Dave Sylvester - Senior Vice President, CFO Mike O Meara Director, Investor Relations

Transcription

1 Dave Sylvester - Senior Vice President, CFO Mike O Meara Director, Investor Relations Baird Conference November 2018

2 WHO WE ARE Steelcase is the world s leading provider of office furniture

3 Our global capability makes us a preferred partner for leading organizations GLOBAL OFFICE FURNITURE MARKET REVENUE* ($ in billions) STEELCASE REVENUE MIX BY SEGMENT (Trailing four-quarters TFQ ) $3.5 $3.0 $2.5 Outside Home Country Home Country EMEA 18% $2.0 $1.5 $1.0 Americas 72% Other Category 10% $0.5 $0.0 Steelcase Herman Miller Haworth HNI** Knoll Kokuyo** Okamura** Designtex *Most recently published annual data and/or internal estimates **Only office furniture segments included Asia Pacific PolyVision 3

4 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 Mayo Clinic CFI Oakridge National Lab Georgia Tech Manufacturing Institute Santa Fe Institute MIT Media Lab Intel Research University of Michigan Stanford University Harvard Graduate School of Education University of Delft Fraunhofer Institute Argonne National Laboratory University of Wisconsin-Madison 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. 4

5 WHY INVEST IN US Steelcase s growth rate has strengthened

6 EPS Second Quarter Strong Second Quarter Double digit growth - orders, revenue and backlog $1.50 $4.0 $1.25 $1.00 $3.0 $0.75 $0.50 $0.26 $0.23 $0.23 $0.22 $0.24 $0.30 $0.31 $0.31 $0.41 $2.0 $0.25 $- $0.09 $0.02 $1.0 $- $(0.25) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 $- 6

7 EPS Second Quarter Strong Second Quarter Double digit growth - orders, revenue and backlog $1.50 $4.0 32% growth in EPS compared to FY18 $1.25 $1.00 $3.0 $0.75 $0.50 $0.26 $0.23 $0.23 $0.22 $0.24 $0.30 $0.31 $0.31 $0.41 $2.0 $0.25 $- $0.09 $0.02 $1.0 $- $(0.25) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 $- 7

8 EPS Second Quarter Strong Second Quarter Double digit growth - orders, revenue and backlog $1.50 $4.0 32% growth in EPS compared to FY18 $1.25 $1.00 $3.0 Strongest Q2 earnings in more than a decade $0.75 $0.50 $0.26 $0.23 $0.23 $0.22 $0.24 $0.30 $0.31 $0.31 $0.41 $2.0 $0.25 $- $0.09 $0.02 $1.0 $- $(0.25) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 $- 8

9 Estimate Forecast Forecast Traditional market drivers of demand are strong 15% 10% 5% 0% -5% -10% -15% CORPORATE PROFITS AFTER-TAX (U.S.) With IVA and CCA adjustments (Year-over-Year % change) Q Q JOB GROWTH & UNEMPLOYMENT (U.S.) Total non-farm jobs (in thousands) Q Unemployment Rate (%) Non-farm Payroll Growth 8% Unemployment rate 7% Q % 5% 4% 3% 2% 1% 0% THE CONFERENCE BOARD MEASURE OF CEO CONFIDENCE (U.S.) 0 Jan 2014 Jan 2015 Jan 2016 Jan 2017 Jan 2018 ARCHITECTURAL BILLING INDEX (U.S.) (Billings $ billions) 60 NON-RESIDENTIAL FIXED INVESTMENT (U.S.) Equipment (In US$, billions) TOTAL U.S. (COMBINED) BIFMA MARKET SIZE (In US$, billions) $20 $1,200 $15 $10 $5 50 $1,000 $ $800 EUROPE OFFICE FURNITURE CONSUMPTION (In US$, billions) 40 Jan 2014 Sources: BEA, BLS, CEO Conference Board, AIA, BIFMA and CSIL July 2018 $600 Q Q

10 Space is more important than ever as the war for talent increases and companies need to evolve their culture They need more TALENT As companies seek GROWTH AND INNOVATION 1 2 That can help with DIGITAL TRANSFORMATION What strategies are you using to attract + retain talent? Modernizing working environment 44% 42% 6% Learning & development programs 42% 43% 6% Improving compensation packages 53% 26% 15% 86% 85% 78% By evolving their CULTURE THROUGH SPACE Implementing flexible ways of working 35% 42% Changing employee dress code 19% 33% 43% 15% 75% 53% To a large extent To some extent Not at all PwC 21st CEO Survey, Talent

