Investing in Green Energy Opportunities with Emmanuel Caprais of ITT

Thank you, John. I'm really happy to be with you today.

Sure. Thank you for the opportunity. So originally, I'm from France. When you think about France, it's a relatively small country and there are not that many places where French is spoken. French is spoken in Europe, a little bit in Africa, and also in Quebec, but that's pretty much it. Being in a growing international environment for me was important to learn other languages. That's why I decided to learn English. I kind of forced at school to learn English, but I liked it. I learned Spanish, and then later in life, as I was about to go live in Italy, I decided around 30 years old to learn Italian as well, which was really similar to French and Spanish, not as difficult. So I would say having evolved in an international setting is one thing that is really key to who I am today. I started my professional career in Mexico. I worked for a French company in Mexico, and at the time I had the choice of either doing my military service or working abroad for a French company. I decided it was a better use of my time to learn professionally. So I worked in Mexico for a couple of years, and because that mission was successful, the company offered me a role in the US. I went and lived seven years in Cincinnati, Ohio, in the Midwest, which was one of my first experiences in the US. I really grew and got on the corporate ladder in that job during those seven years. I started as a business analyst and then became the controller for a multi-billion dollar division. I really learned how to manage growth; it was a high-growth environment, and unfortunately, the company when I started didn't make a lot of money, so we had to turn that around. After those seven years, I thought it was time for me to see something different, so the company offered me an opportunity to go to Italy. While in the US I was managing growth, in Italy I was managing decline. It was a company where a lot of the product lines were obsolete, the company was losing money, there were a lot of unproductive relationships with unions, and I learned how to manage all this and contributed to the turnaround of the company. After that mission, that company wanted to send me back to France, and I don't think I was ready to go back to France. Having tasted the international settings, going back to your own country wasn't appealing to me. So I decided to move on and switched to a different company, stayed in Italy, and then moved on to Germany for a while, up until 2012 when I joined ITT. I joined ITT as responsible for the financials of one of their businesses. That's where I was really able to put into practice all the things that I learned in those experiences. There was a lot of interesting project work there. We had a very profitable business, so when I arrived, I thought there's not much that I'm going to be able to do as a finance person if that business is already very profitable. But nevertheless, I was able to find many opportunities and was able to really expand the margin with the help of the team, which led me to get another opportunity to come and join the company here at the headquarters in the US, where I was really tasked to implement the focus I had on performance drivers at the division level for the whole world, for the worldwide company. That's what I did, and as we were able to really drive the performance of all those different divisions within the company, I was able to gain more responsibilities and become CFO of ITT in 2020. That has been a long ride, but very interesting.

Yeah, so ITT is a medium-sized company. We're a little bit above $3 billion in terms of revenue, and we have a little bit more than 10,000 employees. Those 10,000 employees are located over 35 different countries. We have actually 60% of our revenue coming from outside of the US or the Americas, so we're very international. We have three main businesses. One makes industrial pumps and industrial valves. Those pumps are used in the manufacture of chemical products, they're used also in the manufacture of Nutella, for instance, so nutrition pumps, the chocolate spread. Very diverse. Some of our valves are also used for the manufacturing of medication. So we're not a very well-known brand, but we work behind the scenes to really help people in general. Our second business is our Motion Technologies business, and we make components for cars, namely brake pads, so what allows you to brake and to stop the vehicle, as well as components for rail. We make shock absorbers, we make buffers, everything that is needed in the rail business. The particularity of that business is that while it is a transportation business, and usually transportation businesses have a lower profitability profile, lower margin profile, our transportation business is very profitable, much more than anybody in the competitive space. The reason for this is that I think we have down to a science everything that makes this business successful, and every day all our people are working on strengthening those attributes, those competitive advantages, to make the business even more successful in the future. And then finally, our third business is called Connect and Control Technologies. Here we make connectors for the aerospace industry, for the medical industry, and some of them for the oil and gas industry as well. We also make components for aerospace as well as for industrial environments. Some of those anti-seismic devices that go into large buildings and skyscrapers, that's us making them.

I think that international experience was incredible for my own personal growth and as well for my effectiveness as a manager and a leader in private companies. Being able at a pretty young age—I mean, when I started working in Mexico I was around 20 years old—allowed me to see a completely different culture, talk to completely different people, see completely different settings. That develops curiosity, develops empathy also, which are qualities that are really important for business leaders in general. It forced me to really perfect my Spanish. Speaking a language is not only communicating, but it's also learning a culture, it's also connecting with people. That has been really invaluable for me to become a better person.

