Thanks very much, everyone, for the last session. I think today it's my pleasure to have Ivo Jurek, Chief Thanks very much, everyone, for the last session. I think today it's my pleasure to have Ivo Jurek, Chief Executive Officer of Gates Industrial. Gates has obviously been public for around five plus years, five to six years now. I've enjoyed having you at this conference and welcome Ivo. Maybe first off, interesting business touches a lot of different geographies, many different industries, distribution, OEM, industrial, automotive, personal mobility. Maybe sort of give us your sense of investors seem to be rattled this week in a way that they were not for the last three or four months. How are you seeing kind of demand right now? Are you worried about customer inventories? Worried about destocking? Maybe just sort of broad thoughts on that, first of all. Sounds good. I think that that's a question that is very relevant in today's environment. As I said on our call maybe a few weeks ago, we have seen a reasonably strong demand across all of our end markets. As you pointed out, Julian, we're quite diversified. We touch lots of different end markets. We delivered a Q4 where we have seen strength everywhere. I would say that the weakest performance in our end markets was diversified industrials, and it was basically nearly 10% core growth. Everything else was above that, right? Clearly, price was a big part of it. We delivered mid-single digits volume growth as well. When I take a look at the underlying demand, and that's in the face of having a very weak China, obviously, from a COVID perspective. When you take a look at how did January finish, January basically similarly performing as what we have seen in Q4. Our book to bill remained above one, which was very solid. We have just not seen a meaningful change yet to demand that we have experienced in Q4. We have talked on our earnings call that end of Q4 was significantly impacted in China with COVID. Obviously, January was significantly impacted with COVID and Lunar New Year. The activities are starting to rebound, and it is performing very much in line with what we have anticipated. You are going to see a recovery in Q1 in China. Q2 should be quite reasonable taking into account that Q2 of last year was very weak in China. When you take a look at our guidance, right now, we felt that the demand is solid, but we also are being pragmatic. We felt that at some point in time, you will start seeing some level of destocking, predominantly driven by customers getting more comfortable with supply chains. Our view is that perhaps in the second half of the year, you start seeing some inventory coming out of the channel, and that's kind of what we have planned around as the year progresses. I guess how, I do not know how to put it. how, I do not know how to put it. How scientific or precise is that sort of destock assumption? Did you try and look at it by region or market, or you just say, "Okay, bottom-up salespeople and the regional managers are saying, I do not know, 3% volume growth in the second half. Let's assume some destocks that will just take off four points." I just want to understand how did you come to that destocking assumption? Yeah. Look, I mean, our view has been that when you look at the inventory levels and you take a look at our POS reports, the POS reports are very healthy. There is not an excessive amount of inventory in the channel presently, but that is based on the present run rate of sellout, right? If sellout decelerates, the conversation becomes a little bit different. We have actually taken a reasonably pragmatic view and say, "Look, we think that there is going to be kind of mid-single digits decay in the second half of the year in volume attributed to destocking. We have a couple of points of growth driven through mobility and energy markets that are very, very robust, very buoyant. You have price." When you put those three components together, that is kind of how we arrived at the back half of our guide. We're still, we're being pragmatic on the volume side on the run rate business, but it could be better, right? I don't think that we have a real scientific purview that can call out three quarters out what's going to happen with our short cycle business. The reason it's sort of back half is just because short term, as you said, January felt the same as Q4, so there's no reason to assume it happens imminently. Presently, that's kind of how we view it. If you take a look at the composition of our business, Julian, a big chunk of our business is in automotive replacement. That business has got some very, very positive dynamics, right? It's got the oldest car fleet ever. Folks are not necessarily able to replace H cars with new ones. You have very high miles driven numbers in the Western world, and you see a very strong rebound in China even early in January. That to us feels like they should serve as a little bit of a catalyst to have a less impactful demand destruction, if you would, if that occurs. We got kind of different dynamics. We have always attributed the automotive replacement business as being a little