INVESTOR PRESENTATION. Fourth Quarter, FY2019

Transcription

1 INVESTOR PRESENTATION Fourth Quarter, FY2019

2 We believe we are positioned to grow in a changing market Our scale and track record of performance presents distinct, significant advantages. # * Leverage Scale Thought Leadership Industry Drivers Macro Secular Our Strategy Improve Profitability Conservative Capital Structure *Based on FY19 Revenue 2

3 We believe we are positioned to grow in a changing market Steelcase is the global industry leader in scale and innovation # * Leverage Scale Thought Leadership Industry Drivers Macro Secular Our Strategy Improve Profitability Conservative Capital Structure *Based on FY19 Revenue 3

4 We are a respected leader Greatest global market share $3.4 billion revenue in FY2019 $283 million EBITDA in FY x Total Debt/EBITDA (FY2019 year-end) ~12,800 employees 800+ Steelcase dealer locations Recognized for innovative design, sustainability leadership and civic engagement Named one of the World s Most Admired Companies by Fortune for thirteen years Multinational Finalist in the Circulars Awards presented by World Economic Forum for circular economy leadership UN Global Compact participant since 2009 Brody WorkLounge received nine design and innovation awards, including a Silver Award in the multi-industry Edison Awards 4

5 Our global capability makes us a preferred partner for leading organizations $3.5 GLOBAL OFFICE FURNITURE MARKET REVENUE* ($ in billions) STEELCASE GLOBAL LOCATIONS $3.0 $2.5 Outside Home Country $2.0 $1.5 $1.0 $0.5 $0.0 *Most recently published annual data and/or internal estimates **Only office furniture segments included 800+ Steelcase dealer locations STEELCASE REVENUE MIX BY SEGMENT (FY19 Revenue) EMEA 18% Other Category 10% ~12,800 employees 45 Primary locations in 17 countries 15 Manufacturing locations (9 outside N.A.) Americas 72% 5

6 We employ user-based research to drive innovation CREATE A ROBUST RESEARCH NETWORK DEVELOP INSIGHTS ON WORK, WORKERS AND THE WORKPLACE PROVIDE PRODUCTS, STRATEGIES AND CUSTOMER SOLUTIONS Select Research Partners IDEO MIT (Media Lab + Architecture School) Institute for the Future-Palo Alto Copenhagen Institute for the Future Zukunftsinstitut University of Erlangen-Nuremberg University of Melbourne University of Southern California University of Wisconsin-Madison University of Texas-Austin Virginia Tech Georgia Tech Manufacturing Institute Stanford University Autodesk Tableau SIX-STEP RESEARCH AND DESIGN PROCESS Steelcase solutions are based on a human-centered design approach that includes extensive observation and consultation with people who use spaces every day. 6

7 We serve leading organizations to create places that amplify the performance of people, teams and enterprise CORPORATE EDUCATION HEALTHCARE OFFICE CONSTRUCTION SPENDING EDUCATION CONSTRUCTION SPENDING HEALTHCARE CONSTRUCTION SPENDING % % % Sources: U.S. Census Bureau (in US $,billions) American Institute of Architects forecast 7

8 Sustainability is a lens for innovation and growth, contributing to the financial wellbeing of our company. We deliver meaningful economic, environmental and social impact. 20+ Third-party-verified sustainability programs and certifications for operations, facilities, materials and products. $3.4 Million Donated by the Steelcase Foundation in ,000 Employee volunteer hours donated to charitable organizations and non-profits since Top 30 Listed in the top % Green Power Users in the U.S., according to the Environmental Protection Agency 25+ Cross-industry collaborations including C2C Built Positive, World 50, GreenBuild, CE100, GBEN and Renewable Energy % Reduction in global energy use since 2010 Source: 2018 Steelcase Corporate Sustainability Report 8

9 Our diverse, experienced Board of Directors serve to promote our growth and success Lawrence J. Blanford Retired; formerly President and Chief Executive Officer, Green Mountain Coffee Roasters, Inc. Timothy C.E. Brown Chief Executive Officer and President, IDEO Connie K. Duckworth Chairman and Chief Executive Officer, ARZU, Inc. David W. Joos Retired; formerly President and Chief Executive Officer, CMS Energy Corporation and Consumers Energy Company James P. Keane President and Chief Executive Officer, Steelcase Inc. Todd P. Kelsey President and Chief Executive Officer, Plexus Corp. Jennifer C. Niemann President and Chief Executive Officer, Forward Space, LLC Robert C. Pew III Chair of the Board of Directors, Steelcase Inc.; Private Investor Cathy D. Ross Retired; formerly Executive Vice President and Chief Financial Officer, Federal Express Corporation Peter M. Wege II Chairman of the Board of Directors, Contract Pharmaceuticals Limited P. Craig Welch, Jr. Member Manager, Honzo Fund, LLC Kate Pew Wolters Philanthropist; President, Kate and Richard Wolters Foundation; Chair, Steelcase Foundation 9