No, I completely agree. And I think the adventure also when you go internationally—I have so many stories. My first week when I arrived in Mexico, I was kidnapped. The resilience that you were talking about came really into play. The fact that stuff that is unplanned can happen at any point in time, your life can completely flip at any point in time, and so you need to be ready to seize the opportunities.

Yes. So, with all proportion, picture this: I just arrived from France, I just landed in Mexico. I meet some friends that I knew from France, and they say, 'Let's go out.' When you're 20 years old, that sounds very appealing in a completely different country. So we go out, we have fun, and at the end of the night, it's probably 2 AM to 3 AM. All being French, we think, 'Let's go home, let's take a cab and go home.' That sounds pretty normal. The problem in Mexico at that time, and probably now also, is that you can't really hail a cab and get in. It doesn't work like this. You have to call a cab because the likelihood of that cab being not a real cab but actually a way for them to extract money from you is pretty high. So I got held hostage in a cab for probably three or four hours, at gunpoint. I tried to keep my cool, and finally after those three or four hours, I was released and I was able to go home and go back with my friends who were already home for a really long time. So definitely a very interesting experience that really helped me develop resilience as one of the core values that I have.

Absolutely not. I wish I could say the contrary, but absolutely not. The only reason I was released is because I had nothing else to give.

Yeah, absolutely. And you know, developing a certain level of being comfortable with the unknown is something that is clearly important for you in the future, because it talks about your ability to be resourceful in difficult situations.

Absolutely.

Yeah, so I would say for us, sustainability has been a reality for the past five years. In the past, we were individually sensitive to sustainability, to protecting the environment, but as a company, I would say our record was mixed. As we turned over the management team, we felt that this was an opportunity for ITT to improve our track record and to really contribute positively as a company to the broader economy and to the broader world. So what we decided to do is take very practical steps. We started small and tried to look at where the opportunities were. One of my key roles has been to try to build coalitions within the company in order to bring up the level of interest and the desire from everybody in the company—the leadership but also all the different employees—to contribute positively to the environment. We started by saying, 'What are the things that we do that are not optimized? Where do we have waste?' And we focused on eliminating that waste. One example is everything that goes to the landfill. We started saying, 'What can we recycle? How can we increase our recycling?' We also looked at water consumption and said, 'Is there a way where we don't have to use as much water and we can have loops in our manufacturing plants?' We have a lot of manufacturing plants, 35 different locations, and they use a lot of resources, whether it's electricity or water. So we started saying, 'We have operations where we have to clean our products. Is it possible to have a closed loop and be able to reuse that water constantly so that we don't have to always get water from outside?' And then after that, we moved into energy efficiency. Before making really large investments, we said, 'Where are we wasting energy?' We realized that insulation at our factories wasn't great and we were losing a lot of heat. We also realized that lighting wasn't optimized, so we started implementing LED lighting everywhere in our plants. Starting small but having progressively an impact that grows and grows. Then to the point where there was a strong push in 2021 where we said to ourselves, 'We are in a situation where energy is scarce, where prices are very volatile, and this is making our business very complicated. As a result, we need to do something.' Case in point, we had a fantastic opportunity to address energy scarcity, to get a better control on our energy cost, and at the same time do something good for the environment. That's the way we presented it internally, because I think that in terms of those investments—and we're talking about rooftop solar panels—we announced back in April a $25 million investment, and we're going to put solar panels in the majority of our facilities. The key here is that it's not because you're doing something good for the environment that you're going to convince people. There are very different degrees of interest about the green movement, and some people are completely opposed. So for us, what was key is to lead with something that makes sense from a business standpoint. From a business standpoint, nobody can argue with the fact that energy is scarce and it's going to become more of a challenge. Nobody can argue with the fact that the cost of energy is volatile and increasing. If those two basic assessments or truths are agreed upon by everyone, then it becomes so much easier to select the way to fix it. Green energy becomes not a side benefit but the main benefit for some people that are harder to convince just on the goodness of a project like this. Building those coalitions was really important. When people were worried in all our manufacturing plants about not having enough energy to produce and deliver to their customers, when they saw their profitability level going down significantly because the price of gas and electricity went up like crazy, then it became only natural. People were calling us to say, 'Can I install solar panels on my roof?' So that has been the strategy at ITT: to approach this problematic from a business standpoint and then make sure that we have benefit for the environment.

