itw Annual Investor Day PartI

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itw Annual Investor Day PartI

  1. 1. Welcome to ITW’s Annual Investor Meeting New York City New York City December 2, 2005 December 2, 2005
  2. 2. Today’s Agenda 8:50 – 9:00 a.m. David Speer 8:50 – 9:00 a.m. David Speer President and Chief Executive Officer President and Chief Executive Officer Welcome and overview Welcome and overview 9:00 – 9:50 a.m. Tom Hansen 9:00 – 9:50 a.m. Tom Hansen Executive Vice President Executive Vice President Automotive: A Profitable Contributor to ITW Automotive: A Profitable Contributor to ITW 9:50 – 10:40 a.m. Scott Santi 9:50 – 10:40 a.m. Scott Santi Executive Vice President Executive Vice President Welding: A Growth Platform Welding: A Growth Platform 10:40 – 10:55 a.m. Break 10:40 – 10:55 a.m. Break 10:55 – 11:45 a.m. Ron Kropp Eugene Osterkorn 10:55 – 11:45 a.m. Ron Kropp Eugene Osterkorn Vice President and Vice President, Vice President and Vice President, and Controller Internal Reporting and Controller Internal Reporting A Financial Perspective A Financial Perspective 11:45 a.m. – 12:45 p.m. David Speer 11:45 a.m. – 12:45 p.m. David Speer ITW Overview // General Q&A ITW Overview General Q&A 12:45 Lunch 12:45 Lunch
  3. 3. ITW Forward – Looking Statements ITW Forward – Looking Statements This conference call contains forward-looking statements within the meaning This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding end market conditions operating results for limitation, statements regarding end market conditions operating results for the fourth quarter and full-year 2005 and the company’s earnings and the fourth quarter and full-year 2005 and the company’s earnings and acquired revenue forecasts. These statements are subject to certain risks, acquired revenue forecasts. These statements are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ uncertainties, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that may influence future materially from those anticipated. Important risks that may influence future results include (1) a downturn in the construction, automotive, general results include (1) a downturn in the construction, automotive, general industrial, food retail and service, or real estate markets, (2) deterioration in industrial, food retail and service, or real estate markets, (2) deterioration in business and economic conditions, particularly in North America, the business and economic conditions, particularly in North America, the European Community or Australia, (3) the unfavorable impact of foreign European Community or Australia, (3) the unfavorable impact of foreign currency fluctuations and costs of raw materials, (4) an interruption in, or currency fluctuations and costs of raw materials, (4) an interruption in, or reduction in, introducing new products into the Company’s product lines and reduction in, introducing new products into the Company’s product lines and (5) an unfavorable environment for making acquisitions, domestic and (5) an unfavorable environment for making acquisitions, domestic and international, including adverse accounting or regulatory requirements and international, including adverse accounting or regulatory requirements and market values of candidates, and (6) unfavorable tax law changes and tax market values of candidates, and (6) unfavorable tax law changes and tax authority rulings. The risks covered here are not all inclusive and given these authority rulings. The risks covered here are not all inclusive and given these and other possible risks and uncertainties, investors should not place undue and other possible risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. reliance on forward-looking statements as a prediction of actual results.