11 Space is more important than ever as the war for talent increases and companies need to evolve their culture They need more TALENT As companies seek GROWTH AND INNOVATION 1 2 By evolving their CULTURE THROUGH SPACE That can help with DIGITAL TRANSFORMATION Business leaders are coming to us already convinced space is important 11

12 We see opportunities for strong revenue growth as our core market faces major forces of change Rebooting the office I Individual Work Place driven by process efficiencies I + We Individual and Group Work Place driven by real estate density + need for collaboration Me within We Team-based Work Place driven by need to innovate and increase speed 12

13 Million square feet, MSF* Our growth historically has been achieved through gross margin improvements in the Americas, and more recently we re making progress in EMEA 70% 60% 50% 40% 30% 20% 10% Americas Adjusted Gross Margin% * Reported Revenue ($B) % 29% 29% 30% 31% 33% 33% 35% 35% 34% 33% % 60% 50% 40% 30% 20% 10% EMEA Adjusted Gross Margin% Reported Revenue ($M) % 29% 29% 29% 27% 24% 26% 27% 28% 22% 20% % FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 TFQ - 0% FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 TFQ - * Gross margin restated due to implementation of ASU No , Compensation - Retirement Benefits (Topic 715). Please see Q1 FY19 10-Q for more information. Constant Currency MANUFACTURING CONSOLIDATION THIRD-PARTY SOURCING FY00 FY08 FY18 Past FY00 Present FY17 13

14 We are making progress in EMEA and much is in place that is expected to drive additional improvements EMEA GROSS MARGIN TARGET WHAT WE ARE SEEING: Improved economic and political sentiment in France and Germany 26% 27% Cost reductions/ other initiatives Pricing Volume Low-to-Mid 30% range Stability in our operating performance Improvement in our pipeline of project activity compared to the prior year Continued benefits from cost reduction initiatives FY17 FY18 Future target Munich LINC Learning + Innovation Center Customer traffic at our new Learning + Innovation Center in Munich 14

15 We are increasing our focus towards growth to capture these opportunities as our industry changes PAST 10+ YEARS PRESENT growth initiatives growth initiatives business model optimization business model optimization 15

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

17 Simplified Workstations ANSWER IS REINVENTED $7B Total sales 17

18 Broader Price Point SERIES 1 SEATING IS A GROWTH ENGINE 40 % of sales are to new customers* *YTD Q2 FY19 sales to customers who have not bought task seating in the last 2 years 18

19 Work Away From the Desk Ancillary/Residential Influence PARTNERSHIPS HAVE HELPED INCREASE OUR BREADTH OF OFFERING 19

20 Acquisitions across multiple areas A UK-based designer and manufacturer of innovative task seating, privacy solutions and collaborative furniture Purchased for 60 million (or $79 million) plus an adjustment for working capital with an additional 3 million payable to one of the sellers ~ 69 million revenue over the TTM* through August 2018 A Texas-based manufacturer of high quality furniture for the prek-12 education market Purchased for $140.0 million, plus a net adjustment for working capital of $8.4 million, plus $5.0 that is payable to the seller ~$82 million revenue over the TTM* through May 2018 A California-based provider of height adjustable desking, benching and seating for workstations in the open plan, collaborative environments and training rooms Purchased for $69.9 million, plus up to an additional $5.0 million payable to the sellers ~$37 million revenue over the TTM* through November 2017 * TTM = trailing twelve months 20

21 Innovative Offerings Steelcase is creating smart and connected workplaces for customers, using technology to fuel engagement and improve organizational performance. 21

22 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) $400 $300 $200 $100 $0 -$100 FY01 Cash Flow From Operations Adjusted EBITDA Margin TFQ 14% 12% 10% 8% 6% 4% 2% 0% Capital Expenditures vs. Depreciation and Amortization ($ millions) $300 $200 $100 $0 FY01 Capital Expenditures D&A $18 $14 $13 $10 $20 $26 Payments Included for Replacement Corporate Aircraft TFQ Quarterly Dividends Paid Per Share* Dividends* and Share Repurchases ($ millions) $0.16 $0.12 $0.08 $0.04 $300 $200 $100 Dividends Repurchases $0.00 Q1 FY01 Q2 FY19 $0 FY01 TFQ * Excludes special cash dividend of $1.75/share paid January

