2017 Goldman Sachs Industrials Conference November 2017

Transcription

1 2017 Goldman Sachs Industrials Conference November 2017

2 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 shares to be repurchased and timing of such repurchases; our capital allocation strategy including projected acquisitions; our projected 2017 full-year financial performance and targets including assumptions regarding our effective tax rate and other factors described in our guidance. These forward-looking statements are based on our current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from our current expectations. Such factors include, but are not limited to, global economic conditions, the outcome of any litigation, demand for our products and services, and tax law changes. Additional factors that could cause such differences can be found in our Form 10-K for the year ended December 31, 2016, as well as our subsequent reports on Form 10-Q and other SEC filings. We assume no obligation to update these forward-looking statements. This presentation also includes non-gaap financial information which should be considered supplemental to, not a substitute for, or superior to, the financial measure calculated in accordance with GAAP. The definitions of our non-gaap financial information are included as an appendix in our presentation and reconciliations can be found in our earnings releases for the relevant periods located on our website at All data beyond the third quarter of 2017 are estimates. 2

3 Ingersoll Rand Overview Company Background 145 years old - first incorporated in 1905 $13.5 billion in revenues Two business segments: Climate - Commercial & Residential HVAC & Transport Refrigeration Industrial Air compression, Industrial products, low speed vehicles Company Background Incorporated in Swords, Ireland North American HQ in Davidson, NC ~40,000 employees 51 manufacturing locations Products sold in more than 100 countries Trades on NYSE 12 th oldest continuously listed company on NYSE (since 1906) ~$23B Market cap 3

4 Global Mega Trends Play to Our Strengths Global Mega Trends Climate change Urbanization Natural resource scarcity Digital connectedness and technologies Our Strengths Reduce energy demand and greenhouse gas emissions Improve efficiency in: Buildings Industrial processes Transportation 4

5 Diversified Business With High Aftermarket Mix By End Markets Adjusted Operating Margins 9.6% 11.0 % 11.4 % 11.9 % Industrial 23% By Segment Climate 77% Non-Res Building (N. America) Non-Res Building (Overseas) 31% 16% By Geography Residential, (N. America) 14% 66% North America 5% Latin America 15% Eur/ME 14% Asia Industrial Process Transport Refrigeration Golf/Utility 18% 16% 5% 2016 REVENUE: $13.5B 67% New equipment 33% Aftermarket 5

6 Climate Segment: Industry Leading Portfolio of Brands and Services $10.5B Group of Three HVAC and Transport Refrigeration Businesses Commercial HVAC Residential HVAC Transport Refrigeration 6

7 Climate Segment: Diversifying for Resilient Performance Business Units Regional Mix Revenue Streams 4% Latin America Transport Refrigeration Commercial HVAC Equipment 11% 14% Asia Pacific Europe, Middle East, Africa 30% Parts and Services Residential HVAC $10.5B 71% North America 70% Equipment Commercial HVAC Service Parts & Contracting High and growing recurring revenue streams services / parts Balanced mix of services, energy services, connected buildings, residential and transport solutions 7

8 Industrial Segment: Industry Leading Portfolio of Brands and Services A $3.0B group of five growth-oriented Strategic Business Units Industrial Compressors Power Tools Material Handling Fluid Management Small Electric Vehicles Leading Brands 8

9 Industrial Segment: Balanced Profile with Resilient Aftermarket Business Units Regional Mix Revenue Streams Small Electric Vehicles Industrial Comp. 3% 5% 18% India Latin America Europe, ME, Africa 37% Parts and Service Industrial Products 1 $3.0B Engineered Comp. 19% 55% Asia Pacific North America 63% Equipment Parts & Service Compression Technologies & Services 1. Industrial Products includes Power Tools, Fluid Management, and Material Handling. All figures are FY

10 Why Invest in Ingersoll Rand? Multi-year top-tier performance record Inspired excellence and innovation Sustainability drives growth Business Operating System enables strong execution of company s strategy Our people think big and bold to create impactful products and services that deliver value and transform everyday life Strategy linked to global mega trends to solve complex customer needs for energy efficiency and productivity Targets* Revenue CAGR ~ 4-4.5% Operating Margin ~ % EPS CAGR ~ 11-13% * Information from May 2017 Ingersoll Rand Analyst Day --- Not an Update 10

11 Business Operating System Delivers Results 1 2 Drive innovation and productivity Proven & unique system to accelerate profitable growth 3 Committed to sustainability and energy efficiency 4 Focus on employee engagement 11

12 Operationally Integrated Company Maximized for Future Growth Organic Growth Past Steady Present Leading Performance Profitable Top-Tier Innovation Operational Excellence Culture Sustainability Measured Beginning Siloed Obligation Transformational Core Competency Collaborative Growth Driver 12