  4. 4. ITW Global Automotive Tom Hansen Tom Hansen New York City New York City December 2, 2005 December 2, 2005
  5. 5. ITW’s Global Automotive Business • A strong ITW business • A strong ITW business • Above average margins and ROI • Above average margins and ROI • Admittedly difficult market space • Admittedly difficult market space • But it’s manageable… • But it’s manageable… – Very seasoned management team – Very seasoned management team – Focused on niche products – Focused on niche products • We’re comfortable with an automotive presence • We’re comfortable with an automotive presence in the range of 12% to 16% of ITW revenues in the range of 12% to 16% of ITW revenues
  6. 6. ITW’s Global Automotive Business • Design and manufacture metal and plastic • Design and manufacture metal and plastic fasteners and components for the automotive fasteners and components for the automotive industry industry – Revenue -- $1.6 billion (12% of ITW’s revenues) – Revenue $1.6 billion (12% of ITW’s revenues) – Divisions – 56 – Divisions – 56 – Countries -- 17 – Countries 17
  7. 7. Global Automotive Industry Current State Current State • It’s a global business! • It’s a global business! • Developed markets will experience slow, • Developed markets will experience slow, no, or negative growth no, or negative growth • Over 40% of all worldwide light vehicle • Over 40% of all worldwide light vehicle production will come out of the Asia/Pacific production will come out of the Asia/Pacific region by 2009 region by 2009 • NA and European new domestics continue • NA and European new domestics continue to “grab” market share to “grab” market share • OEM’s and tiers increasingly seeking • OEM’s and tiers increasingly seeking financially stable global suppliers like ITW financially stable global suppliers like ITW
  8. 8. ITW Global Automotive Operations
  9. 9. ITW Global Automotive Maintaining a Proven Sales Approach Maintaining a Proven Sales Approach • We focus on major new vehicle • We focus on major new vehicle platforms (80/20) platforms (80/20) • Majority of our sales personnel are • Majority of our sales personnel are degreed engineers degreed engineers • We have a “value-added engineering” • We have a “value-added engineering” sell mentality sell mentality – We concentrate on solving customer – We concentrate on solving customer application problems with cost effective application problems with cost effective solutions solutions • We emphasize product development – • We emphasize product development – we are always looking to solve we are always looking to solve unsatisfied customer needs unsatisfied customer needs
  10. 10. ITW Global Automotive Businesses Major Product Categories Major Product Categories 19% 28% 19% 28% Plastic Metal Plastic Metal Fasteners Fasteners Fasteners Fasteners 13% 13% 40% 40% Metal Metal Plastic Plastic Components Components Components Components
  11. 11. ITW Global Automotive Body/Exterior Products Body/Exterior Products
  12. 12. ITW Global Automotive Interior Products Interior Products
  13. 13. ITW Global Automotive Electrical/Safety Products Electrical/Safety Products
  14. 14. ITW Global Automotive Engine/Powertrain Offerings Engine/Powertrain Offerings
  15. 15. ITW Global Automotive Chassis Products Chassis Products
  16. 16. ITW Global Automotive Businesses Geographic Distribution of Revenues Geographic Distribution of Revenues 56% 56% North America North America 41% 41% 1% Europe 1% Europe South South America America 2% 2% Asia/Pacific Asia/Pacific
  17. 17. ITW Global Automotive Businesses Revenues by Customer Revenues by Customer 2001 2004 2001 2004 15% 15% 16% 16% 5% 5% 2% 2% 7% 7% 7% 7% 26% 26% 21% 21% 26% 26% 26% 26% 24% 25% 24% 25% NA Big 3 European OEM's NA Big 3 European OEM's NA Big 3 European OEM's NA Big 3 European OEM's New Domestics Captive Tiers New Domestics Captive Tiers New Domestics Captive Tiers New Domestics Captive Tiers Other NA Tiers Other European Tiers Other NA Tiers Other European Tiers Other NA Tiers Other European Tiers Other NA Tiers Other European Tiers
  18. 18. ITW Global Automotive Base Business Revenues (in millions) Base Business Revenues (in millions) 5..9% 9% CAGR = 5 CAGR = $2,100 $2,100 $1,750 $1,750 $853 $853 $808 $808 $761 $1,400 $761 $1,400 $717 $717 $696 $696 $1,050 $1,050 $700 $700 $1,200 $1,200 $1,121 $1,121 $1,029 $1,029 $939 $939 $875 $875 $350 $350 $0 $0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 North America International North America International
  19. 19. ITW Global Automotive Composition of Planned Base Business Growth Composition of Planned Base Business Growth • 30% from new product • 30% from new product • 20% from increased penetration • 20% from increased penetration with current customers/products with current customers/products • 25% from additional “new • 25% from additional “new domestic” penetration domestic” penetration • 25% from Asia/Pacific initiatives • 25% from Asia/Pacific initiatives
