ITT Inc. (ITT) Earnings Call Transcript & Summary

Our remarks and presentation materials contain forward-looking statements that are subject to certain risks and uncertainties, including comments relating to company performance, strategic priorities, business mix, market conditions and the effects of COVID-19 on ITT. These statements are not a guarantee of future performance or events and are based on management's current expectations. Actual results may vary materially due to and among other items, the factors described in our 2021 annual report on Form 10-K and other recent SEC filings. ITT is not under and expressly disclaims any obligation to update forward-looking statements, whether as a result of new information, future events or otherwise. Except for otherwise noted, the financial information and long-term outlook we present this afternoon is based on non-GAAP financial measures. These adjusted results exclude certain nonoperating and nonrecurring items, including, but not limited to, a charge related to the suspension of operations in Russia, restructuring, acquisition-related charges and certain tax items, and in 2021, asbestos-related charges. All adjustments are detailed along with the reconciliation of such measures to the most comparable GAAP figures in our 2022 Investor Day press release and presentation, both of which are available on our website. It is now my pleasure to introduce ITT's Corporate Secretary, Kristen Prohl.

Welcome to ITT's 2022 Investor Day, and thank you for joining us. Unfortunately, Mark Macaluso, our Head of Investor Relations, couldn't join us today. So I am happy to welcome you today. We are very excited to have everyone here with us in New York City or on the webcast, if you are joining us remotely, for ITT's first investor conference since 2011. Today's session is being recorded and webcast, and portions of the presentation may be posted on ITT's external website or social channels. Over the next 4 hours, you will hear all about ITT's strategic priorities, game-changing innovations in each of our businesses and our long-term vision. We will also discuss the highly anticipated long-term financial targets announced this morning, which our speakers will address in more detail throughout the afternoon. Today is also an opportunity to introduce ITT's leadership team, the people who are on the ground and in the plants driving growth to the investment community. These individuals have ITT logos on their badges and are seated in the first 2 rows. We will begin this afternoon with our CEO, Luca Savi, who will provide an executive overview and lay out his and the Board's vision for ITT. During the presentation, you will hear some recurring themes, including how ITT will sustain its differentiation in the markets where we participate and how we intend to drive growth and generate shareholder value over the long term. Next, you will hear from the presidents of Motion Technologies, Industrial Process and Connect and Control Technologies about the growth, innovation and long-term financial framework in each of their businesses. We will wrap up with our CFO, Emmanuel Caprais, who will close with a financial overview and outlook and discuss our environmental, social and governance initiatives and investments. To make sure we address all of your questions, we have allotted 45 minutes at the end of the presentations for a question-and-answer period. This answer -- the question-and-answer period will be with today's speakers and ITT's leadership team. Finally, we invite you to take time to visit our technology demonstrations during both the afternoon break, which will immediately follow our Industrial Process session and during the social hour at the conclusion of Q&A. At the tech demos, you will see some of the products and innovations we discuss on stage come to life and learn more about them from our engineers and our facility and product leaders. There are brief descriptions of each technology at every station and videos to help our guests learn more about these exciting innovations. We have a ton of great content to get through today. So without further ado, play the video. [Presentation]

It is now my great pleasure to introduce ITT's CEO and President, Luca Savi.

Okay. Thank you, Kristen. And thank you, everybody, for being here today or being connected. I'm really delighted to have you here today. And I'm honored to share ITT with you to talk about our technologies and the products we love, to talk to you about how we serve our customers and how we differentiate from the competition. Above all, I'm really happy to have the ITT extended leadership team here for you to spend time with them, to get to know them, to get a sense of the depth of knowledge they have, to get a sense of the passion running through their veins and our commitment to deliver because at the end of the day, the most important things are really our people because it's our people that really make ITT special. Let me share with you what we're going to go through in the next 30 minutes. First, I'm going to share an overview of ITT with some key financial metrics and financial data. We will then spend some time talking about differentiation and how we sustain differentiation in the long term. And lastly, our whole of -- all of these translate into growth and value creation in the long term. I hope that by the end of today, you will be able to better understand ITT's market-leading positions in markets that will continue to grow, ITT's differentiation and how we sustain it through execution, innovation and our culture, our capital deployment capacity and our sound strategy, now that all our legacy asbestos liabilities are behind us, how ESG is entrenched in everything that we do, the products we make and the processes that we're using in our manufacturing plants, and in particular, that you would be able to see ITT's long-term growth and value creation potential. Let's start with an overview and the performance. ITT is a diversified engineering and manufacturing company. We make components that work in niche and harsh environment applications. These critical components work in transportation, energy and industrial markets. In 2021, our revenue was roughly $2.8 billion, 32% of that coming from the aftermarket and more than 35% from the developing markets. But what does it mean for ITT to be a diversified engineering and manufacturing company? Means that our product touch everyday life. Our technologies enable and improve your life every day. If you drove your car coming over here today, on the Hudson Parkway, and you had to use your brake suddenly, chances are that our ITT's brake pads that kept you safe. Or if you came by train, chances are that the yaw damper, which is the shock absorber that keep the train on the track and avoid to derail was an ITT KONI shock absorber. Or I'm sure that many of you will probably remember the first time you looked at the image of your unborn child. Well, chances are that the data transferred to that connector was enabled by an ITT Cannon Connector. Or as you've seen in the video, when your son or your daughter smiles at you with that Nutella chocolate toothy smile, it's ITT Bornemann Pump that have moved that Nutella through our multiphase pumping technology. As you can see, ITT enable every day's life behind the scenes, improve it, make you smile. And we are doing this while delivering outstanding shareholders' return. So let me now share a little bit more info in terms of the markets we are operating in. You see them over here in the slide. All these markets are growing markets. Let's look one by one. Rail. If you think about Rail and the macro trends out there, think about the environment, the green. All of these will be tailwinds for the Rail industry. If you think about auto, 2021 production at 76 million passenger vehicles is very low. We are almost at the very bottom. So poised to grow. And we're not talking yet about electrification. We will talk a little bit later about electrification in the presentation. Then there is general industry. Think about the reshoring that is going to happen in North America or the energy. And I'm not just talking about the new energy, of course, we are working on that and that will be a growth opportunity, but also the transition to new energy. Aero, very early in the cycle. And last but not least, Defense. All these markets that we are operating in are growing markets in the long term. And in these growing markets, we operate with leading brands. Goulds Pumps led the creation of ANSI pumps. Cannon Connectors led the advancement of connectors for harsh environments, or KONI, an iconic brand in the shock absorbers world. But also future leading brand. You will hear about Goulds. Goulds is our brand for the smart pad. It's the intelligent brake pad that we invented, protected by several patents and that will change the way that the braking industry will work in the future. Let me now share some financial key metrics. You see here reference point 2017, there is a logic to it. It's not because the number look better from 2017 to 2021, but it's because 2017 is when the journey started. 2017 is when we started to operate differently. I still remember Emmanuel, of course, was there with me, so was Dave, President of IP, when in 2017, we started -- we entered into IP and we started running IP differently and turn it around IP. Or when Arthur Dunn, General Manager of Connectors for North America, is here today, hopefully, you will talk to him too, managed to turn around completely our site in Nogales. It has been an amazing 5-year journey, a journey during which we performed and transformed ITT. During these 5 years, ITT won in the down and won also in the recovery. And we delivered approximately 100 basis points improvement as an average per year in these 4 years and 56% EPS growth during these last 4 years, and this going through a pandemic. And you can see our stock outperformance in the last 3.5 years until May, delivering 58% total shareholders' return. Whilst we transfer all U.S. pension liability, and as I said before, we divested all ITT's legacy asbestos liability. And now we are ready for a new phase in capital deployment. Let's now talk about differentiation. It is important because many times we get asked actually how is it possible for ITT to outperform the competition, and how is it possible that you sustain this outperformance with time and in the future. And this is even more important as we are looking really long term. As you may already know, in ITT, we like to keep things simple. It's in our DNA. It's in our culture. So we're looking at differentiation. We look at differentiation through 3 pillars. One is execution, one innovation and then culture. Execution is fundamental. We're going nowhere without it. It might not be a sexy thing to talk about, but it's solid, and we like it. Innovation. Innovation is key, particularly as we want to sustain our overperformance in the long term. And ultimately, the culture, which is the glue that keeps everything together. And we're going to look at each and every one of these in detail right now. Let's start talking about execution. When people talk about execution, it's a broad term. Different people are thinking about different stuff. For us, execution starts with the customer. Customer is at the center of everything we do. We are here to serve them. We are here to make them successful. So we are in Asia Pacific for Asia Pacific. We are local because these allow us to understand them better, to understand the real need, to serve them better and faster. This is why we are focusing on the quality, on-time delivery. Customer quality, friction at 1 PPM, 1 defective part per million. Okay? And we talk about quality every single month, in every single business, in every single performance review. We are obsessed about it, and we're obsessed also about on-time delivery. And we know that if we serve them better, we end up with customers who are loyal because we want them to want to work with us. We want them to want ITT products, ITT service. Let me share a couple of examples. GM T1XX platform. This is the Silverado platform. I don't know how many of you drive a Silverado or 1 vehicle from the Silverado platform. This is more than 1 million vehicle in North America per year. So the largest platform in North America. Luca, Luca Martinotto, the Head of Friction, hopefully, you will be able to spend some time with him, and his team conquered this platform. What does it mean, conquer? For us, conquering means we won a platform, a business we were not in there before. How did we manage to do that? What was our quality track record with GM, being in China or being in Europe? It was our on-time delivery. It was our rapid prototyping. It was the flawless launches that are critical for an OEM. And this made GM comfortable to give us this order when what we had in Mexico was a piece of desert. We didn't had the plant. But they gave us 100% of the front axle, 100% of the rear axle. Think about the confidence a customer has to give you their largest platform, 100% of the front, 100% of the rear, and you do not have a plant. We built the plant, we finished ahead of time, the launch was flawless. Now this is the virtuous circle. You perform, you deliver value to your customer, they award you. They gave you the business to start your operation in North America. Now we are closer in North America. We serve them better, faster. And here we go, we win more. And this is the virtuous circle. Now think about IP. The second example is for Industrial Process, is our project for the refinery. Then go to refinery in Nigeria. This is roughly more than $30 million project, multiyear. Top project management delivered completely flawless, both in terms of project management, in terms of engineering and manufacturing coming out of India and coming out of Korea and delivered ahead of time in the middle of the pandemic in Nigeria, working with a customer in Africa and an EPC and engineering contractor out of India in multiple side. You can think about the complexity. By now you can think when Dangote is going to be Dangote II, then you know a good performer will have better chances to get that project or to get maybe a little bit of premium on that project. So this is one way on the customer's side I will differentiate through execution. But execution is also in the way that we -- how we operate, right? I've been very fortunate in my life to add many good and generous mentors, who spent time and taught me many things. One of these is Ricardo. He's now 80. He was around 70 when I arrived in Motion Technologies in managing Friction, and he taught me everything about Friction. And we were going on the shelf floor together. And he told me that at the end of the day, you have to be down there all the time. You have to be with your people. You have to be there working with them, getting your hands dirty, getting dirt under your nails, doing the kaizen meeting, okay, looking at that changeover, working on lean. And going through a level of granularity and with the level of curiosity, which is unprecedented. And you see these 2 photos over here. The one on the left is together with David and Saeed. Saeed is actually an immigrant out of Nigeria and is one of our best operator in Italy. That team set the record of a changeover of one of the most complex presses that we have in Barge, always operating safely. The picture in the middle is actually one of our best operation Industrial Process is Saudi and that is a Gemba Walk. That is on the project management office and then it moves to the factory. That team, in less than a week, when COVID started, they started the virtual Gemba Walk. They didn't miss a beat. But another way to differentiate in terms of the way that we operate is through technology. If it is through the automation, Carlo will talk about it later, is through the e-manufacturing or the modification that we made to the equipment that we buy together with our suppliers to tailor-made for us, and those equipments are exclusive for us for a period of years. So this is really another way for us to differentiate on the way that we operate. The second pillar of differentiation is innovation. Here, you see how our expenditure in R&D has increased in the last couple of years by 35%. It's fundamental as it keeps on feeding our wins in the present and in the future, or the capital expenditure, which support the EV wins and our sustainability. But when we talk about R&D and our innovative products, we classify them really in 3 categories: the Now, the New and the Next. The Now, just to give you an example, is the VAVE, for example, the value analysis/value engineering that we do on our pumps, on our Goulds Pumps. What does it mean? We take a family of pump. We look at what can we do to improve the hydraulic performance, what can we do to reduce the matter to make them more cost competitive. And as of today, since we started, we've gone through roughly 25% of all our pumps gone through VAVE. This means it's going to take another probably 6 to 8 years -- I don't know, Stan? Where is Stan? He's missing? Okay. Stan is responsible of all this at VAVE. He is here as well today. And here is Stan. Okay. Thank you, Stan. Okay. At least you are listening. That's good. Okay. And you know what? It's going to take 6, 8 years to finish. And guess what? When we are done, we're going to start over again. Another now product is the second generation of copper-free brake pads. What is New? New is new products for a new platform or for a new vehicle or for a new helicopter like the FARA or for the new electric vehicles, that is the new. And then is the Next. We love the Next. And please spend time with our people there on these couple of Next products that we are showing over there. These are the game changers. This is the smart pad. This is the embedded motor drive, the EMD. These are the products that will change the rule of the game. And I hope that when you spend time and you will see what they will do and how they will do it, you will see the value that they will be able to deliver for the customers, for ITT and for our shareholders. But innovation is not only organic. So innovation is moving at incredible speed out there. And we are not able to cover 100% of everything. So what we have done? We started 12 months ago ITT ventures. This is an open innovation investment vehicle for ITT. What do we do here? We partner with entrepreneurs. We take minority stakes in company with specific technologies, in specific technologies. What are those? Well, this is IoT, artificial intelligence, is advanced material, material science, is advanced manufacturing, robotics or sustainability and electrification. These are really the 4 main areas, but everything adjacent to what we do. So in the last 12 months, we invested in 3 companies: COTSWORKS for connectors, application in Aerospace and Defense, critical. This is one area where we are really strong in connectors. Ryan will talk more about that in his presentation. Or WECODUR. WECODUR is a German company that is studying materials -- link material studies for the coating of the rotor, which is going to be critical for the electric vehicles. Or they -- this week announced of CRP, an Italian company that is in additive manufacturing for application in aerospace or performance racing. So this is the second pillar of our diversification for Now, for the New and for the Next. The third pillar for this differentiation is our culture. And this is our decathlon. This is decathlon list, the 10 characteristics that makes who we are, our culture. Don't worry, I will not take you through all 10 of them. Mark told me that I have to stop at 3. So I'm going to talk to you only about granularity, about proud and never satisfied and service leadership. So granularity is not the details. Many times in different environment, details has got a negative connotation. For us, granularity is the depth of knowledge. And I hope that you will see that today here. Proud and never satisfied, you will see in the presentation, really it's continuous improvement. It's continuing to drive to be better, no matter how results -- how good your results are. You will keep on driving to be better all the time, always. And service and leadership is probably the most important of all. We're here to serve our customers. We're here to serve our shareholders. We are here to serve our people. I go back to what Ricardo told me, "You're there to serve our people. You're there to work together with them." I don't know if you noticed by the accent, but I'm Italian. And like most of the Italians, I've been raised catholic. And so we listen to what the pope says. This is something I already shared with you, Jeremy, a while ago. And Pope Francis said a sentence that is so true in life and is so true, we believe, in ITT management, "At the end of the day, the shepherd must smell like the sheep." And I hope that today you will smell a lot of sheep here in ITT. Now similar to culture, sustainability is fundamental to the way that we operate. So Emmanuel will talk a little bit more about ESG, but we're talking about the ESG. We are making progress on the S. Emmanuel will talk also about safety. We are very good on the G. And we are at the early inning when it comes to the E piece. And I hope that during the course of the day, you will be able to see that our ITT E journey, both on our products as well on the processes that we are using in our manufacturing. Now that we have been talking about how we differentiate and how we sustain differentiation in the future, let's see how all of this translates into growth and value creation. A few comments on the order momentum that built up in 2021 and continued in Q1 2022. Strong momentum in process -- in Industrial Process. This is very strong-show cycle and big projects coming in, starting warming up a few quarters ago, and they are really getting momentum as well. Then is Control, CCT, our Connectors and Control Technologies. Very strong connectors order momentum and then the commercial aerospace ramping up and gaining momentum right now. When we talk about Motion Technology, very strong win rate on electric vehicles and not only those electrified vehicles, but also other platforms that will feed orders and revenue growth in the short and medium term. But we're even more excited about the long-term prospects, okay? So let me share some of the key growth drivers for ITT, starting with CCT, our strong portfolio in the aero and Defense market. This will be a key driver for growth in CCT. Ryan will share that with you. In IP, the Goulds Pumps' execution track record, compounded by the innovation that you will see through the VAVE, the i-ALERT, the EMD, that will allow IP to outperform the market. And in Motion Technologies, the outstanding performance for our customers and then the outstanding win rate that we have for the new platform and the electrified vehicles that we are winning. So let's talk a little bit about electrification and why electrification, which is accelerating, is good for ITT. So before we talk in -- a little bit more in detail about electrification, what do we mean by electrified vehicle, just to align ourselves. Electrified vehicles for us is EV, electric vehicles, and hybrid, all of them together. Now when you look at this number, which in 2021 was 15 million of vehicle produced, roughly 20% of all the vehicle produced were electrified, 15 million electrified vehicles produced in 2021. There are going to be more than 45 million in 2025. That's data point number one. Data point number two is that our win rate in electrified vehicles is considerably higher than our market share in production today. So now you have these 2 factors: a macro factor, which is the electrification happening in the market, and the micro factor, which is our performance and outperformance and win rate in the electrified vehicles. They are compounding on each other. And this is what will feed our outperformance of the market in the years to come. This is why electrification is good for ITT. And you start seeing these already because when you look at 2021, our market share in electrified vehicles was already higher than the global OE market share that we have. And now when you look at 2025, in 2025, we will have 51% of our OEM revenue coming from electrified vehicles. This means 5x what we have today. Continue to talk about growth and long-term growth, I want just to mention Asia Pacific because this is a huge market. It's a growing market and is a platform for growth for ITT. Unfortunately, David Barbon, who is leading this region across all the different businesses, could not be here today with us. And therefore, what I would like to do to share with you how we operate in Asia Pacific in ITT, and just some information about our business in Asia Pacific. We are in Asia Pacific for Asia Pacific. We leave Asia Pacific from Asia Pacific. What does it mean? It means that David sit at the table. David is a direct report of the CEO. And when we have to decide what Friction does in Asia Pacific, is David together with Carlo and Luca that make decision. The decision is not made in Europe. It's made in Asia Pacific, working together as a team. This is key. This is different from the way it was in the past. And we are in the region for the region. When you talk about the operations, we are in Korea with IP. We are in Shenzhen for CCT. We are in Wuxi for Motion Technologies. So that we are closer to the customer, we are able to understand what their real needs are. The business that we have are all 3, as I said. This is a quick snapshot. The largest and most successful business in Asia Pacific is Motion Technologies, Automotive and Rail. And considering the importance of the Rail industry in China and the potential of automotive and electrification in China, we continue to see Asia as a platform for profitable growth for ITT in the long term. I want to continue to talk about growth, but now through the lenses of capital deployment. Emmanuel will talk more in detail about capital deployment. But a couple of points I want to highlight here is that in the last 3.5 years, we deployed $1.7 billion of capital. More than 30% of that was for growth, either through M&A or through CapEx. And now, as I said, after divesting all of ITT's legacy asbestos liability, now we are gaining momentum on the M&A front with a reenergized team under the leadership of Bartek Makowiecki. And specifically on the M&A, I would like to talk to you a little bit about our recent acquisition, Habonim. And by the way, please stop at the stand and talk to Yossi, who will tell you how Habonim is different from many of other valves company out there. So let's talk a little bit about Habonim. Habonim is headquartered in Israel and is a severe ball valve manufacturer. They engineer and manufacture ball valves. Many factors make the Habonim acquisition just perfect for ITT. One is the strategic fit. We have roughly $100 million of business -- of valve business within IP. We know that is a platform that we like that we want to grow. It's a platform for growth. Habonim fits strategically. It's operating in attractive markets for us, is pharma, LNG, hydrogen, semiconductor. Habonim has a strong market position with a very well-recognized brand. And this is not a marketing speech. This is based on some really solid fundamentals, strong engineering, great performance with the customer and a healthy paranoia towards our customers and what our customers want and need. The value creation through cost synergy and revenue synergy. And when we're talking about cost synergy, we're not talking about consolidation of footprint. No, no, no, is we are going to learn from Habonim, the way that they design the valve. If you've already spoken to Yossi, he will show to you how they've been able to standardize key core components of the valves and then leaving the tailor-made to the last part of the design and the manufacturing of the valve, simplifying considerably the manufacturing as well as the supply chain. This is something we have not been able to do in our valve business. This is something we will learn from them, and we will save in terms of engineering and manufacturing and supply chain at our end. When on the revenue synergy, obviously, Habonim will get advantage from our strategic accounts with International Paper or other accounts, our distribution, our footprint in North America. And then is the cultural fit. I mean when we met Ilan, the CEO of Habonim, when we met Yossi, it was clear. The cultural fit was there. Tick, was a no-brainer. And last but not least, [ Bo ]. [ Bo ], who's the Head of Strategy for IP and Business Development, he cultivated Habonim for a while, and we were able to close this deal exclusively. So I shared a lot with you today and have already gone over the 30 minutes. So let me share with you how all of this translates into. We all know that there are clear challenges in the short term. Still you know, I think you know. You have seen it that this ITT, that this team deliver in the good time and in the challenging time. And today, we shared our long-term targets. And we firmly believe that our products and services, our ability to differentiate through execution, through innovation and through our culture, will deliver 5%, 7% revenue growth as an average every year; achieve 20% adjusted operating margin at ITT level; translating in 10% plus adjusted EPS growth; and a free cash flow margin of 11% to 13%. And you know that we will work relentlessly and hard to deliver. With that, I would like to pass it over to Carlo. Carlo Ghirardo, President of Motion Technologies. Carlo?

