All right, so we are going to get started. Last but certainly not least, this afternoon we have Gates Corporation. We're very excited to have Ivo Jurek with us. Ivo joined Gates as CEO in May 2015. Ivo, as I walk over, let's start with a brief overview of Gates. You, you have a strong global market positioning, as you know. You've highlighted product innovations, a key differentiator. Maybe start with what goes into maintaining that competitive edge. And you and I have talked about it the last few years, you know, were difficult. There's been a lot thrown at you. And so how would you characterize the current competitive landscape where you're able to maintain market share, versus competitors?
Yeah, I think. Thank you, Andy. Good, good set of questions there. So, so let me kind of frame how we, you know, how we maintain competitive positioning. So first of all, since we became a public company, we, we have represented that innovation is a real key driver for what we do and how we think about markets. And we have run through a very accelerated cycle on innovation. We have taken our New Product Introduction Vitality Index up from kind of low single digits in the, you know, 2017, 2018 time frame to high teens today. I've stated that over kind of a midterm we wanted to get it to the 20s, 20% of revenue coming from products with high vitality. That would put us into a really good company as an industrial franchise. So A, innovation is an important facet.
The second piece of how we maintain our competitive advantage, and that's also very much associated with engineering and product development and process development, is really kind of a build-out of our material science capabilities that became really kind of front and center, important, for us to have as we were dealing with some of the dislocations with the supply chain, particularly in the area of precision polymers, during the period of time that Russia invaded Ukraine. So that was really important. And I think that that's what differentiated us and gave us the opportunity to maintain a high competitive edge. And then, you know, maybe the last, the second part of your question about, you know, about market share and how do we, you know, how do we think, what do we think about our, our market positioning.
Look, we continue to grow the company. And while, you know, we are dealing presently with some negative market backdrops, particularly, you know, in the industrials part of our business, because our other businesses are doing really, really well, you know, I think that we continue to incrementally take market share. We are a very strong company. Our customers rely on us, not just on the overall health of the company, but also on the financial health of the company. So they know that they can rely on us being in business for the next 100 years. And that's really important, particularly in this era of dislocations. So, you know, I feel good about where we sit with market share.
I feel good about what we have done in terms of innovation and how we are continuing to evolve the company and position the company for the future. And you know, I'm certainly excited about the future, more so. And I think that you know, the best days are ahead of us, not behind us.
That's good to hear, Ivo. So, you know, obviously your Investor Day is coming up soon. You know, we can advertise a little bit here for your Investor Day. But, you know, you gave up previous targets in 2022, mid-single digit plus organic growth, 24% adjusted EBITDA margin target, 100% free cash conversion. And there were a couple other targets. But which of the targets that you got to in 2022 do you still feel good about? Which, if any, you know, given challenging couple of years, have you had to reevaluate?
Yeah. So look, I'm not going to front-run the Investor Day. So I'm going to, I'm going to punt on it a little bit. But I actually, you know, in a nutshell, I feel good about the profitability target. I think that we're going to tell you a lot about how we're going to get there. And I think maybe if there's a nuance there, you know, we feel that, you know, we can actually get there with, you know, with very low growth or no growth, market backdrop, which I think is a little bit different than what we have said in the past. So we feel really good about it. And but I, I said it overall, I feel good about all those targets.
I don't think that, you know, we're going to tell you, you know, what we have done over the last two to three years. I don't think it was, it was, you know, bad. We, I think we have done a really good job. We have built resiliency into our franchise. Our company is in a good position. We've paid down a tremendous amount of debt. We have delivered the balance sheet over the last two, three years. We've bought back $450 million of stock. So we're returning, you know, our, our surplus cash to our, to our shareholders. So the company is actually in a very good shape. And it's poised to, I think, deliver some differentiated results over the midterm future.
