We started with the team from Gates and a great pleasure to have Ivo Jurek on stage, CEO of Gates. I think this is the first time we've done a five-hour chat for a long time, Ivo, so I'm really looking forward to this. And Richard Kwaaz, head of IR as well. So, Ivo, I don't think you've got open remarks or anything, but maybe I'll just ask you. Do you have open remarks? Anything to say before we kick into the Q&A?

I really don't have anything specific prepared, you know, outside of, you know, the situation around the globe is actually reasonably constructive, despite all of the turmoil that we see on the front pages of new news on a daily basis. And so I'm happy to go to the Q&A.

Great. Well, that's a great, great, great, great, great place to break the ice, because lots of questions around, you know, how sustainable is the strength that we've seen? I mean, you know, we've now had four months of ISM above 50. Global PMIs are actually in coordinate expansion for the first time in a very, very long time. So is this real? Is it pre-buy? I mean, is it a head fake? Or do you think this is more sustainable?

Yeah, look, I think that we spoke about this a little bit on our Q1 earnings call. But, you know, when you take a look at POS, and as everybody knows, we have a large aftermarket business. About 65% of our revenue comes from aftermarkets. So when we look at the POS data, the POS data would actually suggest that the underlying businesses may be even a little bit better, whereas inventories are not building out, not building up in a channel. So any speak around pre-buy, I think, is not real. I think it's very emotional to talk about a pre-buy because of what's happening in the markets and particularly in the supply chain around the world. But we feel pretty good about where the inventories stand. When you take a look at the underlying demand for us, certainly for Gates, about 80% of our end market exposure is in expansionary type behavior, which is good. Not everything is, you know, growing super fast, but we got things that have turned from negative towards more neutral. And we have, you know, things that are actually seeing, you know, a reasonable level of strength in order intake and actually in business itself, underlying business itself. So I would say that, you know, so far so good. Feels better than just a head fake. But, you know, there's a lot that's happening globally that could come to fruition, you know, at any given time.

So it's actually remarkable that we've got, you know, essentially the Middle East shut down at this point in time, yet things feel really good. So, I mean, obviously we had a bit of a shock in March, which didn't seem to have a big ramification for our kind of demand profile, but that's continued. You're not seeing any second derivative impacts at this point in time?

No, we don't. And we've actually had, and I think I stated it on the earnings call, we had a pretty good strength that we saw reasonably broadly in April as well. The orders were trending very, very nicely. The revenue was trending very positively, very much in support of our midpoint of our guidance. And so, you know, we feel reasonably okay at this point in time or better than okay. Yes, there's lots of uncertainty out there, but we also need to remind ourselves that we have been, you know, we're coming out of kind of almost an unprecedented period of time. We had four years of negative PMIs, just about, right? And that's really quite unprecedented. You've got to go all the way back to World War II, and you still wouldn't see four years of negative PMIs. So I think that there's lots of underlying pent-up demand, and I do believe that if we start seeing a little more stability, I think that you can actually see even more constructive end market demand.

I think the PMIs during World War II are actually pretty good with all the warplanes getting produced at that point in time. Okay, and obviously April was good. It sounds like May has continued on that track as well.

Yeah, May is pretty much on trajectory as what we've anticipated. Okay.

And 80% of your portfolio today is in expansionary phase. Just remind us on the 20% still kind of flattish or down.

I would say actually auto is down, which is a very small part of our revenue. This is about 7%. Interestingly, and maybe counterintuitively, energy is down still. And that's predominantly a result of the fact that we have fewer wells that drill actively today than we did even a year ago. I do believe that that will invert with oil prices staying at the levels that they are staying. And should even the war resolve itself imminently, I believe that you're going to see a prolonged period of higher energy prices anyways before you can replenish the reserves that are being consumed. So I think that there's going to be more drilling activity ultimately as we get into the second half of the year and exit 2026. So I think that that end market should trend more positively as we get closer to the backside of the year. And then, you know, we have still seen negative on highway. That being said, we spoke about positive inversion in orders, and we believe that second half of the year, that's going to invert as well. So, you know, so I think that the other OE is going to remain under pressure for the year. But the other two, and markets that kind of give us that 20% exposure, those should be a little more positive on the back side.

