UBS Global Industrials & Transportation Conference June 2018
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; the timing of receiving regulatory approvals for our joint venture; our projected 2018 full-year financial performance and targets and our projected 2017 to 2020 financial performance and targets including assumptions regarding our effective tax rate and other factors described in our guidance. These forwardlooking 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 forwardlooking 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 www.ingersollrand.com. All data beyond the first quarter of 2018 are estimates. 2
A Global Leader in Energy Efficiency and Productivity Two Segments (Revenues 2017) Key Metrics Manufacturing locations worldwide 53 Industrial $3.0B $11.2B Climate Employees ~46,000 Market cap ~$23B # of countries we sell products 100+ 3
Diversified Business With High Aftermarket Mix Segment Distribution Regional Mix Revenue Streams 4% Latin America Industrial 13% 15% Asia Pacific Europe, Middle East, Africa 33% Parts and Services $14.2B 68% North America 67% Equipment Climate All figures are FY 2017. 4
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 5
Climate Segment: Diversified and Resilient Performance Segment Mix Regional Mix Revenue Streams 4% Latin America Transport Refrigeration Commercial HVAC Equipment 11% 14% Asia Pacific Europe, Middle East, Africa 31% Parts and Services Residential HVAC $11.2B 71% North America 69% 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 All figures are FY 2017. 6
Industrial Segment: Diversified and Resilient Performance Business Units Regional Mix Revenue Streams Small Electric Vehicles Industrial Comp. 3% 5% 17% India Latin America Europe, ME, Africa 37% Parts and Service Industrial Products 1 $3.0B Engineered Comp. 19% 56% 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 2017. 7
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 8
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 $2.00 11% CAGR $11 $1.00 $10 2014 2015 2016 2017 2018F $0.00 2014 2015 2016 2017 2018F FCF% of Adj Net Income Adjusted Operating Margin 140% 120% 100% 80% Target =>100% 18% 15% 12% 9% 6% 3% +1.7 Ppts 60% 2014 2015 2016 2017 2018F 0% 2014 2015 2016 2017 2018F 2016 Adj Op Margin retrospectively restated for the adoption of accounting standard ASU 2017-07 on January 1, 2017. 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 9
Dynamic and Balanced Capital Deployment Focused on Maximizing Shareholder Value (2014 2017) $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 10
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 - Competitive and Growing Dividend - Share buyback - M&A ~100% of FCF on avg. * Information from May 2017 Ingersoll Rand Analyst Day --- NOT AN UPDATE OR REAFFIRMATION 11
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 12
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 13
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 2014 2017 14
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 ~$175M ~$90M Industrial Engineered to Order Personal Transportation Compression Tech Services Industrial Products * Information from May 2017 Ingersoll Rand Analyst Day --- NOT AN UPDATE OR REAFFIRMATION 15
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 16
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 2010 2012 2013 2014 2015 2016 2017 17
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 Experienced management and high performing team culture Operating model delivers powerful cash flow Capital allocation priorities deliver strong shareholder returns 18
First-Quarter 2018 Results April 25, 2018
Executing a Consistent Strategy that Delivers Profitable Growth 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 20
Q1 2018 Off to Strong Start Many things are going well End markets very healthy - strong organic order and revenue growth across segments / geographies / regions Industrial segment continues to strengthen growth / margin expansion ahead of expectations China HVAC direct sales strategy performing as expected exceptional growth, improving financials North America Trailer outlook improving Achieving positive price at a level consistent with our expectations Inflationary headwinds increasing 20 basis points adjusted operating margin expansion; however persistent rising inflation (tier 1 / tier 2 materials, freight) constraining leverage in Climate segment Driving additional pricing / volume / productivity / restructuring actions to help mitigate inflationary headwinds but expect continued negative impact on leverage in 2018 Wild cards disrupting markets / limiting full year visibility Tariffs / trade wars / geopolitical uncertainty On balance, early stages but confident well positioned to exceed top end 2018 revenue / EPS guidance ranges* Per normal cadence, will provide mid-year 2018 guidance update in conjunction w/ Q2 2018 earnings call * Information as of April 25, 2018--- NOT AN UPDATE OR REAFFIRMATION 21
Q1 2018 Strong Organic Bookings and Revenue Growth Across All Businesses Organic* Y-O-Y Change Climate Bookings Revenues Commercial HVAC - N. America - L. America - EMEA - Asia Residential HVAC Transport Industrial Compression Tech Industrial Products Small Elec. Vehicle + + + + + + + Total + 11% + 8% + + + + + + + + + + + + + Total + 5% + 9% *Organic bookings and organic revenues exclude acquisitions and currency 22
