Trane Technologies Plc · NYSE:TT
Trane Technologies — Ingersoll Rand — J.P. Morgan Aviation, Transportation & Industrials Conference 2018
40 slides from Trane Technologies's conference presentation, March 2018
Slide 1: J.P. Morgan Aviation, Transportation & Industrials Conference
J.P. Morgan Aviation, Transportation & Industrials Conference March 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 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. excellence) 4
Slide 9: Driving Sustained Growth and Operating Margin Improvement
Driving Sustained Growth and Operating Margin Improvement In Billions Revenue Adjusted EPS $15 $6.00 4% 11% $14 CAGR $5.00 CAGR $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 Adj Net Income Adjusted Operating Margin 140% 18% +1.7 15% Ppts 12
Slide 10: Dynamic and Balanced Capital Deployment Focused on Maximizing Shareholder Value
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 per s
Slide 11: Outlook
am) Ingersoll Rand Inspiring Progress™ Outlook
Slide 12: Ingersoll Rand 2020 Targets
Ingersoll Rand 2020 Targets* Year-End 2017 to 2020 Targets Revenue Growth ~4% to ~4.5% CAGR Operating Margins ~14.5% to ~15% in 2020 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% of FCF on avg. - Competitive
Slide 13: 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 Differentiated products Margin improvement Reinvestment, dividends, Commitment to and services deliver and powerful cash flow
Slide 14: 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 15: 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 16: 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 17: 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 17
Slide 18: 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 Corporate Responsibility magazine for 7th consecutive year Employee Engagement 100 Best C
Slide 19: Why Invest In Ingersoll Rand?
Why Invest In Ingersoll Rand? 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, operating excellence and improving
Slide 20: Fourth-Quarter 2017 Results
Fourth-Quarter 2017 Results January 31, 2018
Slide 21: Highlights
Highlights • Continue to execute our strategy with solid 2017 results and 2018 guidance • End markets remain healthy with strong organic bookings and revenue growth in Q4 across the businesses; market outlooks support continued growth in 2018 • Leading brands and services supported by business inves
Slide 22: Consistent Progress Against Key Metrics
Consistent Progress Against Key Metrics* 2017 Guidance Full Year 2017 Versus 2016 ~2% reported +5% reported Net Revenue $14,198M ~3% organic +5% organic Adj. Operating Margin* 12.2% to 12.6% 12.2% +10 bps Adj. Continuing EPS* $4.30 to $4.50 $4.51 +9% $1.1B to $1.2B $1.3B -2% Free Cash Flow* >100% ad
Slide 23: Key Takeaways Q4 2017
Key Takeaways Q4 2017 • Solid operating results – Adjusted continuing EPS of $1.02, up 21% year over year – Strong full year free cash flow of $1.3 billion (118% of adjusted net income) • Broad based strength in organic bookings and revenue – Industrial bookings up 12% with low-teens growth in Compr
Slide 24: Q4 2017 Strong Operational Performance Overcoming Headwinds
Q4 2017 Strong Operational Performance Overcoming Headwinds Net Revenue Adj. Operating Margin* Adjusted EPS* +21% $1.02 +8% +20 bps $3,618 $3,359 11.1% $0.84 +6% 10.9% Organic Q4 '16 Q4 '17 Q4 '16 Q4 '17 Q4 '16 Q4 '17 Highlights • Gains in volume, price and productivity offset by headwinds from mate
Slide 25: Q4 2017 Strong Organic Bookings Growth
Q4 2017 Strong Organic Bookings Growth in Industrial and North America, Europe and China HVAC Y-O-Y Climate C Y-O-Y Change in Organic* Bookings % Reported Organic* Commercial HVAC + high-single digits Change - N. America + low teens Q1 2016 1% 4% - low-single digits - L. America Q2 2% 3% - EMEA + hi
Slide 26: Innovation, Operational Excellence and Productivity Remain Strong
ENTERPRISE Innovation, Operational Excellence and Productivity Remain Strong +20 bps 10.9% 1.0 (0.8) 0.6 (0.6) 11.1% (~50 bps) CHVAC Asia; China penetration of underserved markets 4Q 2016 Volume / Mix / FX Price/Material Inflation Productivity/Other Investment/Other 4Q 2017 Adjusted Operating Inflat