So good afternoon, everybody. Thanks, Luca. If I had one thing that I wanted to pass on to you today was my excitement about our products, was my excitement about Motion Technologies. Our products, our safety have performance and have comfort as their main mission. We are here to avoid accidents and to save lives. Also, I want you to know that a brake pad is not just a brake pad. A shock absorber is not just a shock absorber. There is a ton of engineering, there is a ton of customization behind each one of them and you will understand this across my presentation and across the presentation of my colleague, Luca, who will follow me. So the plan for today is that I will give you an overview of Motion Technologies. And then we will do a deeper dive in automotive, Rail and Defense, which are our major markets. So let me start with Motion Technologies. In Motion Technologies, we are leaders in brake pads, in shock absorbers and sealing solution. We have 20 manufacturing sites around the world, all close to our customers. And we are joined by 750 robots, who has had the chance to stop by our booth outside there, has already seen how our robot work and make our products. They are dancing in our plans. If you look at the centered donut in the slide, you will see that we have a pretty balanced participation across the globe. Yes, we do have a stronghold that is Europe, but we have 2 regions, North America and Asia Pacific, where we're growing and where we will continue to grow even more than in the rest of the world. While on the left side -- or sorry, on the right side of the chart, you will see the green portion of the donut. This green portion of the donut represents the products that we sell for electrified vehicles. And as Luca said before, electrified vehicles are battery electric as well as hybrid vehicles. And those are the testament of the work that the 570 engineers and scientists in Motion Technologies are doing on a daily basis to solve the major issues that all electrified vehicles, manufacturers have while putting together the vehicles, including in the brake system. So we are leaders and pioneers. And please keep a -- give a look also at this GALT brand in the lower section on the slide because who has not already done it, please -- you will see something very innovative that will be shown in the booth out there. Now let's move a little bit more into another portion of Motion Technologies. And I would like you to focus for a second on the chart on this slide. So the chart on this slide talks about the fact that Motion Technologies has grown 16% since 2017. But the chart does not show one thing that our main end market automotive has gone down from 95 million to 77 million vehicles in the same time period. So a 19% drop. So we have outperformed the markets and what are the reasons. Well, for instance, we have won 70 electric vehicle platforms over the course of the last 3 years. And we have won 33 only in the last year. We have surpassed our markets with our advanced materials in Wolverine. And we've also surpassed our markets in Rail and in Defense with high-performance shock absorbers with our energy absorption devices and components that KONI and Axtone make. And we are recognized for quality and for performance of our products. Now in the next slide, we will have a look at our business and at our products. And let me start from the top line, brake pads. Brake pads is the vast majority of Motion Technologies. Brake pads are, as you can easily imagine, critical components for safety, for performance and we sell to OEMs, so to backhaul manufacturers and to Tier 1s, to OES, which is service and to independent aftermarket. And we serve the most demanding customers. We serve the most demanding customers, both from a traditional vehicle manufacturer's point of view. Just to mention some of them, we serve the Porsches, the BMWs, the Mercedes, the Volvo, but we also serve the new customers, the Tesla, the BYD, the N-I-O, the NIO, the ones that are making really the innovative vehicles and are trying to solve different problems versus the ones that are sold by the traditional vehicle manufacturers. We have distinctive differentiations, and I will go a little bit more in detail. We have excellence in material science. We have a very concentrated footprint, and we have one world-class manufacturing system and manufacturing process that gives us a strategic and a substantial competitive advantage. In KONI and Axtone, we make safety components as well. They are comfort critical. They are shock absorbers, couplers, and we are famous for our engineering work around the world. Our engineers actually sold some of the most difficult challenges that our customers have in terms of suspension system. And also in this case, our products are known for quality and for performance. Imagine that when you run on a high-speed train at 200 miles an hour, you have most likely KONI shock absorbers on it. And the last but not the least, Wolverine. Wolverine material science. In Wolverine, we make the most advanced material science. In Wolverine, we make sealings, we make gaskets and we make brake shims. The brake shims are that small interface that stands between the brake pad and the caliper and really helps to solve very difficult noise, vibration and harshness challenges. And Wolverine and Friction work side-by-side to solve those challenges. This is Motion Technologies. So let me continue with our end markets. And I'm going to go fast because you know very well our end markets. The first one -- the first thing that I would like to share with you is that we are in the right end markets. I think this is very good news for us. We are in automotive original equipment where inventories are at an all-time low, where the production, as I shared with you earlier, has been slowdown over the course of the last few years that it cannot, but grow. And we believe that it will grow double digit in the midterm. We are also in aftermarket. Aftermarket has rebounded already post-pandemic. So it won't be as flamboyant as the original equipment, but it will grow. Then we are in railway. Railway solves for some of the environmental and sustainability challenges that transportation has, that mobility has. So it will grow, and it will grow also propelled by the public funding that are deployed these days. And Defense will also grow, and I'm sure I don't have to explain to this audience why. And it will continue to require innovative technologies, which we are providing. In the next slide, I will go a little bit more in the detail, and I'll start with automotive. So we will talk about our automotive business. Then we will go to an equally interesting business, which is Rail and Defense. And let me now start with automotive. This is a very important slide. So I would like this audience, I would like you all, to focus for a second on the chart on this slide. The chart on this slide shows in the light blue, the automotive production starting 2017. And as I said before, the automotive production fell from 95 million cars to 77 million cars. If you look at the black line instead, the black line talks about the ITT OEM volumes. So we have outperformed the market by anywhere between 400 and 900 basis points each year in this time frame for a total of 2,500 basis points of overperformance. I believe the important thing is how did we do that? So let me go in reverse order on the right side of this chart. Let me start with innovation. We have been forerunners in copper-free brake pads. You will hear later from my colleague, Luca. We are leading the electric vehicle transition. In terms of operational excellence, thanks to our automation, please remember our 750 robots that are dancing in our plants. We have an unparalleled efficiency. We have this one production system that I spoke to you about and I'll come back to this, that gives us a structural cost advantage. And the last but not the least is the customer side. Our customers receive less than 1 part per million in terms of defective parts and are benefiting from a 99-plus -- 99.8% on-time delivery in 2021 in spite of the supply chain disruptions that you are all well aware of. So following up on this, what I would like to do here is to give you a fuller picture of our differentiators and our competitive advantages. And as Luca said before, I'm not going to go in all the 8 chapters that we believe are differentiators. What I will do is I will focus on a few of them. I won't cover quality, I won't cover customer centricity because I think I covered them. I would like to focus on the right side of this chart. If you go to the right side of this chart, let's talk about our super-efficient production. We have an extremely high amount of automation. I'm not going to remind you again the number of robots that we have. But what I can tell you is that if you enter one of our plants, you will see very few people and a very high amount of automation. Then we have this famous, as I said before, one production system. What does that mean? It means that if you walk in our Wuxi plant in China, if you walk in our Barge plant in Italy or if you walk in our Silao plant in Mexico, you will recognize exactly the same machine, exactly the same process and basically the exact same way of manufacturing a brake pad. This gives us the opportunity to spread the continuous improvement that we are very much into -- very quickly. If we find an improvement in our Wuxi plant, we can extend it to all our plants in the world. If we found a continuous improvement opportunity in Mexico, we expand this in all our plants in the world. So our competitors, on top of this, have a lot more plants that we have. We have only 5 plants in the world. We have a very concentrated footprint. In spite of that, we cover all the regions of the world. And as I said before, this gives us a structural competitive advantage, a structural cost advantage, which gives us the opportunity, if you move to the left side of this chart, to reinvest a lot. To reinvest, I would say, a lot more than normal in R&D. We come out with more than 50 new Friction materials every year to solve the customer issues that are presented in front of us every day. And all of this is integrated. The production and the R&D are integrated in the same site, which gives us the best quality from the onset, which gives us the best cost from the very beginning and allows us to make our customers enjoy lead times that others cannot. This is our DNA. This is why we win. Now let me introduce my colleague, Luca Martinotto. Luca is not only the General Manager of Friction, but he is the person that start in 2015 has led the R&D of Friction. So he's the person that is directly responsible and has been directly responsible to introduce all these innovation and to solve all the customers' issues that we have been faced with. There are you.

