Investor Presentation Feb. 2021...2021/02/02 · pandemic on our business, our suppliers and our...
Transcript of Investor Presentation Feb. 2021...2021/02/02 · pandemic on our business, our suppliers and our...
Investor PresentationFebruary 2021
Safe Harbor
2
This presentation includes “forward-looking statements” which are statements that are not historical facts, including statements that relate to our future performance, statements relating to the continued impact of the COVID-19 global pandemic, capital deployment including the amount and timing of our dividends, our share repurchase program including the amount of shares to be repurchased and the timing of such repurchases and our capital allocation strategy including projected acquisitions; our projected free cash flow and usage of such cash; our available liquidity; performance of the markets in which we operate; restructuring activity and cost savings associated with such activity; our projected 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, the impact of the global COVID-19 pandemic on our business, our suppliers and our customers, global economic conditions taking into account the global COVID-19 pandemic, disruption and volatility in the financial markets due to the COVID-19 pandemic, improvement in market conditions (if any) with global vaccine administration, the outcome of any litigation, the outcome of the Chapter 11 proceedings for our deconsolidated subsidiaries Aldrich Pump LLC and Murray Boiler LLC, 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, 2020, 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 www.tranetechnologies.com. Unless otherwise indicated, all data beyond the fourth quarter of 2020 are estimates.
1 2 3 4
C L E A R P R I O R I T I E S
Focused Strategy Delivers Differentiated Shareholder Returns
Grow Marginsand Cash Via
MaximizeValue As
ContinueWith
Strong operating system and performance culture
Uplifting culture – integrity, ingenuity, community & engagementPowerful cash flow
SustainableInnovation
WinThrough
ExecutionExcellence
FocusedClimate Co.
Dynamic Capital Allocation
Strong Foundation
3
T R A N E T E C H N O L O G I E S T O D A Y
Pure-Play Climate Control Business with Leading Brands and Market Positions; High Aftermarket Mix
All figures are FY 2020 historical information restated to reflect Ingersoll Rand Industrial segment in discontinued operations.4
Regional Segments
Americas APAC
67% 33%Equipment Aftermarket
Revenue Streams
EMEA
Total$12.5BSales
Commercial HVAC
Transport Refrigeration
Residential HVAC
Franchise Brands
S U S T A I N A B I L I T Y L E A D E R
Global Megatrends Continue to Intensify – Demanding Bold Action
5
Heating and Cooling Buildings
Global emissions from heating / cooling buildings*
Food Loss
Global emissions come from food loss / waste*
GHG Emissions
Combined share ofglobal emissions
* Source: Project Drawdown and BCG
=+15% 10% 25%
S U S T A I N A B I L I T Y L E A D E R
Uniquely Positioned with Innovative Solutions to Lead a Movement to Reduce GHG Emissions
Reduce customer carbonfootprint by
% Global Carbon Emissions (CO2e) from Heating and Cooling Buildings
and Food Loss
Businessas Usual
Delivery on the Gigaton Challenge
Key Actions We are Taking
1GIGATON of CO2e
(1 billion metric tons) by 2030
Today 2030
~25%
~35%
Accelerating clean technologies
Addressing system energy efficiency
Reducing food loss from cold chain
Transitioning out of high GWP refrigerants
Like minded companies to join movement
Bendingthe Curve
Today 2030
% Global Carbon Emissions (CO2e) from Heating and Cooling Buildings
and Food Loss
6
S U S T A I N A B I L I T Y L E A D E R
Our Sustainability Purpose Yields Benefits Beyond CO2e Reduction
7
Creates purpose driven performance
Generates uplifting culture that builds engagement and empowers people More targeted investments
Simplifies business model
More value to shareholders, customers and employees
Drives innovative solutions
Defines Our Culture Focuses Business Priorities
Increases speed and agility
SOCIAL BENEFITS FINANCIAL BENEFITS
Improves productivity and executionFosters employee retention and safety
Top Decile GloballyIdentified as “Industry Leader”
61%Higher score than industrial machinery average
#26On Corporate Knights Top 100 Global Most Sustainable Corporations
Gold Medal Winner35th annual award for International Achievement in Sustainable Development
9 YearsListed on most admired companies list
A-Climate Change disclosure submitted 10+ consecutive years
10 YearsListed on North America Index
S U S T A I N A B I L I T Y L E A D E R
Highly Regarded ESG Performance
