Illinois Tool Works Inc. · NYSE:ITW
Illinois Tool Works — Investor Day (December 2015)
83 slides from Illinois Tool Works's investor day presentation, Dec 4, 2015
Slide 1: 2015 ITW Investor and Analyst Day
2015 ITW INVESTOR AND ANALYST DAY New York, December 4, 2015
Slide 2: Presenters
Presenters E. SCOTT SANTI CHRISTOPHER A. O’HERLIHY DAVID C. PARRY MICHAEL M. LARSEN Chairman & CEO Vice Chairman Vice Chairman Senior Vice President & CFO 33 26 21 3 YEARS WITH ITW YEARS WITH ITW YEARS WITH ITW YEARS WITH ITW CEO SINCE VICE CHAIRMAN SINCE VICE CHAIRMAN SINCE SVP & CFO SINCE 2012 201
Slide 3: Forward-Looking Statements
Forward-Looking Statements Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding the expected impact and timing of strategic initiatives and related be
Slide 4: Agenda
Agenda 1 ENTERPRISE STRATEGY REVIEW 2 ACCELERATE ORGANIC GROWTH 3 BEST-IN-CLASS MARGINS AND RETURNS 4 SEGMENT EXAMPLES OF ENTERPRISE STRATEGY EXECUTION 5 FINANCIAL PERFORMANCE 6 BREAK FOLLOWED BY Q&A 4
Slide 5: Enterprise Strategy
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to Growth Organic Comprehensive Strategy Review 2011-2012 ENTERPRISE STRATEGY Leverage ITW Business Model
Slide 6: Key Strategy Review Findings
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to KEY STRATEGY REVIEW FINDINGS Growth Organic 1. Acquisition-centric growth strategy not Comprehensive s
Slide 7: ITW's Enterprise Strategy
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to ITW’S ENTERPRISE STRATEGY Growth Organic 1. Shift core growth engine to organic Comprehensive Strategy
Slide 8: Portfolio Management
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to PORTFOLIO MANAGEMENT Growth Organic 1. Sustainable differentiation a “must-have” Comprehensive Strateg
Slide 9: Business Structure Simplification/Scale-Up
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to BUSINESS STRUCTURE Growth Organic SIMPLIFICATION/SCALE-UP Comprehensive 1. Better support/leverage/foc
Slide 10: Sustainable High-Quality Revenue Growth Requires
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to SUSTAINABLE HIGH-QUALITY REVENUE Growth Organic GROWTH REQUIRES: Comprehensive 1. A strong foundation:
Slide 11: Leverage
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth LEVERAGE: Growth Engine to Organic 1. Significantly more differentiated portfolio 2. Scaled-up growth resources
Slide 12: Strategic Sourcing
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to STRATEGIC SOURCING: Growth Organic Clear opportunity to better leverage ITW’s Comprehensive scale in o
Slide 13: 80/20 Excellence
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to 80/20 EXCELLENCE: Growth Organic Significant potential for performance Comprehensive improvement throu
Slide 14: ITW's Performance Goals
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to ITW’S PERFORMANCE GOALS: Growth Organic 1. Organic: 200+ bps above global GDP Comprehensive Strategy 2
Slide 15: Accelerate Organic Growth
WTA ACCELERATE ORGANIC GROWTH
Slide 16: Enterprise Strategy
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to Growth Organic Comprehensive Strategy Review 2011-2012 ENTERPRISE STRATEGY Leverage ITW Business Model
Slide 17: Portfolio Management Objectives
ACCELERATE ORGANIC GROWTH Portfolio Management OBJECTIVES 1 Reposition business portfolio to align with shift to organic growth focus Construct and maintain a business portfolio capable of delivering 2 organic growth of 200+ bps above global GDP 17
Slide 18: Portfolio Management
ACCELERATE ORGANIC GROWTH Portfolio Management 1 Reposition business portfolio to align with shift to organic growth focus In 2011-2012 Meaningful differences in organic growth rates for businesses inside ITW • Businesses operating in commoditized markets were generating low-to-no growth • Businesse
Slide 19: Portfolio Management: Divestitures and Simplification