Thank you very much, Carlo. You've talked about differentiating through innovation. And I'm glad to have the opportunity to share with you how we put it into action in Friction Technologies. So let's start from electric vehicles. After the great and successful journey we had on copper-free that I had, by the way, the chance to lead as R&D Director a few years ago, electrification is by far the most important opportunity for us to differentiate again through innovation and R&D. And believe me, there is nothing a lot more than differentiate to innovation and R&D. So talking about the electric vehicles. On the left side of the chart, you can see the market share of electrified vehicles in '21 and what is expected to be in '25. As we know, the market share of electrified vehicles will grow much faster than the general automotive market. And this is a very good news for us. Why this? Because if you look at the chart on the right side of the slide, thanks to our outstanding win rate we had on electrified platforms in the last few years. We can see that our market share on electrified vehicles, the green lines, is growing as well much faster than our overall market share. So this is the reason why this is a very good opportunity for us. So how did we make it happen? What I would like to point out is that we didn't wait for the EV leaders in terms of OEM to put out the specification for us to respond to. But we engage with them much in advance. Since years, our application engineers are working with our customer to support them in the creation of the new standards and new specification. So having partnered with our customer in such a way has enabled us to propose to the market really the best-in-class and tailor-made products for electric vehicles. So this early engagement is a key, and this is one of the reasons why we are leading the EV transition. This is just an example of how we differentiate through innovation. But I would like to share with you another example about how we are also dealing with front-runners. Tesla. We conquered Tesla, and let me explain how. At the beginning, Tesla was apparently not interested in the braking technology. They were buying what the market was offering, standard products. Then we approached them with our high performing product for the Model S and the Model X. And as soon as they started to work with us, they started to realize the value we were bringing to them, not only in terms of performances, but also in terms of the way we were working, the speed of execution, the agility, the service level we were providing. And so they started to work more and more with us. And hopefully, also more business came. So after the Model S and the Model X, also the Model Y and the Model 3 came. And as you can see on the chart on the upper right, this has allowed us to grow starting from almost 0 participation in Tesla business in '21 up to a projected share in Tesla of more than 40% in 2025. So this is, again, another example on how we work with traditional players and with the new players. Clearly, we are very excited about electrification. But electrification is only a part of our overall vision and road map. In fact, the whole green road map is for us a fantastic opportunity to differentiate and create value for the company and for the world. This has already been the case with the copper-free material I mentioned before. We started back in 2011 to develop new materials for a U.S. regulation that was asking for low copper materials in '21 and copper-free materials in '25. Thanks to our proactive approach, we have been able to provide the market with copper-free materials already in 2015, so 10 years ahead of the regulation due date. And this has allowed our customers to completely skip one intermediate level of validation and homologation with all connected costs and move directly to the copper-free. And on our side, of course, this has allowed us to tremendously increase our market share. Thanks to that, we more than doubled our market share in the U.S. in a few years. The proactive approach to sustain the green revolution continues, as I mentioned before, with electric vehicles. I have highlighted the outstanding win rate we are experiencing on electric vehicles. To give you an idea, in the last 3 years, we have been able to win more than 70, 7-0, as Carlo mentioned, new EV platforms around the world. And this is clearly projecting us to consolidate our market leadership position in the future years. But we are not stopping here. In our R&D, we have already started the development of what we consider the next generation of green and sustainable materials. We are talking here about advanced materials, eco materials, recycled materials that altogether will bring us a strong differentiator and I strongly believe on that in the future in regards to sustainability. Think about the carbon footprint or the product life cycle assessment. So we believe we have a very clear vision and road map to be within the next 5 years the first market with the next generation of green, copper-free products for electric vehicles. That's where what we have in this slide comes to a convergence. And not only we are leading, we want to continue to lead the green revolution. But we want also to lead the journey of smart and digitalized products that is coming because we strongly believe in the fact that future devices shouldn't just be green, but they should be smart. So I would like to share with you the story of our start-up, GALT. When this journey began few years ago, I still remember the day when Luca and I were discussing about how to make our product intelligent. And of course, as R&D Director, for me, this was extremely exciting. But to be honest with you, we had no clue at that time on how to make it happen. There were no sensors, no electronics available on the market able to withstand the operating condition of our products with temperature -- to make an example, temperatures as high as 800 Fahrenheit. So we had to face many challenges and develop from scratch a completely new technology in the area of sensors, electronics and algorithms that, by the way, we have patent with more than 15 patents. Now we have covered with more than 15 patents. To come at the end to the first and unique sensorized and connected brake pad in the world, a brake pad that can detect in real time information from the brakes, information not available today in any other way, and transfer this information to the vehicle, to the driver or to the external world. So at the end of this journey, we are finally in the position to have a ready-for-the-market product. And when I say a product, I mean a hardware, a software and the algorithms that allow to define it a smart product. A smart product that will improve the way we safely and comfortably stop a vehicle. But in addition to that, will be able to interact with the vehicle and the external world, enabling many additional functionalities and possibilities. Think about what happened with our smartphones or our smart watches and how they changed our lives. So this is the level of disruption, the kind of disruption we want to bring and we will bring in our sector. And please visit our booth to learn more about the market. So to come to a conclusion, I've shared with you how we differentiated and won the copper-free transition, how we are differentiating and leading VAVE transition and how we have already started to plan how to continue to win and differentiate in the world of the future that will be the next green and digitalized world. So thank you very much for your attention. I'll give it back to Carlo.

Thank you very much, Luca. So I'm very excited about all this. I believe that this will create a lot of value. I also believe that Rail and Defense are 2 other businesses will create a lot of value. Let me start with who we are in Rail and Defense. So what we do in Rail and Defense is we design, manufacture and sell energy absorption, couplers, suspension components for freight and passenger train in rail as well as defense vehicles. All of them are extremely highly critical components. They provide safety, they provide performance and they provide comfort. And for instance, I'll come back to what Luca was mentioning before, the yaw damper. What is a yaw damper? The yaw damper is a very interesting thing. If you go at any speed on a high-speed train, the conical shape of the wheels are making the train tending to go from side to side. So if you -- if this train has our yaw damper, this tendency will be mitigated. So we are really bringing the safety on board, we are really saving comfort of the passengers. And just for you to know, if this tendency goes to the extreme, the train might even tend to derail. So this is also a matter of safety. It's not only a matter of comfort. Now let me talk a little bit more about Rail. Rail is, as I said before, part of the solution for the outstanding mobility issues for the environment, for the sustainability and so will grow as a consequence. It will also grow because it's subject to public funding. I said before and I'm going to repeat, for instance, in the United States of America, a bill was passed last year to fund $66 billion for rail passenger projects between now and 2031. In Europe, as an outcome of the recovery fund post-pandemic, there is -- there are EUR 56 billion available for the Rail sector. In Rail, we have outperformed and we will continue to outperform. And how are we going to know that? We're going to do that because we're bringing, we are using our proud-but-never-satisfied culture, that was explained before, in Rail, in Defense and bringing more on-time delivery, bringing more quality. Also in Rail, we're measuring parts per million and not number of defective parts. In Rail, we're using on-time delivery and not only delinquent backlog as indicators. So we are really taking this to the next level. Then our network is global. We are able to provide engineering and manufacturing for the Rail segment in all the regions of the world. We are able to serve U.S. customers from the U.S., European customers from Europe, Chinese customers from China and we have lately opened a plant in India. And we are also playing in India aftermarket. So this really balances out our ability to compensate different cycles of the business. So we are really excited about Rail. And as I said before, we will continue to outperform. Moving to Defense. I don't think I need to explain to this audience why Defense is important. Just to mention 2 things. The United States of America have raised their 2022 budget in Defense by $29 billion. And all the NATO countries have ensured -- have made a commitment to spend 2% of their GDP, which has not happened before. In Defense, we are manufacturing high-quality products, and we have done it for quite a while. We have well-established connections with all the manufacturers, both of subsystems and of vehicle manufacturers that are selling to the U.S. Army and to the NATO countries. And also in this case, we do have facilities in North America and Europe, through which we offer premium portfolio of engineering services and of finished products. And please visit also in this case, our booth outside, which sees and displays our most innovative products in this case. And what I would like to do just before closing, I would like to give you a couple of examples of innovation at work in Rail and in Defense. Let me start from the left side of this chart with innovation in Rail. This product that you see on display is called digital automatic coupler. It's a digital automatic coupler, but it's going to be a game changer for us. The reason is because in Europe, authorities are supporting the transition from freights car coupling that is right now made in a very manual way. So you need to imagine men, people that really do the coupling of the cars to an automatic way through this product. Once the decision is taken, this will create a market of $5 billion in the transition period because there are about 400,000 cars that need to be refurbished in a market of about $200 million per year in the normal period with 10,000 to 12,000 cars that are built in Europe every year. The reason why we're so excited about that is because in this product, one very important portion is what you call -- what we call the draft gear, which is the portion that you see highlighted in the drawing. We are, with Axtone, expert at draft gears. We have made draft gears for other markets for a long time and we have started to design the draft gear adapted for the digital automatic coupler already 3 years ago with the typical early engagement that we use everywhere. So we are extremely excited. We believe that this is going to be, when it starts in the 2026, 2027 time period, we believe that this will be a great opportunity for us. And if you move to the right side of this slide, you see the product that, by the way, is also exactly the same displayed out there, which is called Hydroride. Hydroride is a revolutionary product made for defense purposes, is a hydro-pneumatic suspension system, which saves 50% of weight versus a normal suspension system. So it allows more payload on the vehicle. The second thing it does, it has infinite possibility of adjustment. So it makes the vehicle equally performing on flat surfaces as well as on the roughest terrains, which is very critical because this allows the vehicle to achieve its mission no matter what and to allow the soldiers that are sitting on the vehicle to arrive at the end of the mission in a comfortable way that is extremely important as well. We are creating a market of $75 million to $100 million per year with this innovation, and we are very excited about this. So with what I said so far, I would like to conclude my presentation, recapping 3 main points. The first one is that we are in the right markets. We are in the long-term growing markets. Number two is that we are gaining share, thanks to our R&D and operational performance, and we will continue to do so. The third thing is that we will continue to lead the market. We will continue to be pioneers in this market. Thanks to our innovative products. Thanks to our leadership also in sustainability and electrification. With this said, what I can ensure is that we, Motion Technologies, I will deliver 6% to 7% CAGR and will deliver long-term 20% margin. With this said, I've been a little bit long, but I would like to thank you for your attention and we'll talk once the presentation is finished out there. Thank you very much. I'd like also to introduce my colleague, Dave Steblein, for IP.

