Emmanuel Caprais: And so, when you look at our orders for 2024 for aero and defense, for CCT, we expect to be around a little bit more than 6%, so a nice growth. And then, from a revenue standpoint, this is where you’re going to see all the OE share gains that Luca was talking about, with defense revenue is going to be up low double-digits. So, really nice work from the teams here to go after original equipment opportunities in aero and defense.
Jeff Hammond: And then, just the margins kind of being flat…
Luca Savi: Yeah. So, when we look at the margins, today, when you look at CCT margin in 2023 at 18.1%, the margin is a record profitability already for CCT. Now, we still have area for improvement that we’re going to work on. And so, those are coming from constraining the supply chain that are still there persisting, slowly improving, and a little bit on our operations where we have to work and invest.
Emmanuel Caprais: Yeah. And so, when you think about those constraints on the supply chain, they materialize in two ways. One is in increased pricing from our suppliers. And so, because in the aero contracts, we have some fixed price contracts, it’s taking a little bit of time for us to be able to recover that cost increase with our customers, but we should be in a good position by the end of 2024 with most of our costs recovered. And then it constraints also the volume, so the volume growth, as you see, we expect the volume growth in CCT to be up, but still in the low single digits. And so, we expect to see, as the year progresses, an improvement in our ability to deliver to our customers.
Jeff Hammond: Okay, great. Thanks, guys.
Luca Savi: Thanks, Jeff.
Operator: Our next question comes from Scott Davis with Melius Research. Your line is open.
Scott Davis: Hey. Good morning, guys.
Luca Savi: Good morning, Scott.
Emmanuel Caprais: Hi, Scott.
Scott Davis: Congrats on a good and a great ’23, and good luck this year. Guys, a couple of questions. I see the CapEx guidance up from kind of 3% of sales to 4% of sales, perhaps some timing of projects and such. Maybe you can clarify that a little bit, and just perhaps maybe longer-term, do you envision getting back to that 3%-ish type level, or is 4% — is there somewhere between the 3% and 4% perhaps? I’ll just leave it at that. Thanks.
Luca Savi: Hi, Scott. Thanks. What you see in 2024 is a little bit — a little bump up, and this is mainly related to our high-performance investment that we have in Termoli, Italy. We are going after these markets, we are building the plant, the plant is up, the machinery will be in the plant in August and up running in October to make the new brake pads. So, it’s a new market we are getting in and this is really because the reason of the higher CapEx. One positive things that I can share with you Scott is that we already have the awards and we already have the pads that we need to make come October 2024.
Emmanuel Caprais: Yeah. And then, so just to go back to the second point of your question, we absolutely expect CapEx to normalize around that lower level that we’ve seen in the past in the future once the infrastructure investment in Termoli are done.
Scott Davis: Okay, that’s helpful. And then when you think about your M&A pipeline, without obviously disclosing anything specific, I would guess that it leans pretty heavily towards Industrial Process. Is that a fair assumption or is there more balance to that pipeline perhaps than we would think?
Luca Savi: I think a little bit more, I would say, Scott. You’re right when you say IP because the pipeline — the funnel is rich of pumps and valves, but the connectors is a strategic area for us as well. I know that we are a small player on the connector, but we have a very good service with our customers. Usually, they have a great customer experience working with us. And when it comes, particularly in aero and defense, connectors is a great opportunity. And I would say not large deals on connectors, but for small, medium size.
Scott Davis: Okay, good color. Thank you. Best of luck this year, guys. Thank you very much.
Luca Savi: Thanks, Scott.
Emmanuel Caprais: Thanks, Scott.
Operator: Our next question comes from Michael Halloran with Baird. Your line is open.
Emmanuel Caprais: Good morning, Mike.
Michael Halloran: Hey. Good morning, everyone.
Luca Savi: Hi, Mike.
Michael Halloran: So, two quick ones here. First on the IP side of things, maybe just talk about the underlying demand environment, projects versus aftermarket, big win that you just announced, which I think was booked in the first quarter, I’d be curious about that. But any signs of concern in the marketplace? It feels pretty healthy. It feels like there’s a lot of positive momentum there. Just wondering, how you’re looking at it as you think for the year on that order side.
Luca Savi: Sure. First of all, Mike, when it comes to the award that we shared in the remarks, we didn’t book, it’s an award. So, this is — we are going to work together with ExxonMobil in all the quotation for all those different size. You’re talking about $80 million in the last three years and probably something around in the first year, something like probably $15 million, $20 million that will be booked in 2024. When it comes to the general market, I want just to give you some stats. When you look at 2023, the revenue in IP was up 14%, but the book-to-bill, despite that growth in revenue, was more than 1. And despite these orders that grew tremendously, 10% for IP, 20% for the projects in IP, our funnel today is still the highest ever.
It’s up 23% year-over-year and up 16% sequentially versus Q3. So, this tells you the strength. Last data, and then I shut up, is that also when you look at all the different geographies around the world, North American orders have been growing every year for the last three years. And the same was for Asia Pacific, Latin America and the Middle East. The only area that has a little bit of a mixed picture is actually Europe.