ACCELERATE ORGANIC GROWTH Portfolio Management Construct and maintain a business portfolio capable of delivering organic 2 growth of 200+ bps above global GDP 1. Business divestitures (2013-2014) • Exit businesses operating in commoditized markets • A metric-based assessment, not subjective • Comple
Slide 20: Portfolio Management: Differentiated Markets
ACCELERATE ORGANIC GROWTH Portfolio Management Construct and maintain a business portfolio capable of delivering organic 2 growth of 200+ bps above global GDP • Markets with strong sustainable differentiation attributes • Positive long-term macro fundamentals • Solid competitive advantages with rele
Slide 21: ITW's Highly Differentiated Portfolio
ACCELERATE ORGANIC GROWTH ITW’s Highly Differentiated Portfolio Test & Automotive Food Polymers & Construction Specialty Measurement Welding OEM Equipment Fluids Products Products and Electronics 2015E Operating ~24.5% ~16%* ~24% ~20%* ~25.5% ~20% ~23% Margin vs. 2012 (bps) +510 +110 +690 +420 +10 +
Slide 22: Enterprise Strategy
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013 2013-2016 -2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to Growth Organic Comprehensive Strategy Review 2011-2012 ENTERPRISE STRATEGY Leverage Leverag
Slide 23: Business Structure Simplification/Scale-Up
ACCELERATE ORGANIC GROWTH Business Structure Simplification/Scale-Up Scale-up divisional structure to drive accelerated organic growth Divisional structure needed sufficient scale to support investments in engineering, marketing, and sales resources necessary to drive accelerated organic growth • 80
Slide 24: Business Structure Simplification Benefits
ACCELERATE ORGANIC GROWTH Business Structure Simplification Benefits STRUCTURE BETTER ENABLED TO ITW’S ENTREPRENEURIAL CULTURE DRIVE ORGANIC GROWTH REMAINS INTACT • “Best of the best” now running • Flexibility within ITW framework each division • 80/20 is how we think about • Significantly enhanced
Slide 25: Enterprise Strategy
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to Growth Organic Comprehensive Strategy Review 2011-2012 ENTERPRISE STRATEGY Leverage ITW Business Model
Slide 26: Prepare to Accelerate Organic Growth
ACCELERATE ORGANIC GROWTH Prepare to Accelerate Organic Growth Use our 80/20 process to optimize existing businesses before growing them • 80/20 process is a critical preparatory step to reach “Ready to Grow” status: – Create competitive advantage in our businesses through operational excellence • B
Slide 27: Enterprise Strategy
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013 2013-2016 -2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to Growth Organic Comprehensive Strategy Review 2011-2012 ENTERPRISE STRATEGY Leverage ITW Bus
Slide 28: Organic Growth Framework
ACCELERATE ORGANIC GROWTH Organic Growth Framework • Reach “Ready to Grow” status (operationally excellent, simplified, and focused) • Focus on best opportunities (“80” products/customers/end markets and innovation opportunities) to drive above-market organic growth • Simultaneously apply three leve
Slide 29: First Growth Lever: "80" Focused Selling
ACCELERATE ORGANIC GROWTH First Growth Lever: “80” Focused Selling Focused on “80” customers and “80” products • Aggressively target opportunities to fully leverage the considerable share gain potential that resides in our largest and most differentiated existing product offerings and customer relat
Slide 30: Second Growth Lever: Core Market Expansion
ACCELERATE ORGANIC GROWTH Second Growth Lever: Core Market Expansion Target new customers with needs similar to existing “80” customers • Leverage proven competitive advantages in highly differentiated product offerings to target and penetrate new end users with characteristics and “pain points” sim
Slide 31: Third Growth Lever: Customer-Back Innovation