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1st in our industryto sign on to Paradigm for Parity – A Call to Action for Gender Equality
2nd Consecutive Year Forbes Best Employers for Diversity
Joined 150of America’s leading CEOs in a pledge to diversity and inclusion in the workplace
Top Quartileof all companies
Employee Engagement
S U S T A I N A B I L I T Y L E A D E R
Purpose Alignment Drives Uplifting Culture
Founding Membercoalition to hire 1 million Black AmericansOneTen
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The New Trane Technologies: Reimagined to Unlock Our Full Potential
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Trane Technologies Reimagined:Streamlined, Customer-Focused Climate Innovator
321Relentlessly focused on leaning out processes and driving excellent execution
Customer-focused innovation 100% tied to sustainability secular mega trends
Redesigned to maximize our value as a pure-play climate focused innovator
Sustainability innovation fuels our growth
Exceptional performance maximizes our margins
Structural transformationunlocks our potential
Essence of a
Startup
Purpose-driven alignment
Fit for purpose organizational design
Strategic choice budgeting
Built for speed
T R A N E T E C H N O L O G I E S R E I M A G I N E D
Uniquely Positioned as IPO-like Climate Innovator with Proven Expertise
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+
Credibility of a Market Leader
Long track record of execution
Trusted industry & technical expertise
Deep customer relationships
Strong performance culture
T R A N E T E C H N O L O G I E S R E I M A G I N E D
Why Pure Play Matters? – Purpose Drives Performance
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Lean-based, customer-focused model2
Increased speed and agility in the marketplace3
World class climate innovator relentlessly reinvesting to bend the curve on climate change1
Strong competitive position with full spectrum of product and service capabilities4Global reach provides scale to deliver next generation technologies through unequaled channel expertise5
100%focus on sustainability
drives differentiated results for shareholders
Sustainable OperatingLeverage Improvement
T R A N E T E C H N O L O G I E S R E I M A G I N E D
Business Transformation Delivers $300M in Cost Savings by 2023 to Fund Continued Market Outgrowth With 25% Sustainable Leverage
Increased reinvestment in
innovation
1
2Above market growth profile
Improved cost structure
Sustainable leverage (25% plus) & margin improvement
4
3
High Performance Flywheel
16%
2017-2019 Actual* Transformational Model
13
25% +
* Operating leverage calculated based on change in historical Climate segment adjusted operating income less adjusted unallocated corporate costs divided by change in Climate segment revenues, Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION
Digital Connectedness
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I N N O V A T I O N
Megatrends are Powerful Drivers of Growth and Accelerate Need for Innovative Trane Technologies’ Solutions
Climate Change
Urbanization ResourceScarcity
Demographics IndoorEnvironmental
Quality
Driving SustainabilityAccelerating need for innovative climate sustainability solutions
Accelerating MegatrendsContinuing Megatrends
Trane Technologies Innovation AdvantageLeader in innovative climate solutions at nexus of
environmental sustainability and impact
Proven Business Operating System Delivers Results
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• World class sales, service capabilities / offerings
• Sustained market outgrowth• Margin expansion• Continuous improvement and
sustainable performance
Results
Aligns resources for customer value
1 2Empowers people to solve problems
Embeds sustainability in our operations
Accelerates profitable growth
4 3
Business Operating System
Adjusted EBITDA Margin*
FCF % of Adj. Net
Earnings**
C U L T U R E O F P E R F O R M A N C E E X C E L L E N C E
Driving Sustained Growth and Operating Margin Improvement 2017-2020
* 2017, 2018, 2019 and 2020 historical information restated to reflect Ingersoll Rand Industrial segment in discontinued operations** 2017 and 2018 free cash flow conversion history based on pre-RMT transaction consolidated Ingersoll Rand financial statements† 2018, 2019 and 2020 historical information restated to reflect Ingersoll Rand Industrial segment in discontinued operations. 2017 calculated based on historical Climate segment adj. op. inc. less adj. unallocated corporate costs divided by Climate segment revenues16
Adj. Op. Inc.