That's right, John. And I think what's really important is to disassociate the way to get there and what you think. For instance, what I think is that we should be good stewards of the environment. That's what I think, right? But that is not a winning proposition in a corporate environment, at least for everyone. I agree. So I'm not forgetting what my purpose is, which is contributing positively to the environment, but I'm finding a way to convince other people for whom that reason is not sufficient enough.

Exactly. One of the things that I wanted to add is the fact that once you're able to convince people and build those coalitions, you got to run, because the key here is to demonstrate progress and demonstrate the benefits. As you were mentioning, this is such a polarizing subject. What can happen is that people change their mind. So what's really important is when you make the decision globally and collectively, then you go really quickly so that people don't have a chance to rethink it, and then they can only witness the benefits that you're giving them. They like the fact that they don't have to pay an electricity provider for the 20% of the energy that you need that is generated by your rooftop. They like the fact that they don't have to worry about 20% of their energy and if the supplier is going to be able to provide on time because we are producing it ourselves. They like those things. After a while, when confronted with the facts, people cannot really deny forever. That's where you build this coalition, you convert people, and it creates all sorts of positive implications for the broad company.

That's right. And I think also there's a broader benefit where you enter into a virtuous cycle. You see the benefit, and that triggers other ideas. Linked with that, for instance, around the same time, we decided also to hire people that were recently in prison. We said, 'We're trying to contribute to society. We have here a potential. It's difficult to hire people, it's difficult to find people. So why don't we try to solve one of our problems, which is labor availability, by tapping into a resource that historically hasn't been used?' Not only were we doing something good to help some people that were formerly incarcerated re-enter into society, but we were also solving one of our issues, which was labor availability. We've done some of those things. I can't say that this has a major impact, but we have a few examples where we've been able to recruit people that were formerly incarcerated and give them a second chance at having a good life.

Absolutely, John.

Yeah, so the approach we've taken at ITT is the one of having coalitions. For us, it feels like having one person in charge of sustainability may not be the best use of our resources. People are doing this practically. What's happening is that people are doing this in addition to their job, but what's really interesting is that this addition is also a strong motivator for them to do their job. The way we structured it is that I am in charge of the environmental pillar, for instance, as the CFO. The reason for this is because I have a specific interest in that, but also because as the CFO, I can clear the way for people. That is really important. I can be an enabler, I can be the ambassador of this pillar. When I talk about this pillar and when I say the environmental pillar, we're not doing well, we need to do better, people listen.

So internally, every quarter we meet to assess and to present the progress we're making at all the different businesses. As I am the head of the environmental pillar, we have also people in each of our three businesses that are very much focused on the environment and that are my connections to the business. So we report internally on that, we report with the leadership team, and then we talk about it during our monthly and quarterly town halls also with the broader population, and we showcase the projects. For instance, last town hall we talked about the project of installing solar panels at one of our facilities in the Netherlands, where now we're able to produce 50% of the energy that we use just with solar panels. So we do a lot of internal communication because people are interested and people care, and they want to know that they also contribute. We found this as really a great opportunity. Externally also. So that's one thing. In order to manage really those projects, what we do is on a monthly basis we meet with all those people that are embedded in the business and that are driving sustainability on top of their jobs to really understand how we're tracking compared to the projects that we have planned and also to exchange best practices. Earlier this week, we had our meeting with our sustainability leaders into our businesses, and we had a great conversation where one person had an issue they weren't able to solve in terms of how to assess the energy efficiency of one of their plants, and another business came up with a solution and recommended a contractor to help them assess and to put meters in all the machines that consume electricity. So we benefit also from this best practice sharing that makes us really efficient when we deploy solutions. We found that regard. As I told you, we make very different products in very different factories across the world, but there are things that we can apply everywhere. For instance, most of our factories have compressed air, and the problem with compressed air is leakage. The leakage means that your compressor that produces that air needs to work overtime to be able to generate a portion of the compressed air that you're using. Going after those leakages allows you to not have to work your compressor overtime and to reduce your energy consumption. That is true whether you make brake pads or you make valves for the aerospace industry or you make pumps for the chemical industry. It's across the board. People can exchange best practices. Implementing LED lighting also is so easy to implement now, but the devil is in the details. We had a plant who just substituted the lamps, the bulbs, and we realized that to have the maximum impact of LED lighting, it's not about just substituting the bulbs, it's about substituting the entire system, because otherwise you just get a portion of the benefits. One of our plants learned that on their own and then had to change their approach, and now we benefit from that best practice and are able to deploy it efficiently across the board.