more stable business, and we believe that that is going to be playing itself out in 2023. One thing in your end market sort of outlook that I noticed was it's small, but sort of the auto OEM and mobility piece you assumed wouldn't grow this year. That was, yeah, I just thought that was, it seemed low given, I don't know, most industrial companies are assuming, call it low to mid-single digit growth in auto, OE, and mobility have got some very good outgrowth. Right. Let me first point out what that slide represented. That slide represented our global view of the end markets, not necessarily what we believe is going to happen with our business. When you take a look at the underlying markets, we kind of felt that the underlying markets should grow kind of low single- digit when you rank it all up, right? That is the underlying market demand. When we take a look at mobility as an example, I mean, we still believe that mobility is going to deliver a really nice growth because for us, we are not necessarily dependent on the end market growth. For us, it is a conversion story. We are converting, reconverting chain to Gates belts. It is a penetration story, not an end market unit growth story. I've discussed on our earnings call that we have a very large pipeline of opportunities, and we believe that we ought to be in a situation that we continue to deliver a very high rate of growth over the next couple of years. When you take a look at oil and gas, we feel quite good about the energy markets, and we are really well positioned. We have done a good amount of innovation over the last three or four years. We've gotten into some interesting unique applications in fracking spreads where we replace some hard piping with flexibles that we manufacture to prevent some leaks and make it a little more user-friendly to pipe those spreads out. We have some incremental growth there. When you take a look at auto OEM business, we always felt that the IHS is a little too optimistic. I think that you recognize how I've been somewhat conservative on the estimates, and I feel that we were a little bit closer to our estimates with what happens with the unit builds. We have taken a more conservative view of what we anticipate the auto OEMs are going to be able to do because I still do not believe that they have licked all of their supply chain issues. At some point in time, you will also start dealing with the consumer and impact, right? I mean, the cost of acquisition of a car is up quite substantially. The yields on the loans and leases are going up, and is that going to impact how many cars they build? We are just taking a different perspective. On sort of personal mobility specifically, very good business for you. Maybe remind us of the scale of that today and what you think about the growth rate there as you look out. Yeah. I remind everybody that the business was kind of a $20 million size business for us in kind of 2019 timeframe. We have exited 2022 at $200 million run rate. We have grown really, really nicely. We have committed during our I-Day last year in March that we anticipated that business should be growing kind of in the mid-20% to 30% compound annually for the next three to five years. We are participating in a massive marketplace. I mean, that business opportunity is kind of $12 billion-$15 billion for Gates Corporation. We believe that today we have less than a couple percent penetration. We want to drive that penetration over the midterm to 5%-10%. As you do that compounded math, I mean, it is pretty big, pretty big heavy numbers. Now, we think it's going to take a little bit of time, but we have been demonstrating that we grow that business very, very nicely. We can continue to do that well into the future. How does sort of the profitability of that look versus the segment average, let's say? The profitability is above company fleet average. It is not only a great opportunity to deliver growth, but as we mix up more towards revenue that's generated out of that end market, we also mix up our gross margins and EBITDA margins. Got it. I guess a couple of, I don't know, secular topics I wanted to get your thoughts on. One was, yeah, your business is global, but when you look domestically, there is a lot of chat the last two years about onshoring, reshoring, and so forth in North America and Europe. How do you see it when you talk to your customers? Do you think it is something real or just a topic that comes up every few years for decades? Secondly, in the sort of auto world specifically, the electrification momentum is very, very strong. Is it sort of playing out as Gates hoped in terms of growth, but also your dollar per dollar of content per vehicle? Yeah. Let me start with the onshoring question, right? The onshoring question, I think it's an interesting question, but I think that you almost need to ask yourself kind of, is there a different driver, right? I mean, I think that the geopolitical events were kind of shocks to the system. I think if you take a look simply at how much it costs you to do business in China today versus what it was 20 years ago, and if your business was based