Gates Industrial Corporation plc (GTES) Earnings Call Transcript & Summary

All right. So we're going to get started. Last but certainly not least this afternoon, we have Gates Corporation. We're very excited to have Ivo Jurek with us. Ivo joined Gates as CEO in May 2015.

Ivo, as I walk over, let's start with a brief overview of Gates. You have a strong global market positioning, as you know. You've highlighted product innovation as a key differentiator. Maybe start with what goes into maintain that competitive edge. And you and I have talked about the last few years were difficult. There's been a lot thrown at you. And so how would you characterize the current competitive landscape Were you able to maintain market share versus competitors?

I think -- thank you, Andy. Good set of questions there. So let me kind of frame how we maintain competitive positioning. So first of all, since we became a public company, we have represented that innovation is a real key driver for what we do and how we think about our markets. And we have run through a very accelerated cycle in innovation. We have taken our new product introduction, vitality index up from kind of low single digits in 2018 -- 2017, 2018 time frame to high teens today. I've stated that over kind of a midterm, we wanted to get it to the 20s, 20% of revenue coming from products with high vitality. That would put us into a really good company as an industrial franchise. So innovation is important facet. The second piece of how we maintain our competitive advantage. And that's also very much associated with engineering and product development and process development is really kind of build-out of our material science capabilities that became really kind of a front and center, important for us to have as we were dealing with some of the dislocations with the supply chain particularly in the area of precision polymers during the period of time that Russia invaded Ukraine, so that was -- that was really important. And I think that that's what differentiated us and give us the opportunity to maintain high competitive edge. And then maybe the second part of your question about market share and how do we think, what do we think about our market positioning. Look, we continue to grow the company. And while we are dealing with presently with some negative market backdrops, particularly in the industrials part of our business because our auto businesses are doing really very well. I think that we continue to incrementally take market share. We are a very strong company. Our customers rely on -- just not on the overall health of the company but also on the financial health of the company, so they know that they can rely on us being in business for the next 100 years, and that's really important, particularly in this era of dislocations. So I feel good about where we sit with market share. I feel good about what we have done in terms of innovation and how we are continuing to evolve the company and position the company for the future. And I'm certainly excited about the future more so. And I think that the best days are ahead of us, not behind us.

It's good to hear, Ivo, and so -- obviously, your Investor Day is coming up soon. So we can advertise a little bit here for your Investor Day. But you've had -- you gave up previous targets in '22, mid-single-digit plus organic growth, 24% adjusted EBITDA margin target, 100% free cash conversion. And there were a couple of other targets. But which are the targets that you guide to '22, do you still feel good about? Which, if any, given a challenging couple of years, have you had to reevaluate?

Yes. So look, I'm not going to front run the Investor Day. So I'm going to punt on it a little bit. But actually, in a nutshell, I feel good about the profitability target. I think that we're going to tell you a lot about how we're going to get there. And I think maybe if there's a nuance there, we feel that we can actually get there with very low growth or no growth market backdrop, which I think is a little bit different than what we have said in the past. So we feel really good about it. And -- but I said that overall, I feel good about all those targets. I don't think that we're going to tell you what we have done over the last 2 to 3 years. And I don't think it was bad. I think we have done a really good job. We have built resilience into our franchise. Our company is in a good position. We've paid down a tremendous amount of debt. We have delevered the balance sheet over the last 2, 3 years. We've bought back $450 million of stock. So we're returning surplus cash to our shareholders. The company is actually in a very good shape, and it's poised to, I think, deliver some differentiated results over the midterm future.

It's helpful, Ivo. And then, I'm sure we'll get into specific end markets in a bit. But just more broadly, you've guided to down 3% to up 1% in terms of organic sales, with the expected slower first half and improvement in the second half. Can you elaborate on which end markets you expect to be the biggest headwinds this year? And which end markets do you expect could pick up in the second half? We'll just start there.