It's helpful, Ivo. And then, you know, I'm sure we'll get into specific end markets in a bit. But just more broadly, you've got it to, you know, down 3%, up 1% in terms of organic sales, with the expected slower first half and improvement in the second half. Can you elaborate on which end markets you expect to be the biggest headwinds this year and which end markets do you expect could pick up in the second half? We'll just start there.
Yeah. So, so look, you know, I, I think somebody, somebody mentioned it to me after, after our earnings call. He says, you know, you, you've used the, the word conservative or, pragmatic, seven, eight, nine times. And I says, yes, because we want to be pragmatic about what is happening with the underlying macros. We all read the same charts. And, you know, we've had 15, 15 months of negative manufacturing PMI. And so I think every, you know, we're all looking at it and saying, hey, look, this is going to turn, right? It's got to turn, not to a distant future. But, you know, the question is, is it going to turn in May or is it going to turn in October?
You know, if it's going to turn in May, you know, things are going to go, they're going to, they're going to go and look really, really good in the second half. But we have been pragmatic. We haven't put that level of performance into our underlying guidance. So coming back to more specifics on your question, right, you know, we think that there's a pretty negative, kind of a, underlying market demand in Ag. I think that that's going to be a reasonably good headwind. I mean, I think, you know, you've seen some results that were coming out, most recently, last week. So I think that, you know, that should not be a surprise to the market. Look, On- Highway, so heavy-duty truck, it had a really good couple of years.
And so, you know, we kind of feel that, you know, that's going to start normalizing. The demand rates are going to start stabilizing. And, you know, it, we don't anticipate that there's going to be a growth, but we don't anticipate that there's going to be, you know, a significant, deterioration of the performance either. And, you know, we still are reasonably negative on Personal Mobility, particularly on the first half for the de-stock, associated, you know, revenue generation impact. And so, you know, those would be probably the, the three of the, you know, most impactful things. But, you know, there's some good things there as well, right? I mean, Automotive Replacement business is doing really, really well. The underlying, market dynamics for, auto production globally is actually quite stable.
You know, again, we are not, because we are not forecasting growth doesn't mean that, you know, there's a negative backdrop. But I think we are being more realistic. Look, the build rates, even last year, in North America and Europe, they weren't, you know, heroic, right? I mean, they were kind of almost recessionary like, build rates of, of car production. So, you know, that could surprise to the upside. And, you know, ultimately, we believe that, we should see a much better market dynamics in Personal Mobility in the second half of the year. We, we believe that the de-stock is going to kind of be over with in the first half and then we start seeing some, some recovery and stability.
Ivo, so like you reported just a couple of weeks ago, so I'm sure not much has changed. But, you know, are you seeing anything differently? Like you mentioned de-stock a couple of times. You know, what gives you guys confidence that de-stock is going to end in the second half of the year? You know, you and I have talked about this. You were one of the first ones to mention industrial de-stocking this time last year. But it's kind of continued to last in some of these places. So what gives you confidence?
Yeah. Look, you know, there's not been a real substantial build-out in inventories during this cycle because nobody really had the capacity. And so, you know, my sense is that we are a lot closer to finishing kind of that work through of that, you know, of that activity as we kind of move through the first half of the year. I think that we are much, much more closely aligned to the underlying market demand than we probably were in the second half of last year. And so, you know, all the dynamics, you know, would point towards you're close. You know, is it going to happen in March or is it going to happen in May? You know, I think that that's, you know, still a little bit difficult to predict.
But I think that you are around the corner where de-stock should really kind of start disappearing from the vernacular of people's discussion. And, you know, and look, I mean, for us, you know, I will use the de-stock predominantly associated with my personal mobility business. I don't think that we are seeing, you know, we kind of are looking at de-stocking in the industrial channel inventories. They are reasonably lean. And I think that they are in a reasonably good shape. And so when you take a look at those inventories, I just, you know, I don't know that they can take significantly more. And if they do, that just means, Andy, that the rebound is going to be, you know, much more substantial because people will need to rebuild that inventory position again.
