Illinois Tool Works Inc. · NYSE:ITW
Illinois Tool Works — Investor Day (May 2023)
104 slides from Illinois Tool Works's investor day presentation, May 18, 2023
Slide 1: 2023 Investor Day
2023 Investor Day May 18, 2023 • Boston
Slide 2: Forward-Looking Statements
Forward-Looking Statements Safe Harbor Statement This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding future financial performance, operating performance, growth in free
Slide 3: Presenters
Presenters Scott Santi Chris O’Herlihy Michael Larsen Chairman & CEO Vice Chairman SVP & CFO 40 CEO Since 34 Vice Chairman Since 10 CFO Since Years 2012 Years 2015 Years 2013 With ITW With ITW With ITW 3
Slide 4: Presenters
Presenters Axel Beck Xavi Gracia Patty Hartzell EVP Food Equipment EVP Automotive OEM EVP Test & Measurement and Electronics 34 17 25 Years Years Years With ITW With ITW With ITW 4
Slide 5: Agenda
Agenda ITW’s Enterprise Strategy Ten Years In Our Next Phase (2023-2030) Enterprise Strategy Execution: Segment Perspectives - Food Equipment - Automotive OEM - Test & Measurement and Electronics 2023-2030 Performance Framework and 2030 Performance Goals Closing Remarks Break Q&A
Slide 6: What You’ll Hear Today
What You’ll Hear Today ▪ Over the last 10 years, through the execution of our Enterprise Strategy we have demonstrated that ITW has the most powerful and competitive business model in the industrial arena. ▪ We have significant opportunity to continue to improve on our path to ITW’s full potential a
Slide 7: ITW’s Enterprise Strategy — 10 Years In
ITW’s Enterprise Strategy — 10 Years In Scott Santi, Chairman and CEO 7
Slide 8: ITW’s Enterprise Strategy
ITW’s Enterprise Strategy When we launched our Enterprise Strategy in 2012, our simple idea was to focus the entire company on leveraging what we believed at the time to be a very powerful but significantly underutilized ITW Business Model to its full potential: ▪ Best-In-Class Business Model = Best
Slide 9: Best-in-Class Business Model = Best-in-Class Performance
Best-in-Class Business Model = Best-in-Class Performance 2012 2022 Revenue $17.9B $15.9B (11%)1 Operating Margin 15.9% 23.8% +790 bps After-tax ROIC2 14.5%3 29.1% +1460 bps Earnings Per Share $3.212 $9.77 3x Dividends Declared Per Share $1.48 $5.06 3.4x Market Capitalization4 $23B $70B 3x 1 Revenue
Slide 10: After-Tax Return on Invested Capital vs. Peers
Best-in-Class Business Model = Best-in-Class Performance ITW vs. Peers 2012 → 2022 30% After-Tax Return on Invested Capital 25% Peer F Peer E 20% Peer I 15% Peer H Peer G Peer D 10% Peer A 5% Peer C Peer B 0% 0% 5% 10% 15% 20% 25% Operating Margin Source: Bloomberg. Peers include 3M, Dover, Eaton, E
Slide 11: Operating Margin vs. Major Market Peers by Segment
Best-in-Class Business Model = Best-in-Class Performance Operating Margin vs. Major Market Peers by Segment Peers* 31% 26% 27% 26% 27% 25% 21% 17% 16% 12% 13% 13% 12% 8% Auto OEM Food Test & Meas. Welding Polymers Construction Specialty Equipment and Elect** & Fluids** Products Products * See append
Slide 12: “Do What We Say” Execution
“Do What We Say” Execution From our December 2012 Investor Day: “We will be more focused, more efficient, and more streamlined in order to deliver profitable growth and strong returns in an increasingly challenging external environment.” 12 Never stronger. Never better positioned for the future.
Slide 13: “Do What We Say” Execution
“Do What We Say” Execution What We Said in 2012: What We Did: “We will divest commoditized Divested ~$5B in revenue Portfolio ▪ businesses and PLS commoditized Management product lines.” ▪ PLS’d >$750M in revenue Business “We will simplify and scale up operating structure to improve Structure ▪ 800+
Slide 14: “Do What We Say” Execution
“Do What We Say” Execution What We Said in 2012: What We Did: ▪ Today, the best we’ve ever been … by far Leverage the ITW “We will expect and achieve excellence in the practice of the ▪ Peer Group #1 operating margin Business Model to ITW Business Model everywhere in ▪ Consistent 35-40% incremental
Slide 15: Total Shareholder Returns (2012-2022)
Best-in-Class Business Model = Best-in-Class Performance Total Shareholder Returns (2012-2022)1 356% 252% 226% Proxy Peer Group 2 S&P 500 ITW delivered 16.4% compound annual TSR to our shareholders (2012-2022) 1 TSR includes reinvested dividends. 2 See 2022 Form 10-K for proxy peer group definition.