Margin
Revenue*($B)
$3
$6
$9
$12
2017 2018 2019 2020
~4%CAGR
0%
40%
80%
120%
160%
2017 2018 2019 2020
Avg. =116%
10%
12%
14%
16%
18%
2017 2018 2019 2020
+110bps
5%
7%
9%
11%
13%
2017 2018 2019 2020
+110bps
†
C U L T U R E O F P E R F O R M A N C E E X C E L L E N C E
Long Track Record of Disciplined and Balanced Capital Deployment (2016 to 2020)
* Historical information based on pre-RMT transaction consolidated Ingersoll Rand financial statements through 2019; 2020 reflects Trane Technologies.17
CAPEX
M&A
~25%
~13%
~36%
~26%
$8.8B*
~12% CAGR dividend per share. Long history of growing dividend.
Capex lite business model~1.6% of revenue
~$2.2B on 25 acquisitionsas of January 2021
Share Repurchase~$3.2 billion on share repurchases
Dividends
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The markets we serve will continue to outgrow GDP fueled by long-term sustainability megatrends
Secular Tailwinds
Sustainability Focused Innovation
Margin Expansion
Financial Strength
We are positioned to outgrow the market and expand margins with market-leading sustainable innovations
Our execution excellence and transformational work position us to maximize margins and cash generation
Our strong balance sheet, exceptional cash generation and balanced capital allocation strategy deliver significant value to shareholders
I N S U M M A R Y
Positioned to Outperform. Consistently.
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Non-GAAP Measures Definitions
Adjusted operating income in 2020 is defined as GAAP operating income plus restructuring costs and transformation costs. Adjusted operating income in 2019, 2018 and 2017 is defined as GAAP operating income plus restructuring costs.
Adjusted operating margin is defined as the ratio of adjusted operating income divided by net revenues.
Adjusted earnings from continuing operations attributable to Trane Technologies plc (adjusted net earnings) in is defined as GAAP earnings from continuing operations attributable to Trane Technologies plc plus / minus certain adjustments applicable to each respective year such as restructuring costs, transformation costs, gain on M&A transaction, legacy legal liability adjustment, gain from deconsolidation of certain entities under Chapter 11, debt redemption premium and related charges, net of tax impacts as well as separation-related tax costs, tax reform/tax legislation adjustments and other U.S. and Non-U.S. discrete non-cash tax adjustments.
Adjusted EBITDA in 2020 is defined as adjusted operating income plus depreciation and amortization expense plus or minus other income / (expense), net less the gain on M&A transaction. Adjusted EBITDA in 2019, 2018 and 2017 is defined as adjusted operating income plus depreciation and amortization expense plus or minus other income / (expense), net.
Adjusted EBITDA margin is defined as the ratio of adjusted EBITDA divided by net revenues.
Free cash flow is defined as net cash provided by (used in) continuing operating activities, less capital expenditures, plus cash payments forrestructuring costs and transformation costs.
Operating leverage is defined as the ratio of the change in adjusted operating income for the current period (e.g. 2020) less the prior period (e.g. 2019), divided by the change in net revenues for the current period less the prior period.
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Fourth-Quarter 2020 ResultsFebruary 5, 2021
1 2 3 4Grow Marginsand Cash Via
MaximizeValue As
ContinueWith
Strong operating system and performance culture
Uplifting culture – integrity, ingenuity, community & engagementPowerful cash flow
SustainableInnovation
WinThrough
ExecutionExcellence
FocusedClimate Co.
Dynamic Capital Allocation
Strong Foundation
C L E A R P R I O R I T I E S
Focused Strategy Delivers Differentiated Shareholder Returns
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• Resilient financial performance highlights strength of focused strategy, business operating system & high-performance culture− Broad-based outgrowth / share gain across challenging global end-markets− Strong Q4 bookings growth in all segments, Enterprise revenues ~flat, with strong margin expansion & EPS growth− FY 2020: +2% bookings growth, -5% rev decline, ~13% deleverage, +20 bps adj. EBITDA margins− Exceptional 2020 FCF of $1.7B, 158% conversion – strengthens balance sheet, adds capital allocation capabilities / optionality
• Aggressive offense through downturn to emerge even stronger post-pandemic− Maintained high levels of business reinvestment supporting greater innovation & market outgrowth / strong leverage− Further extended pure-play competitive advantages (IAQ, cold storage, leading sustainability solutions)
• RMT completed Q1; Business transformation savings accelerated; targeted savings 3X original $100M cost reduction target− Expected $300M total transformation savings by 2023 funds superior innovation & growth profile, sustainable strong leverage− Stranded / fixed cost take-out of $100M achieved in 2020; on track for $140M run-rate savings in 2021 and $160M add’l savings by 2023− Strong performance culture maintained through downturn and transformation; world class employee engagement up in 2020 survey
• 2021 guidance reflects improving market conditions with expectation of global vaccine administration− 2021 revenue growth of 6.5% to 8.5%, adj. EPS of $5.30 – $5.50− Organic revenue growth of 5-7% with ~30% leverage (better than ~25% long term target)
• Exceptional FCF, financial position, liquidity and balance sheet optionality support balanced capital allocation strategy• Deployed ~$1.2B in capital 2020; expect to deploy ~$2B+ in capital in 2021
• Purpose-driven sustainability strategy unchanged & focused on long-term secular tailwinds towards sustainability megatrends− Leadership in addressing these challenges delivers top-tier financial performance & differentiated shareholder returns
Strong Performance in Q4 and 2020 Against Challenging Covid-19 Backdrop
* Includes certain Non-GAAP financial measures. See the company’s Q4 2020 earnings release for additional details and reconciliations.
Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION22
* Includes certain Non-GAAP financial measures. See the company’s Q4 2020 earnings release for additional details and reconciliations.** Reflects COVID-19 pandemic downturn scenarios, May 5, 2020 (Q1), July 29, 2020 (Q2) and October 28, 2020 (Q3)
Net Revenue
Deleverage*
Free Cash Flow*
2020 Results
-5%
~13%
158% Adj. Net Earnings
2020 Guidance (Q3)**
-6%
Better Than Gross Margin %
≥ 125% Adj. Net Earnings
• Resilient revenue, end market outgrowth and strong margin performance• Modest deleverage of ~13%, well below GM% target• Exceptional free cash flow of ~$1.7B, or 158% of adj. net earnings • Successful RMT & transformation driving savings / fueling investment in 2020
2 0 2 0 Y E A R I N R E V I E W
Strong Performance and Improving Outlooks Throughout 2020 Despite COVID-19 Impacts
2020 Guidance (Q2)**
-10% to -15%
~Gross Margin %
≥ 100% Adj. Net Earnings
2020 Scenarios (Q1)**
-15% to -25%
~Gross Margin %
≥ 100% Adj. Net Earnings
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Bookings Growth and ~Flat Revenues, Outpacing Weak End Markets
*Organic bookings and organic revenues exclude acquisitions and currency
Q4 Organic* Y-O-Y ChangeBookings Revenue
Enterprise + 3% - 1%
Americas + 2% + 1%
Commercial HVAC
Residential HVAC
Transport
EMEA + 9% - 6%
Commercial HVAC
Transport
Asia Pacific + 2% - 6%
Commercial HVAC
Transport
-
+
Americas • CHVAC bookings / revs down MSD on tough comps (Bookings
up ~25% across 2018/19; N.A. revs up high-teens 4Q19); Svcsperformance stronger than equipment; Svcs revs up LSD; Cont’d impacts from low building occupancy / school / other closings; IAQ demand remains healthy
• Res HVAC revs up 20+% on strong end market demand; Strong backlog headed into 1Q21
• Transport bookings up 40+%, revs up LSD, outpacing largely soft transport markets (truck / trailer markets significantly lower in Q4)
EMEA• CHVAC bookings up high teens w/ growth in both equipment and
services; CHVAC revs down MSD• Transport bookings positive / revs down HSD, outpacing weak
transport market declines (trailer market down mid-teens)
Asia Pacific • CHVAC bookings up LSD. Revs down HSD. Bookings and rev
growth in China more than offset by decreases in rest of Asia driven by continued pandemic challenges
• Transport bookings and revs up MSD
+-
+-
-
+
++
+
-
+
+
Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION
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Net Revenue
13.0%
14.4%
Q4 '19 Q4 '20
$3,184 $3,179
Q4 '19 Q4 '20
10.9%
12.4%
Q4 '19 Q4 '20
-1%Organic
*Includes certain Non-GAAP financial measures. See the company’s Q4 2020 earnings release for additional details and reconciliations.**2019 restated to reflect Ingersoll Rand Industrial segment in discontinued operations.
