP. And I'm just wondering if that's just an Omicron absenteeism issue, or if there's something, you know, broader, is it, you know, retention or adding people? Or is it just kind of this, you know, Omicron blip thing?

Okay excellent and then you mentioned the <unk>.

Labor issues in IP and I'm, just wondering if thats, just an omicron absenteeism issue or if there's something broader or is it retention or adding people or is it just kind of this <unk>. Thanks.

Speaker 1: No, it's more the impact of Omicron, Jeff. Q4 in January has been a real challenge from an operational point of view. And Omicron was we don't see serious cases, which is good. The impact, as I said, has been massive. Just to give you an example, end of December and entire January we had more than 200 new cases per week.

No it's more of the impact.

<unk> Q4, and January have been really challenged from an operational point of view.

Omicron, what we don't see serious cases, which is good.

But as I said has been massive just to give you. An example end of December and entire of January we had more than 200, new cases per week to that youre going to add probably another 200 300 people that are quarantining every week. So you can imagine the disruption that you have in operation.

Speaker 1: to that, you're gonna add probably another 200, 300 people that are quarantining every week. So you can imagine the disruption that you have in operation when you have that amount of people missing.

You add that amount of people missing so youre going to work on all the time, which is an efficiency youre going to have temporary worker, which is an efficiency or you have like in the case of IP talk to the customer in order to reschedule. Some some shipments so was omicron.

Speaker 1: So you're going to work on overtime, which is inefficiency. You're going to have temporary worker, which is inefficiency. Or you have like in the case of IP, talk to the customer in order to risk your sum, some shipments. So.

Speaker 7: Okay, thanks guys. Appreciate the color and tone change on capital deployment. Thanks.

Okay. Thanks, guys.

Right.

<unk> and tone change on capital deployment.

Thank you Jeff.

The next question comes from Black districts. He is Citigroup. Your line is open. Please go ahead.

Speaker 3: The next question comes from Vlad Bistrixi of City Group. Your line is open, please go ahead.

Good morning, guys. Thanks for taking my call.

Good morning, Brad.

So maybe just.

Yeah.

Speaker 8: Hi, maybe just following up on Jeff's last question on absenteeism and Omicron and understanding what you saw through January , but can you talk a little bit about how you're seeing things evolve now? Have you seen Omicron sort of peak, at least here domestically, and maybe what you're seeing from Omicron in some of the other regions and how you're thinking about labor disruptions impacting 1Q?

Hi, maybe just following up on Jeff's last question on absenteeism.

On micron.

And understanding what you saw for January but can you talk a little bit about how you're seeing things evolve now have you seen omicron sort of peak.

At least here domestically and maybe what youre seeing from omicron and some of the other regions and how youre thinking about labor disruptions impacting <unk>.

Sure so.

Speaker 1: Sure. So, what you see, as I said, during the month of January was more than 200 people, new cases every week. And to be honest with you, I cannot say that the peak has gone through, because just last week it was 180 new cases in the week. So, sure, it's less than 200, but 180 new cases in the week is still very high.

What what you see as I said during the month of January was robbed more than 200 people in new cases every week.

To be honest with you I cannot say that the peak is.

Going through because that just last week. It was 180, new cases in the week. So sure it's less than 200 about 180, new cases in the week is still very high.

Speaker 1: So it's true that Omicron came south and you see probably in the news and in the paper that, you know, the peak is there, but from an operational perspective, it's still very much there. And the regions that have been impacted the most are really Europe and North America.

So.

Through the Omicron came fast and you see probably in the news and in the paper that.

The peak is there but from an operational perspective is still very much there and the region had been impacted the most.

Europe and North America.

Speaker 2: And then from a from a result standpoint, you really see that in what we expect for Q1. So Q1 will be the lowest quarter in terms of growth and and revenue in terms of dollars.

And then from a from a results standpoint, you really see that in what we expect for Q1, So Q1 will be the lowest quarter in terms of growth and revenue in terms of dollars.

Speaker 2: And this is impacting obviously our factories, but also it's impacting our customers.

And this is impacting of Youll see our factories, but also it is impacting our customers and as a result.

Speaker 2: And as a result, the lack of absorption, the lack of volume will result in a lower margin, around 17% for Q1, and obviously lower EPA.