10 We believe we are positioned to grow in a changing market We believe favorable macro-factors and the success of our growth initiatives should drive higher sales # * Leverage Scale Thought Leadership Industry Drivers Macro Secular Our Strategy Gross Margin Expansion Op Ex Leverage *Based on FY19 Revenue 10

11 Industry macro-factors remain strong in the U.S. CORPORATE PROFITS AFTER-TAX (U.S.) With IVA and CCA adjustments (Year-over-Year % change) JOB GROWTH & UNEMPLOYMENT (U.S.) Total non-farm jobs (in thousands) Unemployment Rate (%) TOTAL U.S. (COMBINED) BIFMA MARKET SIZE (In US$, billions) 15% 10% 5% 0% -5% -10% -15% Q Q Q Non-farm Payroll Growth Unemployment rate Q % 7% 6% 5% 4% 3% 2% 1% 0% $20 $15 $10 $5 $0 Estimate Forecast Forecast $1,200 NON-RESIDENTIAL FIXED INVESTMENT (U.S.) Equipment (In US$, billions) 60 ARCHITECTURAL BILLING INDEX (U.S.) (Billings $ billions) THE CONFERENCE BOARD MEASURE OF CEO CONFIDENCE (U.S.) 60 $1, $ $600 Q Q Jan 2014 December Jan 2014 Jan 2015 Jan 2016 Jan 2017 Jan 2018 Jan 2019 Sources: BEA, BLS, CEO Conference Board, AIA, BIFMA and CSIL 11

12 EMEA industry macro-factors have been good GERMANY TOTAL REAL GDP GROWTH 4% 3% 2.5% 2.2% 2.2% 1.9% 2% 1.5% 1% FRANCE TOTAL REAL GDP GROWTH 4% 3% 2.3% 2% 1.0% 1.0% 1.1% 1% 1.6% UK TOTAL REAL GDP GROWTH 4% 2.9% 3% 2.3% 2% 1.8% 1.7% 1.4% 1% SPAIN TOTAL REAL GDP GROWTH 4% 3.6% 3.2% 3% 2% 1.4% 1% 3.0% 2.7% 0% % % % HARMONIZED UNEMPLOYMENT RATE (% monthly, seasonally adjusted) $140 $120 $100 OIL PRICE PER BARREL (BRENT INDEX) $12 EUROPE OFFICE FURNITURE CONSUMPTION (In US$, billions) $ Spain Italy France Eurozone Germany $80 $60 $40 $20 $6 $ $ Feb 13 Aug 13 Feb 14 Aug 14 Feb 15 Aug 15 Feb 16 Aug 16 Feb 17 Aug 17 Feb 18 Aug 18 Feb 19 $ Sources: International Monetary Fund, Energy Information Administration, Centre for Industrial Studies, Eurostat 12

13 We see opportunities for strong revenue growth as our core market faces major forces of change FORCES OF CHANGE RESULTING IN DIFFERENT APPLICATIONS Global teams Mobile technologies Past Present Future Collaborative nature of work Real estate compression Generational preferences Mix private offices, cubicles and meeting rooms open, shared collaborative work areas 13

14 Space is more important than ever as the war for talent increases and the need for engagement rises U.S. LABOR FORCE EMPLOYEE ENGAGEMENT 24% 13% Nearing retirement Retirement New Recent entrants Entrants 11% Source: U.S. Bureau of Labor Statistics 2018 projections Nearing retirement - percentage of workforce age 55+ Recent entrants - percentage of workforce age Source: 2016 Steelcase Global Report 14

15 Companies need to leverage their workspaces in order to compete more aggressively and to drive cultural change What strategies are you using to attract + retain talent? Our customers focus Innovation Growth Modernizing working environment 44% 42% 6% Learning & development programs 42% 43% 86% 85% Influential forces Talent Digital Transformation Improving compensation packages 26% 53% Implementing flexible ways of working 35% 42% 79% 75% Steelcase s focus Space Culture Changing employee dress code 19% 33% To a large extent To some extent PwC 21st CEO Survey, Talent % 15