So Ivo, I want to step back a little bit. You've highlighted, you know, at least for a couple of years now, secular tailwinds across your business, you know, industrial automation. We talked about personal mobility a little. We'll talk about it a little bit more, e-commerce, logistics. You know, when you think about these trends, like they also can cycle within the secular. But like, have any of these secular trends kind of disappointed you or are they sort of ongoing or the durability of these things, would you say?
I'll say that, you know, I am not disappointed with the underlying market dynamics and the opportunity that resides for Gates Corporation and, you know, for our team. What I would say is that, you know, we were a little bit surprised with the, you know, induction of kind of unusual behavior from exiting the COVID pandemic. You know, I think that, you know, we have seen a, you know, a massive kind of overbuilt in, logistics and distribution footprint and the, you know, discrete automation that goes into those. And so, you know, things kind of just need to normalize. There's kind of an underlying, rate of replacement and, you know, and need for, capital intensity in that infrastructure. And it was just too hot post-pandemic, right? And so it's been normalizing since then.
And I think that, you know, again, those, those end markets, I think, are going to stabilize in 2024. And the underlying market opportunity, the secular market opportunity is massive. Yeah, it's the same thing with personal mobility. I mean, we were growing the personal mobility business kind of, you know, 30%+, right? And we've taken it from, you know, kind of a fledgling business in 2018 of kind of $20 million to almost 4% of our revenue in 2023. So we have had a substantial growth. And we are just at the beginning of that growth, growth rate, right? So as the market starts stabilizing, we continue to win design wins. And we feel really good that with a little bit of a stability in the, in the underlying market, we should start delivering double-digit growth all over again.
I'd like you to ask you the opposite question. I'd just ask you, what would you, of these trends that you just talked about, what are you most excited about for 2024, 2025? Is there one of them that will separate themselves in the impact on Gates?
Yeah. Look, you know, I'm kind of surprised at the doors that are opening for us with some of the new technology that we are bringing to the marketplace. I think, you know, folks were a little bit surprised where I think one of the folks from the analyst community on my last earnings call says, hey, wait a minute. I saw Gates products. You know, I visited this hyperscale data center that's being built. And I see Gates products there. I didn't know that you guys were participating in the cooling of the hyperscale data centers. So, you know, I think, you know, I'm really excited where our products are in what I call kind of the new emerging economy.
So whether or not it is mobility, electrification of mobility, it is, you know, some of the infrastructure projects like data centers, you know, the technology that we provide is a key component of. And, you know, when we came public, we says, you know, Gates is everywhere. I think today, I can kind of tell you that, you know, a lot of the underlying exciting new developments don't happen without our products. We touch them. We just, you know, we are not like a massive participant. You know, we don't sell microchips, but we do sell important parts that make these data centers or, you know, mining projects or, you know, electric propulsion, we make that work. Yeah, and people rely on the products that we manufacture.
Would it be possible, Ivo, to see data center growth in your growth? You know what I'm saying? Like, or is it still kind of too small?
I think it's too small. I think that the technology that is actually starting to penetrate is a new technology. So again, you know, for me, that excitement comes from we develop, we develop a core technology, and then the technology starts proliferating. It may go from automotive application to a personal mobility application to data center application with the adaptation of the core fundamental technology that we, that we built. So those are, those are some really exciting things for us for the future.
And, you know, I, you know, again, I believe that, you know, the resilience that we have built into our business over the last five years and the ability to navigate through rather substantial dislocations, you know, made our business more, you know, more reliable, more resilient, and open doors to opportunities that, frankly, maybe, you know, and, and you know, I, I have, I have a, you know, interesting vision for what we can do with the products that we do. And we want to pioneer penetration of new technologies. And we want to take, you know, we want to take business away from more unclean or dirty, less efficient technologies like industrial chains. But, you know, now we are seeing opportunities in places that we just never thought. I never thought that we will be, you know, kind of a key part of cooling infrastructure for data centers.