Slide 27: Q4 Broad-Based Revenue Growth; Material Inflation Headwinds
CLIMATE SEGMENT Q4 Broad-Based Revenue Growth; Material Inflation Headwinds Net Revenue Adj. Operating Margin* Adj. OI + D&A %** -70 bps +8% -80 bps 15.9% $2,760 15.2% $2,559 13.7% 12.9% +6% Organic Q4 '16 Q4 '17 Q4 '16 Q4 '17 Q4 '16 Q4 '17 Highlights • Broad-based revenue growth across all business
Slide 28: Q4 Solid Margin Expansion and Revenue Growth
INDUSTRIAL SEGMENT Q4 Solid Margin Expansion and Revenue Growth Net Revenue Adj. Operating Margin* Adj. OI + D&A %** +160 bps +190 bps +7% 15.6% $858 $800 13.2% 13.7% +5% 11.6% Organic Q4 '16 Q4 '17 Q4 '16 Q4 '17 Q4 '16 Q4 '17 Highlights • Strong revenue growth in service & install, Industrial Produ
Slide 29: Balanced Execution of Dynamic Capital Allocation Plan in 2017
Balanced Execution of Dynamic Capital Allocation Plan in 2017 1 • Strengthen the core business and extend product & market leadership Invest for Growth • Invest in new technology and innovation • Strategic acquisitions of ~$460M spent / committed to date including Jan 2018 announcements 2 • Strong y
Slide 30: Impact of U.S. Tax Cuts and Jobs Act
Impact of U.S. Tax Cuts and Jobs Act • U.S. Tax Legislation − ~$221M primarily non-cash net benefits related to U.S. tax legislation − Benefits from deferred tax liabilities revaluations and other items more than offset the “repatriation” tax • Revaluation of deferred tax liabilities from 35% tax ra
Slide 31: Guidance as of January 31, 2018
Guidance as of January 31, 2018 NOT AN UPDATE OR REAFFIRMATION
Slide 32: 2018 Forecast for End-Market Performance
2018 Forecast for End-Market Performance as of January 31, 2018—NOT AN UPDATE End Markets Organic Revenue Americas EMEA Asia Guidance Commercial HVAC Up mid-single digits Residential HVAC Up mid-single digits Transport Up low-single digits Compression-related & Up mid-single digits Industrial Produc
Slide 33: 2018 Enterprise Guidance as of January 31, 2018
2018 Enterprise Guidance as of January 31, 2018—NOT AN UPDATE FY Guidance Climate ‒ Revenue Reported 5.0% to 5.5% ‒ Revenue Organic 3.0% to 3.5% Adjusted Operating Margin 14.6% to 15.1% Industrial ‒ Revenue Reported 5.5% to 6.0% ‒ Revenue Organic 3.5% to 4.0% Adjusted Operating Margin 12.5% to 13.0%
Slide 34: 2018 Guidance: Full-year Continuing Adjusted EPS $5.00 to $5.20
2018 Guidance: Full-year Continuing Adjusted EPS $5.00 to $5.20 as of January 31, 2018—NOT AN UPDATE Full Year Y-O-Y change in revenue • Reported 5.0% to 5.5% • Organic 3.0% to 3.5% EPS continuing $4.80 to $5.00 Restructuring – (add back) ($0.20) EPS continuing – adjusted $5.00 to $5.20 EPS – discon
Slide 35: Appendix
am) Ingersoll Rand Inspiring Progress™ Appendix
Slide 36: M&A Framework – Clear Criteria
M&A Framework – Clear Criteria Business Criteria Financial Criteria Strong position – no major gaps to fill IRR > WACC Strengthening our core or extend leadership in product, channel or technology ROIC: Accretive < 3 years Must be clear strategic fit for Ingersoll Rand EPS accretive < 3 years and cl
Slide 37: Our Climate Businesses
Our Climate Businesses COMMERCIAL HVAC Air conditioning systems, services and solutions. Innovative solutions geared toward making high performance buildings reliable and safe, as well as healthy, comfortable and efficient RESIDENTIAL HVAC Heating, cooling, thermostat controls and home automation fo
Slide 38: Our Industrial Businesses
Our Industrial Businesses COMPRESSION TECHNOLOGIES AND SERVICES SMALL ELECTRIC VEHICLES Rotary, centrifugal and reciprocating air compressors, Golf, commercial and utility and treatment products with Comprehensive multi- vehicles for transportation year service agreements, audits, parts, and accesso
Slide 39: Non-GAAP Measures Definitions
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 re
Slide 40: Non-GAAP Measures Definitions
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 liabili
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