Yes. So look, I think somebody mentioned it to me after our earnings call is you've used the word conservative or pragmatic 7, 8, 9 times. And I said, yes, because we want to be pragmatic about what is happening with the underlying macros. We all read the same charts. And we've had 15 months of negative manufacturing PMI. And so I think we're all looking at it and saying, hey, look, this is going to turn, right? It's got to turn not too distant future. But the question is it's going to turn in May or is it going to turn in October. If it's going to turn in May, things are going to go -- they're going to go and look really, really good in the second half, but we have been pragmatic. We haven't put that level of performance into our underlying guidance. So coming back to more specifics on your question, right, we think that there's a pretty negative kind of underlying market demand in ag. I think that that's going to be a reasonably good headwind. I mean, I think you've seen some of the results that were coming out most recently, last week, so I think that, that should not be a surprise to the market. Look, On-Highway, it's a heavy-duty truck, it had a really good couple of years. And so we kind of feel that that's going to start normalizing. The demand rates are going to start stabilizing. And we don't anticipate that there's going to be growth, but we don't anticipate that there's going to be a significant deterioration of the performance, either. And we still have reasonably negative in personal mobility, particularly in the first half for the destock associated revenue generation impact. And so those would be probably the 3 of the most impactful things, but there's some good things there as well, right? I mean automotive replacement business is doing really, really well. The underlying market dynamics for auto production globally is actually quite stable. Again, we are not -- because we're not forecasting growth doesn't mean that there is a negative backdrop, but I think we're being more realistic. Look, the build rates, even last year in North America and Europe, they weren't heroic, right? I mean they were kind of almost a recessionary like build rates of car production. So that could surprise to the upside. And ultimately, we believe that we should see a much better market dynamics in personal mobility in the second half of the year. We believe that destock is going to kind of be over within first half and then we start seeing some recovery and stability.

Ivo, so like you reported just a couple of weeks ago, so I'm sure not much has changed. But are you seeing anything differently? Like you mentioned destock a couple of times. What gives you guys confidence that destock is going to end in the second half of the year? You and I have talked about, you're one of the first ones to mention industrial destocking this time last year, but it's kind of continued to last in some of these places. So what gives you confidence?

Yes. Look, there's not been a real substantial build-out in inventories during this cycle because nobody really had the capacity. And so my sense is that we are a lot closer to finishing kind of the work through of that activity as we kind of move through the first half of the year. I think that we are much, much more closely aligned to the underlying market demand than we probably were in the second half of last year. And so all the dynamics would point towards -- you're close. Is it going to happen in March or is it going to happen in May. I think that it's still a little bit difficult to predict, but I think that you're around the corner where destock should really kind of start disappearing from the vernacular of people's discussion. And look, I mean, for us, I will use the destock predominantly associated with my personal mobility business. I don't think that we are seeing -- we kind of are looking at destocking in the industrial channel inventories. They are reasonably lean. And I think that they're in a reasonably good shape. And so when you take a look at those inventories, I just -- I don't know that they can take significantly more. And if they do, that just means, Andy, that the rebound is going to be much more substantial because people will need to rebuild that inventory position again.

So, Ivo, I want to step back a little bit. You've highlighted at least for a couple of years now, a secular tailwinds across your business, industrial automation. We talked about personal mobility a little. We talked about a little bit more e-commerce logistics. When you think about these trends, like they also can cycle within the secular. But like any of these secular trends kind of disappointed you? Or are they sort of ongoing at the durability of these things, would you say?