Good afternoon, everyone. Thank you, Carlo, for the introduction. I hope to share with you a different perspective on process flow and flow control over the years that you may or may not be aware of. When you think about the human heart, in the vital -- the blood that is pumped, the vital organs within your human body, I relate that to process pumps. Pumps are pumping very critical process fluids through all kinds of different facilities that you may ride by, not think about, but they're producing products that enhance our lives today. We all get boxes from Amazon. When you go home, you don't think about how those boxes are made, but I can assure you that 90% of them are made by Goulds Pumps through international paper plants. You may not think about how LNG is produced. I can assure you a large portion of that is pumped through Goulds Pumps. Those are things that we're very proud of that we think are very inherent within our business. And I know those are things that we don't think about on a regular basis. Pumps are the heart of industry. I've been in this business a long time. It's in my DNA, and I love pumps. And I want to leave you, if nothing else, with some of that perspective today. Let's take a little bit of a look at Industrial Process at a glance. As I mentioned, pumps are the heart of industry. You can see how our business breaks down from a revenue perspective, predominantly centrifugal pumps because the process industry uses process pumps more than positive displacement pumps, although we are in that business with the twin-screw, Bornemann and product line as well. And also, there's not pumps in a system without some degree of valves. So valves is a very important part of our business as well, although as Luca mentioned, today, it's a $100 million business. We want to grow that platform. And have a NIM is just the beginning in the tip of the iceberg of getting that done, okay? I want to refer to you in terms of revenue by market. We have a very balanced market in our 4 core process industries that we sell to. Chemical has always been historically a strong market for Goulds Pumps because as Luca mentioned, the ANSI pump was really something that we pioneered, created in the early '60s. It was targeted in the chemical process industry. And we enjoy more than 40% of share since 1961 and are the #1 supplier of ANSI pumps in the world today. And I want to leave you with that process. You can see how we break down from a geographical perspective. I think that when you think of how we're planning to grow, we have 17 manufacturing locations throughout the world. One of our largest facilities is in Seneca Falls, but we've invested heavily in plants around the world. We have a major facility in Korea -- South Korea, where we really center all of our high energy units for major oil and gas LNG projects to be made there. And we have other facilities, Luca also mentioned, the Middle East, in Saudi, one of our best facilities. We have 2 major facilities in Germany. We're committed to balancing out our sales from a geographical perspective on a global basis. One of the things we're doing to balance out our revenue by segment is adding through M&A products and investments, as you can see in the bottom right-hand corner. Bornemann a major investment back in 2012, totally different technology than a centrifugal pump. They pump multiphase gas and oil. They center in the food industry to some extent, but primarily in oil and gas. They have technology from an environmental standpoint that reduces flaring. That's going to be really prominent going forward in the future. They have technology that rejuvenates oil wells. We have a project that I'm going to refer to later in the presentation that talks about how we're rejuvenating oil wells in some of the major oil fields to actually get more production out of those wells going forward. Having Luca talked about, great step for us in severe service valves, cryogenic valves for the LNG industry and we're very optimistic that LNG is going to be strong going forward in the future because many of the world areas need LNG for heat and energy going forward, given all the conditions that we're aware of in the world. Let's move forward to additional details pertaining to IP business. As you can see here, just a couple of touch points. We mentioned we're the leader in the ANSI centrifugal process business. Our customer-centric distribution network, we think, is a major competitive advantage for us. Many of our competitors came out of Goulds Pumps. They worked at Goulds Pumps. They learned our business. In many cases, they know as much about pumps is Dan and I, actually know a fair amount about our business. These guys worked with us. We grew up with them. They decided to go out and become independent businesses. We represent 30% to 50% of their revenue on an ongoing basis. They're 50% of our business in North America today. So we augment our distributor business with direct sales. We handle all of our engineering contractors with direct salespeople, most of our major end users, we call on with direct salespeople. But our distributors provide a very good service for secondary tertiary customers that require hands-on service, applications assistance on an ongoing basis. I want to move over to the numbers on the right. You could see that we've been able to increase our profitability by 660 basis points since 2017, even in a flat market where we -- where our sales were flat really up until 2019, where we had a lot of capital projects in oil and gas, and actually in ethane crackers if you follow that part of the market. And then we had a decline in terms of the pandemic, which stunted most people's sales, but we continue to build on our profitability that's shown in this slide. So we're very proud of that. We didn't decline with the sales volume, we kept growing in the way that we manage the business. Moving on to some of our products. As you can see at the top, this is a BB2 high-pressure pump that we developed over the last 12 years. This pump is very prominent in the oil and gas business, petrochemical industry, high-pressure applications, high temperature applications. Before we had this pump, we could only participate in some of those projects to a very small extent. We've developed this product through VAVE, which is value-added/value engineering, Luca alluded to that as well. Stan has been instrumental in developing that product line. And we've won $6 million or $8 million worth of business over the last couple of years, just since we've done the work with this product. And we're continuing on. And as Luca mentioned, 25% of our business is being affected by VAVE to upgrade the products. In addition to that, we're working on some innovative products that I'll share with you in the future. Twin-screw pumps, we never had those before 12 years ago. Prominently in oil and gas, they pump a mixture of gas and liquids. And actually, they're very -- highly used in the oil industry in Canada, but we most recently -- I have an example that I'll show you that most recently, we applied to a large oil field in Kazakhstan that I'll show you how the oil production is really being increased because of the application of that. And then in terms of the valve industry, we developed a couple of really innovative valves that will be prominently displayed, prominently installed in vaccine applications and also drug production, which reduces the amount of maintenance that has to be done when those systems need to be steamed, cleaned and sterilized. If you're familiar with the drug industry, after a batch of vaccine, you have to flush the entire system. You can't have any contaminates -- contaminants within those systems. And actually, this valve is really going to save them a lot of maintenance time. So on to the markets. These are 4 prominent markets, as you can see, mid-single digit, high single-digit growth potential. General industry, we're seeing some onshoring coming back. A lot of semiconductor business, we've booked several nice semiconductor orders over the last 6 months. With the chip shortage, many of those chip manufacturers are building facilities back into North America and we've been really successful in that area. Chemicals, traditionally always have been a big part of our business in the past. And we're expecting continued growth in the high single-digit area, mid-single-digit area for chemical. And in energy, especially in the LNG part of the business, we feel like it's going to really accelerate given the energy shortages that exist today. We do a really good job in mining -- in some segments of mining. We're expanding our portfolio into the high rock -- the hard rock applications. We feel like we're really going to have some growth opportunities in lithium mining, for instance, as we transition into the EV market segment. And we've already had some significant success there. We have approval from the Board and from Luca to continue to expand our product line to compete with some of the major suppliers in hard rock mining. Let's look at some of the customers that we participate in. These are all prominent customers. I think you all recognize many of these. At the top, you can see the same markets that we participate in. Think about International Paper. We have an exclusive agreement with International Paper, our best customer. When they buy parts, pumps, expand their facilities, they're the major largest pulp and pipe supplier in the world, and they're our customer. And we have the relationship -- I have the relationship with them personally. Steel Dynamics was a steel mill we built -- that was built down in South Texas primarily to provide steel for Tesla. They needed short lead time. Our salespeople developed very close intimacy with the decision-makers, and we stole that order from one of our key competitors. I won't say who, but one of the people we dislike very much. But it was a big win for us, right? It was competitive. Carleen was very involved in it. We developed a strategy, and Luca proved it. And it was in early 2020, in the early stages of COVID. We didn't know what was going to happen that year. We wanted to build some backlog. There were times we may have passed on it, but we decided to take it. Graphic Packaging. Georgia-Pacific, paper towels, personal tissue, they're our customer, okay? Ambatovy is a nickel cobalt facility that was constructed a few years ago in Madagascar of all places. If you watch the movie, you have a little bit of appreciation from Madagascar. Tremendous customer, major installation of $15 million to $20 million worth of units and a $5 million to $6 million reoccurring parts customer on an ongoing basis. I won't belabor all of these. I think you can see these major customers. I'm sure you recognize them being in the industry, and we do business with them on an ongoing basis and they see our products as premier products. But it comes from customer intimacy and relationships with these customers and the services we provide them in managing their projects similar to what we did with Dangote. We try to make it as effective and as easily to deal with as we possibly can because it dovetails into future projects. Next, I'll share with you some of the key areas where we think that we build value, customer centricity tremendously valuable. Listening to customers, focusing on customers, working hard to meet their requirements in terms of delivery and quality on an ongoing basis. Operational excellence dovetails, and I think Luca alluded to that as well, into customer centricity. They kind of go hand in hand. And to the degree that we can reduce lead times, provide quality of products, get those products to them on an ongoing basis creates a differentiating factor and a competitive advantage versus our competition. And then certainly, because we have legacy products, we're an older company, we don't give up on the fact that we need to continue to upgrade those products. VAVE, we've talked about several times. It's value analysis. It's looking at the design, reducing the weights, enhancing the performance hydraulically and from an efficiency standpoint, the BB2 is a perfect example. But we have OH2. We tried to bring BB2 in here. We couldn't get it in because of the weight. But Stan's going to show you an oil filter, which is a unique design that can be installed in both the BB2 and the end suction overhung pump, API process pump, so that over a period of time, oil can be changed, the filter can be changed and they'll get longer life. We're the only supplier that has this oil filter that you'll be able to see when you go out. I encourage you to please spend some time to better understanding the details of some of the enhancements that we've made through VAVE. So I have a few examples that I'd like to share with you that are a little different than what we traditionally have applied. Through the relentless pursuit of Angela Fish, tremendous young lady who is a sales engineer, who wouldn't give up on Air Products. Air Products historically has been a competitively held account and they're building the world's first commercial scale, sustainable aviation fuel facility in California. Up until now, they've just been pilot plants for these sustainable aviation fuel facilities. And they selected us because -- largely because of Angela's relentless pursuit of presenting our products to them, working with them on the applications and we were able to win a $4.5 million installation. I was listening at 3:00 in the morning to Bloomberg, 3 in the morning. And they were talking about by 2030, 20% of the aviation fuel is going to be sustainably aviation fuel. Aviation fuel has a tremendous carbon footprint, and it needs to be changed and the plan will be to continue to build these type of facilities. And Air Products is one of the biggest builders of these facilities in the world. So we're very excited about leveraging that relationship going forward. Another particular example is that in terms of pipeline applications, we're working with a major pipeline distribution company. They use, frankly, competitive products because at one point, when they built those pipelines, we didn't have the BB2s, right? We didn't have the products that they needed 15 years ago when they built out that infrastructure. But they realized because of the 5,000 mile distance of this pipeline, think about it just in a linear basis, a pipeline that extends -- this isn't where it extends today, but if it extends in a single pipeline from New York to San Diego and all the assets of rotating equipment that they have along the way to energize that pipeline. And a pump goes down in a remote location, they're losing production, right? So with our i-ALERT device that continuously monitors vibration and temperature, we're monitoring that 5,000 distance of pipeline remotely in Houston and have a dedicated engineer that gets -- contacts them and says, we think you have a problem. right? We need to go in and assess, is it a bearing problem, is it an alignment problem, is it a temperature problem. And we've had a lot of pull-through business just because of that relationship that would have probably gone to the competitor. And think of the money they've lost. They've saved by using the i-ALERT that they would have lost had they not had a condition monitoring device mounted in that equipment going forward. It's a unique installation, but builds credibility with us with midstream suppliers. And then the third one is the Bornemann application in a prominent oil field that they typically use a different technology with air separation tanks, centrifugal pumps much more cumbersome, they would have to flare gas that from an environmental perspective, obviously, in today's world is not very good. With this Bornemann's skid -- self-contained skid in a condition monitoring environment, because of the variation of temperatures, there's no flaring. There's more instantaneous production increases within these wells. And they're going to -- this is one of many that we think we're going to be able to sell to this customer. So these are just a few things that we're doing with our technology that we think in the future, we're going to be able to parlay into a much more significant business. Let's move on to our next pillar, operational excellence. We started in 2017 with lean process improvement. This shows one of our most important products, the ANSI product line. And we began slowly, okay, with incremental improvements. And today, we're doing a deep dive with this one piece flow, lean process improvement. We've been on it for 6 months in a very intense way. And some of the benefits that we've already realized is shrinking the operation by 50%, producing double the number of units as a result with the same number of assemblers and reducing mandatory overtime substantially from what we were doing last year. We've gone from 17 units last year to 35 to 40 units, same number of assemblers, less overtime. So we're planning to take this same concept throughout not only the rest of SFO, which is a large facility, but other operations throughout the IP organization. And we're very optimistic and excited about how this is going to improve our business from a cost standpoint, but more importantly, reduce our lead times to make it more competitive and capture more market share. Dangote was the example that Luca mentioned, how we revamped our entire approach to complex EPC projects. In years past, some customers have mentioned that the pump industry doesn't do very well in managing projects. They're complex. There's a lot of buyouts. There's scheduling that needs to be done. There's drawings that need to be submitted in a timely manner. And to the degree that you can differentiate how you execute these projects leads you into a better position and a preferred position on future jobs. And these are major projects that they don't need the headache of you missing lead times, not providing drawings, not meeting their schedules. If you can go to them and say, here's what we've done, I think it gives us a preferred -- a real preference from them for future projects. So I'm going to move on and talk a little bit about some of the really key innovations that IP has implemented recently. The i-ALERT I talked about is the example in the pipeline area. You can see out here in the exhibit. I encourage you to stop by. We're implementing i-ALERT 3, which is a tremendous enhancement from where we've been over the years. We have our people here that have the expertise with it. And you could see we started with a Bluetooth iPhone. Now we've expanded tremendously into an AI platform where you can sit remotely almost anywhere in the world and measure customers' assets and alert them accordingly that they have a problem that needs to be addressed and we can eliminate the lost production. And we continue to build on this technology. And then the most disruptive technology that we're working on and Dan Kernan, I don't see him here, but I'm sure he's here out in the lobby. When you think of a pump, all pumps are run at constant speed motors. And constant speed motors inherently have disadvantages because the systems vary. And when you vary the flow, the only way to control that varied flow is through a control valve. So you crank down on the control valve and you're losing energy because the pump starts to run back on the curve. It's not as reliable as if it's running full speed -- at the full speed of flow that you would need. And this device is self-contained. The only way in the past you've been able to vary speed -- variable speed drive a unit like this is through variable frequency drive. The drive would have to be mounted in a climate control room, remote -- quite a bit remote from the process with wires that come out to the motors and it's very cumbersome, right? So usually, customers would only apply these variable frequency drive to a small adoption of units. This device, as we develop it, will be able to go through an entire plant in properly variable speed drive motor to maximize efficiency and improve reliability. This is really a game changer and a disruptor. Lastly, I'd like to just kind of give some takeaway commentary. I think IP is recognized as premier products, not just the products but the way we manage projects, the intimacy that we apply to customers, the relationships and the perseverance that we pursue this business with. And I think it's really a game changer. And we're elevating our investment to upgrade through VAVE. Luca alluded to it. It's an ongoing evolution. We're going to complete some products. We're going to continue to reinvest to differentiate those products from our competition. We're going to fit really nicely into the energy transition. An example of that is really the job -- the project for jet fuel that I mentioned. That's going to give us a great installation to point to for future jet fuel projects. And because of the innovation, the VAVE, our intimacy with customers, I think IP is really a growth platform going forward in the future and help us continue to take market share and increase profitability. These are the targets that we're striving for. I'm confident with our team the way that we're managing our business that we're going to get to the 7% compound annual growth rate in the future and that we will get the 450 basis points improvement in profitability. So with that, I'll end my discussion, and I'll turn it back over to Kristen.

Thank you, Dave. We will now take a short break. There will be snacks and refreshments in the next room and the team will be available at the technology demonstrations we've been discussing to speak with all of you. Please stop by our tech demos to see the smart pad that Carlo and Luca referenced and the EMD smart motor that Dave just discussed. You can even see a preview of [ Lieutenant ] Cannon, which Ryan will speak more about during his presentation. When we come back, we will start with Connect and Control's Technologies, President, Ryan Flynn, followed by ITT's CFO; Emmanuel Caprais, before ending with our Q&A session. So to keep us back on time, we'll come back on time here at 3:15 p.m. See you soon. Thank you. [Break]

Please welcome Senior Vice President and President, Connect and Control Technologies, Ryan Flynn.

