Episode Transcript
[00:00:03] Speaker A: Welcome to AINA Insights where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. INA Insights is brought to you by INA AI, a firm focused on working with industrial companies to make them unrivaled segment of ONE leaders. To learn more about INA AI, please visit our website at www.ina.AI.
[00:00:40] Speaker B: Hello and welcome to another episode of Titanium Economy podcast series hosted by ina. Today we are delighted to welcome Luca Savi who is the President and CEO of itt.
ITT is a design and manufacturer of highly engineered components and their portfolio includes industrial process, motion technology and connect and control technologies. Luca has been the CEO of ITT since 2019.
Prior to that he was COO. Luca began his journey in ITT in 2011 as the President and Head of Motion Technologies Business.
Luka has had several leadership positions across many multinational companies including Shell, Honeywell, Kumau and has worked across many different geographies including Italy, China, UK and United States.
Luka has a Bachelor's in Chemical Engineering and an MBA from London Business School. Luka, we are very delighted to host you on the podcast series.
[00:01:35] Speaker C: Thank you. And thank you for being here. Glad to be here.
[00:01:38] Speaker B: Perfect. So Luka, the first thing that I want to start with is an overview of ITT and the core business segments and the end market itself. Can you talk a little bit about that?
[00:01:47] Speaker C: Sure.
So ICT is a manufacturing engineering company and what we do is we design and manufacture components and I want to stress components for harsh environment across different sectors from energy to general industrial to aerospace, defense, automotive and rail. So. So you know, when you look at itt, you see sometimes on the bottle is engineer for life.
And that is very much the DNA of the company.
So what we do is we are behind the scene, I would say, but probably you have to deal with ITT products every day. So if you caught a train today to come to Stanford, is very likely that the shock absorbers that kept the train on the track are itt conic shock absorbers.
Or if you drove on the i95, you know, the brake pads that keep you safe while you're driving the car are probably some of them are ITT brake pads. So engineering at the core.
[00:03:06] Speaker B: Now that's actually very interesting to hear. And I think a lot of your markets you've been doing very well, Industrial process products being one of those and has a strong growth over the last few years.
Can you talk about a little bit about the drivers of growth for that particular market?
[00:03:23] Speaker C: Sure.
So I would say that the recipe of growth within ICT is pretty much the same across all the different businesses.
So if you look really why we've been able to outperform the markets we play in, which is true for most of the segments we're working in, is really we've been able to differentiate in our execution and differentiate also in the innovation.
So let me give you some examples of that across the portfolio. So if you look at our automotive business, the brake pads, this is a business that has been outperforming the market for the last 10 years by an average of 800 basis points.
So if you look at the peak of the automotive production in 2017 to today, the market has actually gone down 5, 6%.
In that period of time we've been able to grow 3,900 basis points.
That outperformance is due to the execution.
That business is performing extremely well when it comes to on time delivery.
99.9% on time delivery every single month, every single quarter for the last seven years. No matter Covid UAW strike the supply chain issues the hyperinflation and this is something that is very difficult for the competitors to match or the level of quality that we produce that in that business is we measure in PPBS parts per billion.
And when you look at our competition, they are two level of magnitude away from that. So differentiating through execution is really what has enabled us to develop great customer intimacy and deliver also the loyalty from our customers that allow us to grow and to outperform in the market.
[00:05:44] Speaker B: That is very interesting to hear and I will pick up on the two things that you talked about.
One was this innovation and from what I read, right, like you're using innovation as a market disruptor, Baidar being one of those examples.
But then the other thing that you also talked about is this customer intimacy and you're using that engineering and customer intimacy as a moat to really pivot from selling components to selling solutions and embedding yourself early on in the design cycle with a lot of your, you know, a lot of your customers that you work with.
Can you talk a little bit about that and how did you build this culture within the organization?
[00:06:22] Speaker C: Sure, it's, it's, it's different in, among the different, different businesses I would say.
But if you think about the business where I started in which was in motion technology, for example, that business already had some strong fundamentals and therefore I would say I wouldn't go as far as say was easy, but it was definitely easier to build on those strong fundamentals and invest More in the talent and the innovation to ensure that we were more and more differentiated in the market.
So a lot of investment has been put on the R and D. A lot of investment has been put on people and talents.
And there was a little bit of a culture of I would say either or, either deliver the great financial performance or invest.
And we had to eliminate that concept of either or and go towards more. And you are supposed to deliver the numbers and the improvement financially and at the same time invest for the long term.
So we worked very, very hard for the five, six years I've been working in motion technologies really to build on the strong fundamentals and take it to the next level in the other businesses like the industrial process pumps and valves and also on CCT in terms of connectors and components for air and defense. I think that, that, I think it requires a bit of a longer time, but we've made considerable progress in the last seven years and it's really a process of a cultural transformation.