The lack of absorption and the lack of volume will result in lower margins around 17% for Q1, and obviously lower EPS as well.

Okay.

Speaker 8: Okay. That's a, that's helpful color. Um, and then maybe just, um,

That's helpful color.

Then maybe just.

Speaker 8: shipping to sort of or shifting to sort of what you're seeing on the working capital front. Obviously, you're exhibiting 21 with a bit higher inventory than is typical for you.

Shifting to sort of shifting to sort of what you're seeing on the working capital front.

Obviously, you're exiting 'twenty, one with a bit higher inventory than is typical for you.

Speaker 8: And, you know, some of that I think you highlighted reflects a strategic decision, but can you talk about, you know, is there some way to parse out how much of the increase in inventory is driven by you strategically securing supply as you're able to, you know, versus

And.

Some of that I think you highlighted reflects a strategic decision, but can you talk about is there some way to parse out how much of the increase in inventory is driven by used strategically securing supply as youre able to.

Versus challenges around work and project work in process or other products that you can't quite get out the door because of the.

Speaker 8: challenges around working process or other products that you can't quite get out the door because of the logistical challenges.

Logistical challenges.

Speaker 2: Yeah, so as Luca mentioned, supply chain is really a mess. And so this has been a big reason why we have increased our working capital and specifically our inventory in 2021. I would say the majority of the increase is due to the higher inventory that we've taken in 2021 and that we're going to continue to take in 2022 in order to secure the shipments to our

Yes, so as Luca mentioned supply chain is really a mess.

And so this has been a big reason why we have increased our working capital.

And specifically our inventory in 2021.

I would say the majority of the increase is due to the higher inventory that we've taken.

In 2021 and that we're going to continue to take in 2022 in order to secure the shipments to our customers.

Speaker 2: In addition, I think the challenge we're going to see also from a working capital standpoint in 2022 is we're going to have a significant increase in activity. So we're planning to have 10% increase in revenue at the midpoint and this is obviously impacting mechanically working capital.

In addition, I think the challenge we're going to see also from a working capital standpoint. In 2022 is we're going to have a significant increase in activity. So we're planning to have 10% increase in revenue at the midpoint.

This is obviously impacting mechanically working capital.

Speaker 2: and cash, obviously. And then finally, from a cash standpoint, I would add, you need to keep in mind that we will invest, we will continue to invest in 2022 in CAPEX to a level around 155 million, and we have to make those investments to support our customers, the growth that our customers are expecting from us, and the wins that we've had during the past few years, especially in auto.

And cash.

And then finally.

From a cash standpoint, I would add.

We need to keep in mind that we will invest we will continue to invest in 2022 and capex.

Two level.

The level of around $155 million and we have to make those investments to support our customers.

That's.

Our customers are expecting from us and.

The wins that we've had during the past few years, especially in auto.

Okay. That's that's helpful color I'll get back in the queue.

Speaker 8: Yeah, that's that's helpful color. I'll get back into the queue next quarter guys.

Yes.

Thanks for that.

Speaker 3: The next question comes from Jay Ritchie of Goldman Sachs. Your line is open. Please go ahead. Thank you.

The next question comes from Joe Ritchie of Goldman Sachs. Your line is open. Please go ahead.

Thank you and good morning, everyone.

Good morning, John and Joe.

Speaker 8: So I wanna focus on the chip shortages for a second. I'm just curious, Luca, what's your best guess on when some of these shortages start to ease? And then I'm curious as well, if you think about that growth number, called 10% growth for the year, how much visibility do you have on the amount of chips that you actually need to ship your products?

So.

I wanted to focus on the chip shortages for a second I'm just curious Luca.

What's your best guess on when some of these shortages start to ease and then I'm curious as well.

Think about that that growth number.

10% growth for the year, how much visibility do you have on the.

The amount of checks or do you actually need to ship.

<unk> products.

Okay.

Speaker 1: So what we see and also what we get from talking to our customers is that the chip show is going to get better in the second half of the year. And this is also one of the reason why when you look at MT is really for 2022 is the tail of two halves, right? Where, you know, H1 is going to be more similar to H2 of 2021.

<unk>.