Good afternoon, everybody. I hope you enjoyed the break and are ready for the next part of our show today. In case you are wondering, the music that was just playing was Kenny Loggins' Top Gun. And those of you that have visited, so far, at the tech demo for Connect and Control Technologies, you'll understand why that's important. My name is Ryan Flynn, and I am the President for Connect and Control Technologies for CCT -- for ITT. I've actually been with the company since 2016, originally leading our Motion Technologies business in China, and it's going on 2 years that I've been the President for this business. As Luca was alluding to a little bit earlier, Connect and Control Technologies are products and components that are all around us. Just earlier this week, I was flying over from California to be here in New York and was reclining my seat in the aeroplane using an actuator for seat reclining solutions. When I put my luggage into the storage bin, it was actually the hinge on that storage bin, which is supplied from our facility in Buffalo, New York. We also talk about connectors, connectors in ultrasound for medical equipment. These are examples. Those images that we see are examples of the connections that we are providing and the data that is coming through those wires to us. So all of around us, we have connectors, all around us is our Control Technologies solutions. What I'm going to share with you over the next 30 minutes is why this is a great business. What I'm going to share with you is why this is a great team. And what I'm going to share with you is why this is the growth driver for ITT. Let me share a little bit about the highlights about CCT. To start with in the headline or subline there, I want to emphasize 2 words: harsh and critical. We have products in the toughest environments, high temperature up to 800 degrees Fahrenheit; higher vibration, for example, around the rotor of a helicopter. Moisture. We are innovating and developing products, example, the connector that we produced for the Navy, 20 meters underwater connectivity for our Naval SEALs to be able to communicate back, the only business to do that. This is an example of critical applications where it matters most. I'm going to share an example in Control Technologies. Coming back to my reference points on Top Gun. Think of an F-18 fighter jet refueling up in the sky with a KC-46 cargo plane. It's through our valve that we are dispatching 1,200 gallons of fuel per minute down that extension into the F-18 plane, allowing it to happen quickly, safely, and allowing that pilot to be redeployed back to the battle. That is another example of harsh and critical where it matters most. We are a business that is not only in the Defense industry, in the Aerospace industry, but across other sectors as well. I'm going to come back a little bit later to why it's important that our Defense industry and Aerospace industry is a big pie historically, but will be even a biggest growth driver for us into the future. We are very much strengthened and have a strong position here in North America. But as I'm going to talk a little bit later, we have been expanding our focus also in Asia and also in Europe. We have regionalized our capabilities in these markets. We have very significant operations in Shenzhen, China. We've invested in design, innovation and product development for our customers in that market, for that market. The reason this is important is that the competitive landscape in North America, vis-a-vis Europe, vis-a-vis China, are different. We have to have a different product offering. We need to work at a different speed and develop that intimacy with our customers. And that's where we're developing these capabilities in these markets for the markets, but then also leveraging it back globally is an important driver for us in our business. The other element I want to point out is our brands. Cannon Connector, some of you might have already met [ Lieutenant ] Cannon outside. I hope you did. And if you haven't met him yet -- or her, please go outside and meet [ Lieutenant ] Cannon. Cannon was actually the connector brand that started in 1915 in California. In the 1920s, we were supplying the connections to provide solutions for the first motion picture. In 1969, when Neil Armstrong put the flag on the moon, it was the images using a Cannon Connector that came back to earth. That's just an example of the heritage and pedigree of Cannon. When we look at some of our other brands like Control Technologies, the valve I spoke earlier about in Aerospace and Defense industry, 1940s is when this business began in Valencia, California. And then a more recent brand, Enidine, 1960s this business began and is now today qualified for a whole lot of platforms in the rotorcraft industry, which I'll talk about a bit later. And how is this all possible? It's through our engineers and through our innovative talents that we have, developing close customization to our customers. More than 10% of our workforce are engineers, and we'll talk a little bit later about some of the other innovations that they are providing. And now I'm going to talk a little bit about how we have been performing over the last 5 years. And what you can see here is prior to the pandemic, Connect and Control Technologies actually had pretty good growth, both in our top line and also in our margin improvement. Unfortunately, we all know what happened at the beginning of 2020, tremendous hit, especially in one of our big sectors, the Aerospace industry, where pretty much things ground to a halt. Planes were grounded and people stopped traveling. This had a tremendous impact in our top line in the business. We have been steadily on the recovery. And actually, in this year, in 2022, we will be back to pre-COVID revenue levels despite the Aerospace industry not being in full recovery. And I'll talk a little bit more about that later. So not only we are we focusing on driving our top line, we've also been focusing on developing our profitability, and I will cover that a little bit later as well. I'm now going to transition now that we've spoken about our financial performance, I want to talk a little bit about our products and how they are differentiated in the market. To start with, the first picture you see here is actually an electric vehicle charging solution. This is our Gen 3 product that we're currently developing and soon to launch in the European market. We are the only vendor in electrification for charging solutions, which has product portfolio for the Asia market, for the European market as well as North America, where you have different standards across all these cases. We're also developing products for both slow charging, which is when you plug in at home, but also fast charging when you want to charge -- recharge your car in minutes. The small connector you see on the screen there is actually a recently launched product, our MKJ portfolio, very small nano circular connectors used in the Defense industry. And why is this important? We are developing partnerships with our customers. Just recently, we've been working in the next generation of radio communication of the modern soldier, developing solutions with the system providers and OEMs that are working directly with the U.S. Army. It's through this customization, this engineering prowess as well as deep understanding about the applications and industries we're operating where we'd be able to develop these products that matter for our customers. I'm going to talk just then a little bit about our Control Technologies business. And what you see on the left part of the slide is actually a recently introduced ridge valve. This valve is used for either the transmission of fuel, hydraulic oils or even air flow within the Aerospace industry. And what we've done with this product is we have made it lighter using purely aluminum components. And what we've also done is we've improved the sealing capability, lower wear and longer life. And of course, being lighter is very critical in aerospace when we're always trying to defeat gravity. These are examples of patented products that we continue to develop the solutions for, not only for today, but also for tomorrow. We are interacting very close with our customers developing the solutions that matter for them. Now that we've spoken about our products, I'm now going to transition across to the end markets that we operate in. I'm going to start with the general industrial space. And for general industrial for Connect and Control Technologies, it means a lot of sectors. I spoke earlier about electric vehicle infrastructure and charging solutions, Carlo and Luca Martinotto, they're providing the brake pads in electric vehicles. What CCT is doing is we are providing charging solutions so you can charge those vehicles, whether it's high-power charging or slower charging. The other element here I want to talk a little bit about is automation that's happening through the advent of e-commerce. What we are seeing more and more about is warehouse has been built and deployed. And we're developing dampening solutions, which are allowing the fast traverse of equipment and cargo in those e-commerce warehouses. An industry, which is a very important growth driver over the next years, unfortunately, is actually the Defense industry. With the recent scenario that we see in Europe, we're seeing an uptick in investment. Carlos spoke about the investment of the NATO countries in Europe, which will expand to 2% of GDP. The German government, for example, announced recently they will invest an additional $100 billion -- or EUR 100 billion, in fact, into the Defense industry. So there is a lot more investment happening in Defense, and we will probably see that over a reasonable horizon. But not only that, we're also seeing a modernization of that investment. We're seeing -- and I'll explain a little bit later about some of the modifications that are happening in the Aerospace industry. The last point I want to talk about is Aerospace. And Aerospace, we know was hit hard by the COVID pandemic and is slowly in the recovery phase. We are, as Luca mentioned, early in the recovery phase. And I will go a little bit deeper into that in a short while. When we think about the aerospace industry, in fact, that will be the biggest growth driver for CCT over this time horizon. If you haven't seen yet, please come and watch our video. And what you will see is in aerospace, we have a significant product portfolio and content that goes into planes that are built. We are also talking about the defense buildup and the modernization and all the upgrades and the transition and involvement that we see in that sector. Some examples of products that we are providing in the defense industry, which is relevant today, the Patriot Missile. We all know about the surface to air missile for long-range deployment. We have connectors embedded in that. And once again, there are additional investments happening today in that category. We are providing composite materials that are going into the Javelin missile deployment, which is actually commonly termed today as the Russian tank killer. There's a lot of these examples where ITT's products, our connect or control technologies are really embedded in this sector. We've spoken about electrification the fact that we are going from 15 million vehicles to 45 million vehicles over the next 4 years. And you can just imagine and picture how much infrastructure is needed, how many charging connectors are needed for all these vehicles whether it's charging in your home or charging at a hotel or a parking lot or some other area. And then lastly, some other initiatives we have in our business. I'm going to share about rotorcraft a little bit later, helicopters, but I also wanted to talk about automation in warehousing. And here again, through localization in Europe as well as localization in Asia, we're able to really take advantage of some of these initiatives. Let's then move across to the aerospace industry, which is really the first deep dive I'm going to do out of 4 to share a little bit about some of the growth drivers that we have in our business. What you'll see on the chart on the right is what has happened with the aerospace industry after the advent of the COVID pandemic. In fact, I was on a flight from New York back to China when Wuhan was declared lockdown. And we all know what happened. I did not get on an international flight again for another 10 months. In fact, I didn't get on another plane for about 6 months. And for somebody that would fly pretty much every other week, that was very uncommon and unusual. And I think all of us here in the room realize that and experienced that reality. So what we are seeing today is a slow recovery in aerospace. It's happening faster in what we call the narrow-body plane, the single-aisle plane, the likes of the 737 plane, the likes of the Airbus A320, 2020. And what we will see is that acceleration in the build rates with those planes because of the demand because we are traveling more regionally or intracountry. But the wide-body plane, the double-aisle planes, that's recovering much slower. Every time we have another COVID impact, the Omicron the China lockdown, whatever it is, that's causing this to be recovering at a slower pace than the narrow-body plane. You might ask the question, why is this important and why is Ryan emphasizing this point? And it really is because we are providing mission-critical components in aerospace. Again, coming back to the video that you can watch outside. We are supplying connectors which are used on the avionics. So as the pilot gets going and gets ready to deploy. Connectors that are used on the radar systems. We have connectors that are used in the infotainment systems. When we look at our Control Technologies, we are allowing the safe passage of air through a plane. Every time you turn on that nozzle to allow air to come in, it's through our ducts and pipes that that is made happen. Every time you go to the galley or the toilet to get some water or flush, that's our possible pump solutions making that happen. And as I said earlier, when you're reclining your seat, this is ITT as well. But not only that, we're also supplying valves and actuators, which are allowing the flow of the fuel, the flow of the hydraulic oils as well as managing that air control. So whether it's in the interiors or whether it's in the deployment of flight, that's where we are. And we are embedded on a number of platforms, a lot of the important platforms. We're also involved in business jets, although I'm not talking about here in this presentation today. Once again, we've got significant content. So this is why the recovery of aerospace is very important for CTT's growth driver over the horizon. I'm now going to go to the second example, which is modernization in defense industry. Here, I would like to walk through three different elements, starting on the left with the modern soldier. Some might even call the smart soldier. You can imagine these soldiers today require advanced situational awareness. And how is that made possible? They require battery technology, connectors that are really without -- they cannot fail. They have to perform. When the modern solder gets deployed out into the field, normally, he needs to be out on a mission for 72 hours. He will carry two battery packs with him or with her, and this modern soldier will use the connectors to power up the situational awareness data and communications, computers, radio technology and all the devices that you will find on the lieutenant cannon outside. So power supply and data for the modern soldier is critical. This needs to be lighter, needs to be smaller, needs to be robust, needs to be waterproof. And all the things that you can imagine will be enjoyed by this modern soldier. But now when you're considering data and the data requirements for the modern soldier, picture the data necessity for the fighter jets. Those of you that have watched the recent movie from Top Gun, I actually watched it the other day with my family. It was a great movie, by the way. You will see that F-14, which is the legacy plane, you'll see the F-18. And you will actually see a Gen-5 playing, not from us, but from the adversaries but we have the F-35 as well. And it's these planes now that are requiring more and more data. they're requiring a transition from copper to fiber optics. What is the reason for that? We need a faster deployment of data, of speed so we can dispatch our missiles, we can communicate with base control and all the components in flight are functioning flawlessly. Once again, this is critical components and really needed where it matters most. And that's where our products and components are. Not only we are qualified on a significant amount of these platforms but also on the F-35, which is really the fighter jet of the future. And we're now working on Gen 2 of that F-35 and we'll be qualified next year on this particular platform. When we're talking now about fighter jets, I want to then move across to the engines of a fighter jet. These fighter jets need to go faster. The F-35 will be traveling -- is traveling at 1.3 mach, not 10 mach like we saw in the Top Gun movie, those of you that have seen it, that's a little bit futuristic at this time. But when you think about those jet engines and you think about the heat transmitted around that engine, which is making these fighter jets go faster, historically, that's all been made out of alloy and metals. But now we are able to develop composite materials using our proprietary high resin transfer molding technology where we are able to develop very difficult shapes, sizes and tolerances using composite materials that today is able to handle even up to 700 or 800 degrees Fahrenheit. So this is a very important transition and modernization element that's happening in the defense industry. Carlo spoke about electric vehicles and some of the components we have there. I'm going to talk about electric vehicles as it relates to connectors. So we started our connected journey about a decade ago. At that time, we were developing first gen. I spoke earlier, we now are developing third-gen connectors for AC, alternating current. But not only that, we some years later, 2018, we launched what we call high-power charging connectors. These are connectors that are able to charge a car in minutes, not many hours or overnight. But the challenge here, the technical challenge is how do you manage the heat dissipation. We cannot pick up a cable this big unless you have some automated, I'm not going to be able to lift that. So what we have to do is we need to pull that cable down. And what we developed is technology that is able to manage that process. So when we went forward with Electrify America a few years ago, it was ITT that was providing the connector solutions for charging that car very, very fast. But we keep developing our solutions here for direct current charging, high power, fast charging, but there's a future beyond even the electric vehicle. And the future is also applicable to buses, to trucks, earth-moving equipment, agricultural. You can just imagine, everybody is moving towards sustainability, moving green and electrifying. And we've developed now recently solutions, which is battery exchange technology, where basically you will take the battery pack out of the vehicle out of this big heavy commercial vehicle and charge it offline and replace it then with a fully charged battery, the technology to handle that process, embedded than in the vehicle is what we are working on. And these are very interesting applications because it's maximizing the uptime of that commercial vehicle. No downtime waiting for charging. These assets must sweat and we are an enabler for that. But we're not stopping there. There's the future of electrification in flight. Some of you might have heard of the eVTOL or the electric vertical takeoff and landing technology of the future. We talk about drones. We talk about single-person flights. This is where the future is going. And once again, we are working with our connectors on a number of these applications with a lot of these start-ups and entrants into this industry. So we will see that going out a little bit into the future, but electrification is just in the beginning, and it will not be just EV charging for passenger cars, but go beyond that. I'm now going to talk about lastly, the fourth item is about an example of entrepreneurship of our team, how we have developed ourselves into a new industry. We applied technology we have in commercial aerospace an isolator that's sitting between the outside of -- the inside of the fuselage and what you see on the interior of the plane, absorbing vibration, we took that product, and we applied it to rotorcraft, to helicopters, and we partnered with some customers and started to learn more about the rotorcraft industry. And what we realized is there were a lot more advanced critical applications where we could leverage some of our core competencies in dampening technology. And it was actually Bell part of the Textron group that invited us to come and participate with them in what's called the LIVE unit, the liquid inertia vibration eliminator. It's really a mouthful. The LIVE unit you will find outside, and we've developed that product and we're awarded platform on the 505 and the 525 passenger rotorcraft. In addition to that, we've been expanding our portfolio in the rotorcraft industry. Our engineers have learned more and more about this sector, are leveraging more and more the capability and competencies we have. And also, we've been awarded now content to do co-development with Bell on the future attack reconnaissance aircraft. This will be the fighter helicopter of the future. This will replace the Black Hawk in the years ahead, probably in 2027 or there or thereabouts, we will still see serial production starting. And we're not only working with Bell, there's other incumbents as well that we also are in a technology partnership with as well. So through our engineering progress, entrepreneurship and close customer intimacy, we have been able to expand the portfolio and really develop a new industry for our business. So that's what CCT is today. We've spoken about our markets. We've spoken about our products and why we differentiate it. And I've shared a couple of examples where we truly have a great headroom for growth. We are not only participating in segments that grow, but we're also investing in new technologies. We are developing these critical solutions for the future. And this is not only translating in revenue growth top line, and I'll share my data with you in a moment. But what we're also doing is investing in manufacturing. We're investing in how do we grow our margins as a business. And if you looked at our performance over the last year and even the last quarter, you will see the improvement in profitability also in our business. And yes, then I just conclude with our financial targets. So as I said earlier, right at the outset, I hope that you have a takeaway here today that you can see why CCT is the growth driver. We will be actually driving higher growth in percentage than the other value centers. We're a little bit smaller than Motion Technologies, but we do believe we might be the sexiest at the moment. Thank you, everybody for your attention, I now want to hand over to Emmanuel Caprais, our CFO.