And this is what we have been going through, I would say in the last five, six years in those businesses.
[00:08:31] Speaker B: That's actually very interesting to hear and just picking on one of the recent examples of the transformational deal that you just announced with SPX Flow.
It's transformation in the sense that it helps you pivot now from more cyclical businesses to a more resilient, aftermarket heavy mix model. Can you talk a little bit about this transformation pivot for ITT? Sure.
[00:08:58] Speaker C: So. Mr. When you look at the ITT portfolio and if you look back at 2017, 2018, more than 60% of the EBIT of the company was coming from Moshe Technology business, the business where I started working within itt.
And that was unhealthy. And as you can imagine from a Wall street perspective, from an investor perspective, 60% of your EBIT coming from auto is not a recipe for long term investment.
So it was very clear that we had to shift and rebalance the portfolio.
So we worked hard organically and inorganically to shift that.
And when you look at 2024, 2025, already we were able to reduce that to 33, 34% of the EB coming from Moshe Technologies. And this was not because Moshe Technology was making less money, was more because we got the other two businesses to expand to perform better organically and also add through M and A.
Now that shift in the enterprise portfolio was supposed to continue and is continuing. And what we shared the capital markets day in 2025 was really by 2030 to have an automotive that represents roughly 20% of the portfolio.
And I'm glad to say that when we're going to close this SPX deal which opens, hopefully it's going to be in the month of March, the beginning of March already, we will reach the 22% of the portfolio. Being exposed to automotive. Now, let me stress that doesn't mean that we do not believe in that business, that business is a pure gem, is a reach of talent, is a cash machine, is despite being in automotive, continue to grow, continue to outperform the market and therefore is a great business to keep in the, in the portfolio. But I would say it doesn't, the market doesn't offer us the growth that the flow or the connectors or the air and the fans are offering. And this is the reason why when it comes to the M and A, we are really focusing on the flow business.
Pumps, valves, adjacency, inflow, and also on the connector side of business, particularly in aero and defense.
[00:11:41] Speaker B: No, thanks actually for providing that insight. And even if I look at the roster of customers that you have on the automotive side, right. It's a list, you know, that will make many of your competitors envy. So it's a good business to be. But and I understand the pivot that you are taking staying on the M and A topic. Right. You are early in the cycle of the M and a. You've made four or five acquisitions in the last five years, especially starting 2022 and especially if I look at your 2030 vision, this is one of the key levers that you want to use towards the 2030 vision with aggressive capital deployment while maintaining a very high bar on roic. Can you talk to me a little bit about how are you building the M and A muscle within the organization?
[00:12:25] Speaker C: Sure.
So it has been a journey because it's something that we started building in 2021.
So in 2021, where we got our balance sheet pristine, perfectly clean, got rid of all the legacies, liabilities, then we started recruiting talent and this is when we recruited the top talent in terms of leading strategy and M and A. And we built a small team at the enterprise level and within the businesses to start cultivating and, you know, the opportunities.
So we have been doing that for the last four or five years and we started, you know, small with a few acquisitions and then the acquisition performed well.
So we managed to make larger acquisition until the acquisition of SPX Flow that we announced in Q4 of last year.
Now I would say the way that we go on the M and A front is I Would say I'm not so sure it's unique but it's very focused on value creation. So for example, we really do not talk about integration in itt.
It's all about value creation and what to do to create value.
So when you look at Habonim, our first acquisition in valves, cryogenic valves, is we had already was a very good company, was a good strong management team and therefore the approach was well, let's ensure that we, the management team has got the tools to deliver the case, the business case, the base case.
And we at corporate, we at. Let's ensure we are not mess it up. We're not going to mess it up. Right. So it was very clear from the very beginning we met and said, okay, what are the must have from a traditional integration perspective? So we of course we are reporting on the SEC and all this kind of stuff and what are they nice to have that how many the company will decide to have it or not. And that pure common sense approach has delivered a lot of value for us. Think about that company was bought at a 12 EBITDA multiple. And you know that when you look at the actual multiple was something between 7 and 8.
Right. We had that approach across the board. Right. So we are not a crusader of the integration. We are a crusader in terms of value value creation. And this has been the approach.
Now of course this is applicable because what we are looking at are good, well run companies with a good strong management team and therefore you can afford to do that. And this has been the recipe that has delivered value for Habony, for Casaria, for Svanahoy and hopefully also for SPX Flow.
[00:15:49] Speaker B: Very interesting to hear. And I think that's one of the reasons your focus on value creation is what keeps the bar high on roic. And that has been evident in at least all the M and A that you have done. And I think the market expects, you know, you continue to do that as you move towards your 2030 vision and more and more. Yes, absolutely.
