Trane Technologies Plc · NYSE:TT
Trane Technologies — Ingersoll Rand — Vertical Research Partners Industrial Conference 2018
40 slides from Trane Technologies's conference presentation, September 2018
Slide 1: Vertical Research Partners Industrial Conference September 2018
Vertical Research Partners Industrial Conference September 2018
Slide 2: Safe Harbor
Safe Harbor This presentation includes “forward-looking statements” which are statements that are not historical facts, including statements that relate to the mix of and demand for our products; performance of the markets in which we operate; our share repurchase program including the amount of sha
Slide 3: A Global Leader in Energy Efficiency and Productivity
A Global Leader in Energy Efficiency and Productivity Two Segments Key Metrics (Revenues 2017) Manufacturing locations worldwide 53 Employees ~46,000 Industrial $3.0B $11.2B Climate Market cap ~$23B # of countries we sell products 100+ 3
Slide 4: Diversified Business With High Aftermarket Mix
Diversified Business With High Aftermarket Mix Segment Distribution Regional Mix Revenue Streams 4% Latin America Industrial 13% Asia Pacific 33% Parts and Services Europe, Middle 15% East, Africa $14.2B 68% North America 67% Equipment Climate All figures are FY 2017. 4
Slide 5: Leading Brands and Market Positions
Leading Brands and Market Positions Commercial HVAC Residential HVAC Transport Refrigeration ● World leader in HVAC ● Leader in heating and air ● World leader in refrigerated conditioning solutions transportation Industrial and Process Fluid Handling Golf and Utility Vehicles ● Leader in compression
Slide 6: Climate Segment: Diversified and Resilient Performance
Climate Segment: Diversified and Resilient Performance Segment Mix Regional Mix Revenue Streams 4% Latin America Transport Commercial 11% Asia Pacific Refrigeration HVAC 31% Parts and Services Equipment 14% Europe, Middle East, Africa $11.2B Residential HVAC 71% North America 69% Equipment Commercia
Slide 7: Industrial Segment: Diversified and Resilient Performance
Industrial Segment: Diversified and Resilient Performance Business Units Regional Mix Revenue Streams 3% India Small Electric 5% Latin America Industrial Vehicles Comp. 17% Europe, ME, Africa 37% Parts and Service 19% Asia Pacific $3.0B Industrial Engineered Products1 Comp. Equipment 63% 56% North A
Slide 8: Robust Financial Model Drives Powerful Cash Flow
Robust Financial Model Drives Powerful Cash Flow (2014 – 2017) 1. Attractive, diversified 2. Leading brands, market positions end markets – outgrowing market rates $4.5 billion free cash flow over the last 4 years 5. Investing for growth 3. Focused on margin and profitability expansion (growth / op.
Slide 9: Driving Sustained Growth and Operating Margin Improvement
Driving Sustained Growth and Operating Margin Improvement In Billions Revenue Adjusted Continuing EPS $16 $6.00 13% $15 5% $5.00 CAGR CAGR $14 $4.00 $13 $3.00 $12 $2.00 $11 $1.00 $10 $0.00 2014 2015 2016 2017 2018F 2014 2015 2016 2017 2018F FCF% of Adjusted Net Income Adjusted Operating Margin 140%
Slide 10: Maximizing Shareholder Value (2014 – 2017)
Dynamic and Balanced Capital Deployment Focused on Maximizing Shareholder Value (2014 – 2017) $6.6 Billion Capital Share Mergers & Dividends Expenditures Buyback Acquisitions • ~$900M Capex • ~$1.4B dividends paid • $2.9B • ~$1.4B on 22 • ~22% CAGR dividend • 44 million shares acquisitions through p
Slide 11: Ingersoll Rand 2020 Targets
Ingersoll Rand 2020 Targets* Year-End 2017 to 2020 Targets Revenue Growth ~4% to ~4.5% CAGR Adjusted Operating Margins ~14.5% to ~15% in 2020 Adjusted Continuing EPS Growth ~11% to ~13% CAGR Based on ~22% tax rate Free Cash Flow (% Net Income) >=1.0 times Balanced Cap Deployment of Excess Cash ~100%
Slide 12: Consistent Strategy Execution Delivers Profitable Growth and Powerful Cash Flow
Consistent Strategy Execution Delivers Profitable Growth and Powerful Cash Flow 1. 2. 3. 4. Sustained Operational Dynamic Capital Winning Growth Excellence Allocation Culture Nexus of sustainability Margin improvement Reinvestment, dividends, Commitment to and energy efficiency and powerful cash flo
Slide 13: Global Mega Trends Play to Our Strengths
Global Mega Trends Play to Our Strengths Global Mega Trends Our Strengths • Climate change • Reduce energy demand and greenhouse gas emissions • Urbanization • Improve efficiency in: • Natural resource scarcity – Buildings • Digital connectedness and – Industrial processes technologies – Transportat