Good afternoon, everyone. I'm very happy to see you all of you. Thank you for coming. It's good to see you in person. So I hope everyone had an opportunity to talk to the people out there to understand the depth of knowledge of our leadership team. So I know it's been a long day for you. And so now it's the moment to wrap it all up and talk about financials. And I think there's a lot of to be enthusiastic about ITT. So in the next 30 minutes, we'll talk about our financial performance. We'll talk about expectations. We'll talk about long-term targets and how we will deliver this improved level of performance. I'll also talk about what we're doing to accelerate capital deployment. And then finally, in the last 10 minutes, we'll talk about the sustainability at ITT and the progress we're making. So as you think about the prospect of ITT, I think it's important to look at those largely positive factors that are central to ITT's investment thesis. And to help with that, I'll discuss in detail each of them in the next few slides. So to start with the demand environment, we believe that many of our markets here are on a multiyear growth cycle. Dave talked about markets like chemical and energy and how he sees that those markets are accelerating, and that should be largely positive for Industrial Process. Ryan talked about aerospace and how this market is firmly recovering. And that will support connector and controls also growth in the future. And Carlo is ready to benefit from the automotive market that is probably near the bottom and is -- with OE production that is off 20% compared to pre-pandemic levels. So we believe that these trends are there to stay. We believe also these trends will be there in the event of a recession, albeit at lower levels. And today, this is not our base case. Finally, I want to say that our businesses will continue to outperform and they outperform these end markets. And thanks to, for instance, the leadership we have in friction, in automotive and also all the progress we're making in Industrial Process and Connect and Control Technologies. So let's talk a little bit about 2022. So the demand environment is a mix picture for ITT. We're continuing to book really strong orders in IP, in CCT in short cycle and in long cycle for projects. However, we continue to face difficulties in converting the strong orders into profitable revenue. And the reason for this is because we're facing, obviously, cost inflation coming from commodities as well as inefficiencies coming from supply chain disruptions. MT is making good progress in realizing price, but it's taking longer than expected. However, we see some good opportunities that we need to capture from a price standpoint within our Industrial Process business. This quarter, automotive volumes were really impacted negatively by the lockdowns in China. And those lockdowns, unfortunately, they've been lasting longer than what we were expecting. So what are we doing to mitigate the supply chain issues we're seeing? So we have a range, obviously, of actions especially on the price/cost equation, but also ensuring that we maintain a good level of service for our customers through more efficient factors. And in fact, we're really working to accelerate the velocity within our factories, for instance, in the case of Industrial Process in Seneca Falls, where we are leading the transformation of our extended pumps, what we call the ANSI pumps as well as midrange pumps, which are larger products, and we're really happy with the progress we're making. And our customers are recognizing it also. We also, as a team, reviewing on a weekly basis how things are going. We're having personal touch points with our leaders. We're traveling to our plants. It's really important for us to keep a pulse on the situation. So 2022 is very challenging, but we're making progress, both on short-term and long-term improvements so that we can continue to improve in a sustainable way. But I'd like to focus about the long term, moving away from 2022. And here, what you can see is that the ITT that was spun off in 2011 and the years after is very different to today's ITT. And I'd like to tell you the story of how we've been improving this business. And we started in Motion Technologies. And in Motion Technologies being a capital-intensive business, the opportunity we saw right away for margin expansion was to improve the return on assets. And the way we did this was by improving production efficiency in order to free up capacity so we could absorb the incremental friction volumes that were coming from share gains. And that's what we did. We did not -- we really reduced the amount of capital we were investing in production capacity while being able to supply to customers on time. And one example that we -- how we conducted this was that we went on the shop floor and understood where the machine downtime was happening. And what we found out was that in terms of changeovers, we were losing a lot of time. And we worked on all the waste that we were generating during the time those machines were down. And by looking at all the activities by really looking at what everyone was doing, we found out that we could cut 70% of the downtime for our machines. And so that we could free up capacity and absorb 10% increase break by volume that we usually see on a yearly basis. We worked also on our supplier panels -- panel. And we concentrated the spend on fewer suppliers. We put our single-source suppliers in competitive situations, so we could lower prices. And we also attacked the product formulation like by removing copper, for instance, in order to really drive costs down for our products. In parallel, we had another business, KONI, another business unit. That was losing money. So it may be a surprise to you because you all know that KONI is in the teens in terms of profitability at the time, KONI was losing money. And we worked really on quality. And when I mean quality, I mean the way our quality is perceived by the customer. We worked on delivery, and we worked on reducing fixed costs. And so as a result of all these actions, we were really able to expand Motion Technologies margin to strengthen ITT's margin. And that was true despite the challenges that Industrial Process and Connect and Control Technologies were facing at the time. In 2017, we decided to expand this MT Operating Model to IP. And here, we had to adapt to IP specificity. So IP has a large project business, roughly 25% of our revenue. And we worked on improving project management practices. We implemented discipline, we implement rigor. That helped us improve the margin and the predictability of project delivery, and we had very clear indicators in terms of quality, delivery and cost again. But IP also needed focus on manufacturing operations and drive waste elimination to improve shop floor efficiency. IP is more manual intensive than MT, and we found also the same recipe to improve our operations there. And last thing really that was left for IP was footprint. IP has a more complex footprint than MT. And so we had to act on this. And so this is why we closed our California site. We closed our U.K. site, and we consolidated our Brazil operations. Once we got IP to double digits margins, we deployed the same operating system to CCT, obviously adjusting it, adapting it to different performance drivers. And despite the improvements that we have done up until now and despite also the headwinds we're facing from a price cost standpoint, we firmly believe that there is a meaningful self-help potential at ITT. And this is why we believe that we can achieve this 690 basis points improvement and take ITT's margin to 20% over the long term. Now I want to talk a little bit about what we're doing with the incremental profit we will be generating. And let's start with what we've been doing in the past. So one thing that is important for us at ITT is to continuously invest in organic -- organically in our businesses. And this is because we always want to keep an eye on the long term. And this is true despite challenges that we're facing, like what happened in 2020. This year, we expect to deploy $265 million of CapEx and R&D to improve our businesses. And we continue to see very much accretive returns across the board. So let me give you a couple of examples. Our Friction business has an ROIC of roughly 35%. And the reason for this is because it provides a very strong visibility -- this business provides a very strong returns visibility because we invest only when we're nominated by customers. And because the equipment is standardized, so it can be reused, last quite a long time, and it can be also relocated from 1 plant to the other. But also productivity investments at IP and CCT benefit from really strong returns. We have IRRs that are higher than 30%. And we talked about automation, the automation opportunity. We talked about the product redesign opportunity as well. And finally, we are making green investments. We allocated a budget of $10 million per year for green investment to improve our energy efficiency. And those projects tend to have quick returns but as well to advance our renewable energy position. And those projects have longer payback. Overall, we're very happy with where we stand in terms of investment, and we continue to invest -- we will continue to invest in the future. So we talked about margins, and we talked about investments. Let's now talk about what happens from a free cash flow standpoint, how those margin improvements are flowing through the free cash flow statement. So the first statement -- the first comment I want to make is that over the years, you can see that our free cash flow performance has been improving as we were making progress from an operational excellence standpoint. And in the future, we continue to expect that revenue and margin growth will contribute to cash flow performance improvement, both in dollars and in percentage. Working capital has been a drag since Q4 of '21. However, we expect to return to a more positive dynamic, a really healthy level of reinvestment in the business to stay ahead of the competition. We continue to invest in Friction. We continue to invest in our other businesses that are less capital intensive to make sure that we develop and continue to develop and strengthen competitive advantages. Our product development, our new product development requires also capital. And we talked about EMD during those presentations and all the other new products that we're working on. Overall, we expect to maintain between 4% and 5% of CapEx run rate as a percent of sales. So from a capital deployment standpoint, let's look at what we've done in the past from -- or up to now. From an M&A standpoint, we've been able to -- we've been able to make some progress, especially after the asbestos divestiture. We work harder to reinvigorate the pipeline under the leadership of Bartek and the M&A team. And earlier this year, we made the acquisition of Habonim. We continue to progress also on our venture investments and we think that they will add critical technologies to our portfolio. And hopefully, you saw the announcement we made on Tuesday with the acquisition of an equity portion of CRP, which is an additive manufacturing company with whom we're partnering and that investment was around $20 million. And in addition to accelerating M&A, we're ramping up our dividend, we're ramping up also our purchase -- our repurchases to ensure that our shareholders benefit from our progress as well. This quarter alone, we repurchased almost $60 million in shares. And the year-to-date total of repurchases is over $250 million for the year. And this is -- as you can see, this is quite a step-up since 2021. And this is the evidence of the confidence that we have in ITT's prospects. Looking forward to the next 3 years, we have ample capacity to accelerate our capital deployment further. We intend to flex our balance sheet muscle and to continue to build a stronger ITT organically and inorganically. Obviously, we'll continue to be disciplined about capital allocation, and we expect to meaningfully change the way ITT looks today to make it a larger and a more profitable company. The point I want to leave you on this page is that even after reinvesting in our businesses, accelerating repurchases, increasing our dividend, we still have more than $1.5 billion of capacity to deploy for incremental organic investments, M&A or repurchases. So as we think about capital deployment, we thought it was a good idea to talk about our M&A framework, the way we make decisions from an M&A standpoint. And so while we want to maintain a large degree of flexibility, our goal is simple, we need to acquire businesses that will strengthen ITT's existing businesses from a growth and a profitability standpoint. And we do this by using the following framework. So strategically, we look for targets that play into the same applications we're currently in, like pumps and valves, like energy absorption for KONI and Axtone, and connectors to our CCT franchise. Geographic expansion is also a driver of our M&A because some of our businesses are more concentrated in specific regions. We like this target to have recurring revenue streams that are easy to capture and have a history of outperformance for very unique reasons. And so if you look at the synergy part, we're attentive to the synergy potential, and this is part of our disciplined approach, especially around productivity, opportunity as we deploy MT operating model, as I discussed because we want an opportunity to enhance our competitive advantages. And all this will allow us to generate results that are -- returns that are accretive to ITT. So let me highlight how this aligns with our Habonim acquisition that we just did at the beginning of April. So Habonim makes specialty valves for energy, for chemicals, for biopharm. And they've been growing close to 10% over the past 3 years. So clearly outperforming markets. They also derive the majority of their revenue from Europe and the Middle East, where we are historically weak. From a synergy standpoint, we think that, as Luca mentioned, the largest potential is actually for us to learn from them because they're really good at designing products with standard components that can simplify supply chain, simplify assembly process, and they still meet customer demand because they customize at a late stage. And so therefore, we think that by replicating what they know how to do best, we're able to improve our existing valves franchise. And Carleen and I, Carleen is our IP segment CFO. I've been talking to Habonim, our team in Israel, and we're very confident that we're going to see those returns. So as we wrap up this section, let me leave you with the headline numbers. We believe that collectively, our business can achieve 5% to 7% on average revenue growth year after year. The volume growth compounded by margin improvement coming from productivity is expected to generate 20% adjusted segment operating margin, contributing to an average yearly EPS growth of over 10%. All this will flow down to produce free cash flow margin of 11% to 13%. And this does not consider any impact from M&A activity. And for sure, we have the balance sheet capacity to deploy. So clearly, this is an attractive setup for ITT over the long term. So with this new long-term targets introduced, let me now shift to another important team, sustainability. And sustainability is not only the right thing to do for us as ITT, but it's also a fascinating topic because it's full of opportunities, and opportunities for innovation and for self-improvement. So how do we think about sustainability? So we have an ESG framework. And when we look at everything that we can -- that we need to do from an ESG standpoint, clearly, environmental is the pillar where we have the most work to do. And this is why we wanted to really organize our thoughts and our actions. And so this is why we established a framework around reduce, avoid and offset carbon emissions. This is allowing us to determine a simple incredible path to net neutral carbon state. And you will see how this is translating into concrete projects that will make us a greener and more sustainable company. From a social pillar standpoint, safety plays a key role, and we'll see that as well. And then finally, turning to governance, we consistently rate really high in this category, but we're working hard to maintain our best-in-class practices and shareholder rights. So let's look a little bit on our green capital expenditures. Under the reduce, avoid and offset framework, we're investing in large solar projects in MT and CCT. And we will be able to generate a meaningful portion of our electricity needs from these projects as soon as 2023. And as we become more confident and more competent about these topics, we will cross -- we will accelerate the deployment of these projects across ITT. We're also investing in improving energy efficiency. And I want to give you an example of how we decided to invest in a co-generation facility in our Barge plant. And we partner with an electricity producer to upgrade our 15-year-old equipment with a newer and more performing facility. And this new investment will generate an 8% energy efficiency improvement, just for our Barge site. And we're looking at similar projects in our sites, for instance, in Poland, in Kanczuga. What is also key is to focus on less capital-intensive project also. For example, we are working hard to reduce waste in our plants and addressing, for instance, a compressed air leakage and also improving water recycling. And so we have established a task force that I lead, and we meet every month to understand how we're progressing, what other projects that we're working on so that we can replicate across the organization. And every year, we intend to add more solar projects, for instance, to our other facilities to add to the 30% energy needs that are coming from renewable sources today in ITT. Sustainability is also with our products. And you heard our efforts, as discussed by our three leaders of how we are able with our products to help our customers with their sustainability journey. And here, you have examples of three very promising products. You have the EMD, which offers the same benefit as a full variable frequency drive or VFD, for a fraction of the cost and the footprint. And here, we have Dan, who will be very happy to take you through this innovation. Our copper-free brake pads, our EV brake pads and our Smart Pad are already helping our customers, and Luca Martinotto stands ready to demonstrate those functionalities. And our EV connectors, as explained by Ryan, they were a really tiny business in 2013. We've grown that business to represent almost 5% of CCT total revenues with orders growth in Q1 of more than 70%. And we have [indiscernible] here that are specialized in those products and can help you understand the magnitude of the innovation. So let's look a little bit about social and the progress we've been doing for safety. And this is very personal for me. And so we designed a safety strategy in order to improve our performance because we're very much performance based. And we think that there's no reason why we can't improve or safety the same way we're improving everything else. And we recognized that safety was foundational to our operational excellence journey. And to that end, we ensure that everyone understood that safety was a priority, and tone at the top was clear and unambiguous. We developed reliable safety metrics and use that data to drive simple decisions and simple actions. We also ensured unprecedented accountability within our plants and within the safety function. And we quickly sprung into action. We introduced ceramic knives. We eliminated the use of forklift in terms of plants. And we deployed the stop, think and act methodology to ensure that our people were prepared before they initiated an activity. And our focus continues to pay off. You can see those numbers about the number of incidents, the frequency and the severity are all going down. And I think even in 2022, today, year-to-date, we have only 22 incidents. So you can see this is a meaningful improvement compared to the 80-plus incidents we had in 2021. Finally, I want to talk about governance and our best-in-class practices. So as much as I've built a record on the environmental pillar and the social pillar, I'm very grateful to our teams of lawyers who have built a best-in-class governance practice. We consistently rated really high in this category. Our ISS QualityScore is 1 which puts us in the top 10% of our peer group. And you can see our best practices highlighted here and in our Annual Proxy Statement. We also received consistently strong support from shareholders voting at our annual meeting. For example, in 2022, each Director election, the outside auditor ratification and the Say-on-Pay vote was approved by our shareholders by above 98%. And you will read and hear more of our progress in terms of sustainability in our upcoming 2022 Sustainability Report. Okay. So let me wrap all this up for you. So hopefully, you saw that we have significant runway for growth and margin expansion ahead of us. We have a proven approach that we have deployed in our businesses, and that will yield significant incremental benefits over the long term. We intend to complement the self-help benefits by deploying our dry powder and to profitably grow ITT. But this is a challenging environment. Today is a challenging environment. But no doubt, I bet on ITT to navigate this situation the best. So I hope you saw why we are enthusiastic about the future of ITT and how we are ready for the next chapter. So thank you. It's been a pleasure talking to you and seeing you today. And with that, I'll invite the speakers back on stage for our Q&A session.