  20. 20. ITW Global Automotive New Product Revenues (in millions) New Product Revenues (in millions) $150,000 $150,000 0% 0% =7 $120,000 =7 $120,000 R GR AG CA C $90,000 $90,000 $145,000 $145,000 $60,000 $60,000 $115,000 $115,000 $65,000 $65,000 $30,000 $30,000 $35,000 $35,000 $17,337 $17,337 $0 $0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
  21. 21. ITW Global Automotive New Products – Cold Formed Fasteners New Products – Cold Formed Fasteners •• The PCAC®,, paint clearing anti-cross thread The PCAC® paint clearing anti-cross thread point. Eliminates rework, repair and operator point. Eliminates rework, repair and operator injuries. Patented ITW design. injuries. Patented ITW design. PCAC®-Paint Clearing PCAC®-Paint Clearing Anti-Cross Thread Anti-Cross Thread •• Our 2006 PACE Award finalist, the BosScrew®,, is Our 2006 PACE Award finalist, the BosScrew® is the “best-in-class” fastener for use in plastic the “best-in-class” fastener for use in plastic bosses. Eliminates the need for inserts, clips, bosses. Eliminates the need for inserts, clips, etc. Patented ITW design. etc. Patented ITW design. BosScrew® BosScrew® •• With its discrete “tuned sinusoidal thread”, With its discrete “tuned sinusoidal thread”, Sinulok® eliminates the need for costly locking Sinulok® eliminates the need for costly locking patches and lock nuts. Patented ITW design. patches and lock nuts. Patented ITW design. Sinulok® Sinulok®
  22. 22. ITW Global Automotive New Products – Plastic Fasteners New Products – Plastic Fasteners •• Our Ergo-Tuflok® is setting the mode for interior Our Ergo-Tuflok® is setting the mode for interior panel fasteners. Low installation force is panel fasteners. Low installation force is maintained throughout a large variation in maintained throughout a large variation in hole/panel thicknesses. Its versatility of design hole/panel thicknesses. Its versatility of design allows for standardization/commonization within allows for standardization/commonization within and across platforms. Patented ITW design. and across platforms. Patented ITW design. •• Our 2 Shot Panel Fastener® is used where Ergo-Tuflok® Our 2 Shot Panel Fastener® is used where Ergo-Tuflok® contaminant ingress and rattling are an issue. It contaminant ingress and rattling are an issue. It replaces manually installed secondary seals, replaces manually installed secondary seals, allows no chance of seal separation or loss. allows no chance of seal separation or loss. Patented ITW design. Patented ITW design. 2 Shot Panel 2 Shot Panel Fastener® Fastener®
  23. 23. ITW Global Automotive Replacing Metal with Plastic Replacing Metal with Plastic • Oil pick up • Oil pick up assembly assembly • Lighter and • Lighter and less expensive less expensive
  24. 24. ITW Global Automotive Replacing Metal with Plastic Replacing Metal with Plastic •• Automatic Automatic transmission transmission manifolds manifolds •• ITW has unique ITW has unique design and design and manufacturing manufacturing capability capability •• We can supply We can supply globally globally
  25. 25. ITW Global Automotive Direct Fill System Direct Fill System • Produces warranty • Produces warranty savings savings • Ergonomically friendly • Ergonomically friendly • Increases design • Increases design options for carmakers options for carmakers • 2005 PACE Award • 2005 PACE Award winner winner • Patented, ITW design • Patented, ITW design
  26. 26. ITW Global Automotive Mis-Fuel Inhibitor Mis-Fuel Inhibitor •• Eliminates potential to put Eliminates potential to put gas in a diesel gas in a diesel •• Diesels are 50% of Diesels are 50% of European powertrains and European powertrains and increasing in North America increasing in North America •• Patented ITW design Patented ITW design •• 2006 PACE Award 2006 PACE Award Honorable Mention Honorable Mention
  27. 27. ITW Global Automotive Seat Heater Seat Heater • Self-regulating • Self-regulating • No thermostat • No thermostat • More reliable and safe • More reliable and safe • Patented ITW design • Patented ITW design
  28. 28. ITW Global Automotive Door Handle Inlays Door Handle Inlays •• Allows designers Allows designers flexibility flexibility •• Can be done in Can be done in chrome chrome •• Eliminates chrome Eliminates chrome flaking – warranty flaking – warranty •• ITW trade secret ITW trade secret
  29. 29. ITW Global Automotive Door Handle Inertia Device Door Handle Inertia Device •• Exceeds proposed Exceeds proposed NHSTA rollover NHSTA rollover standard standard •• Can be sold with the Can be sold with the handle or separate handle or separate •• ITW patented product ITW patented product