about, "I'll make it in China. I'll import it back into the U.S.," I just don't think that you're going to be doing that over the long term because the labor rates are much more costly, logistics and distribution, all the bureaucracy duties, and so on and so forth. I think that if you're consuming your output in North America, I think it's just pragmatic to reshore that production. You'll reshore it into the U.S., or you will reshore it into Mexico. I believe that it's already happening. That represents tremendous opportunity, I think, for many companies that are in industrial automation. It bodes really well for us when it comes to industrial chain to belt, or just the belt-to-belt opportunities where we participate. I actually do believe that there's going to be kind of a longer-term secular trend for companies to bring production back into North America. Switching on the electrification for a second. In terms of electrification, I think that the electrification is a very interesting and unique opportunity for Gates Corporation. We have quantified that we kind of have a $300 content per vehicle. I would say that on the industrial applications, so heavy-duty truck as an example, that's much bigger content. It's kind of $600+ per rig. What we have anticipated that's going to happen is happening. We have highlighted on Q4 as an example that lots of our business in automotive in Q4 was driven by the automotive applications. That's around that set of applications. We have also deployed a strategy of selective participation in automotive. Selective participation means that we just feel that we don't need to be in an OEM application. We are the biggest, broadest brand in automotive replacement globally. In every region that we participate today, we are number one or number two market shareholder, typically number one market shareholder. We do that with very limited participation on the OEM side. We are focused on building a portfolio for car park that exists. Presently, we believe that we are number one in the portfolio availability of the existing electrified platforms that are on the street today globally. For us, in order for that opportunity to materialize into a sizable revenue, we need that car park to scale up, and we need that car park to age. We are still projecting that even with the accelerated rates of growth that you see today, we still do not anticipate that is going to become a meaningful opportunity for us until sometime in 2035 because, again, remember, we play big in kind of that 7 years-12 years old vehicle fleet. You have to scale it, and then you need to age it. That is just a matter of time. We are very excited about it, but I think that we are more excited about some of the near-term opportunities that we can execute: personal mobility, industrial chain to belt, and then, frankly, broadening our participation in diversified industrial space. On the latter point, how do you attack that exactly? It's a vast, broad market. How are you prioritizing this region or this specific vertical within diversified industrial? Yeah. Again, I think it's a really interesting question to answer. When I take a look at what we were successful in personal mobility as an example, we've kind of evolved from 2019 in how we drive that penetration. We had to do a couple of things. Number one, we had to design a set of digital design tools to enable the designers of the equipment makers to spec in a belt-driven drive rather than a chain-driven drive. We have done that. We have developed a little broader portfolio so that we can actually offer not just the belt, but we are now offering those end users the entire drive, so the sprockets as well as the belts. That has accelerated the penetration rate. When you take a look and you say, "Hey, look, I want to spec it into the OEM space in diversified industrial." We have started in Japan because Japan has a great base of machine builders. It is really kind of a hard place to penetrate for an American company, if you would. We have seen an incredible set of design wins and a really substantial growth of industrial chain to belt penetration in diversified industrial space in a machine builder space. We have taken the approach that we have taken in personal mobility. Now, when you take a look at a place like North America as an example, in North America, we are prioritizing existing installations and converting existing drives that utilize chains and converting them into belts. That is a little bit of a different approach. There is a little different sales cycle. There's a little different application engineering cycle that's assigned to that. We are balancing these two approaches, and we are focusing on where you have lots of machine builders. We are focusing on the OEM applications. When you have a broader base that is already established, like in North America, we are going in, and we are focusing on prioritizing existing facilities. Perfect. How do you think about the sort of the scale of the opportunity in dollar terms or the, I do not know, market share or share of the TAM that you had? Again, in personal mobility, it is a more discreet, easier-to-isolate