What we see and also what we get from talking to our customers is that the <unk> is it going to get better in the second half of the year and this is also one of the reasons why when you look at FMT is really for 2022 is the tale of two halves right where.

H a H one is going to be more similar to H two of the 2021 now.

Speaker 1: Now, so when we look at the forecast for the market in 2022, you know, the expert there, IHS, is considering probably an 8.5% growth.

When we look at the forecast for the market in 2022.

The expert there IHS is considering probably in the eight 5% growth.

Speaker 1: With North America and Europe growing, China staying practically flat, we assume that that is going to be a little bit less, but that growth is coming mainly in the second half of the year, but you know that we are counting to outperform that market like we have done for the last 10 years.

North America, and Europe growing China same practically flat, we assume that that is going to be a little bit less but that growth is coming mainly in the second offer in the second half of the year, but we.

That we are counting to outperform that market like we have done for the last the last 10 years and despite all of the problems in supply chain and chips that we deliver 100% on time delivery in Q4 and that we have done exactly the same OS in January so they deliver.

Speaker 1: And despite all of the problems in supply chain and chips, we deliver 100% on-time delivery in Q4 and we have done exactly the same as in January . So the delivery should, I think that we have learned how to do it.

Sure.

I think that we have learned how to do it.

Speaker 8: Okay, that's helpful. And I guess my follow-on question to that is related. When you think about your margin expectations for the year, how much of that is dependent on the volumes coming through versus the self-help and productivity improvements that you're expected to make across your business?

Okay. That's helpful and I guess my follow on question to that is related to.

Think about your margin expectations for the year, how much of that is dependent on the volumes coming through versus the self help and productivity improvements that you are expected to make across your businesses.

Okay. So I think that when you look at 2022 and the manual programming.

Speaker 1: Okay, so I think that when you look at the 2022 and the manual programming, if I'm wrong, but I think that the biggest challenge that we have from a margin perspective in 2022 with all the improvement, continuous improvement, that you have an operation, is actually pricing, Joe. And this is the main focus. This is what we are talking every two weeks with the value center. This is the main topic to discuss with the performance review on a monthly basis.

I am wrong, but they say that the biggest challenge that we add from a margin perspective in 2022 with old improve we'll make continuous improvement that you have an operation is actually pricing Joe.

D is that they may focus these what we are talking every two weeks with a value Center D. These the main topic to discuss the performance of your on a monthly basis and why because if you look at 2021, we recover some but not even close to what we should.

Speaker 1: And why? Because if you look at 2021, we recover some, but not even closer to what we should have received. Now, when it comes to 2022, I'm pleased to report that when it comes to friction, we have already closed the discussion on roughly 40 percent of our business.

<unk> received now when it comes to 2022 I'm pleased to report that when it comes to friction we have already closed the discussion on roughly 40%.

Of our of our business, which is good because we are in February the other side of the coin is that there are still 60% that need to be secured and we're already in February so that I would say probably is the biggest is the biggest challenge from a margin point of view in 2022, Joe you down.

Speaker 1: which is good because we are in February . The other side of the coin is that there are still 60% that need to be secured and we're already in February . So that I would say probably is the biggest challenge from a margin point of view in 2022, Joe. Did I answer your question? Yeah, that was great.

For your question.

Yeah that was great perfect. Thanks, guys.

Thank you Jeff.

Speaker 3: The next question comes from Mike Holleran of Baird. Your line is open. Please go ahead. Good morning, everyone.

The next question comes from Mike Halloran of Baird. Your line is open. Please go ahead.

Hey, good morning, everyone.

So hi, Mike.

Speaker 9: Hi there, so on the IT side of the business, maybe just some thoughts on short cycle versus project oriented business from two perspectives. One, kind of revenue cadence into the year, but secondarily, how you expect the orders for those two buckets to progress as we work through the year.

So on the IP.

<unk> side of the business, maybe just some thoughts on I'm.

Short cycle versus project oriented business from two perspectives, one kind of revenue cadence into the year, but secondarily, how you expect the orders for those two buckets to progress as we work through the year.

Okay maybe.

Speaker 1: Okay, maybe I can tell you, I can start and then manually you jump in. The Q4 was a very good quarter for the orders with, you know, 39% increase in orders and very good performance on the project side and the short cycle.

I can tell you.

I can start and then Manuel you jump in.