16 Our investment in new and enhanced products has accelerated in the last two years, and we have launched new product offerings that expand our addressable market SIMPLER WORKSTATIONS BROADER PRICE POINTS WORK AWAY FROM THE DESK INNOVATIVE OFFERINGS 16

17 We have established partnerships with other companies to increase the breadth of our product offering 17

18 We have invested over $300 million to enhance our offering through acquisitions Revenue Acquisition Date ~ 69 million* August 2018 ~$82 million* May 2018 ~$37 million* November 2017 Broaden Addressable Market Channel leverage Strong, stable management Growth mode *trailing twelve months revenue prior to acquisition 18

19 We believe we are positioned to grow in a changing market We are focused on driving shareholder return with improved profitability while maintaining a conservative capital structure # * Leverage Scale Thought Leadership Industry Drivers Macro Secular Our Strategy Gross Margin Expansion Op Ex Leverage *Based on FY19 Revenue 19

20 We are making progress in EMEA and much is in place that is expected to drive additional improvements EMEA ADJUSTED GROSS MARGIN TARGET WHAT WE ARE SEEING: Strong revenue growth 20% 26% 27% Cost reductions/ other initiatives Pricing 27% Low-to-Mid 30% Volume range Improvement in our pipeline of project activity compared to the prior year Continued benefits from cost reduction initiatives Customer traffic at our new Learning + Innovation Center in Munich FY16 FY17 FY18 FY19 Future target Munich LINC Learning + Innovation Center 20

21 We generate strong cash flows to fund growth investments and shareholder return MAINTAINING DISCIPLINED CASH MANAGEMENT Cash Flow From Operations and Adjusted EBITDA Margins ($ millions) Cash Flow From Operations $400 Adjusted EBITDA Margin 14% $300 12% 10% $200 8% Capital Expenditures vs. Depreciation and Amortization ($ millions) Capital Expenditures $100 D&A $100 6% $0 -$100 FY14 FY15 FY16 FY17 FY18 FY19 4% 2% 0% $0 FY14 FY15 FY16* FY17 FY18 * Includes $26 for Replacement Corporate Aircraft FY19 Quarterly Dividends Paid Per Share $0.16 $0.12 $0.08 Dividends and Share Repurchases ($ millions) $100 Dividends Repurchases $0.04 $0.00 Q1 FY14 Q4 FY19 $0 FY14 FY15 FY16 FY17 FY18 FY19 21

22 Our investments in the business generate strong return on invested capital Adjusted Return on Invested Capital (ROIC) (% Adjusted Net Income of Average Capital) 16.0% 14.0% 13.1% 13.8% 13.3% 12.3% 12.3% 12.0% 10.9% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FY14 FY15 FY16 FY17 FY18 FY19 22

23 Our strong balance sheet provides flexibility through cycles Q4 FY19, $ MILLION PRIORITIES FOR CASH $1,600 $1,400 $1,200 $1,000 $800 Equity Business reinvestment Acquisitions Dividends Share repurchases $600 $400 $200 $0 Credit Facility COLI Cash Liquidity Profile Debt Capital Base 23

24 LEARN MORE Appendix

25 Forward looking statements From time to time, in written and oral statements, we discuss our expectations regarding future events and our plans and objectives for future operations. These forward-looking statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on current beliefs of management as well as assumptions made by, and information currently available to, us. Forward-looking statements generally are accompanied by words such as anticipate, believe, could, estimate, expect, forecast, intend, may, possible, potential, predict, project, target or other similar words, phrases or expressions. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to vary from our expectations because of factors such as, but not limited to, competitive and general economic conditions domestically and internationally; acts of terrorism, war, governmental action, natural disasters and other Force Majeure events; changes in the legal and regulatory environment; changes in raw materials and commodity costs; currency fluctuations; changes in customer demand; and the other risks and contingencies detailed in our most recent Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. We undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. 25