E N T E R P R I S E
Consistent Execution Drives Strong Performance Despite Ongoing COVID-19 Impacts
Adj. Continuing EPS*
$0.92 $1.03
Q4 '19 Q4 '20
+12%
• Primarily driven by strong operating performance, higher op income, op margin expansion
• FY20 adj eff tax rate (20.2%) consistent w/ FY20 outlook of ~19% to ~20%
• Strong margin expansion despite modest revenue decline • Strong price / cost and productivity in every region more than offset COVID-19
related volume declines• Maintained high level of business reinvestment in safety, innovation, technology
• Resilient rev performance despite ongoing COVID-19 impacts; Res HVAC revs particularly strong
• CHVAC Americas and Asia Pacific svcs outperformed equip
• Transport Americas revs returned to growth in challenged markets
Adj. EBITDA %*
+140bps
Adj. Operating Margin*
+150bps
flat
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Q 4 S E G M E N T R E S U L T S
Strong Execution, Cost Controls, Productivity, Positive Price / Cost Delivers Margin Expansion in Every Region
$MRevenue
Org. GrowthAdj. EBITDA%
vs PYAdj OI%vs PY Highlights
Amer
icas $2,386
+1%16.2%
+130 bps14.0%
+120 bps
• Market outgrowth, cost controls, productivity, price / cost drive margin expansion while maintaining high levels of business reinvestment
EMEA $465
-6%16.2%
+110 bps14.6%
+200 bps
• Strong execution / cost controls / productivity more than offset COVID-19 pandemic-related volume declines to deliver margin expansion
Asia
Pac
ific
$328-6%
18.2%+200 bps
17.7%+280 bps
• Strong execution / cost controls / productivity more than offset COVID-19 pandemic-related volume declines to deliver margin expansion
* Includes certain Non-GAAP financial measures. See the company’s Q4 2020 earnings release for additional details and reconciliations.26
M A R K E T U P D A T E
Expect Improving Market Conditions With Global Vaccine Administration in 2021
* Includes certain Non-GAAP financial measures. See the company’s Q4 2020 earnings release for additional details and reconciliations.
• Economic recovery varies by country, impacted by ongoing pandemic challenges• CHVAC cont’d underlying demand for sustainability focused products and services, however both equipment
and services markets remain challenging given COVID-19; expect improving markets with improved vaccine distribution / timing
• Transport mkts expected to emerge from downcycle in 2021 w/ ~8% weighted avg mkt growth expected
EMEA
Commercial HVAC • Svcs resilient, growing LSD in 4Q20 despite cont’d low building occupancy; 4Q20 revs down MSD (tough
comps vs 4Q19); IAQ remains long-term tailwind • End market indicators (ABI, Dodge, etc) remain soft, visibility limited by pandemic-related uncertainty• Expect improvement in 2H21 with improved vaccine distribution / timingResidential HVAC• Strong demand drove record bookings / revs in Q4; strong backlog entering Q1 • Expect more normalized growth in 2021; 2H21 tough comps given record 2020 bookings / revsTransport • Market expected to come out of deep downcycle with strong weighted avg mkt growth of ~26% in 2021 • Market growth begins to ramp in Q1; weighted avg mkt estimated growth of MSD to HSD (N.A. Trailer +10%)
Americas
• China market growth driven by cont’d strength in Data Center, Electronics, Pharma and Health Care• Rest of Asia slower to recover driven by continued pandemic challengesAsia Pacific
Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION27
2 0 2 1 G U I D A N C E
Leveraging Value Creation Framework To Outgrow Markets With Strong Operating Leverage
Organic Revenues
+ 5% to + 7%*
Free Cash Flow = / > Adj. Net Earnings
• Guidance reflects current view of market conditions, improved pace of vaccine production, administration
• ~1.5% M&A growth(Up 6.5% to 8.5% w/ M&A)
Adj. EPS $5.30 to $5.50*($5.25 to $5.45 Organic)
• M&A modestly accretive in year 1 (~$0.05)
Operating Leverage Organic ~30% • Impact of transformation savings and higher
transport mix
*2021 FX unknown. FX revs leverage at translational OI% (~13% in 2020); ~1pt of FX rev growth = ~$0.05 EPS**See pg. 17 for additional details
w/ M&A
Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION28
Q 1 2 0 2 1 G U I D A N C E
Strong Q1 Growth and Operating Leverage
Organic Revenues
~5%*
Other Items(for modeling purposes)
~$70M Corporate Costs~$60M Interest Expense~15% Adj. Eff. Tax Rate
~243M Share Count