market. You can say we are going to go from two to seven and half or whatever share. The rest are industrial by nature. It is a mass. Huge. Yeah. Okay. The point is, it's so vast, any share gain is meaningful extra dollars for you. Absolutely. Look, I'll point out to when you were thinking about how Gates is growing, when we went public, about 16% of our company's revenue was contributed from automotive OEM business. We exited 2022 with about 8% of total revenue out of automotive OEM. We have grown the company, and we have offset that selective exit, if you would, with much better, much more robust, much more profitable revenue that we have generated. We feel that we are in a place where we kind of got the stability to the automotive OEM business that we want to have. We also believe that that incremental growth rate, everybody's asking us, "Hey, how do you sell? What's the metric that we should use to judge how you grow?" We said, "Look, we think that it's kind of an industrial production plus 200-400 basis points above industrial production growth." We believe very comfortably that we can grow that because the opportunities on the mobility side, we chain to belt, on the industrial side, we chain to belt. By the way, the answer to your question is we are about 1% penetrated, less than 1% penetrated in the industrial chain to belt. We are so early, and we believe that we have tangible wins. We are solving very tangible problems that our customers have. I think at one of our calls, we talked about a food producer where they had a real issue with the chain drives gawking up from the production process that they had. They are running those plants 24/7, lights out. They had to shut down kind of day every two weeks to clean those drives. You have completely eliminated that from occurrence. The payback is pretty big for those companies. We believe that the value proposition is very robust, and we are now taking it step by step and going and driving penetration. It is a long-term opportunity for the corporation. That's helpful. Maybe switching away from the top line to margins for a second. I think this year you've got about 100 basis points of operating margin dialed in with sort of flat volumes on the top line. Maybe expand a little bit on the confidence of that margin uplift. More broadly, sort of 80/20, how full through the organization is that process? What are the areas that you think are left to keep driving it? Yeah. Great question. Look, we've kind of quantified that we're seeing just normalized operating performance. And by normalized, I don't mean, "Hey, look, we need to go back down to 2006 or 2015." I don't think that we're going to see that level of normality or normalcy. If we just don't have any more geopolitical events and we kind of operate in the environment that we have seen in Q4, just operating in that environment is about 200 basis points of improvement to margins for us. Not expediting materials from one region to another, from one location to another, getting a degree of kind of a run rate stability in your factories where you're kind of level loaded, not having to expedite and pay premium labor rates for Sunday operations so that you can support your customers. Those things represent kind of 200 basis points-250 basis points of improvement on margin. To us, that's kind of a given in a run rate for us. That gets offset slightly by additional cost associated with variable comp that comes in that got obviously hit in 2022. That offsets kind of that 200 basis points of 2022 as a result that you got to kind of maybe guide it to 100 basis points of improvement, right? When you start with that, we believe that 80/20 standardized productivity, which we have demonstrated that we drive quite nicely in a normalized environment, and restructuring should add another kind of 200 basis points-250 basis points of gross profit and EBITDA margin improvement. The volume that we have talked about with better mix should give you another 50 basis points. If you go back and you start at the exit point of 2022 at 19% EBITDA, and you add kind of that 250 basis points normalized run rate to that 19% and 250 basis points in 80/20 restructuring and productivity and 50 basis points in volume, you kind of get to that 24%+ that we have described. Frankly, for us, we think that this is kind of that 24-30 months timeframe that we should be able to reach that. Now, giving you a more specific answer to 80/20, we've just started the journey. We have deployed the 80/20 process on our automotive replacement side of the business in the second half of last year. It's proceeding quite well. We are learning the process quite well. We believe it's a significant opportunity. Once we are done with automotive replacement globally, we will deploy it on the rest of our business. For us, it's not just 80/20 on the portfolio because we have been doing lots of work with innovation to reducing complexity below the skin. This is kind of reducing complexity above the skin a little bit and looking at optimizing pricing processes and looking at how you treat different customers. All customers are important, but