Okay. Thanks, Ivo. You reported down three and change organic in 1Q. You called out the selling days pressure. That was about 300-ish points. 300 base points. You had the ERP transition in Europe, which is another 300 base points or thereabouts. I think you said, Ivo, that underlying X those two items that you've done about 3% organic growth in one queue. That was the message.

Actually, the math was that we actually felt we were up 300 basis points. If you take those two headwinds and you look at it, we were actually down 270 basis points year on year in revenues that would kind of give you the underlying growth rate of about 300 basis points. And, you know, that was about kind of how it felt and how we, you know, how we felt the business to be performing. And so when you think about going from, comparatively speaking, 300 basis points to 350 basis points in the middle of a second quarter, you know, that's totally attainable for us. And we feel quite comfortable with that.

Well, I was actually thinking this actually feels a little bit conservative because, you know, you're assuming no real improvements. You've got a little bit of the push out from 1Q and you've got some extra price going in. So 3.5% for 2Q might feel a little conservative. Is that a little bit spicy to say that, or is it totally fair?

Look, I think that the underlying business activity remains quite okay. And, you know, again, I think we spoke there are lots of risks that can come into fruition. And so we are trying to be pragmatic and, you know, resurrecting my favorite word, pragmatic. So, yes, I think that, you know, overall, the business should, you know, feel better than than, you know, what we have guided. But we just want to be pragmatic.

Nigel, on your point about pricing, really, in terms of the inflationary impacts, we're really going to see that in earnest in the third quarter. It will be a little bit in the second quarter, but really the bulk of it is scheduled for the third quarter.

So maybe if I just throw the lens on the second half of the year, you know, if we do see on-highway starting to pivot back to growth, it seems to me the shale activity in North America, given the production rates right now, has to infect pretty hard in the second half of the year. It feels like there could be some nice upside to the second half. Again, you want to be pragmatic, but again, is that the way you're seeing the world right now?

Yes, we do. I think that, you know, the underlying activities, again, remain, you know, very constructive. We also believe that, you know, exiting kind of at 350 basis points of growth in Q2 and then kind of going to the back half and kind of 4.5% core feels totally doable for us, particularly when you take into an account that you will be getting, you know, we've lost two days in Q1. We will get one of those days back in Q4. So, you know, we don't feel that back half of the year is a stretch in revenues, certainly, taking into account where we see the activities presently. Excuse me. And on the margin side, you know, we are getting about $10 million of benefit from the restructuring in North America that we are doing. So we are certainly on track of being able to deliver that. You will have no headwinds that we have experienced in the first and second quarter from the ERP implementation and the incremental cost of that restructuring. So, you know, that 23.5% of EBITDA at the back half of the year feels very doable for us.

Yeah, I do want to come back to the EBITDA margin dynamics because there's a lot to unpack there um but i just want to take a step back and think about what you're doing to accelerate growth and and you're kind of trying to make your own luck as opposed to you know just being a cycle jockey you know so maybe just talk about some incentives and initiatives in play to to really overdrive the cycle yeah look first of all you know i am you know i look at what we have done with this business over the last say 10 7 5 years vis-a-vis growth.