Emmanuel Caprais: And Mike, let me throw a little bit more data in there. So, as we discussed our backlog is up 16% year-over-year, so obviously that’s going to feed a lot of the growth in 2024. And if you look the backlog coverage also, we are around 50% of our expected revenue. So, if you see some of the stuff, backlog is for 2025, so it doesn’t all apply. But this is comparing to a little bit more than 40% historically. So, we’re also in a good position here as we continue to gain market share.
Michael Halloran: Really appreciate that color. And then, for Emmanuel, a follow-up here, could you just clarify the Motion margin guidance for me? I think on one side, it’s approaching 18% this year. I think I heard you say 100% — 100 basis point expansion year-over-year. So, can you just think that and clarify for me?
Emmanuel Caprais: Yeah. So, you’re correct, Mike. We expect to be able to reach 18% margin sometime in 2024, hopefully more in the first half than in the second half. We saw some really good already numbers in January and we expect good numbers in February also. So, the team is really doing a fantastic job. And then, so for 2024, we expect margins, not to be quite — for the full year, not to be quite at the level of 18%, but to be up at least 100 basis points compared to 2023.
Michael Halloran: Okay, great. That makes a lot of sense. Appreciate, everyone. Thanks.
Luca Savi: Thanks, Mike.
Operator: Our next question comes from Joe Ritchie with Goldman Sachs. Your line is open.
Emmanuel Caprais: Good morning, Joe.
Luca Savi: Hi, Joe.
Joe Ritchie: Thanks. Hey. Good morning, guys. Hey, first, maybe a theoretical question since balance sheet is in a great position, it seems like you’re going to be doing a bunch more deals going forward. Have you thought about considering reporting a cash EPS number, maybe kind of eliminating some of the noise associated with the backlog amortization? Any thoughts around that?
Emmanuel Caprais: So, you’re right, Joe. We decided not to special-out any intangible amortization. And this is what we’ve been doing in the past. Now, it’s true that we’re getting more and more acquisitive, at least that’s what we want to do, obviously, keeping our rigor and our discipline, so that we do good deals and we secure returns. For the moment, we haven’t really thought about disclosing cash EPS, but I think that we provide visibility by really highlighting the impacts of those acquisitions, and especially in terms of Svanehøj the year one impact. So, for Svanehøj, for instance, I think we can get to the same result by disclosing those data points. And then so if you think about IP, it’s 260 basis points of dilution from a margin standpoint in 2024. And for overall ITT, it’s 80 basis points of impact. So, it’s a significant impact. For the moment, we’ll continue like this. And if cash EPS is warranted, then maybe we’ll look at it. Thank you, Joe.
Joe Ritchie: Yeah. No, that’s helpful, and do appreciate all the details that you do provide. Maybe my other question just talking through IP, obviously, great story there. You did mention the baseline pump business. It sounded like there were still some kind of supply chain issues that you’re seeing in that business. Can you maybe just elaborate on that a little bit more? And, like, what the expectation is for that business in 2024?
Luca Savi: Sure. When you look at the short cycle, the short cycle orders in Q4 were up 7%. And also for the full year, they were up something between 7% and 8%, so it’s been the strongest year ever when it comes, not just the orders of IP, their highest ever, but also the highest ever for the short cycle. Now, when you look at that 7% growth for the full year, Joe, I would say half-and-half price and volume, 3% was volume, 4% was price. So, now, we expect that to remain robust for 2024. When we look at the orders in January, they stayed strong and they were particularly strong in valves and baseline when it comes to January, but it’s only a month.
Emmanuel Caprais: So, when you look at our revenue, to add further details, so our short cycle, despite the constraints that we were facing, our short cycle in IP was up — revenue was up 2%. And we expect that short cycle revenue in 2024 to be up 8%. So, we’re working through the supply chain constraints we have mainly with casting and logistics. And those are clearly impacting our ability to ship, as expected, but we’re working through those issues. And that’s why we are confident that we can deliver the growth in 2024.
Joe Ritchie: Great. Thanks, guys.
Luca Savi: Thanks, Joe.
Operator: Our next question comes from Joe Giordano with TD Cowen. Your line is open.
Emmanuel Caprais: Good morning, Joe.
Joe Giordano: Hey. Good morning, guys. How are you?
Luca Savi: Hi, Joe. Good.
Joe Giordano: Can I start on MT? Can you talk about it? All the Friction wins in EV is great to see. Obviously, some of these platforms are small and small-ish and just kind of starting, so they don’t have the scale. So, can you talk to what margins on EV versus ICE looks like now? And maybe how much of your 2023 Friction was EV related?
Luca Savi: Okay. So, maybe if I start and you, Emmanuel, can give the color. So, it’s true. When you talk about 150 platforms, some of those are relatively small. If you think about 30 SoP in China in Q1, some of those are small. But let’s not forget that also during 2023, some of the awards were the largest ever, like with the German premium OEMs. We won almost 100% of all their future EV platforms that we make around the world in China and in other parts, the Tesla Cybertruck where we won the front axle. So, there are several awards, small and medium. Our market share with Tesla now is more than 20% and we’ll keep on ramping up with the awards. Our market share with BYD in 2023 is roughly now 10% and will double in the next couple of years. Those are when it comes to the awards. Emmanuel?