Slide 16: Shareholder Value Created 2012-2022
Shareholder Value Created 2012-2022 Increase in Market Capitalization +$47 Billion Dividends Paid Out +$11 Billion Total $58 Billion 16 Never stronger. Never better positioned for the future.
Slide 17: ITW 2012-2022: From Middle of the Pack to Best-in-Class
ITW 2012-2022: From “Middle of The Pack” To a Best-in-Class Industrial Company. Where Do We Go From Here? 17
Slide 18: Where Do We Go From Here? Our Next Phase: 2023-2030
Where Do We Go From Here? Our Next Phase: 2023-2030 We have significant room for further improvement on our path to ITW’s full potential: ▪ New 2030 Performance Goals ITW’s differentiated Business Model and Enterprise Strategy framework will be as powerful and competitively differentiating in our ne
Slide 19: As Powerful and Differentiated in our Next Phase
As Powerful and Differentiated in our Next Phase … if not more so 1 Volatility, risk, and the pace of change in the global operating environment will continue to increase. We are built for this. Most of the heavy lifting we had to do in the past decade to transform 2 the company is behind us. We ent
Slide 20: 1a) We are Built for This
1a) We are Built for This Our defining competitive advantage is the ITW Business Model, not a legacy industry position or a core technology. ▪ Can move in and out of markets as their characteristics evolve and new opportunities emerge. ▪ We have earned the right to be a diversified industrial compan
Slide 21: 1b) We are Built for This
1b) We are Built for This Unmatched ability to read, react, respond, and evolve. ▪ Uniquely enabled by ITW’s highly decentralized “flexibility within a framework” operating culture. ▪ Allows us to be a fast adaptor rather than have to commit to a strategy built on the impossible task of accurately p
Slide 22: 1c) We are Built for This
1c) We are Built for This Highly efficient cash generator, best-in-class margins, and “fortress” balance sheet. ▪ Strongest, most resilient financial profile in the industrial company arena. ▪ Uniquely capable of remaining invested in executing our long-term strategy and in our people during periods
Slide 23: Q2 2020 – The Depth of the Global Pandemic
Q2 2020 – The Depth of the Global Pandemic ITW’s entrepreneurial “read and react” culture and highly resilient financial profile were on full display: ▪ Communicated a pandemic framework with just three components and our teams around the world quickly and decisively mobilized. ▪ Highly resilient fi
Slide 24: 2) Most of the Heavy Lifting Is Behind Us
2) Most of the Heavy Lifting Is Behind Us Our “To Do” List in 2012 1. Reshape ITW’s business portfolio 2. Simplify and scale up our operating structure 3. Bring the quality of our 80/20 execution to unprecedented levels across the company 4. Implement a robust enterprise leadership development and t
Slide 25: We Enter our Next Phase Essentially Focused on 2 Things
We Enter our Next Phase Essentially Focused on 2 Things … 1. Reshape ITW’s business portfolio 2. Simplify and scale up our operating structure 3. Bring the quality of our 80/20 execution to unprecedented levels across the company 4. Implement a robust enterprise leadership development and talent man
Slide 26: ITW’s Enterprise Strategy – Next Phase (2023-2030)
ITW’s Enterprise Strategy – Next Phase (2023-2030) Chris O’Herlihy, Vice Chairman 26
Slide 27: ITW’s Enterprise Strategy — Next Phase (2023-2030)
ITW’s Enterprise Strategy — Next Phase (2023-2030) Key priorities: 1. Execute on ITW’s growth agenda ▪ Consistent 4%+ high-quality organic growth at the enterprise level ▪ High-quality acquisitions that extend ITW’s long-term organic growth potential 2. Sustain foundational strengths we have built o
Slide 28: ITW’s Growth Agenda — Organic Growth
ITW’s Growth Agenda — Organic Growth Organic Growth is our Core Growth Engine and Top Priority Our Target: Consistent 4%+ high-quality organic growth through the cycle ▪ High-quality = 35-40% incremental margins By 2030: Organic growth execution skills that are on par with our world-class financial
Slide 29: Segment Organic Growth Targets
