ITW Overview: End. David Speer. New York City December 8, 2008

Transcription

1 ITW Overview: End Market Perspectives David Speer New York City December 8, 2008

2 Today s Agenda Revenue Diversification and Acquisitions Review of Economic Trends and ITW Segments Today s Key Takeaways Questions

3 Revenue Diversification and Acquisitions

4 Revenue Diversification ITW s 2008 revenue mix continues to shift toward broader variety of end markets and geographies Acquisitions continue to play a meaningful role in expanding both our geographic and end market diversification

5 Revenue Diversification: ITW Revenues by End Markets Automotive OEM General Industrial Food Institutional/Service General Industrial Commercial Construction Food & Beverage Consumer Durables Residential Construction Renovation Construction Other Auto OEM/Tiers Commercial Construction Food & Beverage Residential Construction Primary Metals Consumer Durables Electronics Renovation Construction Auto Aftermarket All Others (F)

6 Revenue Diversification: ITW Revenues by Geography North America EMEA Asia/Pacific and Other (F) 2012(F)

7 Growth Through Acquisitions: Current Economic Environment Valuations are lower than before due to falling market values and the economy s impact on business outlook Creates opportunity to acquire businesses previously overpriced for ITW ITW s strong cash flow and sound balance sheet provide adequate funding required for acquisitions Review of 2008 Acquisitions (through ): Of 44 acquisitions completed, 42 deals were generated by business units Expect to acquire $1.5 billion of annualized revenues in 2008 On average, ITW has paid about 1.0X revenues for deals Majority of companies acquired are international Acquisitions complement existing business units and add to growth platforms (test and measurement, polymers and fluids, and food equipment)

8 ITW Acquisition Criteria Products that provide value add to customers Strong market position Well known brand name Improve financial metrics - double below average margins in three to five years Retain key management at acquired companies Utilize management talent to implement ITW Toolbox initiatives Further diversify if geographically Further diversify of end markets Return on investment significantly exceeding the cost of capital within three to five years

9 10-Year Historical Acquisition Summary ( ) # Deals Acquired Revenues (in millions) Avg. Size Acquisition $3800 $1000 $556 $195 $347 $624 $584 $1714 $995 $1450 $119 $22 $19 $9 $12 $26 $27 $32 $19 $33 # Business Units Acquisitions (1999-YTD) $11.3 billion acquired revenues $32 million average acquisition size

10 Acquisitions Historical Look Acquired in

11 Acquisitions Historical Look Reviewed performance of larger acquisitions from Revenues > $20 million Businesses which remained discrete for five years 73 Acquisitions with $4.2 million of first year revenue (70% of total) Conclusions: Revenue growth only 0.2% in 2 nd full year from first full year reflects impact of 80/20 simplification Margins improve each year from 9.2% in year1to193%inyear5 19.3% Return on investment improves from 9.2% in year 1 to 17.0% in year 5 More recent acquisitions have room for continued improvement

12 Review of Economic Trends and ITW Segments

13 Review of Economic Trends Underlying macro data for North America and Europe is negative United States t Industrial Production (ex. tech): % Oct. O t % 61% ISM: Jan % Nov % (November New Orders Index: 27.9%; lowest level since June 1980) Euro Zone Industrial production: % vs. Oct % PMI: Jan % Oct %

14 ITW Reporting Segments Industrial Packaging Power Systems & Electronics Transportation Construction Products Food Equipment Polymers & Fluids All Other

15 Industrial Packaging 16% of total ITW revenues 2008(F)

16 Industrial Packaging Steel, plastic and paper products used for bundling, shipping and protecting transported goods 108 businesses in 45 countries represent $2.6 billion of revenues e 2007 revenues: +11% 2008(F) revenues: +9%

17 Industrial Packaging Worldwide Revenues 2008(F) Primary Metals General Industrial North America Food & Beverage Consumer Durables Europe Construction Other Asia/Pacific and Other By End Markets By Geography

