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Herman Miller, Inc. Investor Presentation Q4 FY2012 NASDAQ: MLHR
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Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

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Page 1: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

Herman Miller, Inc. Investor Presentation Q4 FY2012

NASDAQ: MLHR

Page 2: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

2

Forward Looking Statements

This information contains forward-looking statements within the meaning of Section 27A of the

Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as

amended, that are based on management’s beliefs, assumptions, current expectations,

estimates, and projections about the office furniture industry, the economy, and the company

itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,”

likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify

such forward-looking statements.

These statements do not guarantee future performance and involve certain risks, uncertainties,

and assumptions that are difficult to predict with regard to timing, extent, likelihood, and

degree of occurrence. These risks include, without limitation, employment and general economic

conditions, the pace of economic recovery in the U.S, and in our International markets, the

increase in white-collar employment, the willingness of customers to undertake capital

expenditures, the types of products purchased by customers, competitive-pricing pressures, the

availability and pricing of raw materials, our reliance on a limited number of suppliers, currency

fluctuations, the ability to increase prices to absorb the additional costs of raw materials, the

financial strength of our dealers and the financial strength of our customers, the mix of our

products purchased by customers, our ability to attract and retain key executives and other

qualified employees, our ability to continue to make product innovations, the success of newly

introduced products, our ability to serve all of our markets, possible acquisitions, divestitures or

alliances, the pace and level of government procurement, the outcome of pending litigation or

governmental audits or investigations, political risk in the markets we serve, and other risks

identified in our filings with the Securities and Exchange Commission.

Therefore, actual results and outcomes may materially differ from what we express or forecast.

Furthermore, Herman Miller, Inc., undertakes no obligation to update, amend or clarify forward-

looking statements.

Page 3: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

3

A History of Bold Innovation

1923 1930s & 40s 1950s 1960s 1970s & 80s 1990s Today

Founded as a manufacturer of traditional residential furniture

Fostered lasting ties with well-known,

independent designers; a model

that continues to this day

Became a leader in modern

furniture design

Transformed the office furniture industry with

the introduction of Action Office – the

industry’s first open plan office system

Pioneered ergonomic

office seating

Broadened product offering,

expanded distribution, focused on

manufacturing efficiency and sustainability

A recognized industry leader in the areas of innovative

product design, sustainable business practices, and financial performance

At Herman Miller, we value our rich legacy more for what it shows us we might become than as a picture of what we’ve been.

Page 4: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

4

Herman Miller Around the World

Manufacturing Locations

Design Center Showrooms

Global Product Distribution:

North America: ≈ 250 Dealer Locations

Worldwide*: ≈ 740 Dealer Locations

* Including Posh franchise dealer locations

Dealer Logistics & Support Centers

Page 5: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

• No single source for industry data outside North America

• BIFMA is the North American trade organization for our industry

• Leading economic indicators include: – Corporate profitability

– Service sector employment levels

– Non-residential construction activity

– Office vacancy rates

– Architectural billing activity (ABI)

– Corporate sentiment (CEO & small business confidence, etc.)

• Herman Miller N.A. market share ≈ 13.5%

5

The Contract Office Furniture Industry

Page 6: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

6

Steady Growth to Cyclicality

Source: BIFMA

Page 7: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

7

Variable Cost Structure

We have designed our cost structure to flex with the economic cycles we face as an industry.

• Manufacturing Costs

Direct labor – use temps and overtime which can be quickly flexed with volume

Direct materials – assembly based model (sub-assemblies outsourced)

Overhead – assembly based model (only 11-14% of sales)

Freight & Distribution – Utilize third-party outside freight haulers

• SG&A Costs

Incentive compensation – EVA based on continuous improvement

Sales costs – Variable commissions

Distribution costs – Variable cost independent dealers

Designer royalties – Variable cost independent designers

• Capital Base

Assembly based manufacturing model keeps asset costs low

Build to order keeps inventory costs low

Early prepay discounts keeps accounts receivable balances low

EVA incentive systems focuses on balance sheet and income statement

Page 8: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

8

Commitment to Innovation

Design & Research Expenditures

$0

$10

$20

$30

$40

$50

$60

2008 2009 2010 2011 2012

0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

1.8%

2.1%

2.4%

2.7%

3.0%

3.3%

$ Millions % Net Sales

Page 9: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

9

We Have Diversified Our Revenue Base

U.S. Office / Gov't

Int'l

Health, Home &

Educ.