ITW’s Growth Agenda — Organic Growth Segment Organic Growth Targets: Market Growth/Price 1-2% Net Market Penetration 1-2% Customer-Back Innovation 2-3% Total 4-7% More Than Enough Growth Potential to Deliver Consistent 4%+ Organic Growth at the Enterprise Level 29 Never stronger. Never better positi
Slide 30: ITW’s Growth Agenda — Organic Growth
ITW’s Growth Agenda — Organic Growth After 10 years of work, we are well-positioned to achieve our 4%+ organic growth target … and we are delivering on it. Portfolio management Sustainable differentiation Plenty of room to grow in every segment Best-in-class customer-facing performance Strategic sal
Slide 31: Customer-Back Innovation
Customer-Back Innovation We innovate from the Customer Back, not the R&D center out. We are the go-to problem solvers for our “80” customers. ▪ Has fueled decades of profitable growth at ITW ▪ Currently contributes ~2% to annual organic growth (up from ~1% in 2019) ▪ Higher probability, higher veloc
Slide 32: Acquisitions to Extend ITW’s Long-Term Organic Growth Potential
Acquisitions to Extend ITW’s Long-Term Organic Growth Potential Only if High Conviction / High Quality: ▪ Worth our time and effort ▪ Can contribute to ITW’s long-term organic growth target (4%+) ▪ Can achieve ITW-caliber margins and returns over time Two Types: ▪ Bolt-ons to existing segments ▪ New
Slide 33: Segment Build-Out Examples
Segment Build-Out Examples Test & Measurement Welding and Electronics ▪ We started with Miller Electric in 1994 ▪ We started with Instron in 2005 ▪ Added 10+ bolt-on acquisitions ▪ Added ~18 bolt-on acquisitions ▪ Revenue grew from ~$350M to $1.9B in ▪ Revenue grew from ~$280M to $2.8B in 2022; 25%
Slide 34: Challenges with Larger Acquisitions ($1B+)
Challenges with Larger Acquisitions ($1B+) ▪ All acquisitions consume leadership time, energy, and effort. Larger acquisitions require exponentially more. ▪ Are likely to require significant portfolio actions to ultimately get the pieces we want. 34 Never stronger. Never better positioned for the fu
Slide 35: Sustaining Foundational Strengths We’ve Built Over the Past Decade
Sustaining Foundational Strengths We’ve Built Over the Past Decade 1 High-Quality ITW Business Model Practice Throughout the Company, Everywhere, Every Day 2 Quality / Depth of Leadership Bench and Pipeline 35 Never stronger. Never better positioned for the future.
Slide 36: Sustaining High-Quality ITW Business Model Practice
1. Sustaining High-Quality ITW Business Model Practice Throughout the Company The quality of ITW Business Model practice has never been better. Elements: ▪ 80/20 Front-to-Back practice ▪ Customer-Back Innovation ▪ Decentralized, entrepreneurial culture The ITW Business Model is our Core Competitive
Slide 37: 80/20 Front-to-Back: How We Operate
80/20 Front-to-Back: How We Operate ITW’s 80/20 Front-to-Back process is a unique and proprietary methodology used as the core operating system in all ITW divisions. ▪ Improves all aspects of the business: • Heavily data-driven • Intense focus on the “80” / Minimize cost and distraction from the “20
Slide 38: Culture: How We Execute
Culture: How We Execute Our culture is entrepreneurial. ▪ In our decentralized divisional structure, our leaders run real businesses • They are empowered to think and act like owners ▪ Division leaders have full functional control and P&L responsibility (no matrix) Our culture drives accountability
Slide 39: Sustaining Quality / Depth of Leadership Pipeline
2. Sustaining Quality / Depth of Leadership Pipeline Our highly effective and customized approach to talent management provides us with a sustainable pipeline of leaders with expertise in the ITW Business Model. ▪ This remains a major focus area and is core to our future success. ▪ ITW Business Mode
Slide 40: Our Next Phase: 2023-2030
Our Next Phase: 2023-2030 The ITW Business Model and our Enterprise Strategy will be as formidable of a competitive advantage and performance differentiator in our next phase as it has been over the last decade … or even more so. 40
Slide 41: ITW Food Equipment
ITW Food Equipment Axel Beck, Executive Vice President Never stronger. Never better positioned for the future.