18 Industrial Packaging 2008 Trends North America primary metals markets decrease 12% during Q3 vs. year-earlier earlier periods North America building materials market declines 25% to 30% for first nine months vs. prior-year periods Base revenues in Europe and Asia grew in the first half of 2008, but Europe declines in the second half of 2008 as metals and general industrial i markets fall significantly ifi Asia growth continues up 10% from July through October

19 Industrial Packaging 2009 Growth Assumptions Worldwide base revenues: -4% to -8% in 2009 Developed markets (North America and Western Europe) forecasted to contract 5% to 10% as metals, construction and general industrial markets continue to sag Emerging g markets (Asia Pacific/Latin America/India) expected to grow base revenues with slowing market growth in China, Brazil, and India

20 Power Systems & Electronics 15% of total ITW revenues 2008(F)

21 Power Systems & Electronics Designer and manufacturer of arc welding equipment, consumables, and accessories for a wide array of industrial and commercial applications 96 businesses in 25 countries represent $2.4 billion of revenues 48% Capital Equipment, 52% Consumables & Accessories 2007 revenues: +22% 2008(F) revenues: +5%

22 Power Systems & Electronics Worldwide Revenues 2008(F) General Industrial Electronics North America Construction Fabrication Shipbuilding Ground Power MRO Energy G d P Europe Other Asia/Pacific and Other By End Markets By Geography

23 Power Systems & Electronics Welding Businesses: +6% YTD through September 2008 Trends North America : Flat, equipment slows while consumables continue modest growth International : +18%, Europe slows during Q3 while Asia continues strong +20% Flat in October North America slows dramatically across all markets: -9% International: +22%, Europe flat while Asia still going strong +20% Electronic Component Assembly Businesses: Flat YTD through September with equipment orders very slow and consumable volumes modestly positive -38% in October as equipment orders in telecommunications and consumer electronics dry up; consumables drop as production schedules are curtailed Aircraft Ground Support Equipment Businesses: Flat YTD through September +15% in October

24 Power Systems & Electronics 2009 Growth Assumptions Worldwide segment base revenues expected to be down 4% to 6% in 2009 vs Welding Businesses down 4% to 6% North America: Down 5% to 8% overall on declining general industrial and construction markets, offset partially by relatively robust new product pipeline International: Flat to +2%, reasonable growth in energy-related and shipbuilding end markets in Asia offset by lower capital spending in the heavy construction sector; Europe declining Electronic Component Assembly Businesses down 10% to 14% on continued weak capital spending Aircraft Ground Support Equipment Businesses up 4% to 5% on moderating fuel prices and a strong backlog of airport projects worldwide

25 Transportation 15% of total ITW revenues 2008(F)

26 Transportation Components, fasteners, fluids and polymers for transportation-related applications 85 businesses in 22 countries represent $2.4 billion of revenues 2007 revenues: +13% 2008(F) revenues: +7%

27 Transportation Worldwide Revenues 2008(F) Auto OEM/Tiers North America Auto Aftermarket Commercial Truck Aftermarket Other Europe Asia/Pacific and Other End Market Geography

28 Transportation 2008 Trends Penetrated new global platforms with Honda, Hyundai, Renault/Nissan, Daimler, GM & Ford during 2008 Revenues for businesses located in Asia/Pacific approaching $200 million in 2009 Product development activities begun in emerging markets with Suzuki, TATA, Chery and Daewoo during 2008 North America total builds: -15% (Detroit 3: -20% and New Domestics: -6%) Europe total builds: -2% (1 st half +5%; 2 nd half down 8%)

29 Transportation 2009 Growth Assumptions Base revenues: -8% to -12% for full year 2009 North America will continue to show weakening automotive market +/- 11 million vehicle builds Detroit 3: -16% to -20% New domestics: -4% to -6% International auto builds also decline in 2009 Europe: -12% to -15% Brazil: flat China: flat Lower gas price and aging car population should lead to improving markets for car maintenance and care products in the U.S. and Western Europe Truck aftermarket service in U.S. offers some potential upside