FY 2001

U.S. Office

/ Gov't

Int'l

Health,

Home & Educ.

23%

29%

48%

16%

9%

75%

FY 2012

Page 10: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

Pension Funding Strategy

10

The Situation: • We have 3 DB pension plans; currently ≈$29MM under-

funded. • Funding status has been highly volatile during the past 2

industry cycles. • Company contributions have averaged $23MM/year over the

past 10 years (to fund an $8MM/year employee benefit).

Our Strategy: • Fund U.S. plans to near 100% by end of FY2012. • De-risk plan investment profiles. • Convert U.S. employees to a DC-based retirement model. • Begin process of terminating our U.S. DB plans.

Expected Result: • Some P&L volatility during the termination process as

non-cash settlement expenses are recognized. • Improved cash flow and expense visibility going forward. • Better alignment of cash flow and expenses with business

cycles.

Page 11: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

11

Recent Operating Performance

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12

$458

$446

$400 $421

$481

$440

$361

$444

Millio

ns

Quarterly Net Sales & Orders

Net Sales Orders

$105

$106

$107

$108

$109

$110

$111

$112

$113

$114

$115

Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12

$113

$111

$109

$115

Million

s

Quarterly Operating Expenses

33.7% 34.1% 33.6%

35.7%

9.1% 9.1%

6.3%

8.4%

0%

10%

20%

30%

40%

50%

Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12

% N

et

Sale

s

Gross Margin and Adj. Operating Income % *

Gross Margin % Adj. Operating Income %

Q4 net sales decreased 5% from the prior year;

orders down 1% over the same period. Dealer de-

consolidation drove ≈$16 million of this year-over-

year reduction.

Orders in Q4 reflect continued softening from U.S.

government and healthcare buyers; remaining core

U.S. business was up 15% vs. prior year Q4.

Highest gross margin in 12 years; excluding pension

curtailment gain, gross margin improved 250 basis

points from the prior year level…….driven by benefit

capture from recent price increases, lower employee

bonus expenses, and improved direct material costs.

* Represents a Non-GAAP Measure, see Appendix for reconciliation.

Page 12: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

12

Debt & Liquidity Profile

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12

$39

$0

$44

$8

Millio

ns

Quarterly Cash Flow from Operations

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12

1.5 1.4 1.4 1.4

Rolling 4Qtr Leverage Ratio

(Debt to EBITDA* - excluding restructure)

PPN & Bank Covenant < 3.50 (allows 4.0 for 4 Qtrs)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12

8.8 9.6

10.1 10.5

Rolling 4Qtr Coverage Ratio

(EBITDA* to Interest - excluding restructure)

Bank Covenant > 4.0

Q4 Ending Cash and Equivalents of $172 million.

Operating cash flows in Q4 reflect $45 million in pension

contributions (net of tax benefits); Full year pension

contributions of $64 million; Defined benefit plans are 96%

funded in the U.S.

Cash used for acquisitions (POSH) totaled $47 million in Q4.

Debt maturity schedule:

PPN ($50M) due 2015

PPN ($150M) due 2018

PPN ($50M) due 2021

CAPEX totaled $29 million in FY12; estimated to range

between $50 million and $60 million in FY13.

Increased dividend to $0.09 per share (from $0.02)

* Represents a Non-GAAP Measure, see Appendix for reconciliation.