26 Segment revenue and earnings AMERICAS REVENUE (US$ millions) EMEA REVENUE (US$ millions) OTHER CATEGORY REVENUE (US$ millions) $2,154 $2,181 $2,256 $2,232 $2,194 $2,470 $567 $595 $521 $504 $524 $617 $268 $284 $283 $297 $338 $356 FY14 FY15 FY16 FY17 FY18 FY19 AMERICAS ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) FY14 FY15 FY16 FY17 FY18 FY19 EMEA ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) FY14 FY15 FY16 FY17 FY18 FY19 OTHER CATEGORY ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) 11.2% 11.1% 11.4% 10.8% 8.2% 8.5% 1.8% 1.7% 4.0% 4.7% 6.3% 4.0% FY14 FY15 FY16 FY17 FY18 FY19 4.9% 5.7% 8.5% 3.7% 2.7% 1.1% FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19 * Operating income restated due to implementation of ASU No , Compensation - Retirement Benefits (Topic 715). Please see Q1 FY19 10-Q for more information. 26

27 Select segment statistics (as of February 22, 2019) End of Fiscal Year 2019 AMERICAS EMEA OTHER CATEGORY Number of Steelcase dealer locations ~ 400 ~ 350 ~ 50 Employees non-manufacturing ~3,100 ~ 1,500 ~ 1,200 Employees manufacturing ~ 5,700 ~ 1,800 ~ 900 Number of primary manufacturing locations Michigan 2 Alabama 1 Mexico 2 Texas 1 France 1 Germany 1 Spain 1 Czech Republic 1 U.K. 2 China 1 Malaysia 1 India 1 FY19 VERTICALS IN THE AMERICAS SEGMENT FY19 PRODUCT MIX FY19 LONG-TERM EMPLOYEE BENEFIT OBLIGATIONS FUNDING STATUS ($ millions) 24% 30% Other Seating Total Obligation $144 Deferred Tax Asset Education Financial Services Healthcare Manufacturing Insurance Services Information Technolo Technical/Profession Federal Government Energy State/Prov/Local Gov Other 46% Product Mix Systems/ Storage $156 Assets (COLI) $103 Liabilities After-tax Obligation * No vertical represented more than 14% of Americas revenue 27

28 Historical shares outstanding Shares (in millions) Class A Shares Class B Shares FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 28

29 Historical market data ESTIMATED U.S. OFFICE FURNITURE SHIPMENTS* (USD billions) $14 $12 $10 $8 $6 $4 $2 $ EUROPEAN OFFICE FURNITURE CONSUMPTION** (EUR billions) Sources: * : BIFMA; : internal Steelcase estimates **CSIL 29

30 Non-GAAP financial measures This presentation contains certain non-gaap financial measures. A non-gaap financial measure is defined as a numerical measure of a company s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows of the company. Pursuant to the requirements of Regulation G, the company has provided a reconciliation of non-gaap financial measures to the most directly comparable GAAP financial measure. The non-gaap financial measures used within this presentation are: (1) adjusted operating income (loss) margin, which represents operating income (loss) margin, excluding restructuring costs and goodwill and intangible asset impairment charges, (2) adjusted gross margin, which represents gross margin, excluding restructuring costs (benefits), (3) adjusted Earnings Before Interest Taxes and Depreciation and Amortization (EBITDA) Margin, which represents EBITDA, excluding restructuring costs and goodwill and intangible asset impairment charges, (4) adjusted return on invested capital (ROIC), which represents income before income tax expense, excluding interest expense, restructuring costs and goodwill and intangible asset impairment charges, less income tax expense at an assumed long-term effective tax rate, divided by average capital (defined as the average of total debt and shareholders equity at the beginning and end of the applicable period), and (5) organic revenue growth, which represents the change in revenue excluding estimated currency translation effects and the impacts of acquisitions and divestitures. These measures are presented because management uses this information to monitor and evaluate financial results and trends. Therefore, management believes this information is also useful for investors. AMERICAS ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) FY14 FY15 FY16 FY17 FY18 FY19 Operating Income (Loss) Margin as Restated * 11.1% 11.6% 11.4% 10.7% 8.2% 8.5% Restructuring Costs (Benefits) 0.1% (0.5%) - 0.1% - - Goodwill and intangible asset impairment charges Adjusted Operating Income (Loss) Margin 11.2% 11.1% 11.4% 10.8% 8.2% 8.5% * Operating income and Gross Margin restated due to implementation of ASU No , Compensation - Retirement Benefits (Topic 715). Please see Q1 FY19 10-Q for more information. 30

