Illinois Tool Works Inc. Business Report FY ended Dec. 2018

Recent Years

Financial Overview

(in million USD)

	FY ended Dec. 31, 2018	FY ended Dec. 31, 2017	Rate of change (%)	Factors
Overall
Net Sales	14,768	14,314	3.2	1)
Operating Income	3,584	3,485	2.8	2)
Automotive OEM Segment
Net Sales	3,338	3,271	2.0	3)
Operating Income	751	747	0.5	-

Factors
1) Net Sales
-The Company’s net sales in the fiscal year ended December 31, 2018 totaled USD 14,768 million, an increase of 3.2% over the previous year. The primary factors for the increase in sales are the organic growth of the Company combined with positive foreign currency translation effects. The Company’s overall organic sales increased by 2.2% due to increased market penetration, increased end market demand, and new product innovations.

2) Operating Income
-The Company had an operating income of USD 3,584 million in the fiscal year ended December 31, 2018, an increase of 2.8% over the previous year. The increase in operating income was due to organic growth and favorable foreign currency translation effects. A favorable impact from a confidential legal settlement in 2017 led to inflated income numbers in 2017. Without the settlement, the Company’s operating income would have increased by 5.7%.

3) Automotive OEM Segment sales
-Sales in the Company’s Automotive OEM segment totaled USD 3,338 million in the fiscal year ended December 31, 2018, an increase of 2.0% over the previous year. The main driver for the segment’s increase in sales is positive foreign currency translation effects, as the segment’s organic sales was flat compared to the previous year. The segment’s organic sales in North America increased by 3.0%, while organic sales in Europe and the Asia Pacific region declined by 2.7% and 0.7%, respectively.

Outlook

-During the five-year period from 2018 to 2022, the Company aims to achieve annual organic growth between 3% and 5%, an operating margin of at least 25% and an after-tax return on invested capital of at least 20%.

-The Company expects that its sales in the fiscal year ending December 31, 2019 will be between USD 14.9 and 15.1 billion.

-The Company anticipates that organic growth in its Automotive OEM segment will be driven by increased penetration into top-tier Chinese OEMs as well as the growth of the electric vehicle segment.

R&D Expenditure

(in million USD)

	FY ended Dec. 31, 2018	FY ended Dec. 31, 2017	FY ended Dec. 31, 2016
Total	233	225	223

Product Development

Capless refueling system
-The Company developed a capless refueling system for passenger vehicles, which reduces evaporative emissions at gas stations. The system provides additional convenience for the driver, as it eliminates gas odors from touching a fuel cap and removes the difficulty of unscrewing a cap for those with physical hand issues.

WaveShear isolation spring
-The Company has developed the WaveShear isolation spring in response to the issue of smaller, more fuel-efficient engines which generate increased noise and vibration. The WaveShear isolation spring dampens sound and vibration across a wide temperature range.

Patents

-As of December 31, 2018, the Company owns approximately 3,500 unexpired U.S. patents and 8,400 foreign patents covering articles, methods and machines. The Company also has approximately 1,500 applications for patents pending in the U.S. Patent Office and 4,200 applications pending in foreign patent offices.

-As of December 31, 2018, the Company’s Automotive OEM segment has approximately 3,000 patents and patent applications pending.