That's really exciting for us.
I know that. That's, that's cool. So maybe just shifting gears to focus on regional demand. You know, just thinking about your regions, you actually reported, you know, relatively better growth in your international geographies in 2023 in India, in China, and India than you reported in North America, which is a bit surprising, I think. But I, I think you expect Europe to be slower than other regions in 2024. So how would you characterize Gates' positioning in the different regional markets? And why do you think Europe would be a bit of a laggard?
Yeah. So, look, you know, the front side of that statement, North America and Europe, may be a little more lagging than the rest of the world. Look, North America in 2023 had a record level of performance for us. So it was a really tough comp. We have done a great job in North America. In Q4 in 2023, you know, we had a little bit of a catch-up, but we had the dislocation with raw materials. So, I think that, you know, it's more of a comp for us for North America, to be honest with you, in 2020, you know, in 2023. In 2024, you know, we just, we're just being pragmatic about, you know, some of the underlying end markets that we have, that we have described and frankly, not counting on recovery, right?
If the recovery is going to become a reality, you know, we will perform just like, you know, the other industrial companies, right? We just have taken a different path to the same destination. Europe, you know, Europe had two really good years. And, you know, we just believe that Europe is going to be dealing with some underlying challenges both in the auto and in the industrial world. So, you know, I don't, you know, necessarily anticipate that it's going to be a long-term dislocation. I think that Europe maybe is kind of six months behind North America, but that would certainly make it, you know, weaker than our performance in North America. And then in Asia, why are we more constructive on Asia? We are more constructive on Asia because China is getting better.
If China is getting better, China will pull, you know, the rest of Asia with it. Of course, India is doing really well. Then, you know, we have delivered probably three years of continued significant growth in Latin America. We still believe that that's going to grow in 2020, 2024 as well. It's, you know, a mixed bag.
So maybe I can dig into China a little bit more, Ivo. Like you mentioned you're starting to see more demand stability, particularly across industrial markets. You know, now that we're past Chinese New Year, can you give an update on the current demand that you're seeing? And, you know, a lot of the companies that I cover have kind of still very hesitant about China, kind of saying it's not getting better. But you, you know, you were saying it was kind of bad for a while, and now you're saying it's getting a little better. So I'm trying to figure out what you're seeing and maybe if there's some self-help involved too in what you're doing there.
Look, you know, we pride ourselves on transparency. So, you know.
Always been transparent.
We've always been transparent. We try to say the way that it is sometimes for, for the benefit and sometimes maybe to our, to our detriment. But look, on China, we have a very strong Automotive replacement franchise. We've built an incredible franchise over the last five or six years. We are number one market share in the products that we manufacture there. We have a, you know, we have a large presence, and that business continues to grow really nicely even through, you know, kind of dislocated, you know, end market conditions there, over the last two years. So that's a really good franchise, and that continues to grow. You know, the Automotive OEM business, you know, that's okay. It's not, you know, fabulous, but it's not bad.
We have seen challenges with the Chinese excavator builds. That's well documented that, you know, that was directly linked toward the difficulties that the country had with commercial real estate. But the builds have stabilized. And I think that you're starting to see some green shoots in the excavator builds so that, you know, that bodes well for, you know, for that end market. And then, you know, on highway has been quite good. And again, that comes from, you know, a couple of years of dislocation. So, you know, we think that, you know, that's turned around. And so the last market kind of is getting some stability in the Diversified Industrial space. And I would say that we have seen some green shoots there as well. It's not decelerating anymore. It's stabilized.
You know, if you take a look at some forward indicators, I would say that, you know, there's probably an opportunity to see even some potential upside. I mean, all you need to do is take a look at, you know, the Japanese machine builders' forward order rates out of Chinese consumers, right? And those are, those have bottomed out, and they're getting better. So I think that, you know, you are seeing a little bit of an underlying change in trajectory.