Slide 14: Significant Ongoing Business Investments Support Growth and Profitability
Significant Ongoing Business Investments Support Growth and Profitability Business Investments Key Examples ● ~70 major new products throughout the world in 2017 ~20% ● New low-global warming potential refrigerants ● Digital / controls / wireless technology ● Channel expansion ● Parts and services c
Slide 15: Growth and Profitability Opportunities from Ongoing Business Investments
Growth and Profitability Opportunities from Ongoing Business Investments Subset of Incremental Opportunities Contributing to 2020 Targets* ~$200M ~$400M ~$300M ~$100M Climate Variable Refrigerant Flow Energy Services Digital Customer Experience Auxiliary Power Unit ~$40M Operating Income ~$100M ~$17
Slide 16: Business Operating System Delivers Results
Business Operating System Delivers Results 1 Drive innovation and productivity 2 Proven & unique system to accelerate profitable growth 3 Committed to sustainability and energy efficiency 4 Focus on employee engagement 16
Slide 17: Widely Recognized for Global Citizenship, Sustainability, Diversity and Inclusion and Employee Engagement
Widely Recognized for Global Citizenship, Sustainability, Diversity and Inclusion and Employee Engagement Citizenship Sustainability Diversity and Inclusion 2017 Dow Jones Sustainability World and North America for 7th consecutive year Employee Engagement Fortune World’s Most Admired list for 6th ye
Slide 18: Consistent Strategy Execution Delivers Strong Shareholder Returns
Consistent Strategy Execution Delivers Strong Shareholder Returns Strategy ● Strategy tied to attractive end markets supported by global mega trends Brands ● Franchise brands and businesses with leadership market positions Innovation ● Sustained business investments delivering innovation and growth,
Slide 19: Second-Quarter 2018 Results
Second-Quarter 2018 Results July 25, 2018
Slide 20: Executing a Consistent Strategy that Delivers Profitable Growth
Executing a Consistent Strategy that Delivers Profitable Growth 1. 2. 3. 4. Sustained Operational Dynamic Capital Winning Growth Excellence Allocation Culture Nexus of sustainability Margin improvement Reinvestment, dividends, Commitment to and energy efficiency and powerful cash flow share repurcha
Slide 21: 2018 Mid-Year Update – Strong Execution Continues
2018 Mid-Year Update – Strong Execution Continues Healthy End • End markets remain healthy – broad-based organic order and revenue growth Markets across product categories / segments / geographies Strong Industrial • Industrial segment continues strong performance – bookings growth / revenue Perform
Slide 22: Q2 2018 Strong Organic Bookings and Revenue Growth Sustained in Both Segments
Q2 2018 Strong Organic Bookings and Revenue Growth Sustained in Both Segments Organic* Y-O-Y Change Climate Bookings Revenues Commercial HVAC + + - N. America + + - L. America + + - EMEA + + - Asia + + Residential HVAC + + Transport + + Total + 17% + 9% Industrial Compression Tech + + Industrial Pro
Slide 23: Continued Strong Growth in Healthy End Markets
Continued Strong Growth in Healthy End Markets • Sustained growth in Global CHVAC markets - Strong equip bookings and revenues w/ outsized growth in China Commercial • N.A. CHVAC mkt growth solid – equip / services / contracting / controls. Growth led by Education / Industrial HVAC • EMEA CHVAC mark
Slide 24: Strong Financial Performance Powers Full Year Guidance Raise
Strong Financial Performance Powers Full Year Guidance Raise • Raising full year revenue growth, adjusted continuing EPS and free cash flow guidance • Strong Q2 organic revenue and bookings growth in both segments – Industrial organic revenues up 9% with strong growth across the segment in equipment
Slide 25: Q2 2018 Strong Revenue Growth, Margin Expansion and Capital Deployment Delivering 24% Adj. Cont. EPS Growth
Q2 2018 Strong Revenue Growth, Margin Expansion and Capital Deployment Delivering 24% Adj. Cont. EPS Growth Net Revenue Adj. Operating Margin* Adj. Continuing EPS* +9% +50 +24% Organic bps $4,358 $1.85 $3,908 14.4% 14.9% $1.49 +11% Q2 '17 Q2 '18 Q2 '17 Q2 '18 Q2 '17 Q2 '18 Highlights • Strong organi
Slide 26: Strong Operating Performance in Both Segments Driving Adjusted Continuing EPS Higher by 24%