Well, now comes the fun part. Luca and the team are here to take your questions. When you were handed the microphone, we ask that you state your name and your company so that those on the webcast can know who's speaking. We kindly ask that you limit your number of questions to one and one follow-up question and then pass the microphone back to the attendants who will be in the aisle. Please also wait for you to receive the microphone before you start speaking.

Mike Halloran with Baird. So let's start on the capital deployment side. Obviously, you laid out a lot of numbers on what the buckets could look like over time. Two full question. First, how much flexibility, given how the stock market was reacting, do you think there is between how you want to allocate from M&A versus buybacks on the external side? And then secondarily, when you think about the optionality you have internally and the areas you're going to be really focused on, maybe just a little bit more depth on the types of products by end market application set that you'd be more interested in?

Okay. Thanks, Mike. Maybe I'll start and then you build on, Emmanuel. So when you're looking at the capital deployment, the priority really have not changed. As you have seen, as Emmanuel was talking about the return on organic investment, and this is where the money will go first in terms of -- and you have seen probably today how many opportunities we have to grow organically. So this is where money goes first. Second is on the M&A front, and this includes also the venture capital, but acquisitions. And we have a very rich pipeline that we have built and that is gaining momentum, thanks to Bartek's reenergizing the M&A team. And after that is the growth of dividends and share repurchases. So that has not changed. And Emmanuel, you can comment if there will be more on flexibility, on share repurchases.

Yes. So really, we want to prioritize M&A because this is how we want to grow this company. We think there's a lot of work that we can do. And certainly, Bartek has reignited the flame for us. So we want to give him the opportunity to do a good job. I think that we've been pretty aggressive in the purchases so far, as I mentioned, and I think that it's about flex our approach is about flexibility. So if we don't see probably a lot of M&A opportunity down the pipe, which is not the case today, we could dial up repurchases but we want to really make sure that we are disciplined in our approach and that we really take advantage of our balance sheet, muscle that we have today.

And then going back to the areas, which is the second part of your question. Before I address that, there is also another point that as Emmanuel shown in the slide, we are in a good position to be able to do all of that because you have seen the share repurchase that we've done for instance this year. So that is a good position to be in. Now when you look at the different areas to look at is really when we believe in rail. So rail and the area of KONI is an area where we are actually looking in terms of, you can say, rail, energy absorption. So that's one. The second area is in IP, it's a very fragmented market when you're talking about pumps, and we want to grow also a valve platform. We see valves as a platform for growth for us. So that's number two. And we really like connectors. We have turnaround connectors, thanks to the work of Ryan, [ Ellen and Arth ] and this is another area that we are looking into.

And the second question then, when you think about the aftermarket portion of your Friction business, has there anybody thought to iterative change to that strategy, I think you're dipping your toe a little bit more aggressively in China? You're adding more technology to the brakes itself, which maybe gives you more IP, which maybe gives you a little more entitlement to the aftermarket than currently. So any change in strategy on that side?

Maybe I'll start, but I will leave it then to you, Carlo, is that so far, the strategy has been really to focus on our aftermarket in Europe. And this is where we are very strong, both on the OES and the independent aftermarket. We have decided so far not to penetrate not to enter into the North American market and try something in Europe. That has been so far. But Carlo, why don't you take it from there?

I believe that our partnership with Continental is really good. I mean you should think of their distribution channels, their power from that point of view. And the fact that instead, we are experts at designing and manufacturing brake pads, this really gives a boost to the entire -- to the entire product line. Yes, it's true that we're trying an experiment in China, which is a different market where Continental is not particularly present. So we will see how it goes. Well, hopefully well.

Go ahead, Joe.

Joe Giordano from Cowen. Just wanted -- on the long-term projections, it all seems fairly reasonable, but I guess I'd say the IP aspect of it looks the most ambitious relative to recent history. So maybe you can walk us through 5% to 7% growth for a business that's been flat for a while, and it's a pretty sizable margin ramp as well.

Yes. So we made a lot of progress as we explained for IP. And we've been able -- as we've been working on the improvement, we've been able to improve our differentiation for this business. And so that's why we think that because we have such key advantages in markets like chemical, we're well positioned in energy as well. And as Dave was talking about, we're really strong in terms of industrial with our ANSI products. We think that there's a lot of share that we can go out and capture. And I think that we're seeing right now both on the short cycle and on the project evidence that we are capturing share out there. So I think that there is no reason as we continue to improve on our quality record, as we continue to improve on our on-time delivery because even though if we make progress, we're nowhere near the 99%, that Friction is in right now. There is a lot of progress that we can make. We're still better than the competition, but there is much work that needs to be done. And so as a result, we think that we're going to be able to outperform the competition and gain market share. And as you get this improvement from a volume standpoint and as we continue to develop the MT operating model within IP, I think that we feel good that we can improve our margins 20% target. I would say you referred to our Q1 performance, which has been under the usual run rate we have of around 15%. And I think that it's fair to say that in Q1, we're impacted negatively by supply chain issues that prevented us from shipping everything that was expect by our customers. I think that as we mentioned, in Q2, we're already seeing a significant improvement of our shipping run rate when you look at April, much stronger than what we did in January. So we expect in Q2 to get back to that level of margin between 15% and 16%. And then from now on, we're continuously working on all the lean improvement that we talked about in SFO, but think about it, we're going to deploy it everywhere else into the organization because there are many plants that today are not nearly as lean as SFO is.

And if I can build on that, I think that the IP is rich of self-help opportunities. If you think about the VA/VE, we just said 25% of the pumps have gone through. Now there is 75% where we can go after reduce our cost, improve the efficiency so -- and then in terms of the factories, they are not even close to where they're supposed to be. So plenty of self-help.

I guess as my follow-up, I'll build on that because you said to do the other 75% in VA/VE, it could take 6 to 8 years. So how should we think about this 20% target in terms of timing, particularly that it looks like we're probably going into a recession here? How do you think that impacts your portfolio? How far -- like how far down do we have to go first before we can step back up in that scenario if we have the recession?

Yes. So a couple of things. The first thing I want to say is that during the pandemic, we went down in terms of revenue. And actually, our margin increased by 200 basis points. So it is not given the self-help opportunities that Luca was talking about that our margin will go down. I think that we feel that between the 3- to 5-year time line, we can reach that 20%, both a combination of volume, as we mentioned, and self-help opportunities.

So Jeff wants to say something.

Jeff Hammond, KeyBank Capital Markets. Just a couple of questions for Carlo on MT. One, with the price cost dynamic being so challenged, are you thinking about changing how you approach pricing? Or can you do anything to change that approach as you go forward on new program wins? And then second, what's the assumption for auto production in that 6% to 7% long-term growth? Because it just seems like with the outgrowth and where we are cyclically that growth number can be better?

So let's start from how we approach rising. So every offer that we've made in this inflationary moment and onwards, have been typically designed with an escalator. So this means that there will be some type of adjustment, natural automatic adjustment going forward. And this should protect us in the coming years. In terms of production, I mean if I look at IHS, the situation -- the projection says that there will be 99 million cars probably made in 2025. We are thinking that this is probably a little bit optimistic. We believe that we will probably be between 95 million and 99 million. So this is our latest thought regarding that. Typically, if I look at IHS, they have been a little bit optimistic. And so we take a little bit of a hedge to that. I don't know, Luca, if there is anything else that...

I think that at the end of the day, what you have seen also, Jeff, that we want to reiterate, we have outperformed the market for the last 9 years. And what we see is, thanks to the technological change or electrification and why we show it, we think that we will continue to outperform the market. So that is something that you can think about also our own performance in auto.

May I add just one thing. If you think at the same time that our outperformance is across all regions, but we are reaching market shares, especially in Europe that are really high, we will do our very, very best and we will continue to outperform, but it's going to be harder and harder.

Okay. And then one for Ryan. You showed the charts on wide versus narrow, and that was helpful. And it looks like your content is a little heavier wide. And with the -- particularly with maybe the slower ramp, is there anything you can do to kind of increase your content on the narrow side as you kind of come through this recovery? Or are most of those programs kind of already baked?

So it's a very good question, Jeff. Thank you. When it comes to aero platforms, primarily you either there or you're not. So it's not so easy to become an additional incumbent on that. But we have seen the strategy from the OEMs that they're looking also to expand their supply base. I think everybody realized that by being maybe single-source supply on a certain platform, you've become a bit more vulnerable. So we are searching opportunities to expand our content beyond just expand our content on all the platforms, not just the narrow but also on the wide. But you're right, the wide will recover slower because of the reasons I stated earlier.

One thing that Ryan wasn't really able to explain in the presentation because we had to select also the information we're willing to present is that we have a substantial presence in business [indiscernible]. And so I think that business have been very good for us in terms of the growth, especially during the pandemic. And so that has been a positive one. The other thing you may want to talk about also what we're doing from a rotorcraft standpoint because we think that there's going to be some nice volumes that are coming our way, right?

Yes. So on rotorcraft, I think we spoke about the FARA platforms, where we are working with the two incumbents that we'll look to win that platform but we're also working on aftermarket there as well, which is -- we spoke about the LIVE unit. And then you think about the refurbishment that's coming from that. So -- and some of that -- because we began that quite late, we only entered that industry probably in 2017, 2018, we're starting to see actually the return, if you will, of aftermarket opportunities for refurbishment of those LIVE units.

David Ridley-Lane from BofA. How would you rate your ability to capture value from new product introductions in the past? And you're obviously investing more in R&D, so that spending is going up, but do you think the returns on that R&D investment are going up as well?

Okay. So Yes. When we are investing in R&D and let's talk about the now and the new, that is -- I'm not saying it's relatively easy. But for instance, every time we're building a new product, a new brake pad for a new platform, we build all the case in terms of you see really the margin, you see the cash flow and you do all the analysis that you approve that investment. And therefore, we are pretty -- I wouldn't say safe but you know what you're accepting. It's difficult, more difficult when you're talking about the next. If you think about the EMD that you, David, were talking to [ Dan ] there outside of the Smart Pad when you were talking to the team, it's a little bit more tricky because you are building a business plan. you're building a business plan making assumption of what is going to be the market, going to be the adoption, what is going to be the timing. And therefore, there are plenty of assumptions there. So the way that we do that, the way that we are monitoring also because these are very long term is that we have regular review. So on the EMD as an example, Dan and the team have a monthly meeting with a steering committee on the EMD, which I am part of just because, as I said, I love this product. These are strategic, are key. And when it comes to the Smart Pad, GALT, then we have a quarterly review because we are a little bit more advanced, in which we are reviewing. So -- but as I said, there are more assumptions there, and we will have to see. Having said that, these are really a game changer. And I believe that if we want to really change the game, we need really to make this investment and these efforts. And today, we're able to bring the results that we're being making this big investment in these smart technologies. Did I answer your question, David?

Absolutely. And then as a follow-up, thank you for all the details around the EV penetration and your market share. I was just wondering how you think about the impact on the car park and the aftermarket opportunity. I know this is probably beyond the 5-year forecast that you presented today, but do the EV brakes last longer and therefore, limit some of the aftermarket goodness?