Slide 42: ITW Food Equipment
ITW Food Equipment Leading global supplier of innovative Food Equipment and Service solutions for the Commercial Food Service and Food Retail end markets where quality & lifetime service is a critical factor 2022 2022 2019-2022 Avg Revenue Operating Margin Organic Growth $2.4B 25.3% 6.3% EUROPE N. A
Slide 43: Products
Products Warewash Cooking Refrigeration Food Machines Service ~30% ~20% ~15% ~5% ~30% 43 Never stronger. Never better positioned for the future.
Slide 44: End Markets
End Markets Institutional Restaurants Retail ~50% ~35% ~15% Education Full-Service Restaurants Supermarkets Health Care Quick Serve Chains Mass Merchandisers Business & Industry Lodging & Casinos Convenience Stores 44 Never stronger. Never better positioned for the future.
Slide 45: Market Trends and Our Differentiation
Market Trends Our Differentiation ▪ Labor availability and cost ▪ Strong innovation track record: ~1,500 patents (granted & pending) ▪ Sustainability ▪ Highest quality service & unique in the industry ▪ Total cost of ownership ▪ Highly regarded and trusted brands ▪ Safest, most durable & reliable ▪
Slide 46: Preparing for High-Quality Growth (2012-2017)
FOOD EQUIPMENT SEGMENT Preparing for High-Quality Growth (2012-2017) ▪ Radically simplify products, customers and operations ▪ Develop deep understanding of key profit levers ▪ Establish clarity on “where to play” and “how to win” ▪ Achieve leadership in customer-facing performance 17.1% 25.3% 2012
Slide 47: Pivot to Growth (2017-2022)
FOOD EQUIPMENT SEGMENT Pivot to Growth (2017-2022) What We Saw … What We Did … What We Got … ▪ Fragmented sales and ▪ Focused intensely on key ▪ 2%+ CBI growth contribution marketing structure “80” markets ▪ Share gain: 1-2% per year ▪ Inconsistent CBI process ▪ Strategic sales excellence ▪ Underlev
Slide 48: Warewash North America
POSITION FOR GROWTH: DIVISION EXAMPLE Warewash North America 2017 Revenue 2022 Revenue $202M 7% CAGR $275M at above-segment margin Products Markets ▪ Under Counters 60% ▪ Hood Type Institutional Rack Conveyors ▪ 30% Restaurant & Lodging 10% Retail 48 Never stronger. Never better positioned for the f
Slide 49: Serial Innovation
POSITION FOR GROWTH: DIVISION EXAMPLE Serial Innovation 2020 2022 2024 2026 New Gen → IoT Smart Reusables Drying Technology Under- counter IoT Smart Refresh → TCO Technology Hood Type Mid Tier → CSA IoT Smart Technology Rack type Outcome: CBI Contributes 2-3%-pts to Growth 49 Never stronger. Never b
Slide 50: Customer-Back Innovation: Sustainability
DIVISON EXAMPLE - WAREWASH NORTH AMERICA Customer-Back Innovation: Sustainability Customer/Market Our Innovations Outcome ▪ QSR chains ▪ Safe & reliable ▪ Unique industry solution sanitization for reusable plastic ware ▪ Fast casual restaurants sink replacement ▪ Clean & dry plastic ware ▪ 3-year Wa
Slide 51: Next Phase Growth Opportunity for ITW Food Equipment
Next Phase Growth Opportunity for ITW Food Equipment Addressable 1-3% 1-2% 2-3% Market Size Market Share CBI 4-7% ~$17-23B Growth/ Price Gain Organic Growth 10-15% Current Market Share Positioned For High-Quality Organic Growth 51 Never stronger. Never better positioned for the future.
Slide 52: ITW Automotive OEM
ITW Automotive OEM Xavi Gracia, Executive Vice President Never stronger. Never better positioned for the future.