Q4 was a V.

Very good quarter for the orders with 39% increase in orders and very good performance on the project side and the short cycle.

Speaker 1: stayed very strong. So if you look at 2021, the second offshore cycle was the strongest and Q4 was the strongest of the two quarters.

Very strong so if you look at 2021, the second offshore cycle was the strongest in Q4 was the strongest of the two quarters and what we have seen in January which is an indication.

Speaker 1: And what we have seen in January , which is an indication, you know, you always look at this leading indicator, is that that trend has continued.

Always look at these leading indicators is that that trend has continued.

Speaker 1: The trend has continued so with very strong short cycle orders in January , reflecting the same that we have seen in Q4.

That trend has continued so with very strong short cycle orders in January reflecting the same that we've seen in Q4, we are expecting project orders to come in strong in the in the year also because the final is rich and we have seen in the final also big projects.

Speaker 1: We are expecting project orders to come in strong in the year, also because the funnel is rich. And we have seen in the funnel also big projects coming in.

Coming in anything to add yes, so I think it.

Speaker 2: Anything to add, Emmanuel? Yeah, so I think, as Luca was mentioning, the momentum, I think, in order for 2022 is going to be pretty strong.

As mentioned the momentum I think in orders for 2022 is going to be pretty strong.

Speaker 2: We expect to grow orders on top of a really strong 2021 by roughly low single digit.

We expect to grow orders on top of a really strong 2021 by roughly low single digits.

Speaker 2: The challenge, as we say, is going to be converting those orders into revenue. And I think that this is going to be a real challenge in the first quarter and, to some extent, also in the second quarter, even if things are going to improve from a top line.

The challenge as we say is going to be converting those orders into revenue.

And I think that this is going to be a real challenge in the first quarter and to some to some extent also in the second quarter, even in even if things are going to improve from a topline standpoint, and then we should be.

Speaker 2: And then we should be in a much better place, hopefully, in Q3 and Q4.

Should be in a much better place hopefully in Q3 and Q4 and obviously this has an impact on the on the margin progression at IP.

Speaker 2: And obviously, this has an impact on the on the margin progression at IP, because you're going to see a first quarter, which is good from a margin standpoint, which is probably going to be lower than what we achieved in 2021. And then we're going to be able to ramp up as we ramp up the volume and as we ramp up productivity.

You're going to see a first quarter, which is good from a margin standpoint, which is probably going to be lower than where we achieved in 2021.

Then we're going to be able to ramp up as we ramp up the volume and as we ramp up the productivity as well.

Speaker 9: Thanks for that. Somewhat related follow up, but broader than just IP. Does your guidance assume backlog normalizes to

Thanks for that somewhat related follow up but broader than just IP does your guidance assume backlog normalizes too.

Speaker 9: More regular levels through the year or how should I think about what the backlog normalization curve looks like from your perspective.

More regular levels through the year or how should I think about what backlog normalization curve looks like from your perspective.

Well, we expect we expect IP to I'm sorry.

Speaker 2: Well, we expect IP to continue, I'm sorry, in general. So we, so the two business where we really, with backlog is really important is IP and.

In general.

So we exited so the two business, where we really where backlog is really important.

<unk>.

Speaker 2: and we expect IP to be able to continuously grow the backlog.

And we expect IP to be able to continuously grow the backlog.

Speaker 2: for the year and we expect also CCT and here the specific item is that CCT you know participates in the aerospace and for the aerospace we book orders that probably have we're going to ship over the next two to three to four years and so we're going to continuously grow the backlog on aero that doesn't going to probably not going to translate in immediate revenue but it's building long-term backlog anyway.

For the year.

And we expect also CCT.

And here the specific item is that CCT participates in the aerospace and for the aerospace we book orders that probably have.

We're going to ship over the next two to three to four years and so we're going to continuously grow their backlog or narrow that doesn't.

Probably not going to translate into immediate revenue, but he is building long term backlog anyway.

Thank you.

Speaker 3: Thanks Mike. The next question comes from Nathan Jones of Stifel. Your line is open, please go ahead.

Thanks, Mike.

The next question comes from Nathan Jones of Stifel. Your line is open. Please go ahead.

Nathan good morning, everyone.

Good morning, just to follow up on that.