Page 13: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

13

Catalysts for Growth

Growth

Avenues

Benchmark

Performance

Seating

Breadth of New

Products

Healthcare

Furnishings

Global

Expansion

New Channels to

Market

New Customers

* The combination of Nemschoff and

HermanMiller Healthcare creates the

industry’s most comprehensive

healthcare furniture offering

* Acquisition of POSH significantly

expands our Asian distribution

presence

* Future focus on India and Latin

America

* Robust product development queue

* Dealer “Share of Wallet”

* Improve upon our industry

leading position in high-

performance task seating

* Herman Miller for the Home has a

growing retail and wholesale

presence

* e-Commerce

* Initiatives to capture small to

mid-sized business customers

* Targeted A&D focus through the

Herman Miller Collection

Page 14: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

14

FY2015 Financial Targets

$1,724

$2,200

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$2,200

$2,400

Fiscal 2012 Actual Fiscal 2015 Goal

Net Sales ($ millions)

CAGR GOALS BY SEGMENT:

N. America… 5%

Non-N.A… 16% S&C… 12%

Page 15: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

15

FY2015 Financial Targets

8.3%

10.0%

3%

4%

5%

6%

7%

8%

9%

10%

11%

Fiscal 2012 Actual Fiscal 2015 Goal

Adj. Operating Margin (% sales) *

* Represents a Non-GAAP Measure, see Appendix for reconciliation.

Page 16: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

16

We Intend to Increase our North American Dealer “Share of Wallet”

≈40%

Non-HMI Products

≈60%

HMI Products

On average, approximately 40% of the sales through our dealer channel in North America involve non-Herman Miller branded products.

Setu

Lower Price-Point Seating

SAYL

Performance Tables

Everywhere Tables

Ergonomic Solutions

Thrive Portfolio

Page 17: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

17

NEOCON 2012

Page 18: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

18

NEOCON 2012

Page 19: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

19

NEOCON 2012

Page 20: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

20

New York City “Pop-Up” Shop

Page 21: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income

21

Appendix This report contains references to Adjusted Operating Income/Margin and Earnings Before Interest, Taxes,

Depreciation, and Amortization (EBITDA) which are non-GAAP financial measures.

Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12

Earnings Before Income Taxes (EBT) 115.7$ 125.6$ 120.7$ 119.5

Add:

Depreciation 36.5 35.4 35.5 34.4

Amortization 2.2 2.9 2.8 2.9

Interest 19.5 19.1 18.2 17.5

Other Adjustments 1 (2.1) 0.4 5.8 9.7

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) 171.8$ 183.4$ 183.0$ 184.0$

Total Debt, End of Trailing Period 259.9$ 259.9$ 259.9$ 259.8$

Rolling 4-Quarter Debt-to-EBITDA 1.5 1.4 1.4 1.4

Rolling 4-Quarter EBITDA-to-Interest 8.8 9.6 10.1 10.5

1 "Other Adjustments" include, as applicable in the period, non-cash stock based compensation expenses, charges associated w ith business restructuring

initiatives, changes in the value of the contingent consideration components of the Nemschoff purchase price, pro-forma income statement adjustments

associated w ith Nemschoff, as permitted under lender covenant arrangements, and non-cash charges and credits associated w ith the company's

planned termination of its domestic defined benefit pension programs.

(Calculation of EBITDA Ratios)

Trailing 4-Quarter Period Ended

($ in millions)

(unaudited)

Table II

Herman Miller, Inc.

Reconciliation of Non-GAAP Measures

Q4 FY12 FY2012

Net Sales 420.7$ 1,724.1$

Operating Earnings (GAAP) 29.8$ 137.6$

Operating Margin (% net sales) 7.1% 8.0%

Add: Restructuring Expense 5.4$ 5.4$

Adj. Operating Earnings (non-GAAP) 35.2$ 143.0$

Adj. Operating Margin (% net sales) 8.4% 8.3%

(unaudited)

Table I

Herman Miller, Inc.

Reconciliation of Non-GAAP Measures

($ millions; percents represent % of net sales)

Page 22: Herman Miller, Inc., Investor Relations Presentation Q4 FY12 · Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 es Gross Margin and Adj. Operating Income % * Gross Margin % Adj. Operating Income