ITT Inc. · NYSE:ITT
ITT — ITT Industries — Prudential Equity Group – Inside Our Best Ideas (March 2004)
36 slides from ITT's conference presentation, Mar 24, 2004
Slide 1: Innovation: The Next Growth Catalyst
Ed Williams Senior Vice President and Chief Financial Officer Prudential Equity Group – “Inside Our Best Ideas” Innovation: The Next Growth Catalyst March 24, 2004
Slide 2: Forward Looking Statements
Forward Looking Statements Certain statements contained in this report, that are not historical facts, constitute “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, in general, predict, forecast, indicate or imply futu
Slide 3: ITT Industries Today
ITT Industries Today • Global multi-industry company with a track record of consistent performance • Increasingly strong positions in markets with long-term growth catalysts • Deep, experienced and disciplined management team • Sustained value creation through organic growth, margin improvement, fre
Slide 4: Consistent Financial Performance
Consistent Financial Performance REVENUES ($mm) SEGMENT OPERATING MARGIN $5,627 $4,985 12.1% 12.5% $4,829 $4,676 11.9% 11.2% 2000 2001 2002 2003 2000 2001 2002 2003 EARNINGS PER SHARE FREE CASH FLOW ($mm) $3.48 $3.70 $3.86 $622 $3.29 $492 $303 $234 2000 2001 2002 2003 2000 2001 2002 2003 Note: 2000-
Slide 5: Strong Positions in Attractive Markets
Strong Positions in Attractive Markets • Defense advanced electronics and services at the “sweet spot” of DoD priorities • Diverse portfolio well positioned for long-term growth REVENUE PROFILE (2003: $5.6 Billion) • W/WW regulatory drivers will take decades Fluid Defense to play out Electronics • R
Slide 6: Fluid Technology
Fluid Technology REVENUE - $2.25B WATER/WASTEWATER - REVENUE $1,432 Water/ Waste Water $1,175 62% $1,027 $1,058 Industrial Biopharm & Process 6% 18% Building Trades 14% 2000 2001 2002 2003 WATER/WASTEWATER GROWTH DRIVERS STRATEGIC INITIATIVES • Stricter EPA regulations • Leverage current capabilitie
Slide 7: WEDECO
WEDECO World’s leading manufacturer of proprietary ozone oxidation and ultraviolet (UV) disinfection equipment • Expands W/WW product offering into attractive disinfection market, rounding out treatment portfolio • Complements the base of technology provided by the Sanitaire Biological Treatment and
Slide 8: Defense Profile
Defense Profile REVENUE - $1.8B BACKLOG ($Billion) Radars 7% O&M Services $3.2 Airborne EW 12% 21% $2.8 $2.6 $2.4 Satellite Payloads Engineering 10% Services 11% Night Vision 11% Advanced Engineering Tactical 13% Communications 2000 2001 2002 2003 15% GROWTH DRIVERS STRATEGIC INITIATIVES • Special O
Slide 9: Kodak Remote Sensing Systems (RSS)
Kodak Remote Sensing Systems (RSS) World’s leading supplier of high-resolution satellite imaging systems and image information processing services • Combination with ITT space business will create a full-spectrum satellite payload provider with latest visible and infrared satellite imaging technolog
Slide 10: Motion & Flow Control
Motion & Flow Control REVENUE - $1.0B EBIT MARGIN Automotive Tubing 14.2% 14.7% 14.0% 12.8% 13.4% 38% Leisure Marine 19% Flow Control 13% Motion Control 30% 1999 2000 2001 2002 2003 GROWTH DRIVERS STRATEGIC INITIATIVES • Broadened application of “quick • Leverage brands and global reach connects” •
Slide 11: ITT Electronic Components
ITT Electronic Components REVENUE - $0.6B 2003 BOOK TO BILL Networks 6% 1.02 1.05 Telecom 0.99 0.95 Industrial 6% 25% Handsets 15% Computer Mil/Aero 5% 18% Consumer Transportation 1Q03 2Q03 3Q03 4Q03 7% 18% GROWTH DRIVERS STRATEGIC INITIATIVES • Improving market conditions • Improve customer service