30 Construction Products 13% of total ITW revenues 2008(F)

31 Construction Products Designer and manufacturer of construction fastening systems and truss products for the commercial, residential and remodeling/rehab sectors 94 autonomous businesses in 29 countries represent $2.0 billion of revenues 2007 revenues: +9% 2008(F) revenues: -3%

32 Construction Products Worldwide Revenues 2008(F) Residential North America Commercial Europe Renovation Asia/Pacific and Other Other End Markets Geography

33 Construction Products 2008 Trends U.S. new residential housing starts drop from 1.15 million at end of Q to forecasted 785,000 starts at end of Q (32% decline) and Europe housing declines 13% Non-residential construction awards in U.S. drop nearly 20% and Europe falls over 6% North American renovation sales dampened in 2008 as consumer credit issues curtail spending HIRI forecasts renovation activity it -3% to 4% in 2008 Rapid slowing in European and modest growth in Asia/Pacific construction end markets results in 1% base revenue growth for international ti businesses through h Q3 2008

34 Construction Products Dodge Construction Potentials Bulletin 2008 YTD/Sq. Ft % Change U.S. Summary in thousands (Oct. 2008) vs. YTD 2007 Total Non-Residential 1,166,838-19% Commercial 660,969-28% Stores and Food Service, Warehouse (ex. mfr. owned) Office and Bank Buildings, Hotels & Motels, Garages & Service Stations Manufacturing 62,699-17% Manufacturing Plants, Warehouses (mfr. owned), Laboratories (mfr. owned) Education & Science 192,453 +3% Schools & Colleges, Laboratories (ex. mfr. owned), Libraries & Museums, etc. Dormitories 24, % Hospital & Health Treatment 87,594-2% Public Buildings 41,212-3% Government Administration, Other Government Service Religious 23,083-13% Amusement 54,494-9%

35 Construction Products 2009 Growth Assumptions Worldwide construction base revenues: -6% to -10% North America (2009 forecast) Residential: Further decline of 20% to 25% with 2009 starts between 700,000 and 750,000 (NAHB) Renovation: HIRI projects renovation activity to increase 1% to 2% in 2009 Non-residential: square footage initiated ( FW Dodge) projected to decline 12% in 2009 Europe (2009 forecast) - EuroConstruct Residential: -15% to -18% Non-residential: -8% to -10% Renovation: flat

36 ITW Construction Products 2009 Growth Assumptions (cont.) Asia/Pacific (2009 forecast) Australian/New Zealand housing starts: Flat to +2% Australian/New Zealand commercial construction activity (square meters): Flat to +2% Australian and New Zealand renovation : +4% Southeast Asia construction: +4 to +5% China construction: +6 to +8%

37 Food Equipment 13% of total ITW revenues 2008(F)

38 Food Equipment Commercial food equipment and related service 55 businesses in 22 countries represent $2.1 billion of revenues 2007 revenues: +27% 2008(F) revenues: +10%

39 Food Equipment Worldwide Revenues 2008(F) Food Institutional/ Restaurants North America Service Europe Food Retail Asia/Pacific and Other By Category By Geography

40 Food Equipment 2008 Trends Expect to finish 2008 with base revenues +3% North America: Food service / food retail chains pulled back new store construction and deferred rollouts early in the year Institutional base began to slow in late summer Channels conserving cash, burning off inventories going into 2009 EMEA: A strong start in the first quarter met with a gradual softening in the institutional markets Emerging Markets: Remained strong through Q3, softening going into 2009 Asia-Pacific beginning to see a slowdown in the lodging sector