I'll say that I am not disappointed with the underlying market dynamics and the opportunity that resides for Gates Corporation and for our team. What I would say is that we were a little bit surprised with the induction of kind of unusual behavior from exiting the COVID pandemic. I think that we have seen a massive kind of overbuilt in logistics and distribution footprint and the discrete automation that goes into those. And so things kind of just need to normalize. This kind of an underlying rate of replacement and need for capital intensity in that infrastructure. And it was just too hot post pandemic, right? And so it's been normalizing since then. And I think that, again, those end markets, I think, are going to stabilize in '24 and the underlying market opportunity, the secular market opportunity is massive. Yes, it's the same thing with personal mobility. I mean, we were growing the personal mobility business kind of 30% plus, right? And we've taken it from kind of a fledgling business in 2018 of $20 million to almost 4% of our revenue in 2023. So we have had a substantial growth. And we are just at the beginning of that growth rate, right? So as the markets start stabilizing, we continue to win design wins. And we feel really good that with a little bit of a stability in the underlying market, we should start delivering double-digit growth all over again.

And if I could ask you the opposite question, I just ask you, what would you -- of these trends that you just talked about, what are you most excited about for '24, '25? Is there one of them that will separate themselves? Any impact on Gates?

Yes. Look, I'm kind of surprised at the doors that are opening for us with some of the new technology that we are bringing to the marketplace. I think folks were a little bit surprised, but I think one of the folks from the analyst community on my last earnings call says, hey, wait a minute, I saw Gates products. I visited this hyperscale data center that's being built. And I see Gates products there. I didn't know that you guys were participating in the cooling of the hyperscale data centers. So I think I'm really excited where our products are in, what I call kind of the new emerging economy. So whether or not it is mobility, electrification of mobility, it is some of the infrastructure projects like data centers, the technology that we provide is a key component of. And when we came public, this is seen that Gates is everywhere. I think today, I can kind of tell you that a lots of the underlying exciting new developments don't happen without our products. We touch them. We just -- we are not like a massive participant. We don't sell microchips but we do so important parts that make these data centers or mining projects or electric propulsion, we make that work. And people rely on the products that we manufacture.

Would it be possible to able to see data center growth in your growth, you know what I'm saying? Like, or is it still kind of too small?

I think it's too small. And I think that the technology that is actually starting to penetrate is a new technology. So again, for me, that excitement comes from we develop -- we developed a core technology, and then the technology starts proliferating. It may go from automotive application to a personal mobility application to data center application with the adaption of the core fundamental technology that we build. So those are some really exciting things for us for the future. And I -- again, I believe that the resilience that we have built into our business over the last 5 years and the ability to navigate through rather substantial dislocations made our business more reliable, more resilient and open doors to opportunities that, frankly, maybe -- and I have an interesting vision for what we can do with the products that we do, and we want to pioneer penetration of new technologies, and we want to take -- we want to take business away from more unclean or dirty, less efficient technologies like industrial chains. But now we are seeing opportunities in places that we just never thought. I never thought that we will be kind of a key part of cooling infrastructure for data centers. It's really exciting for us.

Now that's cool. So maybe just shifting gears to focus on regional demand. Just thinking about your regions, you actually reported relatively better growth in your international geographies in '23 in EMEA, in China and India than you reported in North America, which is a bit surprising, I think. But I think you expect Europe to be slower than other regions in '24. So how would you characterize Gates positioning in the different regional markets? And why do you think Europe would be a bit of a laggard?

Yes. So look, the front side of that statement, North America and Europe, maybe a little more lagging than the rest of the world. Look, North America in 2023 had a record level of performance for us. So it was a really tough comp. We have done a great job in North America. In Q4 in '23, we had a little bit of a catch-up, but we had the dislocation with raw materials. So I think that it's more of a comp for us for North America, to be honest with you, in '23. In '24, we're just being pragmatic about some of the underlying end markets that we have described, and frankly, not counting on recovery. Right? If the recovery is going to become a reality, we will perform just like the other industrial companies, right? We just have taken a different path to the same destination. Europe had 2 really good years. And we just believe that Europe is going to be dealing with some underlying challenges, both in the auto and in the industrial world. So I don't necessarily anticipate that it's going to be a long-term dislocation. I think that Europe maybe is kind of 6 months behind North America but that would certainly make it weaker than our performance in North America. And then in Asia, why are we're more constructive on Asia, we are more constructive on Asia because China is getting better. And if China is getting better, China will pull the rest of Asia with it. Of course, India is doing really well. And then we have delivered probably 3 years of continued significant growth in Latin America, and we still believe that that's going to grow in 2024 as well. So it's a mixed bag.