Slide 53: ITW Automotive OEM
ITW Automotive OEM Highly focused niche supplier of components and fasteners to global auto OEMs. Focused only on opportunities where we can differentiate by providing unique innovations on a global scale with world-class consistency. 2022 2022 Avg Content per Revenue Operating Margin Vehicle* 2017→
Slide 54: Products
Products Fasteners High Value Components Electric Vehicles (ICE + EV) (ICE + EV) Plastic, stamped metal ▪ Fuel filler housings ▪ Charge ports and cold headed fasteners ▪ Exterior & interior ▪ Deep drawn battery ▪ Interior & Exterior door handles cans panels and trims fixing ▪ Coolant regulators ▪ Th
Slide 55: Market Trends and Our Differentiation
Market Trends Our Differentiation ▪ Transition from ICE to EV ▪ Deep engineering relationships with “80” vehicles OEMs (ICE and EV) ▪ New EV entrants ▪ Track record of Customer-Back Innovation: ~3,200 patents (granted & pending) ▪ Growing use of electronics for connectivity (“smart ▪ Best-in-class h
Slide 56: Preparing for High-Quality Growth (2012-2017)
AUTOMOTIVE OEM SEGMENT Preparing for High-Quality Growth (2012-2017) ▪ Radically simplify products, customers and operations ▪ Develop deep understanding of key profit levers ▪ Establish clarity on “where to play” and “how to win” ▪ Achieve leadership in customer-facing performance 19.4% 22.8% 2012
Slide 57: Operating Margin Improvement Plan
Margin Impacted by Cost Inflation and 12% Decline in Builds* Operating Margin Improvement Plan 1-2% ~1% Enterprise Initiatives ~2% Higher margin 1-2% CBI Volume Recovery Continued (builds) price/cost recovery Low- to Mid-20% Margins by 2026 57 * In N. America, Europe and China. Never stronger. Never
Slide 58: Pivot to Growth (2017-2022)
AUTOMOTIVE OEM SEGMENT Pivot to Growth (2017-2022) What We Saw … What We Did … What We Got … ▪ CBI initiatives ▪ Extensive CBI focus ▪ CBI 2%+ per year contributing < 1% ▪ Resourced and invested in ▪ 2% Annual penetration gain ▪ Lack of strategic marketing strategic marketing at each ($ per vehicle)
Slide 59: The EV Opportunity for ITW
The EV Opportunity for ITW “80” Applications ITW Relevant Content Per Vehicle* $300 $220 $52 by 2027 $52* $39* ITW ICE ICE Market ITW EV EV Market in 2023 Size in 2023 Size ~$400M Business in 2023 → $1B+ by 2027 59 * Content per vehicle in N. America, Europe and China combined. Never stronger. Never
Slide 60: China Plastic Components
POSITION FOR GROWTH: DIVISION EXAMPLE China Plastic Components 2016 Revenue 2022 Revenue 24% CAGR $76M $200M at above-avg. segment margin Products China Market Position China Plastic Components ▪ Fuel filler housing ▪ EV charge ports ITW ITW 2022 % Builds ▪ Flush exterior door handles % Revenue $/Ca
Slide 61: Customer-Back Innovation: EV’s
Customer-Back Innovation: EV’s ▪ Innovations address customer needs and pain points: • Remote actuation with improved flap motion • Lighting & status indication • Vehicle communication • All-weather performance Smart Charge Port ▪ 35 patents granted and filed ~$18/vehicle opportunity CBI Drives EV P
Slide 62: Next Phase Growth Opportunity for ITW Automotive OEM
Next Phase Growth Opportunity for ITW Automotive OEM Addressable Market Size 1-2% 2-3% (through 2030) Market Share 2%+ CBI 4-7% 58-70M Growth/Price Gain Organic Growth builds* Positioned For High-Quality Organic Growth 62 * Builds in N. America, Europe and China combined through 2030. Never stronger
Slide 63: ITW Test & Measurement and Electronics
ITW Test & Measurement and Electronics Patty Hartzell, Executive Vice President Never stronger. Never better positioned for the future.
Slide 64: ITW Test and Measurement / Electronics (T&M/E)
ITW Test and Measurement / Electronics (T&M/E) Leading global supplier of innovative equipment, services and related consumables focused on demanding R&D, process improvement, and quality control applications. 2022 2022 2019-2022 Avg. Revenue Operating Margin Organic Growth $2.8B 26.1%1 6.5% EUROPE
Slide 65: Products
Products Testing Semiconductor Electronics Weighing & Service Equipment Mfg. Products Equipment Inspection ~15% ~30% ~20% ~20% ~15% Innovative Solutions That Solve our Customers’ Most Challenging Test, Measurement, and Manufacturing Problems 65 Never stronger. Never better positioned for the future.