Maybe I can start and Carlo, you can build on that on the specific aftermarket that we do have. So when you look at the car park out there, which is huge, and even if you think the adoption as it's accelerating now, it's going to take quite a long time for the aftermarket really to feel it. We do not see it in the next 10, 15 years. It's going to be not a material impact from that point of view. And then the last point we're going to make before passing over to you, Carlo, is that when it comes to the aftermarket, there are two schools of thought in terms of the way it's going to work out from an OE perspective. You may have a school of thought, some OEMs, which may decide, okay, these parts are going to last for life. And then there are another school of thought, which is, well, this is a profitable business from a service point of view, and therefore, I'm going to reduce the part, I'm going to make them thinner. And therefore, I'm retaining the service business, I'm making the system a little bit lighter because for an electric vehicle, it's also the weight is a problem. So exactly how it's going to work out is still to be decided. And probably you have different OEMs decide in different ways. Carlo, anything?

I think you said it all. I mean in terms of the market that we're serving in aftermarket, the partnership we have with Continental is really on the higher end. So we think that on that specific front, it will yield -- continue to yield the results. As I said before, we really feel -- we have the right channel, the right partnership. So that's my perspective.

Please, Vlad.

Vlad Bystricky from Citigroup. So you had mentioned the impact of the China lockdowns kind of lingering longer than expected and being a little worse than expected. So can you talk about where you are today from a production capacity standpoint in China and how you're seeing your supply chain in the region recover and react?

Okay. Let me share some information, which will probably be more on the general side. So when we look at our plant kept on operating all the time, so if you talk about also when there was the lockdown in Hong Kong and Shenzhen, our plant in Shenzhen was stopped only for one day. When we look at the Wuxi plant for friction through all of Q2, it kept on operating every single day. Now obviously, not at full capacity because as you realize, there was some days, weeks in China where the sales of automotive in Shanghai was zero, okay? And some of our customers closed their factories. So obviously, the production was lower. When it comes to the supply chain, we've been able really to manage the supply chain very, very well with the exception of one supplier that where we were not able to work with the government and with local authority to get the proper authorization. But this require a level of management in terms of hour by hour and stuff that we have to do, which was -- we've never seen it unprecedented. I mentioned in the past to some of you that actually, our people were going to the highways, they had to take the truck, escort the truck to the plant. At the plant, leave the driver in the truck, down load ourselves the truck, escort the truck back to the highway and then go through the process of disinfecting all the packaging and everything. So that is what our incredible team in China has been able to do.

Separately, can you talk about ITT ventures a little more? And why is taking minority stakes in these companies kind of the right strategy? And how do you think about the longer-term strategy with these investments that you're making?

Okay. So the short answer is, it depends. Now I think that you have different cases here. If you're talking about cuts works on the connector side, is really exploring a technology that they do have with our fantastic penetration in the aerospace and defense, combining the two product portfolio for an offering that is quite unique. So I think that this, I will say, is expanding our growth opportunities. And they have a specific knowledge of that product we do not have. We need also to realize what we are really good at, what we know and it's a learning process. So if you look at the last one, CRP, where we have a minority stake in that, we don't know that business. I mean we -- sure, we are much bigger than them, but we need to learn from them. We need to learn from them exactly how they are managing their business profitably, the technology, and then eventually, it could be a potential acquisition. But first thing is that be humble, learn and then see where you can take that business. So that's -- the acquisition is not excluded, but you start properly and with humility and learn.

[indiscernible] from Capital Group. My question was for Luca on the Smart Pad. I'd be curious, what do you think about like time line on that getting commercialized? And thoughts on you have your kind of market share that you have right now and what you think the market share will be in 2025? How did the Smart Pad kind of potentially change dynamics? Do you think that, that would be another market share driver in future years?

Okay. Regarding the Smart Pad, this innovation is classified as Luca was saying, in the next. So it's something that we consider disruptive. So one of the problems we had up to now has been that the maturity of the market was not there. So it's something that we started the fit because we thought it was fitting with the trends, but we realize that for some customers, this was still difficult to understand. So now we are happy, we're more optimistic because we see this maturity of the market coming and understanding more clearer way the benefit of this product. Our road map is still to try to -- the product is okay, as I mentioned, it's fine. We have a product ready for the market. We have a plan to try to close. We are dealing with one OEM and one -- a Tier 1 that we are -- for which we are optimistic to be able to close something in the short term. But the time frame for commercialization will be around 4 to 6 years, also because this is the time -- the normal time that we need when we homologate our product, a standard one to go to the market is 2 to 3 years, so can be faster. So regarding the market share, I think this is a product we have been discussing how we have been incrementally growing for the last 15 years, but incrementally, this is more something exponential. So we are not expecting a growth the short term. So in the short term, we are not expecting something fantastic. Probably, we would be starting from sports car and high end of premium but we expect the exponential growth later on. I don't know if I replied to you.

And the reason -- to put a finer point is that the exponential growth comes also from the fact that we're going to price for value, and the value is much different than a regular breakout. And so you're not going to see the same selling prices.

And a quick follow-up. When you think about competition, I mean, you guys are doing amazing things on copper-free and the Green Pad and such, how difficult would it be for a competitor to replicate the Smart Pad? How much like -- I don't know if there's a way for you to quantify on dollars spent, time, expertise, anyway, that kind of shows like how long it would take someone to try and catch up?

I would say -- listen, the competition have tried to catch up and copy easier stuff. Let's not forget a bigger company than ours, a very well-run company of ours had the Friction business. And their people -- some of their people came from ITT, and they knew. Some have recruited ITT people, have copied our prices, our lines, our technologies. But you still see they've not been able to do it and they end up divesting or selling their business. And so it's -- this is what Carlo was saying, it's difficult to get every ingredient right. You may have the best tomatoes but if you go to [indiscernible] mozzarella, the pizza is going to taste bad, right? So you need all the right ingredients. When it comes to the Smart Pad, it's not only more difficult because of technology that is protected by how many patents, Luca?

We have 15 patents.

15 patents. We recruited the best patent lawyer, thanks to Mary Beth, there is in the United States, and we protected all of these with a mother patent with all the necessary things, it would be very difficult for them to walk through and copy part of it.

And from a financial standpoint, so you know our competition doesn't have the same level of profitability and a lot of them are struggling. So they're struggling in their regular activities. And I think it's such a disruptive technology, I know for us, requires a lot of financial commitment. And so I think it would be very difficult probably for them to spend that kind of money. And you have several things that you have to have. You have to be able to have a product that withstand those temperatures that Luca was talking about, I think you mentioned 800 Fahrenheit, right, the degrees. And then on top of that, you have to find a partner that's going to be able to help you with that circuit board that Luca was mentioning. And that's not easy. And so you have to have -- not only you have to have the other -- the advantages that we were talking about for the regular pad business. But on top of that, you have to be able to invest in relationship with that electronic board supplier, you have to develop also the algorithm and the software. And so...

There is also another thing that I don't know if we were able to transfer clearly but is the data scientist is the shifting of your business to data management. Because when you're developing this algorithm that they're telling you the friction level between the brake pad and the rotor that is given by the sensor, et cetera. When the pad is getting used and getting thinner, then you have to develop an algorithm that develops based on that thickness because the signal will be different. Now that is a change from your mechanical engineer. So they will left to shift, which is also the time -- shows the time that took us to get there.

Brett Kearney with Gabelli Funds. A question for Dave. I think you did a great job outlining the opportunity in LNG, the win with the refinery in Nigeria. Curious whether broadly you're seeing more urgency amongst customers for energy security-related projects coming out of the war in Ukraine. And then operationally, you talked about the progress you've made at the Seneca Falls facility. Would you say across the IP footprint that the plants are generally on the same level in terms of improvement to date and opportunity runway ahead? Or is there kind of more regional geographic opportunity across the different plants?

I would say as it relates to the energy product, the higher energy product that we try to put through Korea. I think they're a little bit further ahead in terms of managing those projects most proficiently. We get many letters from customers saying, you did a great job. Thank you so much. It's on schedule. We're very pleased with the project, but they're making a different product that we're making in Seneca Falls. So we're delineating products according to where we think the expertise is and that we can expedite those most effectively.

So maybe I can build on that one and maybe Emmanuel, you talk about the energy market, et cetera. I would say, there is also a different approach and different challenges that you have in different countries, correct me if I'm wrong, Dave. But when we went to Korea, and we look at the way they were operating, it was one meeting. It was a discussion. It was an interesting debate. It was not an easy meeting. But the second time we return to Korea, the changes were implemented. The [indiscernible] was heard. They heard it and they act. When it comes to changes in manufacturing in the U.S., they are particularly challenging, it's a particularly challenging environment because, a, there has been not an investment in manufacturing in this country, second, because the specific condition of the size being traditional historical union or whatever, you might have more challenges, culturally speaking. So we say Saudi, definitely top, Korea, definitely top, North America challenge over there and some challenges in other European side, too.

And so I think that the amount of self-help that we talked about is reflected by the fact that we still have significant runway in Seneca Falls, even though we made progress. And most of the runway also in outside of Seneca Falls. Korea is in a different place. But in Europe, we have -- I would say it's fair to say we haven't even started lean. So there's a lot of stuff to be done. From a market standpoint, for sure, we're seeing good demand from the Middle East from an energy standpoint. And we're seeing also good demand from the -- from North America from an LNG standpoint. And so we're pretty enthusiastic about at least in the short run, short to medium about the potential we have from energy markets in those two regions.

It's Joe from Cowen again. Just two quick clarifications. So you have a big aftermarket contract with Continental, a 10-year contract. I believe it expires next year. Is there any reason to think that wouldn't be renewed? And if so, like should the terms be fairly similar? And then just last on the VA/VE, the 25% that you've done. Is there a way to like quantify the financial impact that, that's had for that small percentage of the portfolio?

So maybe you want to start with the Continental?

I can do. So as far as Continental, you're right, it expires at the end '23. We are progressing in our conversation with Continental. We have a really great partnership with them. And I don't think there is any reason why the contract should be different, it should be not extended in -- under the same term. So I'm very fairly confident.

I would say the beauty of the relationship with Continental is that is a very good partnership. We all know what we are good at. They're excellent on the distribution, distribution channel that they have is second to none. And we are good at making brake pads. This is a partnership that has been a win-win for a long time, it's a win-win today. So I think that I'm pretty sure that we will continue to look at the opportunities in that way. Regarding VA/VE?

So regarding VA/VE, it's definitely part of our long-term targets. So the 20% is definitely including VA/VE. I think, as we mentioned, is taking quite a bit of time because you have to make sure you design and you have to make sure that the design passes all the quality requirements or the performance requirements. Then you have to launch the tooling and then you have to make sure that the unit -- the physical unit confirms everything that was -- so it takes a while for us. But I would say it's probably a meaningful portion of our margin expansion and for us to realize that 20% margin target we have for IP.

Will?

This is Will Jellison from D.A. Davidson. Ryan, there's a couple of things I'd like to learn a little bit more about in the EV charging connector business. The first is within the Level 2 market, do you have a sense of what the sales mix is between connectors going into the single-family residential market versus commercial workplace fleet?

So what we see, Will, is really a difference depending which market of the world you look at. So if you look at like in the United States, we see a lot more residential because people have garages, they're able to equip their homes with an EV charging. But when you go to China, for example, which is a significant EV market, they don't have that capability because they're all living in high rises. So we do see a disparity across the globe in terms of home charging versus infrastructure build-out. We also know here in the U.S. is obviously being big commitments made by Biden and others to really invest in the infrastructure build-out. So I think we will see an acceleration also in, let's call it, the commercial aspect of investments. So it's moving around a little bit. depending on the investments from countries, governments and cities and also depending on high-rise versus homebuilding.

Okay. And then within the public infrastructure, do you have -- I know it's early days, but do you have a sense of what the replacement time line might look like for a connector in a public infrastructure that's getting used day after day by different people?

We don't really see an aftermarket opportunity in that just yet. I think we will see more as time goes by. A lot of those connectors are sitting in the outdoor environment. We also see vandalism happening with some of those connectors as well. So I think the aftermarket will evolve, but it's not there yet today.

It's probably early stage.

It's very, very early stage. Today, we're dealing mostly with the integrators and the providers for the whole connector solution or not connector, but the infrastructure build-out solution. But I think the aftermarket will certainly come into play later down the road.

Okay. Just one more follow-up. And then within the DC market, you talked a little bit about the longer-term opportunities there with higher power charging, especially needed for eventually planes or ships, for example, which is probably going to be needed on the megawatt scale. I can't help but think about the copper intensity of the cables that are going to be needed for that. Is there an opportunity for ITT to innovate in that realm, for example, potentially reduce the copper intensity of the cabling needed?

So we are not a vendor producing copper cables ourselves, but we are partnering with cable companies to develop the technology that's able to manage that heat transfer. So you're right. I think we need to find an alternative way so that the size of those cables basically are going to be reduced. But the big challenge we face right now is really the heat that is generated from that. And that's where this liquid cooling scenario that I spoke about earlier, where you actually got liquid flowing around the cable and then going through a cooling system and then recycle back into the system on a closed loop that's enabling that solution. So you can actually reduce the size of the cable, but then you're going to have a higher heat generation. So there's a trade-off between heat and copper -- the size of the copper cable.

So really, I think that it's going back to really focus of what your core competencies are, right? So if you think about knowledge on the cable, no, I don't necessarily think that we'll get there. The knowledge of the application and coming up in co-creation with the cable manufacturer the best solution from a connectors point of view that might solve some issue that the cable has, absolutely.

We have time for one more question. Then I'll remind everyone that the entire team will be next door available to continue the conversation. With that, I'll turn it back over to Luca.

Yes, some closing remarks from my side. I would like to, first of all, to thank you. You have been very generous with your time. So thanks for that, and thanks for coming over for connecting to the event. We share a lot today and we sincerely hope that you saw ITT market-leading position in markets that we will continue to grow, as we said. I hope that we made our ability to differentiate real for you, for you to be able to touch it, really, and that you see ITT's long-term growth and value creation potential. But the most important thing, I hope that you've been able to meet the ITT extended leadership team to get to know them, to get the sense of who they are, of their passion, of their depth of knowledge and you've been able to see how relentless and hard-working these incredible leaders are. And I'm so fortunate to be able to work with them. So now it's really time for a drink. I hope you have time to spend a little bit more time with us on any drink. I would like to thank Alex and Dan for helping in making this happen and all the leaders that put everything together, Kelly, [ Luciana ] Gabriel, Andrew and everybody that works so hard to make this day happen. I'm sure that they will have a drink, too. And thank you. It will not have happened without you. And Mark Macaluso, you are connected. My friend, thank you very much. I hope you get well soon, and thanks for everything that you've done as well. So let's have a drink. Thank you.