• Strong organic growth• ~1.5% M&A growth• ~1.0% FX growth(Up ~7.5% w/ M&A & FX)
Operating Leverage
Organic ~30% to ~35%
• Anticipate FX revenues to leverage at translational OI % (~7% in Q1 2020); ~1.0 pts of FX rev growth = ~$0.01 EPS• Current exchange rates suggest ~1.0 pts of FX in Q1, albeit too early call
• Strong enterprise leverage (includes corporate)
• Transformation savings plus higher Transport mix
• Corp costs weighted to Q1 due to spend timing; seasonally higher stock based comp
• Tax rate seasonally low in Q1, majority stock based compensation vests in Q1
Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION29
T R A N S F O R M A T I O N S A V I N G S
Fixed Cost Reduction Programs Delivered $100M Savings in 2020; On Track for $140M Run Rate Savings in 2021 & Total Transformation Savings ~ $300M Annually by 2023
1. Expenses Related to Achieving Cost Reductions $100M - $150M through 2021; ~$4M spent in Q4; ~$95M year to date 2020
Fit For Purpose Organizational Model
1
Strategic Choice Budgeting
2
RepositioningIT
3
Supply Chain Excellence
4
Fixed Cost Savings Repositioned IT & Supply Chain Savings
$140M $160M2021 Run Rate 2021-2023
$300MTotal Annual Savings1
2023
Expect ~1/3 savings in 2021 Expect ~2/3 in 2022 / 2023
Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION30
* Includes certain Non-GAAP financial measures. See the company’s Q4 2020 earnings release for additional details and reconciliations.
Strong FCF Drives Continued Balanced Capital Deployment Strategy
1Invest forGrowth
• Strengthen the core business and extend product & market leadership
• Invest in new technology and innovation
• Fully invest in strategic, value-accretive M & A
2Maintain Healthy,
Efficient Balance Sheet
• Expect to deliver FCF ≥ 100% of adjusted net earnings
• Strengthening balance sheet
• Strong BBB investment grade rating offers optionality as markets evolve
3Return Capital to
Shareholders
• Expect to consistently deploy 100% of excess cash over time
• Pay competitive dividend and grow dividend at or above rate of earnings growth over time
• Repurchase shares with excess cash when intrinsic value provides high returns
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2020• $507M dividends• $183M M&A (primarily channel acquisitions)• $300M debt retirement• $250M share repurchases
2021• ~$564M dividends, (increased 11% in Feb, $2.36 annualized)• ~$1B between M&A and share repurchases
• ~$100M add’l share repurchases through Feb 5, $350M Q4/Jan• $1B share repurchases for modeling purposes; ~241M Diluted Shares
• $425M debt retirement at maturities• Q1 $300M • Q3 $125M
Balanced Capital Deployment (2020 & 2021)
Resumption of Balanced Capital Allocation in 2020; Strong Deployment in 2021 After Full Business Reinvestment
Capital Allocation
~$1.2B
2020 2021 Est.
~$2B+
Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION
Topics of Interest
34
• ~1.5% revenue: ~80% / ~20%, Americas / EMEA
• ~$0.05 EPS accretion in 2021
• Utilizing proven playbook to integrate into Trane Technologies’ business operating system
• Accelerates Trane Technologies’ growth, end-to-end customer relationships
• Acquisition of high-value services business
3 CHVAC Channel Acquisitions Completed Through January 2021
T O P I C S O F I N T E R E S T
Recent Acquisitions
Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION34
FY 2021 Revenue Adj. EPS Commentary
Organic + 5% to + 7% $5.25 to $5.45 • ~30% organic leverage; transformation savings plus higher Transport mix
Acquisitions ~1.5% ~$0.05 • ~5% OI contribution in year 1; impact of integration costs
Combined* + 6.5% to + 8.5% $5.30 to $5.50
*Includes certain Non-GAAP financial measures. See the company’s Q4 2020 earnings release for additional details and reconciliations.**Supports initiatives to deliver ~$300M in annualized savings by 2023 (3X initial $100M stranded cost target)
T O P I C S O F I N T E R E S T
Strong 2021 Organic Leverage; Positive Impact from EPS Accretive M&A in First Year of Integration
*Anticipate FY FX revenues to leverage at translational OI% (~13% in 2020); ~1pt of FX rev growth = ~$0.05 EPS
• ~$220M Corporate Costs• ~$240M Interest Expense• ~19% to ~20% Adj. Eff. Tax Rate• ~241M Diluted Shares• ~$75M in transformation and other
restructuring costs (excluded from adj. EPS)**
Other Items
Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION
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2020 Transport N.A. Market Results
Trailer / Truck / APU wtd avg
2020 Transport EMEA Market Results
Trailer / Truck wtd avg
• Trailer/Truck/APU: ~2/3rds of Total Transport Revenue• N.A. growth estimates up ~34%; • EMEA growth estimates up ~9%
• Marine/Bus/Rail/Air/Aftermarket (“all other”): ~1/3rd of Total Transport Revenue• N.A. and EMEA wtd avg. growth estimates both up +5% to +10%
• Total Transport: Truck/Trailer/APU/Marine/Bus/Rail/Air• Americas** weighted avg. growth estimate +26%***• EMEA** weighted avg. growth estimate +8%***
• Diversified Americas / EMEA business outperformed end-markets in 2020; Expect continued outperformance 2021
• Global vaccine storage/distribution remains developing opportunity as countries/states firm up needs/availability
Source: ACT / IHS / Company Estimates
2021 Transport N.A. Market Outlook*
Trailer / Truck / APU wtd avg
+34%2021 Transport EMEA
Market OutlookTrailer / Truck wtd avg
+9%
N.A. and EMEA 2021 markets expected to emerge from prolonged downcycle / COVID-19 pandemic
-23%
-33%
T O P I C S O F I N T E R E S T
North America / EMEA Transport Markets Poised for Growth in 2021
N.A. and EMEA Market Results / Forecast
*Includes 2021 N.A. Trailer build fcst up ~39% (44.9K)
** Americas and EMEA represent ~50% and ~40% of global Transport revenues, respectively*** Weighted avg calculation assumes midpoint of “all other” range (7.5%)
Note: Information as of February 5, 2021 --- NOT AN UPDATE OR REAFFIRMATION
36
The markets we serve will continue to outgrow GDP fueled by long-term sustainability megatrends
Secular Tailwinds
Sustainability Focused Innovation
Margin Expansion
Financial Strength
We are positioned to outgrow the market and expand margins with market-leading sustainable innovations
Our execution excellence and transformational work position us to maximize margins and cash generation
Our strong balance sheet, exceptional cash generation and balanced capital allocation strategy deliver significant value to shareholders
I N S U M M A R Y
Positioned to Outperform. Consistently.
37
Appendix
Appendix
2 0 3 0 S U S T A I N A B I L I T Y C O M M I T M E N T S
Trane Technologies Core Sustainability Strategy: Challenge Possible
One company can change an industry and one industry can change the world
– MIKE LAMACH, CHAIRMAN AND CEO
Global Megatrends Our Commitments
Material Issues to Focus Our Efforts
Targets Align with Global Priorities
The Gigaton ChallengeReducing one gigaton of carbon
emissions (CO2e) from our customers’ footprint by 2030
Leading by ExampleAchieving carbon neutral
operations, 10% absolute energy reduction, zero waste to landfill
and net positive water
Opportunity for All Creating gender parity in leadership,
workforce diversity, investing in STEM education
OperationsEmissions intensityRenewable energy
Water usageHeating electrified
Products and Services
Energy efficiency Low-emission products
Technology & innovationEmerging market innovations
Product life cycle
Supply ChainResponsible
sourcingSupplier diversity
EmployeesDiversity and
inclusionEthics and integrity
SafetyDevelopmentEngagement
CommunitiesAccess to cooling
Food and wellnessEducationWorkforce
development
GovernanceBoard oversight
Financial performancePublic policy
CLIMATE CHANGE
URBANIZATION
RESOURCE SCARCITY
DEMOGRAPHICS
DIGITAL CONNECTEDNESS
INDOOR AIR QUALITY (IAQ)
Zero Hunger2 Quality
Education4 GenderEquality5 Clean Water
& Sanitation6 Affordable & Clean Energy7 Decent Work
& Economic Growth8 Industry,
Innovation & Infrastructure9 Sustainable
Cities & Communities11 Responsible
Consumption & Production12 Climate
Action13
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Q4 Organic Bookings Up 3% Year-Over-Year; Organic Revenues Down 1%
Organic*Bookings 2018 2019 2020
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FYAmericas +10% +18% +17% +27% +18% -2% -4% +2% -7% -3% +11% -5% +8% +2% +4%
EMEA +16% +10% -1% -5% +5% -9% +0% -2% -1% -3% -2% -20% +6% +9% -3%
Asia Pacific +10% +18% +0% +8% +9% +0% -6% +3% -5% -2% -17% -2% -5% +2% -6%
Total +11% +17% +12% +20% +15% -3% -4% +2% -6% -3% +6% -7% +7% +3% +2%
2013Organic* Revenue 2018 2019 2020
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FYAmericas +7% +8% +11% +11% +9% +12% +7% +10% +9% +10% -2% -13% +2% +1% -3%
EMEA +12% +11% +9% +1% +8% +1% -3% +3% +1% +1% -3% -15% -6% -6% -8%