Luca, you've had reputation of, you know, being known for a hands on operator and I think it is evident in the operational agility that you've built in the organization as well as a culture of urgency. It was very evident when I was, you know, researching about itt, you know, through the, the Brazil plant shutdown that happened and the 48 hour turnaround that you had. Can you talk a little bit about how did you build that culture of urgency and operational agility within the organization?
[00:16:37] Speaker C: Sure.
I, I don't think that there Is a, a system or for sure we have the processes and all this kind of stuff, but you will not hear within it way or the ITT operating systems.
As a matter of fact, I don't believe in that. I believe in most of the cases those are a spin and a pure marketing exercise.
So we do not talk about that.
What we do is really we lead by example and we do that every single day.
So if you look at the way that I've been working or the way that Emmanuel, the cfo, Imran the ccto, the leadership team, David Bartek or Laurie, the general counselor are working is really, we are granular.
We, we get into the details.
Now I know that details in particularly in, in, in the corporate world, in the culture is not seen positively.
I got all the advice in this world that I should not be so detail oriented.
And whilst I listen to it, I respectfully disagree.
Because it's not a question of detail detail. It's not detail, it's depth of knowledge. And this is what we need to have as management team, we need to have as leaders. And this is what we expect from everybody within the organization, from the CEO to the CFO to the general managers, to the operator in the line, to the supervisor to the functions, right? And only leading and doing this by example day after day, in every single flash call that we do weekly with each businesses, every monthly performance review that we do with every business on a monthly basis and in the quarterly business review, this is the way we do it and let me tell you is when I meet with investors and they need to put their money in itt, they want to know that actually we know our business, we know our customers, we know our products, we know our market.
If we don't have that depth of knowledge, I personally would not put the money in the hands of that company.
So that's really how we do it.
Did I answer the question?
[00:19:33] Speaker B: No, you did. You did. Yeah. And I think that sort of explains, right, you know, your reputation as a hands on operator. It's getting into the details and you're right, it's not just about the detail but how deeply do you understand the business?
Do you have a pulse on things and can you actually advise people who are leading the charge on the front line to be better on a everyday basis? So very interesting to hear that.
Look up. You have actually worked across many different geographies, right. And across many different cultures. Starting from India, you've worked in China, uk, United States.
What operating principles have proved to be most universal as you work across different geographies. And how are you applying those in ITT today?
[00:20:15] Speaker C: Okay, I would say a couple, if I may, in terms of if one operating principle that has really worked well for us across the board is really to get into the businesses and work with the team.
So if it is in China, to be able to be connected and to work with the people on the line, on the shop floor.
And that has been true with them.
But it's also the same, I would say, with, with the factories that we have in Europe, in Italy, or the factory that we have in, in Mexico or in Latin America.
So the that ability to work with everybody within the organization and get down on, on the shop floor, to work with your operators or to get together with your sales people and define the strategy to win the sales deal, it's important it works across the board, across the boundaries.
And I give you an example of one of our leaders who actually on a regular basis gets on the, on the shop floor together with the crew and clean the machines and the floor.
And that is the level of leaders that we do have.
Right. I always quote, you know, I'm an Italian Catholic, I always quote, the former Pope says, at the end of the day, the shepherd must smell like the sheep. And I would say in ITT we do smell.
[00:22:18] Speaker B: Right.
[00:22:19] Speaker C: So that operating principle and mechanism works across all the regions, across all the countries, I would say, and probably that is the most important of all.
[00:22:35] Speaker B: Very interesting. And it actually jibes with the previous comment that you also made.
[00:22:39] Speaker C: Right.
[00:22:39] Speaker B: Like where you, and you expect your leadership team and their sort of people who are reporting to them to get into the details and understand the business sort of aligns very well with that operating principle that you just talked about. Right. And I couldn't agree more. I mean, this is one of the traits that I've seen across many of the successful companies and leadership teams that you're not like offloading that to someone else. You are pretty much rolling up your sleeves and getting into the details and understanding the problem.
And yeah, that, you know, sort of that resonates as a CEO, you know, there are some very critical decisions that you need to make. What have been some of the most consequential CEO decisions that you've made, you know, say over the last three to four years.
And how do you stress test those decisions as you're bringing the organization along?
[00:23:34] Speaker C: Okay, so I said just to give a different angle to the CRO is I was very fortunate a few years ago to, to convince a director of itt, Tim Powers, who today is the chair of itt.
He was not the chair at the time.
To become the chairman of ITT and to help me to refresh the board.
We had a situation where actually it was not working well.
And I was lucky to have somebody like Tim who actually saw this and was willing to step in and work together with me to refresh the board and change the board.