Strong Performance Across Healthy End Markets Commercial HVAC Residential HVAC Transport Compression Technologies Small Elec. Veh. / Industrial Products Sustained growth in Global CHVAC markets - Strong equip bookings and revenues w/ outsized growth in parts / service N.A. CHVAC mkt growth solid equip/services/ contracting/controls. Institutional growth led by Education, Health Care EMEA CHVAC markets strong across equip/services with solid lift from Q1 acquisition of ICS Cool Energy (rental services) China direct sales strategy performing as expected -exceptional growth, improved financials; other Asian markets mixed 2018 outlook for CHVAC remains solid globally w/ growth expected in all regions. Key economic indicators strong Strong revenues and cont d share gains Trane Go leading mkt w/ total installed price transparency driving significant lead growth w/ high conversion rates Key economic indicators point to continued healthy end mkt in Residential, impacted by tough YOY compares vs 2017 N.A. trailer mkt improving - tight trucking capacity / U.S. regulations / U.S. tax law changes Total APU growth continues to be a standout. Marine strong, bus / rail mixed but off modest base Good growth in EMEA truck / trailer and in Asia Global Transport business increasingly diversified and resilient. 2018 outlook improving vs initial expectations Compression Tech markets showing positive signs consistent w/ industrial production indicators Q1 bookings and revenue growth led by N.A. and China; outsized bookings growth in services Strong revenue across short cycle products For 2018, expect solid, broad-based mkt growth in end markets and product categories Strong growth in small electric vehicles driven by continued success of consumer vehicle penetration Strength across the board for Industrial Products businesses 2018 shaping up to be another good year for bookings / revenue 23
Q1 2018 - Key Takeaways Strong operating results Adjusted continuing EPS of $0.70, up 23% year over year driven by gains in both Climate and Industrial Markets broadly receptive to price increases, however persistent inflation remains significant headwind Consistent with company expectations, restructuring was $44M primarily driven by footprint optimization Despite early innings, confident in exceeding high end of annual guidance range on enterprise revenue and EPS** Strong organic revenue and bookings growth in both segments Industrial organic revenues up 9% with strong growth across the segment Climate organic revenues up 8% with broad-based growth in equipment, controls and services Industrial business continues to perform ahead of expectations Adjusted operating margins up 190 bps Strong organic revenue growth in Compression Tech particularly in N. A. and Asia Balanced capital allocation Paid $112M in dividends; Annualized dividend payout of $1.80 / share; ~2% dividend yield. Repurchased $250M or 2.8M shares Acquisition pipeline remains active; Trane / Mitsubishi Electric JV regulatory approval expected Q2 2018 * Includes certain Non-GAAP financial measures. See the company s Q1 2018 earnings release for additional details and reconciliations. ** Information as of April 25, 2018--- NOT AN UPDATE OR REAFFIRMATION 24
Q1 2018 Strong Revenue Growth, Margin Expansion and Capital Deployment Delivering 23% EPS Growth $3,001 Net Revenue +13% +8% Organic $3,385 Adj. Operating Margin* +20 bps 8.3% 8.5% $0.57 Adjusted EPS* +23% $0.70 Q1 '17 Q1 '18 Q1 '17 Q1 '18 Highlights Q1 '17 Q1 '18 Strong organic revenue growth in virtually all products and geographies Operating margin expansion driven by volume/price/productivity; partially offset by inflation headwinds Industrial segment achieved price in excess of material inflation ~4% FX and ~1% acquisition revenue growth * Includes certain Non-GAAP financial measures. See the company s Q1 2018 earnings release for additional details and reconciliations. 25
E N T E R P R I S E Strong Growth in Both Segments Offsetting Inflation Headwinds 8.3% +20 bps 1.2 (0.4) (0.2) (0.4) 8.5% Q1 2017 Volume / Mix / FX Price/Material Inflation Productivity/Other Adjusted Operating Inflation Margin Highlights Price / cost improved 40 bps vs. Q4 2017; however inflation remains a headwind Investment/Other Q1 2018 Adjusted Operating Margin Op margin expansion from vol / price and productivity partially offset by persistent inflation Continued long-term investments in high ROI projects - products, systems, services and channel 26
E N T E R P R I S E Strong Operating Income Growth in Both Segments Driving Adjusted Continuing EPS Higher by 23% +$0.13 $0.57 $0.06 $0.08 ($0.03) $0.02 $0.70 Q1 2017 Climate Industrial Other Share Count Q1 2018 Adjusted Continuing EPS* Highlights Adjusted Continuing EPS* EPS growth driven by operational gains in Climate and Industrial with improvements across the businesses Other impacted primarily by higher corporate costs ($0.01) primarily due to stock compensation, discrete interest expense ($0.01) due to debt refinancing and a slightly higher tax rate y-o-y ($0.01) Lower share count driven by $1B share buybacks in 2017 and $250M in buybacks in Q1 2018 * Adjusted continuing EPS excludes restructuring costs and debt redemption premium and related charges in 2018 and excludes restructuring costs in 2017. See tables in news release for additional information. 27