So maybe I could dig into China a little bit more. Ivo, like you mentioned you're starting to see more demand stability, particularly across industrial markets. Now that we're past Chinese New Year, can you give an update on the current demand that you're seeing? And a lot of companies that I cover have kind of still very hesitant about China kind of saying it's not getting better. But you were saying it was kind of bad for a while, and now you're saying it's getting a little better. So I'm trying to figure out what you're seeing, and maybe if there's some self-help involved, too, in what you're doing there?

Look, we pride ourselves on transparency. So...

Who's been transparent?

We've always been transparent. We try to say the way that it is sometimes for the benefit and sometimes maybe to a detriment. But look, on China, we have a very strong automotive replacement franchise. We've built an incredible franchise over the last 5 or 6 years. We are #1 market shareholder in the products that we manufacture there. We have a large presence, and that business continues to grow really nicely, even though kind of dislocated end market conditions there over the last 2 years. So that's a really good franchise, and that continues to grow. The automotive OEM business, that's okay, it's not fabulous, but it's not bad. We have seen challenges with the Chinese excavator builds that's well documented that was directly linked towards the difficulties that the country had with commercial real estate but the builds have stabilized. And I think that you're starting to see some green shoots in the excavator builds, so that bodes well for that end market. And On-Highway has been quite good. And again, that comes from a couple of years of dislocation. So we think that that's turned around. And so the last market kind of is getting some stability in the diversified industrial space. And I would say that we have seen some green shoots there as well. It's not decelerating anymore. It's stabilized. And if you take a look at some forward indicators, I would say that this is probably an opportunity to see even some potential upside. I mean all you need to do is take a look at the Japanese machine builders forward order rates out of Chinese consumers, right? And those have bottomed out and they're getting better. So I think that you are seeing a little bit of an underlying change in trajectory.

And I should ask you because you threw it in there like I've heard a fair amount of positive commentary around India from some of your peers and industrials, like can India become a big enough country to matter for you guys over the next couple of years?

Absolutely. I mean, India for us should be as big as or bigger than China. India is kind of what China was maybe 1990. And it would appear that finally -- and I've been saying it for 20 years, and unfortunately, I say that India broke my heart every time I say that it's going to get better. But I think this time around, there's a real fundamental change. And I mean, you see the infrastructure taking hold. I think that you see lots of really interesting activity happening in there. And we have a good industrial base. We have 3 or 4 factories there already. We continue to expand. I mean I talked to them on Q4 earnings call that we are doing some more work in India. So we are kind of forward-leaning on making sure that we are well positioned that we can take our fair share of market share in India. And everything that we do is what the country needs. So whenever it is heavy-duty construction and infrastructure build, highways, railways, airports, schools, factories, we play a role, right? And as that happens, since you start seeing the improvement in average earnings and people getting wealthier, buying more cars, that's good for Gates cooperation. So we're very excited about it.

Any questions from the audience? Anybody want to ask a question? I will continue on. So just drilling a little bit more into your end markets. I'm sure you're going to talk to us at the Investor Day about this. But in automotive, you talked about 2.4x content uplift in EVs, but EV-related investments, as you know, has maybe started to slow a little bit. So maybe update us on what you're seeing across the EV space from the Gates perspective? And then separately, you forecast your auto OEM business to be flat. You -- and auto replacement of low single digit. Am I getting sort of the -- are you suggesting that maybe there's some upside if things break right in those businesses?