Speaker 1: Morning, Neha. I wanted to follow up on the, morning, Luca. I wanted to follow up on the CapEx stuff. It's greater than 5% of sales. Can you just talk in a little bit more detail about where the CapEx is going? Are these all growth investments? Is there some refreshing the asset base that's happening? Are these one-year projects? Should we expect elevated CapEx next year? Just any more color you can give us around where that CapEx is going and how long it lasts at this level.

Luca I wanted to.

To follow up on the Capex.

Stuff that greater than 5% can you just talk a little bit more detail about where the capex is going how they don't growth investment there.

So refreshing the asset base that is happening.

Are these one year projects should we expect elevated Capex next year, just any more color you can give us around where that capex is going and how long it lasts at this level.

Sure Nathan.

Speaker 2: Sure, Nathan. So $155 million of CapEx in 2022, the majority of those CapEx are going to be for growth and R&D. So roughly 80% of those CapEx are going to be for growth and R&D. And here we have specific projects, we have specific expansion plans in Mexico and in China, where we're facing a lot of increased demand from customers because all the platform we've had in our friction business.

$155 million of Capex in 2022, the majority of those capex are going to be for growth in R&D.

80% of those capex are going to be for growth in R&D and here we have specific projects.

We have six six expansion plans in Mexico and in China.

We're facing a lot of increased demand from customers because of the platform wins, we've had in our friction business.

Speaker 2: And then also, we're going to continue to invest in R&D, both in Italy and in China. So in those R&D centers, what we're working on is increasing our testing capabilities to keep up with all the projects we're winning, as well as to invest in rapid prototyping to better serve our customers.

And then also we're going to continue to invest in R&D.

Both in Italy, and in China. So in those in those R&D centers, what we're working on is increasing our testing capabilities to.

To keep up with all the projects, we are winning as well as to invest in the rapid prototyping to better serve our customers.

Speaker 2: And then the final aspects are with IP and TCP where we're investing in VAVE, so the redesign of our products, and also the increase in the product range that is really important for future growth.

And then the final the final aspects are with IP and CCT, where we're investing in <unk>. So the redesign of our products and also the increase in the product range.

That is really important for future growth in TCT.

Speaker 6: And so, I mean, are these single-year projects and we should expect CAPEX to return to a normal level? Is there a step function change in your long-term percentage of revenue that goes into CAPEX?

And so.

As a single unit project projects, then we should expect.

Capex to return to a normal level is there a step function change in your long term.

Percentage of revenue that got us into Capex.

Speaker 2: I think we've won a lot of EV platforms, so obviously we have to put a lot of new capacity, especially in North America.

I think I think this is we have we've won a lot of EV platforms. So obviously, we have to put a lot of new capacity, especially in North America, but I wouldn't say that this is a step function change I think that's.

Speaker 2: But I wouldn't say that this is a step function change. I think that you usually invest very much in CAPEX in friction. And so that's a normal activity. I would say one example that stands out is the capacity investment and the footprint investment that we're going to be making for Wolverine.

You usually invest very much.

Capex in friction and so that's no more no more no more.

It's a normal activity.

I would say one example that stands out to you.

Capacity investments.

The investment that we're going to be making for Wolverine, which is a large investment over several years, but I don't think that necessarily moves the needle in terms of capex.

Speaker 2: which is a large investment over several years, but I don't think that necessarily moves the needle in terms of capital.

Speaker 6: Okay, and then I wanted to ask about the target to expand the CCT product portfolio. Can you talk about the priority areas for adding products? Are these things that you can do all internally? Can you accelerate that product development with M&A? Any colour you can give us?

Okay, and then I wanted to ask about <unk>.

<unk>.

Expand the.

<unk> product portfolio can you talk about the priority areas, adding products.

Anything that you can do all internally can you accelerate that product development with M&A any color you can give us there.

Yeah.

Okay. Thanks, Nathan is that little bit of both so just to give you. An example on the connector side of the business practically ITT canon implanted the connector, but that innovation is something that we had to re ignite in our connector business. So we did that organically and we had rainfall.