ACCELERATE ORGANIC GROWTH Third Growth Lever: Customer-Back Innovation • Has fueled decades of profitable growth at ITW – ~1,500 patent applications/year; ~16,000 total • Focused on highly differentiated end markets with solid long-term growth fundamentals 31
Slide 32: "Ready to Grow" Status
ACCELERATE ORGANIC GROWTH “Ready to Grow” Status % OF TOTAL REVENUE: 2015E 2015E ORGANIC REVENUE Ready to Grow and Growing +6% 45% Ready to Grow and Not Growing (5)% 15% Preparing for Growth (6)% 40% 32
Slide 33: Ready to Grow and Growing
ACCELERATE ORGANIC GROWTH Ready to Grow and Growing % OF TOTAL REVENUE: 2015E GROWING AT AVERAGE OPERATING 45% 6% MARGIN IS IN IN 2015 MID-20s Delivering accelerated high-quality organic revenue growth 33
Slide 34: Ready to Grow and Not Growing
ACCELERATE ORGANIC GROWTH Ready to Grow and Not Growing % OF TOTAL REVENUE: 2015E DOWN (5)% AVERAGE OPERATING 15% IN 2015 MARGIN IS IN STRONG BUSINESSES FACING CAPITAL MID-20s SPENDING AND OIL & GAS HEADWINDS Well positioned for accelerated organic growth when capital spending and oil & gas markets
Slide 35: Preparing for Growth
ACCELERATE ORGANIC GROWTH Preparing for Growth % OF TOTAL REVENUE: 2015E OPERATING DOWN MARGIN APPROACHING 40% (6)% 20% IN 2015 WITH IMPROVING OPERATING METRICS Key opportunity and management objective to have a majority of revenues ready to grow by the end of 2016 35
Slide 36: Ready to Grow by End of 2016
ACCELERATE ORGANIC GROWTH Ready to Grow by End of 2016 % OF TOTAL REVENUE: END OF 2016E Ready to Grow ~85% Preparing for Growth ~15% 36
Slide 37: Best-in-Class Margins and Returns
BEST-IN-CLASS MARGINS AND RETURNS
Slide 38: Enterprise Strategy
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013 2013-2016 -2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to Growth Organic Comprehensive Strategy Review 2011-2012 ENTERPRISE STRATEGY Leverage ITW Bus
Slide 39: Strategic Sourcing
BEST-IN-CLASS MARGINS AND Strategic Sourcing RETURNS Fully leverage the size and scale of ITW to improve our cost position 2012 • Highly fragmented sourcing process across ITW’s 800+ business units • Establish sourcing as a core strategic and operational capability – Apply 80/20 to identify and focu
Slide 40: Strategic Sourcing Savings
BEST-IN-CLASS MARGINS AND Strategic Sourcing RETURNS SAVINGS AS A % OF TOTAL SPEND • Exceeding the goal of 1% average reduction in spend per year • Real savings, not “deferred increases” or 1%+ “cost avoidance” 1.3% 0.8% • Moving toward raw material standardization and reformulation 2013 2014 2015E
Slide 41: Strategic Sourcing Capability
BEST-IN-CLASS MARGINS AND Strategic Sourcing RETURNS Strategic Sourcing is now a core element of our ongoing operational excellence focus and capabilities • Built a fit-for-purpose, effective and well-integrated sourcing organization at both the enterprise and segment levels • A sustainable enterpri
Slide 42: Enterprise Strategy
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to Growth Organic Comprehensive Strategy Review 2011-2012 ENTERPRISE STRATEGY Leverage ITW Business Model
Slide 43: ITW's 80/20 Process
BEST-IN-CLASS MARGINS AND ITW’s 80/20 Process RETURNS • The roots of ITW’s 80/20 Management Process go back to the mid-1980s • A key tenet of this proprietary process is that data drives operational capabilities and growth strategy • Over the past 30 years, ITW’s 80/20 process has been continuously
Slide 44: 80/20 Practice Excellence
BEST-IN-CLASS MARGINS AND 80/20 Practice Excellence RETURNS • As part of the 2011-2012 strategy review, it became clear that: – The rapid pace of acquisition-led growth inhibited ITW’s ability to effectively leverage the power of our 80/20 Management Process across 800+ business units – While we had
Slide 45: 80/20 Practice Excellence