Yes. Look, let me start with your second question first because it's easier, and then I'll kind of dive into the electrification side or the VAV side. Look, I think that the underlying dynamics in automotive replacement side of our business are very positive, right? You have a large aged car park in Western economies. So United States and Europe, very large car park, very old car fleet. That bodes well for us. We continue to demonstrate that this is performing really well for us. China is starting to approach aged car fleet. It's not there yet. It's only about 6 years of age, right? We like that car fleet to be 7 years of age. China is the biggest car fleet in the world. So we have -- I stated that we are growing our business really, really nicely but we are still not in the sweet spot. So we think that, that continues to represent a really good opportunity for us to continue to deliver a nice growth rate there. You take a look at what was happening to us in Mexico, Latin America, very strong performance. So I think that from an automotive replacement side of the business, that business should continue to kind of deliver positive growth. LSD, maybe MSD over the midterm, but it is an area of focus for us, and it's an area of strong performance, and I believe that, that will continue for the next 20, 30 years, those dynamics are not going to change. Now coming back to the VAV. I think 2 years ago, we kind of gone through very extensively into where we have our market content, where -- a car content. And why do we believe that not only do we have a right to participate, but we can win in that application. But we have also been very pragmatic and almost to a degree of being -- a market being -- I mean, folks being skeptical about us, right? But my view has always been, look, there's going to be -- electrification will happen, but electrification will happen in a measured way. The infrastructure build needs to catch up to it. We don't have enough charging station, you don't have enough power transmission capacity. You don't have enough capacitor capacity in -- from the utility grid pole transformer side. So we think that it will take a long time before everybody is driving an electric vehicle. And so we can't plan on some dislocation and then student body to the left and then you realize that your student body should be really to the right. We have taken a very measured approach to it. And I think that, that's what in the long run wins the game. And we were right. We never wavered from supporting our internal combustion business. That business is going to be with us for the next 40, 50 years. And when the VAVs ramp up, the car fleet gets big and it ages, it's going to be a substantial opportunity for us.

So we talked a little bit about diversified industrials, particularly e-commerce warehouse and logistics. As you said, it's been kind of weak for some time, weak for some time. But how do we -- I mean if we talk to our other companies, it seems like it's sort of bottoming out, maybe pipelines are getting stronger. Are you seeing anything there? You have gone to down low single digits for '24. Is that sort of prudent guidance? Or is there are not much going on there for now? So...

Well, again, I think that we're trying to be prudent. And I believe that in first half, the market is going to bottom out in diversified industrial segment. I mean, you're starting to see some green shoots. I mean I talked about some of the forward orders that you see for machine tools and semiconductor equipment in Japan as an example, right? It's a really good indicator that things are turning around. Now each end market has a different dynamic. So that's a different set of discrete automation than logistics and warehousing. Maybe logistics and warehousing is still going to take a little bit of time, digest all that investment that happened post-COVID. But I don't think that everything is not surrounded around logistics and distribution, right? I mean there are many forms of discrete automation. Lots of opportunities in robotics. I think that those businesses are starting to slowly bottom out as well. So my sense is as you start going into onshoring, somebody asked me the question about, well, what do you think about onshoring? I think onshoring is going to be great. It's going to be great for Gates from build-out of those factories, just like I said about India, right? You have to build a factory, you're going to have to use Gates' product. You're going to put equipment in the factory with discrete automation or otherwise, it will have Gates' products in it. So it's all good. And I think that you're going to start seeing some of the tailwind as you exit '24 into '25. And so I'm -- while I take a pragmatic view about my guidance, I'm actually rather positive and optimistic about what will happen in the second half and into '25.

Got it. And so you think diversified industrials could still be one of your higher growing end market?

Absolutely. Absolutely. Diversified industrials and personal mobility, while both of these markets were dislocated, they still have an opportunity to deliver very strong growth over the long term.

You had a big number for personal mobility, long term, you end at 30%. Like how do you feel about that now?