there are some customers that are more important than others, and it's just a fact of life, right? We are very excited about that process, but we're also very excited about deploying that process in our corporate processes. We can quite significantly lean out how we do day-to-day business and look at our front end, our back end, and eliminate some waste from our process. That's great. Maybe sort of free cash flow, very strong end to 2022 on that cash flow profile. How are you thinking about the pace of sort of working capital normalization? I suppose if you're two times levered later this year, there is the scope to start to do things at last with the cash. Kind of how excited are you about that? On M&A, do you think Gates has the ability to sort of bring on decent-sized targets, or they'll stay small until you get more used to doing deals? Yeah. So look, very happy with the free cash flow generation in Q4. I think there was lots of skepticism whether or not we can reach it. What I'm even happier about is that we actually started to already eat into our working capital at the end of Q4. We believe that we have a significant opportunity to drive inventory down. We are seeing more stability in supply chain. We certainly anticipate it's still going to take maybe a quarter or two before we actually see the logistics worked out on getting the materials placed where we need them in a standard mode of transportation. If you put that aside, we believe that we have a good opportunity to take inventories down without necessarily reducing the output at our factories. We can start at a reasonable clip eating into those inventories that we've brought in. The other thing, remember, a big part of working capital for us has been we've delivered on pretty outsized growth over the last couple of years. That drove receivables up, and ultimately, that put some pressure on cash conversion. Our commitment is to deliver 100% cash conversion over a long-term future. We have done it prior to making the massive investments in CapEx in 2018 and 2019. There is nothing fundamentally inherent into the business that says that this is some heroics that we're going to have one year, 100% cash conversion. This is something we want to do year in, year out. We generate terrific cash flows. Converting that 100% as a percent of adjusted net income gives you lots of optionality at that point in time. That optionality for us, we view that with elevated interest rates, the best use of capital maybe in 2022 is to pay down more gross debt. That is going to improve your cash flow. It is going to increase your EPS. As you exit 2023, you now have an optionality to take a look at some more buybacks. You have optionality in you have a pretty strong balance sheet at that point in time, a much stronger balance sheet. I think that you can start thinking about M&A that is a little more scaled up. I just think that I do not necessarily subscribe to the, "I am going to go in and buy these small companies." It is too much work. Generally speaking, it is kind of tough to make a difference. There are lots of companies out there that Gates like, if I can borrow that term, highly engineered, precision engineered, mission-critical replacement cycle. There are lots of companies that are good size that could be good targets to put together with Gates and create a very interesting and unique asset. Step one, let's execute on 2023. Let's pay down some more debt and demonstrate that this is a sustainable level of performance. Fantastic. With that, we'll switch to the audience response survey. If you could take up the gray devices, do you currently own the stock? That is 50% no. There is an opportunity there. The second question is around sort of the bias or general kind of view towards Gates right now, positive, negative, neutral. Generally a very positive view. Thirdly, when we're thinking about the sort of earnings growth algorithm of the company, and here, I think the peer set we're trying to use is kind of broad industrials or U.S. multi-industry would be the peer set for Gates. Okay. Sort of above in line. The next question, we're looking at kind of what should Gates do as that balance sheet optionality starts to kind of rear its head? What can it do with the balance sheet? A broad sway, but no one seems interested in dividends, particularly, which is interesting. People are very comfortable with M&A. Valuation-wise, what PE on next 12 months EPS should Gates trade at? Mid-teens, sort of yeah, mid-teens, I guess, 15x-16x. This question is really around sort of why is it 15x-16x, not 21x or 25 x? What's the biggest kind of drawback faced by the business or the company today? Execution and then growth to a degree. The next question is, or the last question, should I say, is around ESG. Does it matter or not for investors in Gates? In general, it's been about 30% answers for question one and 70% for question three. This is a new question this year we added, so we'll see how it develops in future. Fairly balanced, some people thinking about using it in future. With that, thanks so much, Ivo, for this discussion. Thank you. Thank you very much.