41 Food Equipment 2009 Growth Assumptions Worldwide base revenues expected to be in a range of -4% to -8% Broad-based slowdown in North America expected to last through 2009 Continued softening in European institutional base and independent restaurants Latin America to largely mirror North America Positive growth expected in Asia-Pacific, but at a much reduced pace Service business worldwide is expected to mitigate some of the decline in equipment sales

42 Polymers & Fluids 8% of total ITW revenues 2008(F)

43 Polymers & Fluids Adhesives, sealants, lubrication and cutting fluids, and janitorial and sanitation supplies 94 business units in 32 countries represent $1.3 billion of revenues 2007 revenues: +24% 2008(F) revenues: +32%

44 Polymers & Fluids Worldwide Revenues by Geography 2008(F) General Industrial North America Construction MRO Electronics/Consumer Durables/Primary Metals Europe Auto Aftermarket Other Asia/Pacific and Other By End Market By Geography

45 Polymers & Fluids 2008 Trends General Industrial markets Wind, solar, rail and petrochemical industries continue to demonstrate growth Maintenance and repair markets demonstrating continued strength OEM market (recreational marine, transportation) is lackluster Construction end markets decline in NA and Europe partially offset by strong new product introductions Applications of performance technologies in new industries like aerospace yield good growth BRIC markets: acquisitions have added new channels and market opportunities

46 Polymers & Fluids 2009 Growth Assumptions Worldwide base revenues expected to expected to be in ranges of -5% to flat in 2009 Increased market penetration, new products and lower raw material costs will allow stabilization of margins in base business Utilization of ITW Toolbox offers good margin improvement opportunities in newer acquisitions Investments in BRIC countries will show increasing returns in 2009 Overall global market is highly fragmented and the opportunity for acquisitions remains good with a solid potential pipeline

47 All Other 20% of total ITW revenues 2008(F)

48 All Other Businesses All other operating segments include equipment and related software for test and measurement, paint spray equipment, finishing equipment, plastic reclosable packaging, g, plastic consumables, plastic and metal fasteners End markets include general industrial, finishing, consumer packaging, g, beverage and food, and test & measurement $3.3 billion in revenues 2007 revenues: +15% 2008(F) revenues: +4%

49 All Other Worldwide Revenues by Geography 2008(F) General Industrial Consumer Durables North America Food & Beverage Electronics Auto OEM/Tiers Europe Other Asia/Pacific and Other By End Market By Geography

50 Test & Measurement: All Other 2008 Trends Base revenues: +6% for full-year 2008, with double-digit growth coming from Asia Three 2008 acquisitions (QSA, Sonotech and Avery Weigh-Tronix) drive Test & Measurement annualized revenues to nearly $900 million Consumer Packaging: Base revenues: +2% Material costs in most of consumer packaging businesses are declining following record price levels in 2008 Private Label volume has shown strength at the expense of branded products as consumers cut back on expenditures Finishing: Base revenues: -1% Economic softness has delayed large system orders and diminished automotive refinishing markets Continued success in the finishing business is increasingly dependent upon global reach and partnerships, for which we are well positioned

51 All Other 2009 Growth Assumptions Total segment revenues: -4% to -7% Test & Measurement: Base revenues: -3% to flat in 2009, with majority of growth again emanating from Asia Acquisition opportunities expected to push platform revenues to over $1 billion in 2009 Consumer Packaging: Base revenues for Consumer Products Group: -3% to -5% due to weakening consumer demand Finishing: Base revenues: -5% to -7% due to declining general industrial activity

52 Today s Key Takeaways

53 Today s Key Takeaways Newly-reduced Q4 forecast reflects slowing end markets both in North America and internationally as well as significantly ifi lower currency contributions ti ITW s balance sheet, cash flow and credit ratings remain strong Food Equipment is a growing business platform one we will continue to grow via innovative products and complementary acquisitions 2009 will be a challenging year in nearly all end markets with preliminary total company base revenues expected to be in a range of -5% to -10% for the full year We are prepared for the challenge!

54 Questions??