Asia Pacific +13% +12% +4% +8% +9% +2% +0% -4% -1% -1% -34% -5% -2% -6% -11%
Total +8% +9% +10% +9% +9% +10% +5% +8% +7% +7% -5% -13% +50bps -1% -5%
*Organic revenues and bookings exclude acquisitions and currency40
Restructuring and Transformation Costs GAAP to Non-GAAP Adjustments
Restructuring and Transformation Costs• Restructuring costs of ~$4M included in Table 2 of the Q4 2020 earnings release includes ~$2M of restructuring costs
related to transformation activities as well as ~$2M of restructuring costs supporting other cost reduction programs, not directly related to transformation.
• Total transformation costs of ~$4M on slide 30 include both the ~$2M of restructuring transformation costs mentioned above and ~$2M of non-restructuring transformation costs also disclosed in Table 2 of the earnings release.
Costs Restructuring Transformation Slide 30 Total
Transformation-related (restructuring and other) $2M $2M $4M
Restructuring related to other cost reduction programs $2M $2M
Table 2 Total (Q4 2020 earnings release) $4M $2M $6M
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Q4 Non-GAAP Measures Definitions
Organic bookings is defined as reported orders 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 in 2020 is defined as GAAP operating income plus restructuring costs and transformation costs. Adjusted operating income in 2019 is defined as GAAP operating income plus restructuring costs.
Adjusted operating margin is defined as the ratio of adjusted operating income divided by net revenues.
Adjusted earnings from continuing operations attributable to Trane Technologies plc (adjusted net earnings) in 2020 is defined as GAAP earnings from continuing operations attributable to Trane Technologies plc plus restructuring costs and transformation costs less the gain on M&A transaction, net of tax impacts plus separation-related tax costs. Adjusted net earnings in 2019 is defined as GAAP earnings from continuing operations attributable to Trane Technologies plc plus restructuring costs, net of tax impacts plus separation-related tax costs.
Adjusted continuing EPS in 2020 is defined as GAAP continuing EPS plus restructuring costs and transformation costs less the gain on M&A transaction, net of tax impacts plus separation-related tax costs. Adjusted continuing EPS in 2019 is defined as GAAP continuing EPS plus restructuring costs, net of tax impacts plus separation-related tax costs.
Adjusted EBITDA in 2020 is defined as adjusted operating income plus depreciation and amortization expense plus or minus other income / (expense), net less the gain on M&A transaction. Adjusted EBITDA in 2019 is defined as adjusted operating income plus depreciation and amortization expense plus or minus other income / (expense), net.
Adjusted EBITDA margin is defined as the ratio of adjusted EBITDA divided by net revenues.
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Q4 Non-GAAP Measures Definitions
Free cash flow in 2020 and 2019 is defined as net cash provided by (used in) continuing operating activities, less capital expenditures, plus cash payments for restructuring costs and transformation costs.
Working capital measures a firm’s operating liquidity position and its overall effectiveness in managing the enterprise’s 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 2020 is defined as the ratio of income tax provision less the net tax effect of adjustments for restructuring costs, transformation costs and the gain on M&A transaction less separation-related tax costs divided by earnings from continuing operations before income taxes plus restructuring costs and transformation costs less the gain on gain on M&A transaction. Adjusted effective tax rate for 2019 is defined as the ratio of income tax provision plus the tax effect of restructuring costs plus separation-related tax costs divided by earnings from continuing operations before income taxes plus restructuring costs. This measure allows for a direct comparison of the effective tax rate between periods.
Operating leverage is defined as the ratio of the change in adjusted operating income for the current period (e.g. Q4 2020) less the prior period (e.g. Q4 2019), divided by the change in net revenues for the current period less the prior period.
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