Absolutely, that's what we do. By having this cadence, this monthly cadence, we're able to aggregate all the information that we need in order to track our progress, and that's what informs our sustainability report that we produce every year. That allows us also to better communicate. Like when we announced that $25 million investment in solar panels, what we did is we issued a press release where we detailed all the different activities we're taking to really deploy that capital. I think that was very useful to have this information firsthand to be able to not only have this marketing effect which is coming out with a press release, but having also the content to back up what we were saying.

That is correct. We published our last report in October of last year, and we're getting ready now to publish our new report for 2022. So it takes us a little time to get it done, but we're getting better and we're working on really shrinking that timeline also.

In my humble opinion, I would say yes, because I can say that at ITT it has worked. However, it is an approach which I understand may be a little bit more difficult when you deal with gigantic corporations with 100,000, 200,000 people, but I think that there is probably a way to scale that up. I think that if you come with an edict from the top, you may be successful, but I think it's a more difficult path than really trying to aggregate people around a common base, a common idea that then maybe means different things for different people, but in the end what matters is that everybody is invested in that idea and in that project.

First of all, I'm very grateful to ITT to give me that opportunity to be their Chief Financial Officer. This is something that I've worked really hard for, and now I'm very happy to be in that position. I think that despite the fact that we made a lot of progress—for instance, in terms of environmental impact, we have that goal of reducing our emissions by 10% by 2026, and we are on our way because in the next report we'll be releasing, we show that in one year between 2021 and 2022, we reduced already by 4%. So we're doing well. But I think that what I see is so many opportunities still for us to capture. We've made some good progress in terms of rooftop solar panel projects, but there are still so many facilities that do not have rooftop solar panels. One of the reasons is because we have to fix the roof. Sometimes it's very practical reasons: the roof is leaking, the roof is not supporting such a heavy weight in terms of solar panels, so you got to fix it, and that delays the implementation of the project. Every day we're facing very practical problems that we need to address in a way that's practical in order to be able to deploy that green drive that we have. So to me, what really gets me motivated is to see all the opportunities that we have out there and my ability to have a positive impact for the company and for the broader environment. Being able to help people in implementing projects, being able to provide advice, seeing the impact of the work that I do in every little project is very rewarding, and it's something that allows me to get up in the morning.

I think so, John. I think so. When I was raised, we used mass transit instead of taking your car. We would take the train before taking the car on long trips. Recycling was always top of mind. I lived a couple of years in Germany, and if you think that France is good at recycling, go to Germany. Germany is incredible. That shapes you, because even if resources are plentiful, you learn how to better use those resources. It's not because they're plentiful that you should waste them. I'm not saying that's the case here in the US, but what I'm saying is that the focus for me, at least personally, has always been to make sure that we get the best out of what we have before thinking about expanding and taking on more resources or buying more stuff.

Yeah, that's a key one, John. I think the first thing that I want to say is that I'm not afraid to copy. When I see something that works, when I think something is a good practice, then I think we should shamelessly copy. There's no reason—obviously you want to adapt it to your specific situation, but there's no shame in copying. Second thing is that we're still a for-profit company, so we still track all those financial metrics. Payback, for instance, in our solar projects is a key criteria, and it's a function of the yield of the system. Payback will not be the same if you have solar panels in Saudi Arabia or if you have them in Northern Germany. But you got to find ways to make it work financially as well. For us, we took the view that even if the solar panel system had a payback that was a little longer than our normal payback—around five to six years instead of a three-year standard payback for all investment projects—because we were addressing energy security and cost price volatility, it was worth it. When you do a standalone payback analysis, you may say it doesn't make sense, you have a six-year payback. But what we're doing is that we're willing to bet that these three years of gap between the green project payback and a normal project payback can shift very quickly. You just need a couple of years of your electricity cost going to $1,000 a kilowatt hour to make it really profitable. That's why we were willing to bet that. We don't know everything, but the range of five to six years is acceptable even if it's longer than the normal payback.

Thank you very much, John. Thank you for having me.