C L I M A T E S E G M E N T Q1 Broad-Based Revenue Growth; Persistent Inflation Headwinds $2,324 Net Revenue +12% +8% Organic $2,610 Adj. Operating Margin* -50 bps 10.6% 10.1% Adj. OI + D&A %** 13.2% -60 bps 12.6% Q1 '17 Q1 '18 Q1 '17 Q1 '18 Q1 '17 Q1 '18 Highlights Broad-based revenue growth across all businesses and regions Adj Op Margin positive impacts from price / vol / productivity more than offset by increased inflationary headwinds (tier 1 and tier 2 materials and freight) China HVAC direct sales strategy performing as expected exceptional growth, improving financials * Adjusted operating margin excludes restructuring in 2017 and 2018. See tables in news release for additional information. ** Adjusted OI + D&A divided by revenue. This excludes restructuring in 2017 and 2018. See tables in news release for additional information. 28
I N D U S T R I A L S E G M E N T Q1 Solid Margin Expansion and Revenue Growth Net Revenue Adj. Operating Margin* Adj. OI + D&A %** +15% $775 +190 bps 13.2% +180 bps 15.0% $676 +9% Organic 10.4% 12.3% Q1 '17 Q1 '18 Q1 '17 Q1 '18 Q1 '17 Q1 '18 Highlights Strong revenue growth in all products; North America and Asia were strong while Europe was mixed Fundamental business operations improvement fueled by prior period restructuring actions and solid growth delivering significant margin expansion * Adjusted operating margin excludes restructuring in 2017 and 2018. See tables in news release for additional information. ** Adjusted OI + D&A divided by revenue. This excludes restructuring in 2017 and in 2018. See tables in news release for additional information. 29
Strong Balance Sheet $Mil YE 16 Q1 17 Q2 17 Q3 17 YE 17 Q1 18 Cash 1,715 1,322 1,310 1,259 1,549 1,175 Debt 4,070 4,072 4,066 4,063 4,064 4,351 Net Debt 2,355 2,750 2,756 2,804 2,515 3,176 Free Cash Flow* $ Millions 829 1,020 1,278 $1,378 2014 2015 2016 2017 Highlights On target to achieve free cash flow >= net income for FY 2018 Capex of $53M consistent with plan and focused on plant consolidations, productivity improvements and growth Maintained strong balance sheet providing optionality as markets continue to evolve * Includes certain Non-GAAP financial measures. See the company s Q1 2018 earnings release for additional details and reconciliations. 30
Balanced Execution of Dynamic Capital Allocation Strategy in 2018 1 Invest for Growth Strengthen the core business and extend product & market leadership Invest in new technology and innovation Strategic acquisitions pipeline primarily focused on technology, product and channel bolt-ons 2 Maintain Healthy, Efficient Balance Sheet Strong balance sheet, maintaining optionality as markets evolve, preserving liquidity and managing leverage Maintain BBB investment grade rating 3 Return Capital to Shareholders Expect consistent deployment of 100% of excess cash over time Dividends of $1.80/share annualized Expected dividend growth > = rate of earnings growth going forward Repurchased $250M in shares in Q1 2018; shares trading below company s calculated intrinsic value 31
Topics of Interest
Topics of Interest Tariffs We execute an in-region, for-region sourcing and manufacturing strategy >95% of supplies are sourced in the U.S. for U.S. customers Details around tariffs uncertain and negotiations are on-going; continue to monitor Historically, the industry generally recovers price over time 33
Q1 Organic Bookings Up 9%; Revenue Up 8% Year-Over-Year Organic* Bookings 2016 2017 2018 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Climate 6% 6% 4% 10% 6% 6% 3% 5% 7% 5% 11% Industrial (5%) (5%) (1%) (1%) (3%) 9% 5% 5% 12% 8% 5% Total 4% 3% 3% 7% 4% 7% 4% 5% 8% 6% 9% Organic* Revenue 2016 2013 2017 2018 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Climate 4% 5% 3% 4% 4% 6% 8% 3% 6% 6% 8% Industrial (5%) (3%) 1% (3%) (3%) 1% 2% (1%) 5% 2% 9% Total 2% 3% 3% 2% 3% 4% 7% 2% 6% 5% 8% *Organic revenues and bookings exclude acquisitions and currency 34
Appendix
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 36
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 37
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 38
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 plus or minus other adjustments as further described in our earnings release and accompanying tables found on our website (www.ingersollrand.com). Adjusted operating margin is defined as the ratio of adjusted operating income divided by net revenues. Adjusted continuing EPS is defined as GAAP continuing EPS plus restructuring expenses, net of tax impacts, plus or minus other adjustments, net of tax impacts, as further described in our earnings release and accompanying tables found on our website. 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. 39
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 March 31) by the annualized revenue for the period (e.g. reported revenues for the three months ended March 31) multiplied by 4 to annualize for a full year. Adjusted effective tax rate is defined as the ratio of income tax expense, plus or minus the tax effect of adjustments for restructuring costs and other adjustments as further described in our earnings release and accompanying tables found on our website, divided by earnings from continuing operations before income taxes plus or minus restructuring expenses and other adjustments as further described in our earnings release and accompanying tables found on our website. 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. Q1 2018 or full year 2017) less the prior period (e.g. Q1 2017 or full year 2016), divided by the change in net revenues for the current period less the prior period. 40