  30. 30. ITW Global Automotive New Domestic Initiatives New Domestic Initiatives •• Dedicated focused sales group created in 2003 Dedicated focused sales group created in 2003 •• Added sales engineers in 2005 and will again in 2006 Added sales engineers in 2005 and will again in 2006 •• Our relationships are growing Our relationships are growing •• We’re benefiting from localization efforts We’re benefiting from localization efforts •• Currently supplying Toyota, Nissan, Honda,and Hyundai Currently supplying Toyota, Nissan, Honda,and Hyundai •• Growth: 2003-2005 = 49% CAGR (albeit from a low base) Growth: 2003-2005 = 49% CAGR (albeit from a low base) •• Gaining traction Gaining traction
  31. 31. ITW Global Automotive New Domestics Revenues (in millions) New Domestics Revenues (in millions) $200,000 $200,000 .4% % = 18 .4 = 18 R CAG R CAG $160,000 $160,000 $120,000 $120,000 $184,169 $184,169 $161,291 $80,000 $161,291 $80,000 $142,187 $142,187 $116,434 $116,434 $93,789 $93,789 $40,000 $40,000 $0 $0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
  32. 32. ITW Global Automotive Our Asia/Pacific Strategy Our Asia/Pacific Strategy •• Manufacture in the markets served Manufacture in the markets served •• Only introduce our best products (niche/unique) Only introduce our best products (niche/unique) •• Focus on China, Japan, South Korea and India Focus on China, Japan, South Korea and India •• In the region, we conservatively estimate base In the region, we conservatively estimate base business revenue will rise: business revenue will rise: – 2005 -- $29 million – 2005 $29 million – 2009 -- $100.0 million + – 2009 $100.0 million +
  33. 33. ITW Global Automotive Emerging China and India Emerging China and India • Currently have 5 factories • Currently have 5 factories • In India we have 2 factories serving Ford, • In India we have 2 factories serving Ford, TATA and Tiers TATA and Tiers • In China we have 3 factories producing plastic • In China we have 3 factories producing plastic and metal fasteners and plastic components and metal fasteners and plastic components for GM, VW, Delphi and Major Tiers for GM, VW, Delphi and Major Tiers • Generally, acquisitions will be pursued to • Generally, acquisitions will be pursued to enhance growth enhance growth
  34. 34. ITW Global Automotive Japan and Korea Japan and Korea • These established markets have not been previously • These established markets have not been previously pursued because: pursued because: – In place non-compete agreements with a former JV partner – In place non-compete agreements with a former JV partner kept us out. Agreement terminated at the end of 2003 kept us out. Agreement terminated at the end of 2003 • Keiretsu system was strong, now beginning to • Keiretsu system was strong, now beginning to break down break down • We will expand our Japanese sales office in 2006 • We will expand our Japanese sales office in 2006 • Additionally, we will open a Korean sales office in 2006 • Additionally, we will open a Korean sales office in 2006 • We are pursuing acquisitions/JV’s in both countries • We are pursuing acquisitions/JV’s in both countries
  35. 35. ITW Global Automotive Beyond Base Business Growth Beyond Base Business Growth $2,600 $2590 M $2590 M $2,600 (10.9% CAGR) (10.9% CAGR) $2,200 $2,200 $2053 M $2053 M (5.9% CAGR) (5.9% CAGR) $1,800 $1,800 $1,400 $1,400 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Base Business ACQ Base Business ACQ •• From 1999 to 2004, acquisitions have contributed From 1999 to 2004, acquisitions have contributed to revenue at a 4.5% CAGR to revenue at a 4.5% CAGR •• We will be selective, but will target growth from We will be selective, but will target growth from acquisitions at about 5% CAGR acquisitions at about 5% CAGR •• Depending on our success this could add about Depending on our success this could add about $100 million additional revenue per year by 2009 $100 million additional revenue per year by 2009
  36. 36. ITW Global Automotive We Will Have Growth with Good Margins We Will Have Growth with Good Margins • New niche products balance portfolio • New niche products balance portfolio and refreshes margins and refreshes margins • Continuous 80/20 everywhere • Continuous 80/20 everywhere expands base business margins expands base business margins • Acquisitions will be “ITW-ized” for • Acquisitions will be “ITW-ized” for margin enhancement margin enhancement
  37. 37. ITW Global Automotive What’s Our View of 2006? What’s Our View of 2006? • Our build assumptions are as follows: • Our build assumptions are as follows: – North America Flat – North America Flat – Europe Flat – Europe Flat – Mercursor Region +4% – Mercursor Region +4% – China +16% – China +16%