Certainly since we became a public company, we have reduced our automotive OEM exposure by 50%. So that's very traumatic. It went from about 16% of our total revenue down to about seven. We didn't shrink the company. The company grew during that period of time nominally. When I take a look at the 10, 7, 5, 3, so not too cherry pick, core generation of compound annual growth rate, organic, we run about 3 to 3.5% over all of those periods of time. So if you take a look and compare us to, you know, some of the multis and you look at their organic growth rates, we have very much smack in the middle of that pack. So we have delivered growth while we have improved our portfolio. How did we do that? Well, we've done that by focusing on driving some organic initiatives within the company. So one of the big organic initiatives that we have driven was around our personal mobility. And personal mobility, as you know, is converting chains on bikes, motorcycles, and scooters into a Gates belt drive systems. That has delivered a very nice offset to that portfolio pruning that we have done with auto OEs. That business has peaked at about $150 million, $160 million in 2022. We will certainly exceed that peak or get right on that peak in 26. That business now continues to grow at kind of 20% to 30% range. And we have quantified that we anticipated that business will continue to grow at that rate kind of through 20, 20, 28. And then, you know, we'll take a look and see if, you know, if we can continue that level of growth in the future, which is not inconceivable, obviously. But at that point in time, that business is going to be much, much more sizable. Obviously, we have a nascent portfolio of data center applications in the liquid cooling side that we believe is going to be kind of the next leg for us into that 27, 28 timeframe, and we frame that, that we see about $100 to $200 million of opportunity. We have an initiative that we call Industrial Chain-to-Belt Conversion. While I haven't spoken a lot about that for a number of different reasons, we've actually built a very nice underlying franchise, and we believe that between 27 and 28, that's going to become much more relevant in continuing to drive growth for us in the industrial space. And we are certainly super excited about it, and we'll spend more time at our next CMD in 27 framing that opportunity and what it represents from what baseline. You know, so I would say that the incremental, you know, organic opportunities are there, and they are quite tangible, and they're quite exciting for us. in verticals that are probably being much more durable and sustainable over the midterm. And our core portfolio of products is actually growing as well nicely throughout the cycles, but that's more cyclical. So the organic opportunities that have outlined are much less cyclical in nature, they're more secular, and I think that when you marry that cyclical portfolio and the secular opportunities, we feel that we can deliver again an organic growth in excess of 3.5% of the midterm. Okay.

And would that be 3.5% average across the cycle? So therefore, we could maybe expect 3.5% plus in 27, 28, especially if data centers start to kick in.

Yeah, absolutely. I think that's kind of how we look at it. We are looking at, you know, through the cycle, and that's why I kind of started with the 10, 7, 3, you know, 5- and 3-year growth rates.

Maybe just bring us up to speed in terms of the path to commercialization for the liquid cooling portfolio. I think you've said second half of this year, maybe fourth quarter, we start to see some meaningful benefits from that. Is that still the case? And you said $120 million in 2028. That's quite a wide range. I mean, based on what you see right now, I mean, do you think midpoint that range is most likely?

Yeah, look, I think what I see today is that the opportunity scope is getting bigger. I think it would be framed that I think liquid cooling was very nascent technology in only a smaller subset of data centers. I would say that today we see these opportunities scaling up. Vast majority of data centers is going to be liquid cooled by 27, 28. And, you know, we feel confident that we will be able to deliver that range of revenue. And, you know, when we get to 27, we will talk more about what that revenue base is going to be. But the opportunity set is growing. Our pipelines are growing. Our exposure to projects is growing. When you start thinking about Vera Rubin, you see a bigger content of liquid cooling in those applications. So I feel reasonably confident that we should be right in the middle of that range.

And is the Gaten Factor at this point in time, I don't know, is it Vera Rubin rollout? Is it qualification on certain platforms as the Gaten Factor?

It's qualification. It's ramp up of our technology. You know, it's scaling up production in the applications, you know, and we are in a full range of applications where we are already supplying. Obviously, we're talking about very substantial growth rates that we are quantifying to the street. And, you know, we have done that, yes, from a small revenue base, but growing very, very nicely. So we are generating good revenues and, you know, we have more technologies that are ramping up. We anticipate that in the second quarter of this year, so this quarter, we will be ramping up our e-water pumps in the first commercial application, so that's pretty exciting for us. Obviously, we have lots of fittings and coupling opportunities that we are now in process of scaling up, and that capacity is going to be coming online in 27. So I think that the scale-up is what is going to give us more breadth of actually invoice revenue. The opportunities are there. They are pretty sizable, and they continue to grow because the exposure grows.

Okay. And then you mentioned, going back to chain the belts, you said 2728 would be more impactful for that. Why?