I should ask you, because you threw it in there, like, I've heard a fair amount of positive commentary around India from some of your peers and industrials. Like, can India become a big enough country to matter for you guys over the next couple of years?
Absolutely. I mean, India for us should be, as big of, as big as or bigger than China. You know, India is kind of what China was maybe in 1990. And it, it would appear that finally, and, you know, I've been saying it for 20 years, you know, and unfortunately, you know, I say that India broke my heart every time I say that it's going to get better. But I think this time around, there's a real fundamental change. And, I mean, you see the infrastructure taking hold. I think that you see, you know, lots of really interesting activity happening in there. And, you know, we have a good industrial base. We have, you know, three or four factories there already. We continue to, expand. I mean, I talked on the Q4 earnings call that we are doing some more work in India.
So, you know, we are kind of forward-leaning on making sure that we are well-positioned and that we can take a fair share of market share in India. And, you know, everything that we do is what the country needs. So, you know, it is heavy-duty construction and infrastructure build, highways, railways, airports, schools, you know, factories. We play a role, right? And as that happens and, you know, you start seeing the improvement in average earnings and, you know, people getting wealthier, buying more cars, that's good for Gates Corporation. So we're very excited about it.
Any questions from the audience? Anybody want to ask a question? I will continue on. So just drilling a little bit more into your end markets. I'm sure you're going to talk to us at the Investor Day about this. But, you know, in automotive, you talked about 2.4 times content uplift in EVs, but, you know, EV-related investments, as you know, has maybe started to slow a little bit. So maybe update us on what you're seeing, you know, across the EV space from the Gates perspective. And then separately, you forecast your auto OEM business to be flat. You know, you talk and auto replacement upside signals. Am I getting sort of the, are you suggesting that maybe there's some upside if, you know, things break right in those businesses?
Yeah. Look, let me start with your second question first because it's easier, and then I'll kind of dive into, you know, the, electrification side or the BEV side. Look, I, I think that the underlying dynamics in automotive replacement, side of our business are very positive, right? You have a large, aged car park in Western economies. So United States and Europe, very large car park, very old car fleet. That, that bodes well for us. We continue to demonstrate that, you know, this is performing really well for us. China is starting to approach, aged car fleet. It's not there yet. It's only about six years of age, right? We, you know, we like that car fleet to be seven years of age. China is the biggest car fleet in the world.
So we have, you know, I stated that, you know, we are growing our business really, really nicely, but we are still not in the sweet spot. So we think that, you know, that continues to represent a really good opportunity for us to continue to deliver nice growth right there. You know, you take a look at what happened was happening to us in Mexico, Latin America, very strong performance. You know, so I think that from a, from an, you know, automotive replacement side of the business, that business should continue to kind of deliver positive growth, you know, LSD, you know, maybe MSD over the midterm. But it is an area of focus for us, and it's an area of strong performance. And I believe that that will continue for the next, you know, 20, 30 years. Those dynamics are not going to change.
Now, coming back to the BEV, I think two years ago, we've kind of gone through very extensively into where we have our market content, where, you know, car content, and why do we believe that, you know, not only do we have a right to participate, but we can win in that, in that, application. But we have also been very pragmatic and, you know, almost to a degree of, you know, being, you know, and market being, I mean, folks being skeptical about, about us, right? But my view has always been, look, there's going to be electrification will happen, but electrification will happen in a measured way. The infrastructure build needs to catch up to it. We don't have enough charging station. You don't have enough power transmission capacity.
You don't have enough, you know, capacitor capacity in, you know, from the utility grid, you know, pole transformer side. So we think that, you know, it will take a long time before everybody's driving an electric vehicle. And so, you know, we can't plan on some dislocation and then, you know, student body to the left, and then you realize that your student body should be really to the right. We have taken a very measured approach to it. And I think that that's what, in a long run, wins the game. And we were right. You know, we never wavered from supporting our internal combustion business. That business is going to be with us for the next 40, 50 years. And when the BEVs ramp up, the car fleet gets big, and it ages, it's going to be a substantial opportunity for us.