Slide 66: End Markets
End Markets Semiconductor & Biomedical Automotive Other Electronics Mfg. Industrial 25-30% 10-15% 15-20% 25-30% Chips Medical Packaging EV Applications Aerospace Electronic Devices Medical Devices Durability & Performance Manufacturing Printed Circuit Boards Pharmaceutical Safety Systems Logistics F
Slide 67: Market Trends and Our Differentiation
Market Trends Our Differentiation ▪ More stringent global quality ▪ Market leading technology and standards product differentiation; 3,500 patents (granted & pending) ▪ Increasing focus on product safety /protecting brand reputation ▪ Highly regarded and trusted ▪ Increasing regulation brands ▪ Adva
Slide 68: Preparing for High-Quality Growth (2012-2017)
T&M/E SEGMENT Preparing for High-Quality Growth (2012-2017) ▪ Radically simplify products, customers and operations ▪ Develop deep understanding of key profit levers ▪ Establish clarity on “where to play” and “how to win” ▪ Achieve leadership in customer-facing performance 14.9% 26.1% 2012 Operating
Slide 69: Pivot to Growth (2017-2022)
T&M/E SEGMENT Pivot to Growth (2017-2022) What We Saw … What We Did … What We Got … ▪ <1% contribution from ▪ High quality implementation ▪ CBI 2%-pts CBI initiatives of CBI framework ▪ Market penetration 1-2%-pts ▪ Strategic sales excellence ▪ Lack of sales focus and capability (0.6)% 6.5% 2012-201
Slide 70: Brooks Instrument
POSITION FOR GROWTH: DIVISION EXAMPLE Brooks ® Instrument 2017 Revenue 2022 Revenue 10% CAGR $224M $356M Products Markets ▪ Mass Flow Controllers ▪ Vacuum Products 75% Semiconductor ▪ Pressure Products 25% Industrial / Life Sciences 70 Never stronger. Never better positioned for the future.
Slide 71: Customer-Back Innovation: Semiconductor Mfg.
DIVISON EXAMPLE – BROOKS INSTRUMENT Customer-Back Innovation: Semiconductor Mfg. Customer/Market Our Innovation Outcome Semiconductor wafer Pressure-based Mass Flow ▪ Differentiated products that processing equipment Controllers are designed in or specified by ▪ Industry best flow all ‘80’ customers
Slide 72: Next Phase Growth Opportunity for Test & Measurement and Electronics
Next Phase Growth Opportunity for Test & Measurement and Electronics Addressable 1-3% ~1% Market Size Market Share 2-3% CBI 4-7% $15-20B Growth/ Price Gain Organic Growth ~15% Current Market Share Positioned For High-Quality Organic Growth 72 Never stronger. Never better positioned for the future.
Slide 73: 2023-2030 Performance Framework and 2030 Performance Goals
2023-2030 Performance Framework and 2030 Performance Goals Michael Larsen, SVP & CFO 73 Never stronger. Never better positioned for the future.
Slide 74: 2023-2030 Performance Framework
2023-2030 Performance Framework ▪ Additional foundational elements of ITW’s Enterprise Strategy • Highly focused capital allocation • Rigorous portfolio management • Acquisition discipline • ESG Stewardship ▪ “ITW in 2030” performance framework and updated performance goals 74 Never stronger. Never
Slide 75: Highly Focused Capital Allocation
Highly Focused Capital Allocation The ITW Business Model generates significant free cash flow and our balance sheet is very strong ▪ Best-in-class profitability + “Asset-light” business model = Best-in-class cash flows ▪ Incremental margins on growth of 35-40% ▪ “Fortress” balance sheet with appropr
Slide 76: Highly Focused Capital Allocation
Highly Focused Capital Allocation Principles of ITW’s Capital Allocation Strategy: 1 Deploy capital only where we can leverage the ITW Business Model into meaningful and sustainable competitive advantage 2 Return surplus capital to shareholders rather than pursue opportunities that reside outside of
Slide 77: ITW’s Capital Allocation Framework
Highly Focused Capital Allocation ITW’s Capital Allocation Framework % of Operating Cash Flow Internal investments to support organic 1 20-25% growth and sustain core businesses 2 An attractive dividend that grows in line 40-50% 35-45% with earnings 3 Acquisitions and an active share repurchase prog
Slide 78: Priority #1: Internal Investments
Highly Focused Capital Allocation Priority #1: Internal Investments ▪ Investments to grow and support our highly profitable core businesses • Capital expenditures / capacity expansions to support growth (~2.5% of revenues) • New products / funding for Customer-Back Innovation (~2% of revenues) • 80/