13 Significant Ongoing Business Investments Support Top-Tier Growth and Profitability Business Investments Key Examples ~15% New low-global warming potential refrigerants Digital / controls / wireless technology Channel expansion Parts and services capabilities / offerings Sales and services capabilities Operating system expansion

14 Continuing 146-Year Trend of Transforming Everyday Life through Innovation More than 200 Products Introduced in Last 3 Years Product portfolio refreshed since % Key emerging markets innovation success; % of revenues ~10% Ingersoll Rand Next Generation R-Series Trane Series E CenTraVac Club Car Onward Thermo King SLXi Average innovation revenue % Trane Sintesis excellent Thermo King Precedent Trane ComfortLink II Ingersoll Rand QX Series Product concept to shipping time reduction since % Trane Stealth Ingersoll Rand MR150 ManRider Winch Trane S-Series Furnace Trane Ductless Outdoor Unit 14

15 Widely Recognized for Global Citizenship, Sustainability and Employee Engagement Citizenship Sustainability Employee Engagement Manufacturing Industry Top Quartile Corporate Responsibility magazine 100 Best Corporate Citizens list for 4 th consecutive year 2016 Dow Jones Sustainability World and North America for 6 th consecutive year Manufacturing Industry Average Fortune World s Most Admired list for 5 th year, #2 in peer group FTSE4Good Index Series for strong environmental, social and governance practices 16-point increase in Employee Engagement over five years

16 Executing a Consistent Strategy that Delivers Profitable Growth and Powerful Cash Flow 1. Sustained Growth 2. Operational Excellence 3. Dynamic Capital Allocation 4. Winning Culture Differentiated products and services deliver top-tier revenue growth Margin improvement and powerful cash flow Reinvestment, dividends, share repurchase and acquisitions Commitment to integrity, ingenuity and engagement Strong, globally recognized brands Leading market shares Well positioned in both geographic and end markets Stable and recurring free cash flow: $4.3B past 4 Years 16

17 Leading Brands and Business Operating System Driving Top-Tier Revenue and Earnings Growth In Billions Organic Revenue Adjusted EPS $15 $6.00 $14 $13 $12 3% CAGR $5.00 $4.00 $3.00 $ % CAGR $11 $1.00 $ $ Cash Flow ROIC Adjusted Operating Margin 30% 18% 25% 20% +6 Ppts 15% 12% +2.5 Ppts 15% 9% 10% 6% 5% 3% 0% % * Retrospectively restated for the adoption of accounting standard ASU on January 1, Non-service pension costs that were previously reported in COGS and SG&A expense are now reported in other income/expense, net. This has no net impact to EPS. 17

18 Business Model Delivers Powerful Free Cash Flow Free Cash Flow ($ millions) $1,151* $862 $810 $985** $1,345** ~$1,200 Post Security Spin F Cash flow stable and recurring: $4.3B * Reported includes Allegion security business and excludes restructuring and one-time spin costs and refinancing premium ** Excludes the impact of the IRS agreement and restructuring in 2015 and excludes restructuring and the proceeds on the sale of Hussmann in

19 Capital Deployment : Focused on Maximizing Shareholder Value $6.3 Billion Capital Expenditures Dividends Share Buyback Mergers & Acquisitions ~$900M in Capex $1.2B in dividends paid 17% CAGR Long history of growing dividend $3.1B 53 million shares repurchased Spent $981 million on 10 acquisitions 19

20 Strategy and Execution Deliver Differentiated Shareholder Returns 600% 500% 400% 300% 200% 100% 0% (100%) Total Shareholder Returns Outperformed S&P 500 Index, S&P Industrials and Peer Average Ingersoll Rand S&P Industrials Peer Average S&P ~500% ~280% ~190% ~160% 20

21 Ingersoll Rand Targets 2017 to 2020* 2017 to 2020 Targets Revenue Growth 4% to 4.5% CAGR Operating Income Growth ~10% CAGR Operating Margins ~14.5% to 15% in 2020 EPS Growth 11% to 13% CAGR Based on ~22% tax rate Business Unit Operating Margins - Climate ~16.5% in Industrial ~15% in 2020 Cash Generation (% Net Income) >=1.0 times - Working Capital/Revenues 3% to 4% ROIC ~14.5% * Information from May 2017 Ingersoll Rand Analyst Day --- Not an Update 21

22 Strong Free Cash Flow of ~$4 Billion 2018 to 2020* Drives Dynamic Capital Allocation Strong Cash Flow Business Investment D&A CAPEX Free Cash Flow 4% to 4.5% Revenue CAGR Earnings 1% - 2% of Revenues W/C Maintain W/C at 3-4% of Revenues FCF >= Net Income Free Cash Flow ~$4B Competitive dividend; dividend growth >= earnings growth Buybacks and acquisitions Cumulative Cash Flow Note: Graphics not drawn to scale * Information from May 2017 Ingersoll Rand Analyst Day --- Not an Update 22