  38. 38. Q&A
  39. 39. ITW Welding Products Businesses Scott Santi Scott Santi New York City New York City December 2, 2005 December 2, 2005
  40. 40. ITW Welding Products Businesses Overview Overview •• Designer and manufacturer of arc Designer and manufacturer of arc welding equipment, consumables, and welding equipment, consumables, and accessories for a wide array of accessories for a wide array of industrial and commercial applications industrial and commercial applications •• ’05 revenue of $1.3 billion ’05 revenue of $1.3 billion •• 46 businesses in 15 different countries 46 businesses in 15 different countries TIEN TAI
  41. 41. ITW Welding Products Businesses Revenue By Product Type Revenue By Product Type 56% 56% 31% 31% 13% 13% Power sources Filler metals Accessories Power sources Filler metals Accessories
  42. 42. ITW Welding Products Businesses Power Sources Power Sources 56% 56% 31% 31% 13% 13% Power sources Filler metals Accessories Power sources Filler metals Accessories
  43. 43. ITW Welding Products Businesses Power Sources Power Sources Manufacturing locations: 56% 56% • Appleton, WI • Appleton, WI • Troy, OH • Troy, OH • Milan, Italy • Milan, Italy • Sarcedo, Italy • Sarcedo, Italy • Beijing, China • Beijing, China 31% 31% 13% 13% • Adelaide, Australia • Adelaide, Australia Power sources Filler metals Accessories Power sources Filler metals Accessories
  44. 44. ITW Welding Products Businesses Filler Metals Filler Metals 56% 56% 13% 31% 13% 31% Power sources Filler metals Accessories Power sources Filler metals Accessories
  45. 45. ITW Welding Products Businesses Filler Metals Filler Metals 56% Manufacturing locations: 56% • Troy, OH • Troy, OH • Piqua, OH • Piqua, OH • Woodstock, Ontario • Woodstock, Ontario • Kun Shan, China • Kun Shan, China • Tainan, Taiwan • Tainan, Taiwan 13% 31% 13% 31% • Partille, Sweden • Partille, Sweden • Napier, New Zealand • Napier, New Zealand Power sources Filler metals Accessories Power sources Filler metals Accessories
  46. 46. ITW Welding Products Businesses Accessories Accessories 56% 56% 31% 31% 13% 13% Power sources Filler metals Accessories Power sources Filler metals Accessories
  47. 47. ITW Welding Products Businesses Accessories Accessories Manufacturing locations: 56% 56% • Appleton, WI • Appleton, WI • Green Bay, WI • Green Bay, WI • Irvine, CA • Irvine, CA • Watertown, SD • Watertown, SD 31% 31% • South Plainfield, NJ • South Plainfield, NJ 13% 13% • Beecher, IL • Beecher, IL • Kranenburg, Germany • Kranenburg, Germany • Stenkullen, Sweden • Stenkullen, Sweden Power sources Filler metals Accessories Power sources Filler metals Accessories
  48. 48. ITW Welding Products Businesses Revenue by Geographic Region Revenue by Geographic Region 4% 4% 11% 11% 67% 67% 18% 18% North America Asia/Pacific North America Asia/Pacific Europe Latin/South America Europe Latin/South America
  49. 49. ITW Welding Products Businesses Revenue by End Markets Revenue by End Markets 24% 24% 17% 17% 22% 22% 17% 17% 20% 20% Manufacturing Fabrication Construction Manufacturing Fabrication Construction MRO Other MRO Other
  50. 50. ITW Welding Products Businesses The Building of an ITW Growth Platform The Building of an ITW Growth Platform • Entered welding in 1993 with the acquisition • Entered welding in 1993 with the acquisition of the Miller Electric Manufacturing Company of the Miller Electric Manufacturing Company • 1993 revenues of $338M • 1993 revenues of $338M
  51. 51. ITW Welding Products Businesses Worldwide Revenue: 1992-2005 Worldwide Revenue: 1992-2005 $1,400 $1,400 $1,200 $1,200 $1,000 $1,000 $800 $800 $600 $600 $400 $400 $200 $200 $0 $0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 92 93 94 95 96 97 98 99 00 01 02 03 04 05 19 19 19 19 19 19 19 19 20 20 20 20 20 20 19 19 19 19 19 19 19 19 20 20 20 20 20 20
  52. 52. ITW Welding Products Businesses 1994-2005 1994-2005 • Compound annual revenue growth • Compound annual revenue growth rate of 11.75% since ’93 rate of 11.75% since ’93 – Acquired revenues represent 65.5% of – Acquired revenues represent 65.5% of total ’05 revenue total ’05 revenue – $500 million in additional acquired – $500 million in additional acquired revenues since Miller revenues since Miller – $441 million in organic revenue growth – $441 million in organic revenue growth