So we talked a little bit about Diversified Industrials, you know, particularly e-commerce, warehousing, logistics. You know, as you said, it's been kind of weak for some times, weak for some time. But, you know, how do we, I mean, if we talk to our other companies, it seems like it's sort of bottoming out. Maybe pipelines are getting stronger. Are you seeing anything there? You know, you've gone to low-end single digits for 2024. Is that sort of prudent guidance or, you know, is there not much going on there for now still?
Yeah. Look, again, I think that, you know, we're trying to be prudent. I believe that, you know, in first half, the market is going to bottom out in, you know, in Diversified Industrials segment. I mean, you're starting to see some, you know, green shoots. I mean, I talked about, you know, some of the forward orders that you see for, machine tools and, you know, semiconductor equipment, you know, in Japan as an example, right? That's a really good indicator that things are turning around. Now, you know, each end market has a different dynamic. You know, that's a different set of discrete automation than logistics and warehousing. You know, maybe logistics and warehousing is still going to take a little bit of time to digest all that investment that happened post-COVID.
But I, you know, I don't think that, you know, everything is not surrounded around logistics and distribution, right? I mean, there are many forms of discrete automation, lots of opportunities in robotics. You know, I think that, you know, those businesses are starting to slowly bottom out as well. So my sense is, you know, as you start going into onshoring, somebody asked me the question about, well, what do you think about onshoring? I think onshoring is going to be great. You know, it's going to be great for, you know, for Gates from, you know, build out of those factories, just like I said about India, right? You have to build a factory. You're going to have to use Gates product. You're going to put equipment in the factory with discrete automation or otherwise, it will have Gates products in it. So it's all good.
And I think that you're going to start seeing some of the tailwind as you exit 2024 into 2025. And so I'm, you know, while I take a pragmatic view about my guidance, I'm actually rather, positive and optimistic about, what will happen in the second half and into 2025.
Got it. And so you think diversified industrials could still be one of your higher growing end markets?
Absolutely. Absolutely. Diversified industrials and, you know, personal mobility, you know, while both of these markets were dislocated, you know, they're still having, you know, they still have an opportunity to deliver very strong growth over the long term.
You had a big number for personal mobility long term. You had that 30%. Like, how do you feel about that now?
Very good. I feel very good about it. I know that, you know, it's hard to say when you're coming off a, you know, significant dislocation through channel destock. But I also see all the design wins that are coming our way. This is a very exciting space. There's lots of innovation that's happening in there. And again, remember, a significant amount of the world moves on two wheels. It doesn't move on four wheels. And that's the easiest way to clean the pollution in some of those countries. Take off, you know, the dirty, you know, two-stroke motorbikes and scooters and electrify those. And when you electrify them, you're going to put Gates Carbon Drive on them because it's a more efficient way, cleaner, and less noisy solution. And those opportunities are still rather substantial.
We talked about, you know, again, almost 20% growth in new design wins in terms of dollars year-over-year. So I am, you know, I'm very optimistic. I just need that base to stabilize. And when the base stabilizes, I think we will be right back to that growth rate.
Got it. And then, you know, just maybe talking about margins for a second, like 2023 was, I think, a bright spot, you know, after a tougher, a more difficult 2022. Give us a little more color on how you're thinking about the operating conditions, you know, that dictate your margin expansion that you're forecasting this year, I think, 30 basis points of EBITDA. We know you've talked about muted volume growth, but you also said that your ongoing enterprise initiatives are volume agnostic. So how much resilience would you say is now built in your operations that you can consistently expand margins even if you don't grow?