Very good. I feel very good about it. I know that it's hard to say when you are coming off a significant dislocation through channel destock. But I also see all the design wins that are coming our way. This is a very exciting space. There is lots of innovation that's happening in there. And again, remember, a significant amount of the world moves on 2 wheels. It doesn't move on 4 wheels. And that's the easiest way to clean the pollution in some of those countries, take off the dirty 2-stroke motor bikes and scooters and electrify those. And when you electrify them, you're going to put Gates Carbon Drive on them because it's a more efficient way, cleaner and less noisy solution. And those opportunities are still rather substantial. We talked about, again, almost 20% growth in new design wins in terms of dollars year-on-year. So I'm very optimistic. I just need that base to stabilize and then when the base stabilizes, I think we will be right back to that growth rate.

Got it. And then just maybe talking about margins for a second, like '23 was, I think, a bright spot after a tougher, more difficult '22. Give us a little more color on how you're thinking about the operating conditions that dictate your margin expansion that you're forecasting this year, I think, 30 basis points of EBITDA? We know you've talked about muted volume growth, but you also said that your ongoing enterprise initiatives are volume agnostic. So how much resilience would you say is now built in your operations that you can consistently expand margins even if you don't grow?

Yes. Look, we have embedded negative 1% core growth in our guidance, and we have embedded 30 bps of EBITDA margin improvement year-on-year. So we are highly confident that we can deliver at least that in a negative core volume year. And it's all driven through our enterprise initiatives, predominantly driven from, frankly, taking raw material cost out. And in some unfortunate way when we have gone through a rather substantial dislocation through second half of '22 with the supply of the engineered polymers, that forced us to think about our franchise differently. And it really was a call to action to get after protect our supply chain. We had a blip -- 1 quarter blip. We've recovered very fast from that blip. We have recovered all of our margins over the period of 2023 as we said we are going to do. And moreover, it gave us a jump start on looking at protecting who we buy raw materials from, buying them in a more commoditized way, and then engineering that solution in-house with less complex polymers. And I think that, that's going to be a tailwind for us for the next couple of years. And so we are not even counting on substantial level of productivity. We're just counting on taking raw material cost out. And then as we move forward, starting to deliver some fundamental pragmatic productivity as you start getting more stabilized operating conditions. So again, like I said at the beginning, I feel that we can deliver that 24% EBITDA margin without necessarily having any amount of substantial core growth that would help you to accelerate, obviously, the margin accretion.

That's helpful, Ivo. And so I know you want to talk more about this at the Investor Day, but like you've been talking about 80-20 more footprint optimization. You've got all these things sort of going on. So maybe elaborate on the time line of as you ramp these things up. And how -- if I just do these actions, as you said, like -- so are you saying you could do these actions, you get to 24% with these actions more or less?

That's correct.

Yes. And then the time line sort of -- you used to say like incremental margin target, like what do you think the company can do in incremental margins these days?

Yes. Look, our incremental margin kind of in a normalized environment is kind of 35% to 40%. I mean I think that with the enterprise initiatives, and on top of that, I mean, I think that you could think about it as 1,000 basis points to 1,500 basis points better than the 35% to 40%. So I mean, you can think that the incremental margin should be kind of 45% to 50%. So a very powerful accretion when the business actually start seeing kind of the underlying volumes normalizing and start seeing an accretion to volume-based core growth.

Got it. And those higher margins do you need volume growth? Or can you do that in a pretty muted environment you think? Obviously, the math [indiscernible] if you do that, but you know what I'm saying.

Well, right. But we are going to be growing margins with negative volume, right? If you're going to have an incremental revenue dollar, so that would imply that you have volume growth. So on an incremental revenue dollar, you will be levering up at kind of that 45% to 50% of that incremental dollar of revenue.

Got it. And so if I go to free cash flow conversion, Ivo, 110% in '23, I think it was a nice positive surprise. You're guiding to 90%-plus conversion this year. We know you've talked about higher CapEx, but what else needs to be done or can be done from a working capital perspective to hit 100% more often?