  53. 53. ITW Welding Products Businesses 1994-2005 1994-2005 •• Key acquisitions since Miller: Key acquisitions since Miller: – Hobart Brothers (1996) – Hobart Brothers (1996) •• Adds filler metals Adds filler metals – Smith Equipment (1998) – Smith Equipment (1998) •• Adds cutting as a platform Adds cutting as a platform – Elga, Weldwell, WIA (2000) – Elga, Weldwell, WIA (2000) •• Adds to our European and Australasian presence Adds to our European and Australasian presence – Bernard, Weldcraft (2001) – Bernard, Weldcraft (2001) •• Adds Mig guns and Tig torches & related accessories Adds Mig guns and Tig torches & related accessories – Tien Tai (2003) – Tien Tai (2003) •• Establishes an Asian presence and an entrée point into Establishes an Asian presence and an entrée point into China (Now ITW’s largest division in China) China (Now ITW’s largest division in China)
  54. 54. ITW Welding Products Businesses Revenue Growth 1993-2005 Revenue Growth 1993-2005 $1,400 $1,400 $1,200 $1,200 $1,000 $1,000 $800 $800 $600 $600 $400 $400 $200 $200 $0 $0 99 2 99 3 99 4 99 5 99 6 99 7 99 8 99 9 00 0 00 1 00 2 00 3 00 4 00 5 2 3 4 5 6 7 8 9 0 1 2 3 4 5 119 9 119 9 119 9 119 9 119 9 119 9 119 9 119 9 220 0 220 0 220 0 220 0 220 0 220 0 Original Miller Acquisition Acquisition Organic Original Miller Acquisition Acquisition Organic
  55. 55. ITW Welding Products Businesses 1994-2005 1994-2005 •• Operating income: compound annual Operating income: compound annual growth rate of 19% since ’93 growth rate of 19% since ’93 – Acquired operating income represents just – Acquired operating income represents just 22.0% of total 2005 operating income 22.0% of total 2005 operating income •• 80/20 management process 80/20 management process •• Base business/organic growth Base business/organic growth – New products – New products – Share/penetration gains – Share/penetration gains – For acquisitions, average pre-tax margins in – For acquisitions, average pre-tax margins in year of acquisition were 7.6% year of acquisition were 7.6%
  56. 56. ITW Welding Products Businesses Key Strategies Driving Results (1993-2005) Key Strategies Driving Results (1993-2005) 1.) ITW operating principle implementation… 1.) ITW operating principle implementation… (A) Segmentation: A total of 11 companies (A) Segmentation: A total of 11 companies acquired…now organized and operated as 46 acquired…now organized and operated as 46 stand-alone businesses stand-alone businesses (B) Operational effectiveness: (B) Operational effectiveness: – Product line simplification – Product line simplification – Focused factories – Focused factories – In-lining/MRD – In-lining/MRD – Significant operating and material cost reduction – Significant operating and material cost reduction – Established market leading service position – Established market leading service position
  57. 57. ITW Welding Products Businesses Key Strategies Driving Results (1993-2005) Key Strategies Driving Results (1993-2005) 1.) ITW operating principle implementation… 1.) ITW operating principle implementation… (continued) (continued) (C) Customer/niche focus (C) Customer/niche focus – Segment/niche focused penetration and product – Segment/niche focused penetration and product development strategies development strategies •• Miller has led the company in new patent applications for Miller has led the company in new patent applications for each of the last four years each of the last four years
  58. 58. ITW Welding Products Businesses Key Strategies Driving Results (1993-2005) Key Strategies Driving Results (1993-2005) 2.) We’ve been selective about the 2.) We’ve been selective about the product/market spaces we’ve invested in: product/market spaces we’ve invested in: •• Only where we can differentiate products Only where we can differentiate products •• Only where we have a leveragable advantage Only where we have a leveragable advantage
  59. 59. ITW Welding Products Businesses Key Strategies Driving Results – Key Strategies Driving Results – Niche Focused Innovation Niche Focused Innovation • Miller Passport for the MRO market • Miller Passport for the MRO market TM TM Key features: • Integrated gas cylinder provides high • Integrated gas cylinder provides high quality welding capability with quality welding capability with unmatched portability unmatched portability • Auto-Line technology provides an • Auto-Line technology provides an TM TM automatic connection to 115-230 volt automatic connection to 115-230 volt power with no user adjustment power with no user adjustment required required