Speaker 1: Okay, thanks Nathan. It's a little bit of both. So just to give you an example, on the connector side of the business, you know, practically ITT Canon invented the connector, but that innovation is something that we have to reignite in our

Speaker 1: So we do that organically and we have reinforced our engineering team with some very good resources and given the team the investment that they needed in order to come up with the new products and testing, etc. But we have done that also with ventures.

Most of our engineering I Wouldnt engineering team with some very good resources and give it the team there.

The investment that they needed in order to come up with the new product and testing et cetera, but we have done that also with venturing. So we did an investment we made an investment in a company in California, which is that property is complementary to ours and also we are looking inorganically at the sample.

Speaker 1: So, we did an investment, we made an investment in a company in California, which is, whose property is complementary to ours, and also we are looking inorganically at some potential acquisition. So, it's a little bit of both.

Actual acquisition, so is it little bit abroad.

Great. Thanks for taking my questions.

Thanks Nathan.

Speaker 3: The next question comes from Brian Blair of Oppenheimer. Your line is open, please go ahead.

The next question comes from Brian Gladden Oppenheimer. Your line is open. Please go ahead.

Good morning, Thanks for squeezing me in here.

Good morning, Brian Good morning, Brian .

Speaker 8: Circling back on capital spending for a second, given your recent and planned CapEx infriction, at least in terms of what's baked into your 2022 guide,

Circling back on <unk>.

Capital spending for a second given your recent and planned capex and friction at least in terms of what's what's baked into your 2022 guide.

Speaker 8: How much capacity are you adding to China and North America?

How much capacity are you, adding to China and North America.

Speaker 1: Okay, so I would say the beauty of the investment, Brian , is that we're investing in capacity only after we won the award. That's the beauty of

Okay. So.

I would say the beauty of the investment that Brian is that we're investing in capacity only after we won the award.

That's the beauty of this business. So I can tell you that when youre looking at the plant in Mexico today, our plant has got that probably now he's still the five lines and that we could put another four.

Speaker 1: So, I can tell you that when you're looking at the plant in Mexico today, our plant has got probably now installed five lines and we can put another four, maybe five lines in it. So, we can get to the goal eventually in five years is to get to a market share in North America of probably 40%.

Maybe five lines they need so we can get to the goal eventually in five seven years in five years is to get to a market share in North America.

Billy rise 40%.

Speaker 1: So there is still quite a ways to go.

So there is still quite a quite a way to go.

Yes, I appreciate the color.

Speaker 8: I appreciate the color there. Follow-up question I'm not sure you're going to be willing to answer directly, but any related color would be great. Obviously, CCT margin has been a good guy in the back half. You're ahead of schedule in getting back to pre-pandemic margin.

Follow up question I'm, not sure you're going to be willing to answer directly but any related color would be would be great. Obviously CCT margin has been a good guy in the back half you are ahead of schedule in getting back to pre pandemic margin at.

Speaker 8: If we look at the back half, 10%, 11% lower, run rate sales versus 2019, so good momentum there. If we look forward a couple of years, maybe to 2023, 2024 timeframe, given the growth prospects and self-help, fine-tuning...

If we look at the back half, 10%, 11% lower run rate sales versus 2019. So so good momentum there. If we look forward a couple of years maybe.

2023, 24 timeframe given the growth prospects.

Ill health fine tuning.

Speaker 8: etc. available in their respective platforms. Are we looking at a higher entitlement margin for M&T?

Et cetera available in their respective platforms are we looking at a higher entitlement margins for MMC or CCD.

Yeah.

Speaker 1: So just one thing, we're very happy about the financial results of CCT and we are in a continuous improvement journey. I was there in California together with Ryan in Urban and Valencia, and we have opportunity to improve. Having said that, Brian , that's exactly the reason why you don't want to miss the 16th of June Investment Week.

So just wondering where we are.

Very happy about the financial results of CCT and and we are in a continuous improvement journey I was there in California, together with Ryan and urban in Valencia, and we have opportunity to improve.

Having said that Brian is.

That's exactly the reason why you don't want to Miss the 16th of June Investor's day, because I'm sure that we'll be able to answer that question properly, but the continuous improvement.

Speaker 1: because I'm sure that we will be able to answer that question properly. But the continuous improvement journey keeps on going and we have room for improvement, so we're not going to stop there.

Continuous improvement journey.

Keep them going and we have room for improvement so we're not going to stop that.