So in a couple of years we were able to change the board dramatically.
I would say probably we changed six to seven. Seven directors.
And this doesn't happen, you know, in many, in many companies.
And it's something that I'm very grateful grateful for. Because today we do have a board which is really high performance board.
A board where you really have expert hard working directors really working with you, challenging you in a constructive way, advising and sharing the expertise. And they always come to the board super well prepared.
This is fantastic. I'm very happy, very grateful for that.
It was not the case before.
That has been, I would say, incredible journey.
I can probably write a book about it together with Tim.
But this has also changed the way that the management works with the board.
And now we have actually a board that creates a lot of value because of the coaching, because of the challenges and because, because the sharing, the discussion that we have when we meet that I think has been one of the most important thing probably that I've been working with together with Tim in the last few years.
Now when it comes to how do I stress test the decision?
Many, many.
For example, many of the decisions that you make and that are consequential are the leadership and the talents that you develop or that you recruit.
In many cases, the way that I stress test that as well as some other decision is really to ensure that we as a leadership team are fully exposed and make the decision together. I don't walk away from my responsibility. I know that there are some decisions that I am going to make, but I like to stress test them together with the leadership team.
So when we have some critical recruitment or some critical reorganization in place, the leadership team is fully part of it.
So if it is interviewing a key leaders, it's not the chro, it's the entire leadership team is involved. If it is also talking to a potential new director, is the general counsel, the chro, the strategy, the CFO are involved in sharing what ITT is with director, but also talking to the directors. That decision is obviously made by the board. But we as a management team are giving our feedback. So the leadership team is the stress test.
Did I answer Your question?
[00:28:03] Speaker B: Yeah, yeah, yeah, no, that's very helpful. And I think, you know, I couldn't agree more, that the most consequential decisions are when you are thinking about the people around you, people supporting you, the people mentoring you, the people who challenge you and can help you stress test those.
[00:28:19] Speaker C: Right.
[00:28:19] Speaker B: And I think that's what is coming out from at least your experience as well.
[00:28:23] Speaker C: And when it comes to this leadership team, one thing that we really believe in is in the discussion, in the debate, actually.
We believe, and sometimes also we like to disagree.
So if you come to one of our meeting, you will, you will hear, you know, very good, healthy, constructive debate and discussion and disagreements and honest, blunt, and it's good. So in this room there is plenty of disagreement and we ensure that when we get out of the door, of course we are all aligned. But that healthy discussion and debate is what allow us to make the best decision at the end of the day.
Perfect.
[00:29:16] Speaker B: Luca, you have delivered a pretty phenomenal performance. Right. Like if you compare the shareholder return that ITT has generated over the last five years versus S&P 500, it's been quite a few basis points higher than the market.
As you look towards your 2030 vision, what are the bets, what are the trends that you are most excited about? Sure.
[00:29:35] Speaker C: I would like to stress that I've been fortunate to work with the team who's incredibly smart, hard working and accountable and has helped this organization deliver those results.
And this is true across the board. So I'm very grateful for that. Now, when we look at 2030, I think that what we're really building here is first of all, we have really got a strong fundamentals. So when you look at our legacy, business has been built now on strong fundamentals.
And if it is the safety, performance, if it's the quality performance, if it's the delivery in terms of performance to the customer, if it's the cost competitiveness. So that SQDC framework has built strong fundamentals, strong foundations. Right. And so these will allow us always to keep on performing. We need to be completely paranoid.
We have a healthy paranoia and we are never happy and satisfied about the performance, no matter what that is.
So that needs to be there and we will keep to ensuring that. That is always the case.
And what we are really building on is that M and A muscle that you were talking about at the beginning. So ensuring that we continuously deploy our capital, we're generating good cash, we need to deploy that cash. So getting that M and A muscle working and delivering on those acquisitions is important. So that is the first thing is to continue to create value through M and A and differentiate it through M and A. And when you look at where this M and A is going, this money is going is really in the in the flow business, which is very fragmented and it's got higher growth, higher margin and therefore making our portfolio less and less cyclical. This one and the other one is on the connector side, particularly in aero and defense.
So this is really where the direction that we are following.
[00:32:07] Speaker B: Luca, thank you very much for having this conversation with us and talking about a variety of topics.
ITT has been doing very well under your leadership and it shows in the results that ITT has been able to achieve under your leadership and wish you and and I'm sure there's a lot to come especially as you build your plan towards a 2030 vision and we hope to keep this conversation going. Thank you very much.
[00:32:31] Speaker C: Thank you and it was a pleasure.
[00:32:39] Speaker A: Thanks for listening to INA Insights. Please visit INA AI for more podcasts, publications and events on developments shaping the industrial and industrial technology sector.