ENTERPRISE Strong Operating Performance in Both Segments Driving Adjusted Continuing EPS Higher by 24% +$0.36 $0.08 $0.04 $0.07 $1.85 $1.49 $0.17 $0.01 Interest $0.01 Tax rate $0.02 Other Q2 2017 Climate Industrial Other Share Count Q2 2018 Adjusted Adjusted Continuing EPS* Continuing EPS* Highlight
Slide 27: Strong Volume Growth and Positive Price vs Material Inflation Spread Driving 50 bps Margin Expansion
ENTERPRISE Strong Volume Growth and Positive Price vs Material Inflation Spread Driving 50 bps Margin Expansion +50 bps 14.4% 0.8 0.1 flat (0.4) 14.9% Q2 2017 Volume / Mix / FX Price/Material Inflation Productivity/Other Investment/Other Q2 2018 Adjusted Operating Inflation Adjusted Operating Margin
Slide 28: Q2 Continued Strong, Broad-Based Revenue Growth; Flat Adjusted Margins
CLIMATE SEGMENT Q2 Continued Strong, Broad-Based Revenue Growth; Flat Adjusted Margins Net Revenue Adj. Operating Margin* Adj. OI + D&A %** +9% Flat -20 Organic bps $3,494 18.8% 18.6% $3,144 16.8% 16.8% +11% Q2 '17 Q2 '18 Q2 '17 Q2 '18 Q2 '17 Q2 '18 Highlights • Strong revenue growth – products / bu
Slide 29: Q2 Strong Margin Expansion and Revenue Growth
INDUSTRIAL SEGMENT Q2 Strong Margin Expansion and Revenue Growth Net Revenue Adj. Operating Margin* Adj. OI + D&A %** +9% +170 +170 Organic bps bps $864 14.2% $765 12.5% 16.6% 14.9% +13% Q2 '17 Q2 '18 Q2 '17 Q2 '18 Q2 '17 Q2 '18 Highlights • Strong revenue growth in equipment and services led by Asi
Slide 30: Continued Execution of Balanced Dynamic Capital Allocation Strategy
Continued Execution of Balanced Dynamic Capital Allocation Strategy • Strengthen the core business and extend product & market leadership 1 Invest for Growth • Invest in new technology and innovation • Strategic acquisitions pipeline primarily focused on technology, product and channel 2 • Improving
Slide 31: Guidance
am) Ingersoll Rand Inspiring Progress™ Guidance
Slide 32: 2018 Enterprise Guidance
2018 Enterprise Guidance Prior FY Guidance Updated FY Guidance Climate ‒ Revenue Reported 5.0% to 5.5% 9.0% to 10.0% ‒ Revenue Organic 3.0% to 3.5% 7.0% to 8.0% Adjusted Operating Margin 14.6% to 15.1% 14.6% to 14.7% Industrial ‒ Revenue Reported 5.5% to 6.0% 9.0% to 10.0% ‒ Revenue Organic 3.5% to
Slide 33: 2018 Guidance: Full-year Continuing Adjusted EPS ~$5.50
2018 Guidance: Full-year Continuing Adjusted EPS ~$5.50 Targets Prior FY Guidance Updated FY Guidance Y-O-Y change in revenue • Reported 5.0% to 5.5% 9.0% to 10.0% • Organic 3.0% to 3.5% 7.0% to 8.0% Continuing EPS $4.80 to $5.00 ~$5.25 Restructuring – (add back) ($0.20) ($0.20) Debt redemption / ot
Slide 34: Topics of Interest
am) Ingersoll Rand Inspiring Progress™ Topics of Interest teeta bid trol!
Slide 35: Tariffs and Inflation Mitigation
Topics of Interest • Tariffs and Inflation Mitigation − Effectively managing known section 232 and section 301 $50B list tariffs within guidance − Key areas of inflation • Most prominent in tier 1 metals, tier 2 metal content and freight − Actively assessing and managing tariff and inflation impacts
Slide 36: Summary: Expect Continued Strong Revenue, Earnings and Cash Growth in 2018
Summary: Expect Continued Strong Revenue, Earnings and Cash Growth in 2018; Adj. Cont. EPS Guidance Raised ~6% to ~$5.50 / share Strategy ● Strategy tied to attractive end markets supported by global mega trends Brands ● Franchise brands and businesses with leadership market positions Innovation ● S
Slide 37: Appendix
am) Ingersoll Rand Inspiring Progress™ Appendix
Slide 38: Q2 Organic Bookings Up 15%; Revenue Up 9% Year-Over-Year
Q2 Organic Bookings Up 15%; Revenue Up 9% Year-Over-Year Organic* 2016 2017 2018 Bookings Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Climate 6% 6% 4% 10% 6% 6% 3% 5% 7% 5% 11% 17% Industrial (5%) (5%) (1%) (1%) (3%) 9% 5% 5% 12% 8% 5% 8% Total 4% 3% 3% 7% 4% 7% 4% 5% 8% 6% 9% 15% Organic* 2016 2013 2017 20
Slide 39: Q2 Non-GAAP Measures Definitions
Q2 Non-GAAP Measures Definitions Organic bookings is defined as reported orders closed/completed in the current period adjusted for the impact of currency and acquisitions. Organic revenue is defined as GAAP net revenues adjusted for the impact of currency and acquisitions. • Currency impacts on net
Slide 40: Q2 Non-GAAP Measures Definitions
Q2 Non-GAAP Measures Definitions Working capital measures a firm’s operating liquidity position and its overall effectiveness in managing the enterprises’ current accounts. • Working capital is calculated by adding net accounts and notes receivables and inventories and subtracting total current liab
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