Yeah. Look, you know, we have embedded negative 1% core growth in our guidance, and we have embedded 30 basis points of EBITDA margin improvement year-over-year. So, you know, we are highly confident that we can deliver at least that, in a, you know, negative core volume year. And it's all driven through our enterprise initiatives, predominantly driven from, frankly, taking raw material costs out, you know, and, and in some, you know, unfortunate way, when we have gone through a rather substantial dislocation through second half of 2022 with the supply of the engineered polymers, that forced us to think about our franchise differently. And it, it really was a call to action to get after, protect our supply chain. You know, we had a blip, one quarter blip. We've recovered very fast from that blip.
We have recovered all of our margins over, you know, the period of 2023, as we said we are going to do. And, you know, moreover, it gave us a jumpstart on looking at protecting who we buy raw materials from, buying them in a more commoditized way, and then engineering that solution, in-house with less complex polymers. And, you know, I think that that's going to be a tailwind for us for the next couple of years. And so, you know, we are not even counting on a substantial level of productivity. We're just counting on taking raw material costs out. And then as we move forward, starting to deliver some fundamental pragmatic productivity as you start, you know, getting more stabilized, operating conditions.
So again, like I said at the beginning, I feel that, you know, we can deliver that 24% EBITDA margin, without necessarily having any amount of substantial core growth that would, you know, help you to accelerate, obviously, the margin accretion.
It's helpful, Ivo. And so, you know, I know you want to talk more about this at the Investor Day, but like, you know, you've been talking about 80/20 more, you know, footprint optimization. You got all these things sort of going on. So, you know, maybe elaborate on a timeline of, you know, as you ramp these things up and, you know, how if I just do these actions, as you said, like, so are you saying you could do these actions, you get to 24% with these actions, more or less?
That's correct.
Yeah. Yeah. And then the timeline sort of, and you used to say, like, incremental margin target. Like, what do you think the company can do in incremental margins these days?
Yeah. Look, you know, our incremental margin kind of in a normalized environment is kind of 35%-40%. I mean, I think that with the enterprise initiatives on top of that, I mean, I think that you, you know, you could think about it as, you know, 1,000 basis points to 1,500 basis points better than the 35%-40%. So, I mean, you can, you can think that the incremental margin should be kind of 45%-50%. Yeah. So, you know, a very powerful, you know, accretion when, you know, when the business actually starts seeing kind of the underlying volumes normalizing and start, you know, seeing an accretion to, to, volume-based core growth.
Got it. And those higher margins, do you need volume growth or can you do that in a pretty muted environment, you think?
Well, I think that that would mean.
Obviously, the math works only if you do that, but you know what I'm saying.
Well, right. But, you know, we are going to be growing margins with negative volume, right? So if you're going to have an incremental revenue dollar, that would, you know, imply that you have a volume growth. So on that incremental revenue dollar, you will be levering up at kind of that 45%-50% of that incremental dollar of revenue.
Got it. And so, you know, if I go to free cash flow conversion, Ivo, 110% in 2023, I think, you know, it was a nice positive surprise. You're going to 90% plus conversion this year. You know, we know you've talked about higher CapEx, but what else needs to be done or can be done, you know, from a working capital perspective, to, you know, hit 100% more often?
Andy, I like that you used the positive surprise a couple of times here. It was good. Yeah. That's a good thing. Thank you. Look, we delivered 110% free cash flow conversion as a percent of adjusted net income. So we are guiding for 90%+ early in the year. So what we've implied is that, you know, we, we, you know, we anticipate that we're going to be delivering consistently 100% conversion through the cycle, right? And I mean, you, you know, it's hard to deliver 110 and then another 110 the next year, right? So, you know, we are going to spend a little more on CapEx, in support of our enterprise initiatives. We have some growth initiatives that, that we are continuing to, to execute on.
I've talked a little bit about restructuring while we're not coming out and saying, "Hey, we're going to do, you know, X number of projects in, you know, Y regions. We're going to do restructuring in 2024." And so that will consume some incremental cash. So I wouldn't, you know, I wouldn't think that, you know, we are spending significantly over what we have historically spent. This is still well within the 2%-3%, which is below the rate of depreciation still for our company. So, you know, we are not, you know, increasing the guidance to, you know, to put in, you know, put cash into the business. We are just investing as we see prudent. Look, at the end of the day, you know, we still have a ton of leverage to be able to improve our free cash flow.