And I like that you use the positive surprise a couple of [indiscernible]. It was good. Yes, that's a good thing. Thank you. Look, we delivered 110% free cash flow conversion as a percent of adjusted net income. So we are guiding for 90% plus early in the year. So what we've implied is that we anticipate we're going to be delivering consistently 100% conversion through the cycle, right? And I mean, it's hard to deliver 110% and then another 110% the next year, right? So we are going to spend a little more on CapEx on -- in support of our enterprise initiatives. We have some growth initiatives that we are continuing to execute on. I've talked a little bit about restructuring while we're not coming out and saying, hey, we're going to do X number of projects in Y regions, we're going to do restructuring in 2024 and so that will consume some incremental cash. So I wouldn't think that we are spending significantly over what we have historically spent. This is still well within the 2% to 3%, which is below the rate of depreciation still for our company. So we are not increasing the guidance to put cash into the business. We're just investing as we see prudent. Look, at the end of the day, we still have a ton of leverage to be able to improve our free cash flow. I mean this business is very resilient cash flow generator. And again, we can argue when it's 95% or 98% or 102%, we are kind of at that 100% plus, plus or minus. And so nothing is really changing from our ability to continue to deliver that. I also do believe that our cash flow generation is driven of profitability improvement, which is a real fundamental way of driving new cash. Look, we are a very healthy company. We're a company that's delivering 100% cash flow generation on nearly 40% gross profit and 23% plus ROIC. I think that, that is a sign of a good fundamentally sound operating business, and we don't see anything changing from that.

Got it. And then uses of cash. Maybe talk about the balancing ag, right? Your leverage is down 2.3x. That looks good but we haven't seen that much M&A from you guys. So how do you balance sort of continuing to pay off debt, M&A, repurchases, your stock is really cheap. You should just buy yourself. What do you think?

Look, I will not get fired by buy my shares. It's a risk-free return guaranteed. I will not get fired by extinguishing some of my high-cost add. That's highly accretive, risk-free return. I'm trading at 8, 9x, right, where in my peer group that, I would argue doesn't necessarily have the same level of financial profile metrics is trading at 12.2x. So -- and that's not necessarily a peer group that I measure myself against, right? I measure myself against a peer group that's got a much higher multiple because I believe that the financial profile of our business is such and it can be better. And so we will continue to do the safe thing, which is buy back stock, pay down debt, continue to generate cash and then rinse and repeat. Until we get to a point where the stock is [ rebated ], where the investors feel that the company is worth more than where it's trading at today. And at that point in time, we will have a substantial amount of firepower to do M&A. We have a reasonably good pipeline of opportunities. We can do deals now if that's what we wanted to do. But why do that when my value is so dislocated, right? The ROIC on stock buyback is very, very high.

Yes. One more quickly because we're almost out of time. Just, I ask every company, I've asked you this last year, Ivo, what are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? And are there any emerging industry trends that are perhaps being overlooked in the current discussion?

So I'll take this as a plug-in on -- look, I'm not going to get on a data center bandwagon in here. But I'm really excited about some of the new economy, the opportunities in new economy. Again, where it is in mining, it's in mobility, all sorts of mobility, right, personal mobility and electrified mobility. I'm excited about our automotive replacement business. And the technology that we continue to evolve opens out doors that we have really never thought possible. And so as you think about the relevant industrial trends that are evolving today, I will almost personally guarantee that we are all involved in every single one of them. And it's really exciting for us. It's exciting for our employees. It's exciting for me personally. And look, I will die on that hill, but I am so committed to replacing every industrial chain that's out there. Hopefully, you don't have lots of industrial chain companies that are going to be coming and presenting in here, but we are very committed to replace a dirty old inefficient technology with clean, beautiful looking, lightweight, energy-efficient with limited amount of maintenance or maintenance-free belt. I think that it's -- that's almost an unprecedented secular opportunity for us. And we are so early in that cycle. And we're going to talk more about it on March 11 in New York on the Stock Exchange. So please come. And hopefully, you will get the view as to why I'm so excited about those opportunities.

Good plug for the Investor Day to end on. Thank you very much, Ivo.