BEST-IN-CLASS MARGINS AND 80/20 Practice Excellence RETURNS We have clearly defined for the Company what excellence in the practice of ITW’s 80/20 Management Process looks like RESULT IS SIGNIFICANT SCALED-UP REAPPLICATION OPPORTUNITY BSS ALLOWS FOR A TO CREATE MEANINGFUL IDENTIFIES A REINVIGORATION
Slide 46: Segment Examples of Enterprise Strategy Execution
SEGMENT EXAMPLES OF ENTERPRISE STRATEGY EXECUTION • Food Equipment • Construction Products
Slide 47: ITW Food Equipment
ITW Food Equipment $2.1B 16% 24% 1,200 2015E OF TOTAL 2015E PATENT REVENUES COMPANY OPERATING PORTFOLIO REVENUES MARGIN (granted and pending) 55% 35% 8% 2% North Asia Latin Europe America Pacific America 47
Slide 48: Portfolio Management Food Equipment
Portfolio Management Food Equipment Narrowed segment portfolio to focus on five global platforms with excellent growth fundamentals and clear competitive advantages 36% 24% 18% 11% 11% Service Ware-wash Cooking Refrigeration Retail PLS resulted in a 25% reduction in SKUs ($55 million in revenues) 48
Slide 49: BSS Food Equipment
BSS Food Equipment Scaled-up divisions able to focus and invest in targeting highest-quality revenue growth opportunities BEST 72% TALENT 24% REDUCTION IN WORKING ON INCREASE IN DIVISIONS LARGEST TARGETED INNOVATION OPPORTUNITIES INVESTMENT 49
Slide 50: Prepare to Accelerate Organic Growth Food Equipment
Prepare to Accelerate Organic Growth Food Equipment • Use 80/20 process to create sustainable competitive advantage – Best-in-the-industry quality and reliability – Next-day delivery (>95% for “80” products) • 80/20 strategic review revealed opportunities to drive differentiation and grow the busine
Slide 51: Accelerate Organic Growth Food Equipment
Accelerate Organic Growth Food Equipment • “80” focused selling – Significant share opportunity with top global accounts – Reallocated resources (sales/engineering) to enable dedicated account management – Encouraging progress with several large global customers in 2015 • Core market expansion (e.g.
Slide 52: Preparing for Growth Status Food Equipment
Preparing for Growth Status Food Equipment % OF SEGMENT REVENUE: 2015E % OF SEGMENT REVENUE: END OF 2016E Ready to Grow 67% ~90% Preparing for Growth 33% ~10% 52
Slide 53: Strategic Sourcing Food Equipment
Strategic Sourcing Food Equipment SAVINGS AS A PERCENT OF TOTAL SPEND 2.2% • Strong savings progress to-date ~2% • Effective sourcing capability has been built across the segment 1.6% • Sourcing savings will contribute meaningfully going forward 2013 2014 2015E 53
Slide 54: Reapplying 80/20 after BSS Food Equipment
Reapplying 80/20 after BSS Food Equipment Meaningful benefits from reapplying 80/20 to now-larger divisions • In 2012, although 80/20 was creating value in Food Equipment, performance was sub- optimal • Coming out of the BSS process in 2013/2014 provided a new opportunity to reapply 80/20 optimally
Slide 55: Financial Progress Food Equipment
Financial Progress Food Equipment ORGANIC REVENUE GROWTH OPERATING MARGIN 5-6% 25%+ 24% 17.1% 3-4% 0.6% 2012 2015E 2017E 2012 2015E 2017E 55
Slide 56: ITW Construction Products
ITW Construction Products A supplier of innovative engineered fastening systems and solutions $1.6B 12% 20% 3,291 2015E OF TOTAL 2015E PATENT REVENUES COMPANY OPERATING PORTFOLIO REVENUES MARGIN (granted and pending) 42% 29% 29% North Asia Europe America Pacific 56
Slide 57: Portfolio Management Construction Products
Portfolio Management Construction Products Narrowed segment portfolio to focus on the end markets, products, and customers that have the greatest potential for profitable organic revenue growth PRODUCT LINE DIVESTITURES SIMPLIFICATION $225MM 52% OF COMMODITIZED SALES REDUCTION IN SKUs DIVESTED 57
Slide 58: BSS Construction Products
BSS Construction Products Scaled-up divisions able to focus resources on largest, highest-growth, best-margin opportunities CREATED TOP TALENT GLOBAL RUNNING INNOVATION LARGER 86% GROUP DIVISIONS REDUCTION IN CREATED TO DIVISIONS GLOBAL CENTER GENERATE OF EXCELLENCE LARGER FOR TOOL ENGINEERING IMPAC