For the industrial subset? Predominantly because we are working on a couple of new technologies that will give us the opportunity to get to closer cost proximity of drive costs. So the sprockets and the chain of sprockets and the belt, and that opens a whole new subset of opportunities, particularly with the industrial OEMs who value a little different value proposition than maybe the end user operator. The end-user operator is focused on, you know, greater efficiency, you know, reduced energy consumption and lower maintenance, whereas the OEM is much more focused on getting the right price point into the apparatus that they're going to supply to the end-user.

Great. I think the big news from last quarter was the acquisition of the Timken belts business. Your first deal as a puppet company CEO, I think, Ivo. Seems like a great deal, but is that the bar? I mean, one deal every eight years has to be a huge ROI-type transaction, or are we going to see more deal flow from here?

Well, obviously, it was a first transaction because for the last seven or eight years, we were working on cleaning up a balance sheet, and our balance sheet today is in a very, very good shape. It's nicely below two times leverage, which we believe gives us the right to start thinking about how do we deploy our capital in efficient ways in more than just perhaps buybacks or organic investments. We see that there are a ton of opportunities to add to our capability right at the core of what we do. And this Timken transaction certainly, it was more opportunistic, but it gave us an opportunity to do a smart deal through, you know, acquiring assets that perhaps made less sense with the prior owner. We certainly are a better owner of those assets. And so, you know, that will be an opportunity where we can not only improve that business over the midterm, but it's a, you know, it's an asset that is right at the core of what we do and we'll do well with it. So, Nigel, I wouldn't say that we need to demonstrate that we can deploy capital in a very, very effective manner, and this is a very effective deal, and it will be a very, very smart transaction for us, but we will deploy capital much more frequently, and we have a good pipeline of opportunities, everything from things that we are in due diligence on to things that we are in good discussions about getting engaged, and we feel pretty well that we'll be announcing something more this year.

And, obviously, the Timken acquisition is straight down the belt, I guess you could say. Is that the roadmap going forward? Is it more a case of just basically taking in smaller competitors, consulting the markets, but essentially keeping the core philosophy?

I think certainly for the first few transactions, we believe that, you know, scaling up our product lines, plugging some holes that we have in portfolio, perhaps adding breadth and scale to geographic presence. You know, I'm really big on in-region, full-region manufacturing, in-region, full-region customer support. And so I think that we have opportunities to scale that up. Obviously, we are, you know, super well present in North America. You know, I think that there are opportunities for us to be more present in Europe, more present in Asia. And so, you know, those are things that my view are opportunities where we could deploy capital efficiently. And, you know, we are not planning to do something that would be potentially viewed as adding a third leg presently. I don't think that that's necessarily what, you know, where our focus is. We want to demonstrate that we can do transactions that are reasonable, where we will generate good returns for shareholders and where our shareholders can take a look and say, yeah, you know, I get it. This makes sense for the company to do that type of a deal.

Okay. If you were to dream of a third leg, I mean, when we think about some of your larger competitors that play within sort of hoses and hydraulic systems, you know, filtration would be a natural area. Is that sort of where longer term you could branch into those kinds of areas?

You know, it depends on, you know, how you view the evolution of industrial complex over the longer term. I mean, I think that it would be kind of a, you know, natural evolution that one could get to. But, you know, my view is that we want to be a much bigger player in industry automation. And, you know, we want to revolutionize how, you know, power is being transmitted in industry automation. So obviously we believe that mechanical transmission of power through belted system is more efficient than through chains. I think that there are opportunities around sensors, actuators that are in a very close proximity that give you a better presence to build up a nice portfolio of electromechanical automation. And I think that that would be something that I would look at. There are also opportunities where, you know, we are in, you know, we obviously in well-defined end markets today, but, you know, there are opportunities with some of the things that we are working on presently vis-a-vis think data center applications, the fittings and couplings that we are deploying in to data center applications. They have great scalability and applicability in biopharma, in food and bath, in medical devices. And so, you know, you could also think about an expansion through penetration of some interesting new verticals through the product portfolio that we may potentially already have at our disposal. So I think that I would look at it, you know, in those two axes.