Slide 79: Priority #2: An Attractive Dividend
Highly Focused Capital Allocation Priority #2: An Attractive Dividend ▪ Long standing commitment (59 years) of returning cash to our shareholders via dividends ▪ A key component of our Total Shareholder Return performance (~15% of TSR from 2012 to 2022) ▪ Going forward: Grow the dividend in line wit
Slide 80: ITW’s Dividend Since 2012
ITW’s Dividend Since 2012 Priority #2: An Attractive Dividend 13% CAGR $5.24 $4.88 $4.56 $4.28 +7% $4.00 +7% +7% $3.12 +7% +28% $2.60 $1.94 $2.20 +20% $1.52 $1.68 +18% +13% +15% +11% Dividend Increase 1 1 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Avg. dividend yield 2.6% 2.3% 2.1% 2.2%
Slide 81: Priority #3: Acquisitions and an Active Share Repurchase Program
Highly Focused Capital Allocation Priority #3: Acquisitions and an Active Share Repurchase Program ▪ High-quality, financially prudent acquisitions are the priority … ▪ … then we utilize an active share repurchase program to return surplus capital to shareholders ▪ Baseline allocation for share repu
Slide 82: Rigorous Portfolio Management
Rigorous Portfolio Management Key Principles of ITW’s Portfolio Management Strategy: 1 Sustainable differentiation is a “must have” 2 Anything commoditized “must go” 82 Never stronger. Never better positioned for the future.
Slide 83: Acquisition Discipline
Acquisition Discipline Key Principles of ITW’s Acquisition Strategy: 1 Must extend ITW’s long-term organic growth potential Valuation must always be about what a business is worth to ITW in the 2 context of our strategy, not what a business is worth to someone else at a particular point in time 3 Mu
Slide 84: MTS Acquisition Update
MTS Acquisition Update ▪ Acquired in December 2021 for $750M ▪ Leading supplier of high-performance test and simulation systems located in Eden Prairie, Minnesota ▪ Global revenue: North America 28%, Europe 34%, Asia 38% ▪ ~1,500 employees ... ~50% located outside the U.S. ▪ Serving customers in div
Slide 85: We Demonstrated the Power of the ITW Business Model on a Similar Acquisition
We Demonstrated the Power of the ITW Business Model on a Similar Acquisition … ~9% 30%+ Operating Operating Margin at Margin Acquisition in 2022 in 2005 Instron’s Organic Growth Rate is Now in the High Single Digits 85 Never stronger. Never better positioned for the future.
Slide 86: MTS Progress Update
MTS Progress Update At Acquisition 2023 Standard Order Entry 4+ months <1 week & Prod’n Scheduling Standard Lead Times ~180 days <45 days Operating Margin ~8% ~13% 86 Never stronger. Never better positioned for the future.
Slide 87: ESG Stewardship
ESG Stewardship 87 Never stronger. Never better positioned for the future.
Slide 88: ITW’s Sustainability Strategy
ITW’s Sustainability Strategy ▪ ITW’s commitment to sustainability is long-standing and rooted in our core values ▪ Holistic ESG vision and framework with four elements: • Our Governance and Ethics • Our Environment • Our People • Our Communities ▪ Strategy and action plans are data-driven ▪ Fully a
Slide 89: Our Environment
Our Environment ▪ Committed to operating our business in a way that demonstrates our dedication to global environmental sustainability ▪ Employ a fact-based, continuous improvement approach ▪ Track record of setting and achieving meaningful reduction goals for Scope 1 & Scope 2 GHG emissions • We ar
Slide 90: GHG Emissions Reduction
GHG Emissions Reduction ▪ 2022: Delivered on our 2017 goal of a 40% reduction in Scope 1 & Scope 2 intensity ▪ ITW’s new goal: 50% absolute reduction in Scope 1 & Scope 2 by 2030 ▪ “Clean-tech” products represent ~30% of ITW revenue • Pipeline of Customer-Back Innovation projects that reduce the env
Slide 91: Our People and Our Communities
Our People and Our Communities ▪ Committed to a deep and diverse talent pipeline of ITW leaders • ITW’s Executive Leadership Team is 55% diverse • Board of Directors is 40% diverse • Top 1,000 leaders are 28% women and 19% ethnically diverse ▪ Since 2012, ITW has invested ~$250M to help improve acce
Slide 92: ESG Performance and 3rd Party Recognition
ESG Performance and 3rd Party Recognition Top 25% in Industrial Rated “A” in Industrial Machinery Machinery Group 92 Never stronger. Never better positioned for the future.