31 Non-GAAP financial measures EMEA ADJUSTED GROSS MARGIN (Percent of Revenue) FY16 FY17 FY18 FY19 Gross Margin as Reported 17.9% 26.1% 27.1% 27.3% Restructuring Costs (Benefits) 2.1% 0.3% - - Adjusted Gross Margin 20.0% 26.4% 27.1% 27.3% EMEA ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) FY14 FY15 FY16 FY17 FY18 FY19 Operating Income (Loss) Margin as Restated * (5.7%) (14.2%) (12.4%) (4.1%) (2.7%) (1.1%) Restructuring Costs 0.8% 8.5% 3.9% 0.4% - - Goodwill and intangible asset impairment charges Adjusted Operating Income (Loss) Margin (4.9%) (5.7%) (8.5%) (3.7%) (2.7%) (1.1%) * Operating income restated due to implementation of ASU No , Compensation - Retirement Benefits (Topic 715). Please see Q1 FY19 10-Q for more information. 31

32 Non-GAAP financial measures OTHER CATEGORY ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) FY13 FY14 FY15 FY16 FY17 FY18 FY19 Operating Income (Loss) Margin as Restated * (7.7%) (3.1%) 1.7% 4.0% 4.7% 6.3% 4.0% Restructuring Costs 0.4% 0.1% Goodwill and intangible asset impairment charges 9.6% 4.8% Adjusted Operating Income (Loss) Margin 2.3% 1.8% 1.7% 4.0% 4.7% 6.3% 4.0% * Operating income restated due to implementation of ASU No , Compensation - Retirement Benefits (Topic 715). Please see Q1 FY19 10-Q for more information. 32

33 Non-GAAP financial measures ADJUSTED EBITDA MARGIN $ Million FY14 FY15 FY16 FY17 FY18 FY19 Revenue $2,989 $3,060 $3,060 $3,032 $3,055 $3,443 Income before income tax expense $147 $137 $175 $196 $162 $164 Interest Expense $18 $18 $18 $17 $18 $38 Depreciation and amortization $60 $60 $66 $60 $66 $82 Restructuring costs $7 $41 $20 $5 - - Goodwill and intangible asset impairment charges $ Adjusted EBITDA $245 $256 $278 $279 $245 $283 Adjusted EBITDA Margin (% of Revenue) 8.2% 8.4% 9.1% 9.2% 8.0% 8.2% 33

34 Non-GAAP financial measures ADJUSTED RETURN ON INVESTED CAPITAL (ROIC) $ Million FY14 FY15 FY16 FY17 FY18 FY19 Income before income tax expense $147 $137 $175 $196 $162 $164 Interest Expense $18 $18 $18 $17 $18 $38 Restructuring costs $7 $41 $20 $5 - - Goodwill and intangible asset impairment charges $ Adjusted Income before income tax expense $185 $196 $213 $218 $180 $201 Assumed Long-Term Effective Income Tax Rate % 36.0% 36.0% 36.0% 36.0% 34.5% (1) 27.0% Adjusted Net Income $118 $125 $136 $140 $118 $147 Total Debt $287 $282 $299 $297 $295 $487 Total shareholders equity $677 $664 $737 $767 $813 $847 Total Capital $964 $946 $1,036 $1,064 $1,108 $1,334 Prior Year Total Capital $957 $964 $946 $1,036 $1,064 $1,064 Average Capital $961 $955 $991 $1,050 $1,086 $1,199 Adjusted Return on Invested Capital (ROIC) (Adjusted Net Income as a % of Average Capital) 12.3% 13.1% 13.8% 13.3% 10.9% 12.3% (1) Assumes 10 months at 36% and 2 months at 27% as after U.S. Tax Reform 34

35 FY20 Targets (as of March 19, 2019) Revenue growth vs FY19 Earnings per share 2% to 6% organic growth, plus ~3.5% inorganic growth due to the effect of acquisitions in 2019, an additional week in Q4 2020, and currency translation effects $1.20 to $1.35 Gross margin Operating expenses Interest expense Effective tax rate Capital expenditures Improvement over 2019 from benefits of fixed cost absorption, pricing net of inflation, cost reduction initiatives, and EMEA gross margin improvement initiatives, partially offset by investments to support growth initiatives and continued unfavorable impact from shifts in business mix Additional benefits from our fitness initiatives and additional investments in growth initiatives $27 million, based on current indebtedness level ~27% $85 million to $95 million

36 2018 Steelcase Inc. Trademarks used herein are the property of Steelcase Inc. or of their respective owners.