Slide 59: Preparing to Grow Construction Products
Preparing to Grow Construction Products • Use 80/20 process to create sustainable competitive advantage – Focusing innovation resources on most differentiated product categories: cordless tools and concrete anchors – “80” products for “80” customers • 80/20 strategic review revealed opportunities to
Slide 60: Preparing for Growth Status Construction Products
Preparing for Growth Status Construction Products % SEGMENT REVENUE: 2015E % SEGMENT REVENUE: END OF 2016E Ready to Grow 43% 70% Preparing for Growth 57% 30% 60
Slide 61: Strategic Sourcing Construction Products
Strategic Sourcing Construction Products SAVINGS AS A PERCENT OF TOTAL SPEND • Strong savings progress to-date • Effective sourcing capability has been built ~2% across the segment • Sourcing savings will contribute meaningfully going forward 1.2% 0.7% 2013 2014 2015E 61
Slide 62: Reapplying 80/20 after BSS Construction Products
Reapplying 80/20 after BSS Construction Products Meaningful benefits from reapplying 80/20 to now-larger divisions • Reapplication of 80/20 post-BSS has driven substantial margin expansion • This work has also provided operational benefits: – Reorganizing sales force to focus on “80” customers and b
Slide 63: Financial Progress Construction Products
Financial Progress Construction Products ORGANIC REVENUE GROWTH OPERATING MARGIN 3-4% 23%+ ~3% 20% 11.6% 0.5% 2012 2015E 2017E 2012 2015E 2017E 63
Slide 64: Financial Performance
WTVAY FINANCIAL PERFORMANCE
Slide 65: Enterprise Strategy
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013 2013-2016 -2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to Growth Organic Comprehensive Strategy Review 2011-2012 ENTERPRISE STRATEGY Leverage ITW Bus
Slide 66: ITW Performance Goals
ITW Performance Goals The focus of ITW’s Enterprise Strategy is to position the Company for solid growth with best-in-class margins and returns 23%+ 20%+ 200+ bps 12-14% Operating margin After-tax ROIC Organic revenue Total shareholder growth above global returns GDP BEYOND 2017 Best-in-class busine
Slide 67: ITW Operating Margin
ITW Operating Margin • Highly differentiated business portfolio • Significant margin impact from Enterprise Initiatives ̶ Incremental ~100 basis points of margin 23%+ expansion/year from Enterprise Initiatives in 2016 ~21.5% and 2017 15.9% Operating Operating margin ̶ Independent of volume Operating
Slide 68: ITW After-Tax Return on Invested Capital
ITW After-Tax Return on Invested Capital • Divested 32 low-return businesses ̶ ~25% / $4.9 billion of revenues • Exiting ~$350 million slow-growth, commoditized product lines • 80/20 execution on working capital ~20% 20%+ • Disciplined, returns-focused capital 14.5% After-tax ROIC After-tax ROIC all
Slide 69: ITW Organic Growth
ITW Organic Growth % OF REVENUE: END OF 2016E • Implementing shift to organic growth focus with ITW’s proven culture of execution: ̶ ~45% of ITW is already growing at 6% ̶ ~85% “Ready to Grow” by the end of 2016 ~85% Ready to Grow • Aligning incentives with organic growth focus ~15% Preparing for Gr
Slide 70: ITW Business Model Delivers 12-14% TSR Beyond 2017
ITW Business Model Delivers 12-14% TSR Beyond 2017 Enterprise Strategy will generate best-in-class financial performance and create sustainable, long-term shareholder value ~5% ~10-12% ~12-14% ORGANIC ~9-10% Total +200 bps +1-2% Earnings Per Shareholder ~35% Operating +~2% INCREMENTAL Income SHARE S
Slide 71: ITW Earnings Per Share
ITW Earnings Per Share +18% • Excellent progress on Enterprise Strategy Ex. FX execution and strong financial results • 17% EPS CAGR since 2012 +29% ~$5.50 • Enterprise Strategy execution has not Ex. FX +13% distracted from delivering quarterly results $4.67 ~$5.10 $3.63 $3.21 2012* 2013 2014 2015E