23 Dynamic Capital Allocation Delivering High Returns; 2017 Plan to deploy ~$430M for Dividends and $1.5B for Share Repurchase and Acquisitions 1 Invest for Growth Strengthen the core business and extend product & market leadership Invest in new technology and innovation Acquire products, channels and business adjacencies that are more attractive than growing organically Expect approx $400M - $500M spent or committed to acquisitions in Maintain Healthy, Efficient Balance Sheet Maintain flexibility to invest in growth and evolve with business conditions Preserve liquidity and manage leverage Maintain BBB investment grade rating 3 Return Capital to Shareholders Pay a competitive dividend and grow dividend at or above rate of earnings growth over time; ~$318M YTD dividends paid; dividend rate at $1.80/share, annualized; 23% annual CAGR 2012 to 2017 Repurchase shares with excess cash when intrinsic value provides high returns; repurchased 11.8M shares for $1B Oct YTD 23

24 M&A Framework Clear Criteria Business Criteria Financial Criteria Strong position no major gaps to fill Strengthening our core or extend leadership in product, channel or technology Must be clear strategic fit for Ingersoll Rand and clear synergies to meet financial hurdles Focused on core bolt-on opportunities; adjacent opportunities also under review IRR > WACC ROIC: Accretive < 3 years EPS accretive < 3 years Cash payback period: < 5 years 24

25 Why Invest In Ingersoll Rand? Strategy Brands Innovation Performance Cash Flow Capital Allocation Strategy tied to attractive end markets supported by global mega trends Franchise brands and businesses with leadership market positions Sustained business investments delivering innovation and growth, operating excellence and improving margins Strong management and high performing teams Operating model delivers powerful cash flow Capital allocation priorities deliver strong shareholder returns 25

26 Appendix

27 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 for the residential market TRANSPORT REFRIGERATION Manufacturing and innovation of transport temperature control systems for a variety of mobile applications, including trailers, truck bodies, buses, shipboard containers and rail cars HVAC SERVICES AND PARTS A complete selection of innovative parts, options and accessories for optimal performance and reliability 27

28 Our Industrial Businesses COMPRESSION TECHNOLOGIES AND SERVICES Rotary, centrifugal and reciprocating air compressors, and treatment products with Comprehensive multiyear service agreements, audits, parts, and accessories SMALL ELECTRIC VEHICLES Golf, commercial and utility vehicles for transportation POWER TOOLS Professional tools for fastening, drilling, and surface preparation MATERIAL HANDLING Hoists, winches and systems for moving and positioning loads FLUID MANAGEMENT Pumps and systems for fluid handling, transfer, and application 28

29 Non-GAAP Measures Definitions Organic revenue is defined as GAAP net revenues adjusted for the impact of currency and acquisitions. Organic bookings is defined as reported orders closed/completed in the current period adjusted for the impact of currency and acquisitions. Currency impacts on net revenues and bookings are measured by applying the prior year s foreign currency exchange rates to the current period s net revenues and bookings reported in local currency. This measure allows for a direct comparison of operating results excluding the year-over-year impact of foreign currency translation. Adjusted operating income is defined as GAAP operating income plus restructuring expenses in 2017 and Please refer to the reconciliation of GAAP to non-gaap measures on tables 3 and 4 of the news release. Adjusted operating margin is defined as the ratio of adjusted operating income divided by net revenues. In 2017 Adjusted continuing EPS is defined as GAAP continuing EPS plus restructuring expenses, net of tax impacts, plus the discrete non-cash tax adjustment in Latin America. In 2016 Adjusted continuing EPS is defined as GAAP continuing EPS plus restructuring expenses, less the gain from the sale of the company s remaining interest in Hussmann, net of tax impacts. Please refer to the reconciliation of GAAP to non-gaap measures on tables 3 and 4 of the news release. Free cash flow in 2017 and 2016 is defined as net cash provided by operating activities, less capital expenditures, plus cash payments for restructuring. Please refer to the free cash flow reconciliation on table 8 of the news release. 29

30 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 liabilities that exclude short term debt, dividend payables and income tax payables. Working capital as a percent of revenue is calculated by dividing the working capital balance (e.g. as of September 30) by the annualized revenue for the period (e.g. reported revenues for the three months ended September 30) multiplied by 4 to annualize for a full year. Adjusted effective tax rate for 2017 is defined as the ratio of income tax expense, plus or minus the tax effect of adjustments for restructuring costs and the discrete non-cash tax adjustment in Latin America, divided by earnings from continuing operations before income taxes plus restructuring expenses. Adjusted effective tax rate for 2016 is defined as the ratio of income tax expense, plus or minus the tax effect of adjustments for restructuring costs and the gain on sale of Hussmann interest, divided by earnings from continuing operations before income taxes less the gain on sale of Hussmann interest plus restructuring expenses. This measure allows for a direct comparison of the effective tax rate between periods. Adjusted OI + D&A is defined as adjusted operating income plus depreciation and amortization expense. 30