Slide 12: Deep and Experienced Leadership
Deep and Experienced Leadership Bob Ayers • 30 years of industry experience President, Fluid Technology • Joined ITT in 1997 • Architect of strategy to expand water/wastewater offering Hank Driesse • 23 year veteran of ITT Defense President, Defense Electronics & • Backlog has grown 40% since 2000 S
Slide 13: ITT Management System
ITT Management System Portfolio Consistent Management Results • Value-Based • Long-Term Targets Management • Grounded Forecasts • Invest in Strong Cores • Contingency Plans • Global Market Development • In-Depth Operational Reviews • Ongoing Transformation Operational Growth Leadership Excellence •
Slide 14: Increasing Cash Flow
Increasing Cash Flow WC % OF SALES CAPITAL EXPENDITURES $181 $174 19.5% 18.5% 18.4% $153 $153 16.3% 2000 2001 2002 2003 2000 2001 2002 2003 FREE CASH FLOW % OF SALES CASH REDEPLOYMENT 11.0% Acquisitions 9.9% _ $200M Annual Target 6.5% Dividends 4.9% _ 6% Increase in 2004 Share Repurchase _ Maintain
Slide 15: Increasing Financial Flexibility
Increasing Financial Flexibility TOTAL DEBT EBITDA COVERAGE Short Term 32.1 Long Term 22.0 $630 $517 $300 $142 9.7 10.5 $408 $456 $492 $461 2000 2001 2002 2003 2000 2001 2002 2003 NET DEBT/EBITDA NET DEBT/NET CAPITAL 1.3 1.3 43.9% 38.2% 34.1% 0.8 0.3 9.4% 2000 2001 2002 2003 2000 2001 2002 2003 Note
Slide 16: Innovation and Process Improvements
Innovation and Process Improvements • Continuous Improvement and Operational Efficiencies through VBSS – Momentum seen throughout the organization – Achieved critical mass with over 600 Black Belts and 100 champions trained to date • New product development – VBPD – Disciplined process for improving
Slide 17: ITT’s Growth Through Innovation and Improved Processes
ITT’s Growth Through Innovation and Improved Processes Dick Arra Director, Value Based Product Development ITT’s Growth through Innovation and Processes 16
Slide 18: VBPD – Key Principles to Achieve Organic Growth
VBPD – 3 Key Principles to Achieve Organic Growth © Affect Management & Staff Values and Behaviors ß Customer Value Creation ß Enhance performance via data driven prioritization © Improve Performance through Supportive Processes and Enhanced Skills © Market Leadership Driven by Increased Innovation
Slide 19: ITT’s Comprehensive Approach to Creating Profitable Growth
ITT’s Comprehensive Approach to Creating Profitable Growth © Install and Use a Comprehensive New Product Development Process ß Stage/Gate ß Portfolio Management © Create Customer Value through Greater Understanding of Customer’s Spoken & Unspoken Needs © Shorten Time to Market Via Improved Design Me
Slide 20: So How Are We Doing
So How Are We Doing ITT’s Growth through Innovation and Processes 19
Slide 21: Senior Management Commitment and Support
Senior Management Commitment and Support 7.3 1. Management commitment 8.5 9.8 5.6 2. Support provided 7.7 8.8 3. Top management involved 6.6 8.3 9.9 0 1 2 3 4 5 6 7 8 9 10 ProBE Score Top 20% ITT - 2003 Initial ITT ProBE • Significant Progress in Short Time ITT’s Growth through Innovation and Proces
Slide 22: New Product Process
New Product Process 5.9 4. Visible Process 8.9 9.2 4.4 5. Process adhered to 8.0 8.0 0 1 2 3 4 5 6 7 8 9 10 ProBE Score Top 20% ITT - 2003 Initial ITT ProBE • More Good Progress ITT’s Growth through Innovation and Processes 21
Slide 23: Product Definition and VoC
Product Definition and VoC 6. Strong VOC Inputs 5.5 into Product 7.3 Development 9.4 0 1 2 3 4 5 6 7 8 9 10 ProBE Score Top 20% ITT - 2003 Initial ITT ProBE • Surprisingly Good Progress ITT’s Growth through Innovation and Processes 22
Slide 24: Resources and Portfolio Management