Slide 72: ITW Total Shareholder Returns
ITW Total Shareholder Returns • Solid organic growth of 200+ bps above global GDP • Best-in-class margins and returns ̶ 23%+ operating margin ~18% ̶ 20%+ after-tax ROIC AVERAGE 12-14% TOTAL TOTAL • Strong free cash flow SHAREHOLDER SHAREHOLDER ̶ 100%+ free cash flow conversion RETURNS RETURNS • Disc
Slide 73: ITW Business Model Resilience
ITW Business Model Resilience 12-14% TOTAL 10-12% SHAREHOLDER TOTAL RETURNS SHAREHOLDER 8-10% Operating Income RETURNS TOTAL SHAREHOLDER RETURNS +200 bps +200 bps +200 bps 3% GLOBAL GDP 2% GLOBAL GDP 1% GLOBAL GDP 5% organic 4% organic 3% organic ITW is well positioned to generate compelling total s
Slide 74: ITW Capital Allocation Strategy
ITW Capital Allocation Strategy We invest capital only where we can leverage ITW’s highly differentiated business model to generate best-in-class risk-adjusted returns PRIORITIES % OF OPERATING CASH FLOW INTERNAL INVESTMENTS to support organic ~25% 1 growth and sustain core businesses 2 An ATTRACTIV
Slide 75: 80/20 and Internal Investments
1 1 80/20 and Internal Investments ITW’s 80/20 approach also applies when it comes to internal investments • ITW businesses invest only in the 20% of projects that represent the “80” of the opportunity • Simply investing more in “20” projects leads to loss of focus, poor execution, and lower returns
Slide 76: ITW Dividend
2 2 ITW Dividend ITW is committed to returning a meaningful percentage of cash flows to shareholders through an attractive dividend DIVIDEND PER SHARE • 52 consecutive years of dividend increases ~2.5% yield • 11% CAGR since 2012 • 20-30% of cash flows allocated to dividend $2.01 • Dividend grows in
Slide 77: External Investments
3 External Investments Disciplined and returns-focused approach to acquisitions and share repurchases STRATEGIC ACQUISITION FRAMEWORK SHARE REPURCHASE PROGRAM 1. TIGHT STRATEGIC FIT: Highly • After strategic acquisitions, we expect to 1 targeted bolt-on acquisitions that support allocate surplus cap
Slide 78: ITW Strategic Acquisition Framework
ITW Strategic Acquisition Framework With “tight strategic fit” and 80/20 impact, we can leverage the ITW Business Model to generate best-in-class risk-adjusted returns ~23% OPERATING MARGIN After-tax ROIC at various multiples 10% EBITDA Year 7 OPERATING MARGIN ~$250 Million Multiple Return 9x ~22% $
Slide 79: ITW Near-Term Performance
ITW Near-Term Performance 2016 GUIDANCE • Expect 1-3% organic growth: +7% + 1%-pt. from accelerating organic growth EPS EPS $5.05-$5.15 $5.35-$5.55 + 1%-pt. current revenue run rate Organic Growth (1)-0% 1-3% • 100 bps of operating margin improvement from Enterprise Initiatives, independent of volum
Slide 80: Enterprise Strategy
Prepare to Accelerate Realign BSS/ Accelerate Organic Portfolio Scale-Up Organic Growth 2013-2016 2013-2014 Growth 2016- 2014-2016 Forward Solid Above- Shift Primary Market Organic Growth Engine to Growth Organic Comprehensive Strategy Review 2011-2012 ENTERPRISE STRATEGY Leverage ITW Business Model
Slide 81: 2015 ITW Investor and Analyst Day
2015 ITW INVESTOR AND ANALYST DAY New York, December 4, 2015
Slide 82: Appendix: Adjusted Return on Invested Capital
APPENDIX: Adjusted Return on Invested Capital The Company uses adjusted return on average invested capital ("ROIC") to measure the effectiveness of its operations’ use of invested capital to generate profits. Adjusted ROIC is a non-GAAP financial measure that the Company believes is a meaningful met
Slide 83: Appendix: Non-GAAP Reconciliations
APPENDIX: Non-GAAP Reconciliations Adjusted Return on Average Invested Capital For the Year Ended Diluted EPS For the Year Ended Dollars in millions December 31, 2012 December 31, 2012 Operating income, as reported $ 2,475 As reported $ 4.72 Adjustment for Decorative Surfaces (143) Decorative Surfac