  60. 60. ITW Welding Products Businesses Key Strategies Driving Results – Key Strategies Driving Results – Niche Focused Innovation Niche Focused Innovation •• Hobart self shielded tubular welding wires for cross-country Hobart self shielded tubular welding wires for cross-country pipeline welding: pipeline welding: – FS 81N1 + Pipemaster™ 101K2: Best in class continuous – FS 81N1 + Pipemaster™ 101K2: Best in class continuous welding wires meet stringent weld mechanical property welding wires meet stringent weld mechanical property requirements in cross-country pipeline applications requirements in cross-country pipeline applications •• Uniquely formulated products enable continuous wire welding Uniquely formulated products enable continuous wire welding without sacrificing weld strength/integrity without sacrificing weld strength/integrity – Increases welding up-time by 30% or more vs. conventional stick – Increases welding up-time by 30% or more vs. conventional stick welding process welding process
  61. 61. ITW Welding Products Businesses Hobart Filler Metals for Pipeline Welding Hobart Filler Metals for Pipeline Welding Shanghai
  62. 62. ITW Welding Products Businesses Key Strategies Driving Results – Key Strategies Driving Results – Niche Focused Innovation Niche Focused Innovation •• Bernard Centerfire Industrial Mig Guns Bernard Centerfire Industrial Mig Guns TM TM – Innovative patented design features that – Innovative patented design features that significantly lower welding costs and enhance significantly lower welding costs and enhance weld quality: weld quality: •• Threadless tip lowers change-out time… Threadless tip lowers change-out time… no tools required no tools required • Longer consumable life… as much as 30% • Built-in gas lens “flow director” provides better shielding gas coverage resulting in more consistent, cleaner welds
  63. 63. ITW Welding Products Businesses Key Strategies Going Forward Key Strategies Going Forward • Continue to make progress in improving • Continue to make progress in improving geographic balance geographic balance • More end market specific focus especially • More end market specific focus especially in high growth segments in high growth segments – End market focused growth platforms – End market focused growth platforms – Acquisitions – Acquisitions •• End market specific solutions in addition to End market specific solutions in addition to product category “bolt-ons” product category “bolt-ons”
  64. 64. ITW Welding Products Businesses Key Strategies Moving Forward Key Strategies Moving Forward • Continue to make progress in improving • Continue to make progress in improving geographic balance geographic balance – Especially China, India, and, to some extent, – Especially China, India, and, to some extent, Europe…we estimate that we’ve got less than 15% of Europe…we estimate that we’ve got less than 15% of the worldwide market the worldwide market – Product differentiation remains the critical criteria – Product differentiation remains the critical criteria for us… for us… – As a general rule, our focus in these regions will be – As a general rule, our focus in these regions will be on industries (rather than geographies) where core on industries (rather than geographies) where core customer needs and/or global competitive dynamics customer needs and/or global competitive dynamics (i.e. weld quality, weld integrity, etc.) will drive the (i.e. weld quality, weld integrity, etc.) will drive the need for more advanced welding processes need for more advanced welding processes
  65. 65. ITW Welding Products Businesses Key Strategies Moving Forward Key Strategies Moving Forward •• More end market specific focus especially in More end market specific focus especially in high growth segments high growth segments – End market focused growth platforms (examples): – End market focused growth platforms (examples): •• Energy Energy – Exploration – Exploration – Refining – Refining – Transmission – Transmission •• Shipbuilding Shipbuilding – Eastern Europe – Eastern Europe – China – China •• Heavy manufacturing Heavy manufacturing •• Agricultural and mining equipment Agricultural and mining equipment
  66. 66. ITW Welding Products Businesses ITW Welding Products Businesses End-Market Focused Growth Platforms End-Market Focused Growth Platforms Example: Oil and Gas Example: Oil and Gas • Exploration • Exploration – Offshore platform fabrication – Offshore platform fabrication • Refining • Refining – Refinery construction – Refinery construction • Transmission • Transmission – Pipeline construction – Pipeline construction
  67. 67. I. Exploration – Offshore Platform Fabrication I. Exploration – Offshore Platform Fabrication Offshore Platforms are production steel structures anchored Offshore Platforms are production steel structures anchored in sea bed to drill oil. Welding is the primary manufacturing in sea bed to drill oil. Welding is the primary manufacturing process used in fabricating a platform process used in fabricating a platform