Resources and Portfolio Management 4.3 7. Sufficient Product 6.0 Development Resources 8.3 5.4 6.5 8.5 8. High Value Product Portfolio 0 1 2 3 4 5 6 7 8 9 10 ProBE Score Top 20% ITT - 2003 Initial ITT ProBE • Resource Focus is Critical for Quality Products & Cycle Time Reduction • We Have Some Heavy
Slide 25: Market Leadership Through Increased Innovation
Market Leadership Through Increased Innovation ITT’s Growth through Innovation and Processes 24
Slide 26: Types of Innovation
Types of Innovation © Technology Driven ß New and/or disruptive technology appears, changes the playing field © Examples ß Low cost computer processing & memory creates the pc market © Characteristics ß Inwardly focused, lots of scientists, rare success but big potential, centralized research group
Slide 27: Types of Innovation
Types of Innovation © “Conflict Driven” ß Inability of existing solutions to satisfy customers spoken or unspoken needs © Characteristics ß More incremental than technology driven ß Higher probability of success ß Must be outwardly (Customer) Focused © Examples: Chrysler’s Mini-Van With some excepti
Slide 28: ITT’s Plan to Improve Innovation
ITT’s Plan to Improve Innovation © Increase VoC into Design Process ( 80% Complete) © Employ Use of Corporate Wide Innovation and Intellectual Data Management System (Started Feb 2004) © Develop and Install a Process to “Mine the Future” (To begin late 2004) ß Establish quarterly reviews of technolo
Slide 29: ITT Recent Product Development Successes
ITT Recent Product Development Successes ITT’s Growth through Innovation and Processes 28
Slide 30: Electronic Components
Electronic Components © Revenue © 2004 2007 • Bridgeless Keypad $ 6M $ 30M • Example of Conflict Innovation between Customers need for Aesthetics and Manufacturing Process • Superior VoC Efforts Helped ITT Capture this New Product ITT’s Growth through Innovation and Processes 29
Slide 31: Sanitare – Market Expansion Plans
Sanitare – Market Expansion Plans 2001 2002-2003 2004-2005 2006 New Membrane Technology Micro/Ultra Aeration Primary Aeration Secondary Filtration Filtration Technology Technology Extensive VoC Efforts For Water Reuse Revenues 20M 30M 60-100 M ITT’s Growth through Innovation and Processes 30
Slide 32: Avionics Market Expansion Plans
Avionics Market Expansion Plans Fundamental Strategies Growth Through Diversification 1. Perform Extensive VoC for $400,000 Adjacent Markets $360,000 Electronic Sys. EW Support Svs. Customer Svs. 2. Invest in Core Technologies and $320,000 Svs Life Ext. Expendables Develop Modular, Scalable $280,000
Slide 33: Summary
Summary © ITT has made Considerable Progress in Two Years ß Improved Skills and Behaviors ß Products with Higher Customer Value © More Significant Progress in the Near Term ß Continue to Solidify Improvements in Process and Skills ß Increase Focus on Innovation, Idea Generation and the Quality of Pr
Slide 34: 2004 Earnings Outlook
2004 Earnings Outlook Revenue Segment 2004 Trends 1Q04 FY04 Fluid – Continued growth in Water/Wastewater Technology – Broad Global opportunities $540 - 550 $2,450 - 2,500 Defense – Growth in Services through broader offering – Capabilities at “Sweet Spot” of DoD priorities $450 – 460 $2,150 – 2,225
Slide 35: Summary
Summary • Consistent performer poised for further upside • Well managed businesses in increasingly attractive markets • Sustained value creation through organic growth, margin expansion and targeted acquisitions • Strong outlook for 2004 and beyond 34
Slide 36: ITT Industries
& ITT Industries
ITT Industries — Prudential Equity Group – Inside Our Best Ideas (March 2004) on 6ix