Understood. Thanks again.

Yeah.

Speaker 3: The next question comes from Damien Karas of UBS. Your line is open, please go ahead.

The next question comes from Damien <unk> of UBS. Your line is open. Please go ahead.

So Damien hi, good.

Morning, everyone.

Speaker 10: Ciao, ciao. Ciao, Damian. Guys, I'm doing it from another call, so sorry if I missed this. Just wondering on the sales guidance for the year, if you could spell out kind of what the price impact embedded in there versus volume is, and maybe any color kind of at the segment level on that as well.

Yeah.

Amy.

So I'm going to go into late from another call. So sorry, if I missed it just.

Just wondering on the sales guidance for the year.

If you could spell out kind of what the what the price.

Impact embedded in there versus volume is and maybe any color on that as well.

Speaker 2: Sure, Damon. So the price recovery that we're considering in 2022 is over $100 million.

Sure David.

So the price recovery that we're considering in 2022 is over $100 million.

Speaker 2: This is a large impact, obviously. It's a large task also. And this is mostly coming from MT. So probably something like 80% of that price recovery is gonna be coming from MT.

This is a large impact obviously, it's a large task also.

This is mostly coming from empty, so probably something like 80%.

Thats over that price recovery is going to be coming from M. T.

Speaker 2: And obviously that recovery is going to build quarter after quarter, but we have a decent chunk already planned for Q1 as we're negotiating. Luca mentioned that we have, in friction, we have secured right now 40% of the expected price recovery increases for 2022, which is a good thing as we start January . But also it means that we have 60% that we need to recover.

Or would you see that recovery is going to build quarter after quarter, but we have a decent chunk already planned for Q1.

As we're negotiating Luka mentioned that we have in friction we have secured right now 40% of the expected.

Price recovery increases for.

102022, which is a good thing.

January but also it means that we have 60% that we need to recover. So it shows are told to task.

Speaker 2: So it shows how tall the task is ahead of us.

Is ahead of us.

Speaker 2: And really, this is to compensate for the inflation that we see in materials.

And really this is two two.

Compensate for the inflation that we see in materials, but also in all the other cost categories, such as labor and energy and general overheads.

Speaker 2: but also in all the other cost categories, such as labor and energy and general overheads.

Okay, Great appreciate the color best of luck.

Thanks, Damien Thanks, Damien Thanks, Dan.

Speaker 3: The last question comes from Matt Somerville of D.A. Davidson, your line is open, please go ahead. Hi, good morning, this is Will Jellison on

The last question comes from Matt Summerville of D. A Davidson. Your line is open. Please go ahead.

Hi, Good morning, this is well jellison on for Matt today.

Good morning will.

Speaker 10: Good morning. I had a quick question for you regarding M&A. To the extent that the companies in your current pipeline that you're cultivating, are you seeing them facing any material impacts from supply chain and inflation? And to the extent that they are, do you see that exerting any downward pressure on multiple potentially and maybe offering you a better price?

Good morning had a quick question for you regarding M&A.

To the extent that the companies in your current pipeline metric cultivating are you seeing them facing any material impacts from supply chain and inflation and to the extent to pay or do you see that exerting any downward pressure on multiple potentially and maybe offering you a better price.

Speaker 2: So, so absolutely, we're seeing the same impact from a supply chain standpoint in the companies and we look at companies, you know, Europe and North America, and this is the same situation there.

So absolutely we're seeing the same impacts from a supply chain standpoint.

Even the companies and we look at companies.

Europe , and North America and this is the same situation. They are facing I think the difference what we're looking for is how.

Speaker 2: I think the difference what we're looking for is how are they able to recover pricing and so that because that gives us an idea about their pricing power and so I think that we've seen some good some good examples of companies being able to retain value by really driving.

Are they able to recover pricing and so that because that gives us an idea about their pricing power and so I think that we've seen some good some good examples.

Companies being able to retain value by by really driving pricing.

Speaker 2: So, we're very attentive to this, and unfortunately, this is pretty broad-based.

So we're very attentive to this.

Unfortunately, this is pretty broad based.

Understood. Thanks for taking my question.

No problem.

Yeah.

Speaker 3: Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.

Thank you John .

Speaker 11: The.

Okay.

[noise].