Any questions in the room? If you do, put your hand up. So, Ivo, your stock's still very cheap. You've been leaning more on buybacks than M&A, obviously, in the last several years. How do we feel about that mix right now based on the pipeline of opportunities you see? Is there more of a more bias towards M&A here than buybacks?

Look, I think that we can do both. We generate a ton of free cash flow. As I said, you know, presently, I mean, we are living, you know, in a certain neighborhood. I don't have the opportunity to go and pay 15, 16 times for some transaction because it may make sense. So I think that we'll be doing smart M&A where we don't overpay for assets that have the opportunity to return capital back to shareholders and drive appreciation. And along the way, because of our free cash flow profile, I think that we can also continue to do buybacks. And a stock is very inexpensive, I think, for the quality of an asset that we have.

Yeah, I agree with that. Just want to finish off on margins. You mentioned, obviously, we've got some headwinds you're absorbing, especially in one key, but it's also in two key. Second half, you said 23.5%. I think the words were very doable. What was that effect? You said you're in print with 24% EBITDA margin for 2027 with no volume benefits. With all the moving pieces on inflation, et cetera, is that still in play, the 24%?

Yeah, look, let me nuance that a little bit. Okay, so in the first half of 24, we will get incremental $10 million. Sorry, 27, I mean 26. In the first half of 27, we'll have an incremental $10 million benefit from the restructuring. That's the second half of the benefit that we will deliver in the second half of this year. So that should bring you very close to that 24% EBITDA at that point in time, obviously. Now, you will want to get a little bit of a component of volume to continue that trajectory. But, you know, taking a look at where we sit today, it would be frankly inconceivable until something really broke that you wouldn't have some volume growth, right? And potentially have a decent volume growth. Yeah. So I, you know, I don't look at a 24 percent as kind of a stopping, you know, and end station. I only look at it as a kind of a intermediate station on our journey to continue to improve the quality of our asset. We have a great company, fantastic brand. We make things that people need in all scope of industrial applications, some traditional, some emerging and exciting new opportunities. And so I think that, you know, there's an opportunity to drive long-term value creation for shareholders that have a good horizon of time. And, you know, I think that the opportunities, I'm super excited. I know that the best time is ahead of us, not behind us, and maybe better future than we have envisaged even three or four years ago.

That sounds great. So if I had to say to you, what's your major concern right now, what keeps you up at night, what would that be?

I would say presently it's more of the geopolitical instability that obviously is not helpful. But we have done a lot during 2022-2023 to diversify our supply chain, invest a lot more heavily in material science, protect our supply chains, fortify them, diversify the supply chain viability. So, you know, and we continue to spend quite a bit of management resources and time on ensuring that during this present time, we can protect our customers and protect our ability to manufacture. And I feel reasonably okay that we're going to be able to do that even without a near-term resolution, potentially to some of the things that are happening geopolitically.

And right now, the supply chain is functioning quite well, inflation on the check.

Yeah, I think that the supply chain is still in a good shape. I mean, we certainly are doing a lot to ensure that it stays that way. Look, inflation is going to be what inflation is. The commodities are what they are. We don't control those, so we will price for them.

Yeah, but you wouldn't say the customers are right now in complete price fatigue mode. They're still accepting price.

Look, I think that everybody's in the price fatigue. We are in price fatigue. Our customers are in price fatigue. But this isn't something that we control. And in a way, I would say that with some customers, it may even become an easier conversation because they see those. You know, the inflation today is not is not vague. It comes from very well-traded commodities, steel, aluminum, copper, oil, right? And so I think it's visible to everybody on a daily basis. And so in a way, you know, the conversation is, it's never easy, but it's easier. It isn't, you know, like, well, my wages have inflated, and, you know, the conversation is very different when you have that type of dialogue. And they deal with it every day.

Yeah, that's right. Well, Ivo, I think we'll draw a line there. Thanks for the conversation. That was a great conversation, and thanks for being here. Thank you.