2018 EPG Conference. May 22, 2018

Transcription

1 2018 EPG Conference May 22, 2018

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 2018 full-year financial performance and targets including assumptions regarding our effective tax rate. 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 and interpretations. Additional factors that could cause such differences can be found in our Form 10-K for the year ended December 31, 2017, 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 fourth quarter of 2017 are estimates. 2

3 Mike Lamach (CEO) and Sue Carter (CFO)

4 Why 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 Experienced management and high performing team culture Operating model delivers powerful cash flow Capital allocation priorities deliver strong shareholder returns 4

5 Consistent Strategy Execution 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: $4.5B past 4 Years 5

6 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 6

7 Leading Brands and Market Positions Commercial HVAC Residential HVAC Transport Refrigeration World leader in HVAC Leader in heating and air conditioning solutions World leader in refrigerated transportation Industrial and Process Fluid Handling Golf and Utility Vehicles Leader in compression technologies, specialty tools & material handling World leader in reliable fluid handling equipment A world leader in small electric vehicles 7

8 Significant Ongoing Business Investments Support Growth and Profitability Business Investments ~20% Key Examples ~70 major new products throughout the world in 2017 New low-global warming potential refrigerants Digital / controls / wireless technology Channel expansion Parts and services capabilities / offerings Sales and services capabilities Operational excellence initiatives

9 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 9

10 Widely Recognized for Global Citizenship, Sustainability, Diversity and Inclusion and Employee Engagement Citizenship Sustainability Diversity and Inclusion Corporate Responsibility magazine 100 Best Corporate Citizens list for 4 th consecutive year 2017 Dow Jones Sustainability World and North America for 7 th consecutive year Employee Engagement Manufacturing Industry Top Quartile Fortune World s Most Admired list for 6 th year FTSE4Good Index Series for 3 rd consecutive year Global 100 Most Sustainable Corporations 1 st year Manufacturing Industry Average 18-point increase in Employee Engagement over five years

11 Driving Sustained Growth and Operating Margin Improvement In Billions Revenue Adjusted EPS $15 $14 $13 $12 4% CAGR $6.00 $5.00 $4.00 $3.00 $ % CAGR $11 $1.00 $ F $ F FCF% of Adj Net Income Adjusted Operating Margin 140% 120% 100% 80% Target =>100% 18% 15% 12% 9% 6% 3% +1.7 Ppts 60% F 0% F 2016 Adj Op Margin 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. 2018F reflects guidance midpoint from January31, 2018; NOT AN UPDATE 11

12 Strong CROIC Growth Highlights Quality of Earnings 25% 20% 15% Cash Flow Return on Invested Capital +6.4 Ppts Cash Flow Return on Invested Capital 22.4% CROIC in 2017 Steady CROIC improvement reflects both topline growth and margin expansion driven by our business operating system 10% 5% 0% CROIC Definition Free Cash Flow Gross Fixed Assets + Working Capital 12

13 Robust Financial Model Drives Powerful Cash Flow 1. Attractive, diversified end markets 2. Leading brands, market positions outgrowing market rates $4.5 billion free cash flow over the last 4 years 5. Investing for growth and profitability 3. Focused on margin expansion (growth / op. excellence) 4. Delivering powerful free cash flow 13

14 Dynamic and Balanced Capital Deployment Focused on Maximizing Shareholder Value ( ) $6.6 Billion Capital Expenditures Dividends Share Buyback Mergers & Acquisitions ~$900M Capex ~$1.4B dividends paid ~22% CAGR dividend per share Long history of growing dividend $2.9B 44 million shares repurchased ~$1.4B on 22 acquisitions through Jan 2018 announcements 14

15 Why 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 Experienced management and high performing team culture Operating model delivers powerful cash flow Capital allocation priorities deliver strong shareholder returns 15

16 Appendix

17 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 17

18 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 18

19 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 19

20 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 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. 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 less US tax legislation and other discrete items. In 2016 Adjusted continuing EPS is defined as GAAP continuing EPS plus restructuring expenses and a legal settlement, 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. Cash flow return on invested capital ( Cash flow ROIC ) is defined as annual free cash flow divided by the sum of gross fixed assets, receivables and inventory less accounts payables Free cash flow 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 9 of the news release. 20

21 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 December 31) by the annualized revenue for the period (e.g. reported revenues for the three months ended December 31) 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 and US tax legislation and other discrete items, 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, a legal settlement 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 and a legal settlement. 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. Operating leverage is defined as the ratio of the change in adjusted operating income for the current period (e.g. Q4 2017) less the prior period (e.g. Q4 2016), divided by the change in net revenues for the current period less the prior period. 21