I mean, this, this business is a very resilient cash flow generator. And again, you know, we can argue whether it's 95%, or 98% or 102%, you know, we are kind of at that 100% plus, plus or minus. And so, you know, nothing's really changing from, our ability to, to continue to deliver that. I, I also do believe that, you know, our cash flow generation is driven of profitability improvements, which is, you know, a real fundamental way of driving your cash. Look, we have, you know, we have a very healthy company. We have a company that's, you know, delivering, you know, 100% cash flow generation on, you know, nearly 40%, gross profit, you know, and, you know, 23% plus ROIC. You know, I, I think that, you know, that is, you know, that is a that is a sign of a good, fundamentally sound operating business.
You know, we don't see anything changing from that.
Got it. Then uses of cash. Maybe talk about the balancing act, right? Your leverage is down 2.3 times. That looks good. But we haven't seen that much M&A from you guys, you know? So how do you balance sort of, you know, continuing to pay off debt, M&A, repurchases? Your stock is really cheap. Yeah, you should just buy yourself. What do you think?
Look, you know, I will not get fired by buying my shares. Yeah, it's a risk-free return, guaranteed. You know, I will not get fired by extinguishing, you know, some of my high-cost debt. That's a highly accretive risk-free return. You know, I'm trading at, you know, 8-9x, right, where, you know, in my peer group that I would argue doesn't necessarily have the same level of, you know, financial profile, metrics is trading at 12.2x. So, you know, and that's not necessarily a peer group that I measure myself against, right? I measure myself against a peer group that's got a much higher multiple because I believe that, you know, the financial profile of our business is such, and it can be better.
And so, you know, we will continue to do the safe thing, which is buy back stock, pay down debt, continue to generate cash, and then rinse and repeat until, you know, we get to a point where the stock is re-rated, where the investors feel that, you know, the company is worth more than where it's trading at today. And at that point in time, we will have a substantial amount of firepower to do M&A. You know, we have a reasonably good pipeline of opportunities. We can do deals now if that's what we wanted to do. But, you know, why do that when, you know, my value is so dislocated, right? The ROIC on stock buyback is really, really high.
Yeah. One more quickie, quickie, because we're almost out of time. Just ask every company. I've asked you this last year, Ivo. What are the top two or three innovations and structural changes affecting your company over the next five years? And are there any emerging industry trends that are perhaps being overlooked in the current discourse?
So, you know, I'll take this as a plug-in on, you know, look, I'm not going to get on a data center bandwagon in here, but I'm really excited about some of the new economy, the opportunities in new economy. Again, where it is in mining, it's in mobility, all sorts of mobility, right? Personal mobility and electrified mobility. I'm excited about our automotive replacement business. And, you know, the technology that we continue to evolve opens doors that we, you know, we have really never thought possible. And so as you think about the relevant industrial trends that are evolving today, I will, you know, almost personally guarantee you that we are all involved in every single one of them. And it's really exciting for us. It's exciting for our employees. It's exciting for me personally.
And look, I will die on that hill, but, you know, I am so committed to, replacing every industrial chain that's out there. Hopefully, you don't have lots of industrial chain companies that are going to be coming and presenting in here, but, you know, we, you know, we are very committed to replace, a dirty, old, inefficient technology with clean, beautiful-looking, lightweight, energy-efficient, you know, with a limited amount of maintenance or maintenance-free belt. I think that that's an unprecedented secular opportunity for us. And we are, we are so early in that cycle. And we're going to talk more about it, on March 11th in New York on the stock exchange. So please come. And hopefully you will, you will get the view as, as to why I am so excited about those opportunities.
Good plug for the Investor Day to end on. Thank you very much, Ivo.