  68. 68. I. Exploration – Offshore Platform Fabrication I. Exploration – Offshore Platform Fabrication Business Outlook Business Outlook – 30 medium/large fabrication yards around the world – 30 medium/large fabrication yards around the world – Most have contracted orders through 2010 – Most have contracted orders through 2010 Unique Welding Needs Unique Welding Needs – Uncompromising weld integrity required for inclement service – Uncompromising weld integrity required for inclement service conditions. Opportunity to design customized welding wires. conditions. Opportunity to design customized welding wires. – Higher strength steel used to reduce structure weight leads to – Higher strength steel used to reduce structure weight leads to new high strength welding wire designs new high strength welding wire designs
  69. 69. II. Refining – Refinery Construction II. Refining – Refinery Construction Business Outlook Business Outlook New refinery construction activity very brisk in developing New refinery construction activity very brisk in developing economies such as China and India economies such as China and India Unique Welding Needs Unique Welding Needs – Portable – welding systems capable of multiple welding – Portable – welding systems capable of multiple welding processes needed in remote, large refinery complexes processes needed in remote, large refinery complexes – New Materials – such as P-91(9Cr-1Mo) require rigorous – New Materials – such as P-91(9Cr-1Mo) require rigorous heat treatment prior, during and after welding heat treatment prior, during and after welding
  70. 70. II. Refining – Refinery Construction II. Refining – Refinery Construction Products/Processes Products/Processes – Inverter Based Welding – Inverter Based Welding New power conversion technology used to package New power conversion technology used to package multiple processes (Stick/Mig/Tig) into a light weight multiple processes (Stick/Mig/Tig) into a light weight machine – XMT series machine – XMT series – Induction Heating – Induction Heating Technology enables process pipe fabricators to Technology enables process pipe fabricators to heat prior, during and after welding with a controlled heat prior, during and after welding with a controlled thermal profile – IntelliFire thermal profile – IntelliFire
  71. 71. III. Transmission – Pipeline Construction III. Transmission – Pipeline Construction Business Outlook Business Outlook Estimated pipeline construction over next five years: Estimated pipeline construction over next five years: – China 20,000 km – China 20,000 km – Russia 10,000 km – Russia 10,000 km – Caspian Sea 30,000 km – Caspian Sea 30,000 km – Southeast Asia 8,000 km – Southeast Asia 8,000 km Unique Welding Needs Unique Welding Needs – Productivity – Bottleneck in the pipe-laying process is – Productivity – Bottleneck in the pipe-laying process is welding. Great demand for higher welding speed processes welding. Great demand for higher welding speed processes – High Strength Steel – Enable the use of thinner wall pipe – High Strength Steel – Enable the use of thinner wall pipe which permit transmission of product (oil/gas) at faster rate which permit transmission of product (oil/gas) at faster rate
  72. 72. III. Transmission – Pipeline Construction III. Transmission – Pipeline Construction Products/Processes Products/Processes •• Faster Welding Processes Faster Welding Processes – Conversion of manual welding (Stick) processes to continuous wire – Conversion of manual welding (Stick) processes to continuous wire welding (Self Shielded Wire) processes to increase welding up-time welding (Self Shielded Wire) processes to increase welding up-time •• High Strength Welding Wires High Strength Welding Wires – 70 Class Pipe – 70 Class Pipe FS 81N1 -- Best in class welding wire that meets stringent weld FS 81N1 Best in class welding wire that meets stringent weld mechanical properties mechanical properties – 80 Class Pipe – 80 Class Pipe Pipemaster 101K2 – Best in class welding wire that exceeds weld Pipemaster 101K2 – Best in class welding wire that exceeds weld mechanical properties mechanical properties
  73. 73. ITW Welding Products Businesses 2006 Growth Assumptions 2006 Growth Assumptions • Projected overall revenue growth in • Projected overall revenue growth in the 6-8% range the 6-8% range • Demand levels projected to remain fairly • Demand levels projected to remain fairly strong given current order/activity strong given current order/activity levels…but base business growth rates levels…but base business growth rates moderate due to tougher comparables moderate due to tougher comparables • End market specific penetration and • End market specific penetration and product development strategies will drive product development strategies will drive above market growth above market growth
  74. 74. Q&A

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