Slide 93: ITW in 2030
ITW in 2030 93 Never stronger. Never better positioned for the future.
Slide 94: ITW’s 2023-2030 Total Shareholder Return Model
ITW’S 2023-2030 Total Shareholder Return Model 11-13% 9-10% 7-8% +2-3% +2-3% Dividend Share Yield Avg. Annual Repurchase/ Avg. Annual Total 4%+ Avg. Annual High-quality Earnings Per Shareholder 35-40% Operating Acquisitions Avg. Annual Share Growth Return (TSR) Incremental Income Growth Organic Marg
Slide 95: New: ITW’s 2030 Performance Goals
New: ITW’s 2030 Performance Goals ~30% 35%+ 4%+ 35-40% 9-10% 100%+ 7%+ 50% Operating After-tax Avg. Annual Incremental Avg. Free Cash Annual Scope 1 & 2 Margin ROIC Organic Growth Margin Annual Flow as % of Dividend GHG Reduction EPS Growth Net Income Increase Differentiated Performance in any Envir
Slide 96: Closing Remarks
Closing Remarks Scott Santi, Chairman and CEO 96 Never stronger. Never better positioned for the future.
Slide 97: ITW’s Next Phase: 2023-2030
ITW’s Next Phase: 2023-2030 A reliable TSR compounder … in a highly volatile and increasingly uncertain world 1. HSD Average Annual Earnings per Share Growth 2. Increasing Annual Cash Returns to Shareholders 3. Most Resilient and Reliable 97 Never stronger. Never better positioned for the future.
Slide 98: ITW’s Next Phase: 2023-2030
ITW’s Next Phase: 2023-2030 A reliable TSR compounder … in a highly volatile and increasingly uncertain world: 1. HSD Average Annual Earnings per Share Growth a) 4%+ high-quality organic growth with best-in-class margins and returns • 35-40% incremental margins • Continued contribution from Enterpri
Slide 99: ITW’s Next Phase: 2023-2030
ITW’s Next Phase: 2023-2030 A reliable TSR compounder … in a highly volatile and increasingly uncertain world: 1. HSD Average Annual Earnings per Share Growth 2. Increasing Annual Cash Returns to Shareholders a) Strong free cash flow = HSD annual dividend increases 3. Most Resilient and Reliable 99
Slide 100: ITW’s Next Phase: 2023-2030
ITW’s Next Phase: 2023-2030 A reliable TSR compounder … in a highly volatile and increasingly uncertain world: 1. HSD Average Annual Earnings per Share Growth 2. Increasing Annual Cash Returns to Shareholders 3. Most Resilient and Reliable a) Proven ITW Business Model = best-in-class performance in
Slide 101: ITW’s Next Phase: 2023-2030
ITW’s Next Phase: 2023-2030 A reliable TSR compounder … in a highly volatile and increasingly uncertain world 1. HSD Average Annual Earnings per Share Growth 2. Increasing Annual Cash Returns to Shareholders 3. Most Resilient and Reliable 101 Never stronger. Never better positioned for the future.
Slide 102: Appendix
Appendix 102
Slide 103: GAAP to Non-GAAP Reconciliations
GAAP to Non-GAAP Reconciliations Diluted Earnings Per Share For the Year Segment Peer Group Ended Automotive OEM Enerpac Tool Group, Allison Transmission Holdings Inc., December WESCO International, Inc. and BorgWarner Inc. 31, 2012 As reported in the 2013 Form 10-K $ 4.72 Test & Measurement Ametek
Slide 104: GAAP to Non-GAAP Reconciliations
GAAP to Non-GAAP Reconciliations Free Cash Flow & % to Net Income For the Years Ended December 31, Dollars in millions 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Net cash provided by operating $ 2,072 $ 2,528 $ 1,616 $ 2,299 $ 2,302 $ 2,402 $ 2,811 $ 2,995 $ 2,807 $ 2,557 $ 2,348 activit