BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - GATES INDUSTRIAL CORP LTD

Explicit Guidance:

• Q4 2026 Revenue Growth: Expecting 6.5% year-on-year growth, accelerating from 5.5% in Q3 2026.
• H2 2026 Adjusted EBITDA Margin: Guided at 23.5%, driven by improved gross margins.
• Full-Year 2026 Gross Margins: Exited Q3 at 43%; anticipate H2 performance in the low 40s and year-end "high-quality" status.
• Full-Year 2026 EBITDA Margin Improvement: Midpoint guidance indicates a 120 basis point increase, with Q4 gross margins expected to rise 200 basis points.
• Q4 2026 Incremental Margins: Guided at 42–43% midpoint (including ~100 bps headwind from variable comp; underlying run-rate higher).
• Net Leverage Target: Projected to reach 1.5x by year-end 2026, enabling capital deployment for M&A, buybacks, or shareholder returns.
• 2027 Outlook: Management anticipates 2027 to be a "positive year" for growth, driven by industrial recovery and the bottoming out of the agricultural segment.

Business-Segment Outlook:

• Automotive Aftermarket: Projected to continue growing at a 3.5% compound annual rate (CAGR) over the long term, described as resilient and a "gem within the portfolio."
• Off-Highway: Commercial construction remains robust; Agricultural segment expected to bottom out with "green shoots" emerging from late 2026 into 2027, supporting 2027 growth.
• E-Mobility (Tubular Belts): Revenue to exit 2026 at ~$160 million (up from ~$10 million in 2018); committed to maintaining 20–30% CAGR in the near term.
• Liquid Cooling (Data Centers): Currently growing at ~2.5x prior year exposure; pipeline represents ~$300 million in design wins covering the next 2–3 years.
• Industrial Chain-to-Belt: Anticipated to reach "cost proximity" with industrial chains by the end of 2027, unlocking wider adoption among OEMs; revenue base expected to be materially higher than current market expectations.

Market and Competitive Outlook:

• Industrial Recovery: Management views the current period as the "beginning of an industrial recovery" with broad-based increases in demand and constructive PMI data, a trend expected to carry into 2027.
• Pricing Strategy: Fully priced for inflation in the OEM and aftermarket channels; capable of resetting pricing via contractual agreements in the OEM segment.
• Competition: In liquid cooling, acting as a premium supplier with differentiated, high-margin products; in e-mobility, described as the "only credible player" in the specific application of replacing chains with sprockets.
• Demand Dynamics: Anticipate no industrial channel restocking until sometime in 2027, viewing inventory normalization as a near-term headwind but potential long-term tailwind.

Macro / Industry Outlook:

• Macro Environment: Transitioning from seven years of less supportive macro dynamics to a nascent industrial recovery; optimistic that 2027 will be supported by this new demand formation.
• Agricultural Sector: Expects a bottoming-out of the agricultural cycle from 2026 to 2027, following three years of significant negative performance.
• Logistics: Seeing a "significant pickup" in orders following challenges in the logistics sector earlier in the year, translating to high-single-digit to double-digit growth in Q3.

Strategic Initiatives:

• M&A: Pipeline is "very strong" with opportunities in carve-outs and private equity assets; recently closed a small competitor carve-out to be meaningful in Q1 2027. Will prioritize accretive deals that do not dilute operating metrics.
• Capital Allocation: With leverage at 1.5x, significant flexibility for stock buybacks and M&A; stock viewed as "very attractive."
• Digital Transformation: AI adoption is "front-footed" with front-end workstreams; back-end optimization (supply chain, logistics, asset utilization) expected to drive significant productivity improvements over the next 3–4 years.
• Capacity Utilization: Believes most "heavy lifting" on efficiency is complete; current capacity is sufficient as volume recovers.
• Portfolio Shift: Continued reduction in exposure to automotive OEMs (down ~50% since 2018) in favor of higher-growth, more profitable franchises.

Risks and Headwinds to Outlook:

• Variable Compensation: Q4 2026 incremental margins include a ~100 bps headwind from variable comp structures.
• Pricing Dilution: Aggressive pricing to offset inflation in the OEM channel may cause slight margin dilution at the edges, though expected to be more than dollar-for-dollar coverage.
• Adoption Barriers: Industrial chain-to-belt adoption previously constrained by higher system costs compared to chains; growth accelerated only after narrowing this cost gap.
• Valuation: M&A activity is currently constrained by market valuation levels.
• Inventory Timing: Restocking of the industrial channel is not expected to occur until 2027, potentially limiting near-term volume spikes.

Management Tone on the Future:

• Confidence Level: "Cautiously optimistic" about the Q4 inflection and "very optimistic" regarding the industrial recovery trend through 2027.
• Strategic Clarity: Management emphasizes a "measured march" regarding efficiency initiatives, prioritizing service continuity over marginal margin improvements due to the recovering demand environment.
• Forward-Looking Sentiment: Expects 2027 to be a "very good year" for the business, with organic growth opportunities exceeding the historical 3.5% CAGR run rate through secular drivers.
• Communication Strategy: Management is actively "front-running" upcoming Capital Markets Day (CMD) insights to provide visibility on growth targets and AI integration.

Miscellaneous:

• Upcoming Event: Capital Markets Day (CMD) scheduled for the Thursday following the call to reveal specific targets for the industrial chain-to-belt business, AI strategy, and detailed margin outlooks.
• Historical Context: Automotive aftermarket grew 3.5% CAGR from 2015–2025; the e-mobility segment grew from $10 million (2018) to $160 million (2026).