23 We have generated a greater than 10% return on invested capital over the last 5 years Adjusted Return on Invested Capital (ROIC) (% Adjusted Net Income of Average Capital) 16.0% 14.0% 13.1% 13.8% 13.3% 12.0% 12.3% 10.9% 11.9% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FY14 FY15 FY16 FY17 FY18 TFQ 23

24 Our strong balance sheet provides flexibility through cycles Q2 FY19, $ MILLION PRIORITIES FOR CASH $1,200 $1,000 $800 $600 Equity Business reinvestment Acquisitions Dividends Share repurchases $400 $200 $0 Credit Facility COLI Cash Liquidity Profile Debt Capital Base 24

25 Thank You 25

26 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 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. 26

27 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, and (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). 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. 27

28 Non-GAAP financial measures AMERICAS ADJUSTED GROSS MARGIN * (Percent of Revenue) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 TFQ Gross Margin as Restated * 26.4% 27.9% 28.7% 29.1% 30.5% 33.1% 33.8% 34.5% 34.6% 33.9% 33.2% Restructuring Costs (Benefits) 1.2% 0.6% 0.4% 1.1% 0.7% - (0.5%) 0.1% 0.1% - - Adjusted Gross Margin 27.6% 28.5% 29.1% 30.2% 31.2% 33.1% 33.3% 34.6% 34.7% 33.9% 33.2% EMEA ADJUSTED GROSS MARGIN (Percent of Revenue) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 TFQ Gross Margin as Reported 32.0% 27.0% 25.2% 28.3% 26.8% 24.8% 13.9% 17.9% 26.1% 27.1% 27.6% Restructuring Costs (Benefits) - 1.9% 3.4% 0.8% 0.2% (0.6%) 8.0% 2.1% 0.3% - - Adjusted Gross Margin 32.0% 28.9% 28.6% 29.1% 27.0% 24.2% 21.9% 20.0% 26.4% 27.1% 27.6% 28

29 Non-GAAP financial measures ADJUSTED EBITDA MARGIN $ Million FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 TFQ Revenue $3,989 $3,038 $2,530 $2,346 $2,614 $2,869 $3,097 $3,421 $3,184 $2,292 $2,437 $2,750 $2,869 $2,989 $3,060 $3,060 $3,032 $3,055 $3,175 Income before income tax expense $301 ($5) ($67) ($93) $5 $76 $125 $211 ($9) ($31) $51 $82 $55 $147 $137 $175 $196 $162 $173 Interest Expense $18 $21 $21 $19 $21 $18 $19 $17 $17 $18 $19 $26 $18 $18 $18 $18 $17 $18 $18 Depreciation and amortization $163 $172 $157 $141 $128 $119 $101 $92 $87 $74 $64 $56 $58 $60 $60 $66 $60 $66 $73 Restructuring costs - $50 $61 $54 $13 $39 $24 - $38 $35 $31 $31 $35 $7 $41 $20 $5 - - Goodwill and intangible asset impairment charges $11 $21 $ $4 $60 $ Adjusted EBITDA $482 $238 $173 $121 $167 $253 $279 $341 $199 $96 $166 $199 $226 $245 $256 $278 $279 $245 $264 Adjusted EBITDA Margin (% of Revenue) 12.1% 7.8% 6.8% 5.1% 6.4% 8.8% 9.0% 10.0% 6.2% 4.2% 6.8% 7.2% 7.9% 8.2% 8.4% 9.1% 9.2% 8.0% 8.3% 29

30 Non-GAAP financial measures ADJUSTED RETURN ON INVESTED CAPITAL (ROIC) $ Million FY14 FY15 FY16 FY17 FY18 TFQ Income before income tax expense $147 $137 $175 $196 $162 $173 Interest Expense $18 $18 $18 $17 $18 $18 Restructuring costs $7 $41 $20 $5 - - Goodwill and intangible asset impairment charges $ Adjusted Income before income tax expense $185 $196 $213 $218 $180 $191 (1) (2) Assumed Long-Term Effective Income Tax Rate % 36.0% 36.0% 36.0% 36.0% 34.5% 30.0% Adjusted Net Income $118 $125 $136 $140 $118 $133 Total Debt $287 $282 $299 $297 $295 $304 Total shareholders equity $677 $664 $737 $767 $813 $839 Total Capital $964 $946 $1,036 $1,064 $1,108 $1,143 Prior Year Total Capital $957 $964 $946 $1,036 $1,064 $1,091 Average Capital $961 $955 $991 $1,050 $1,086 $1,117 Adjusted Return on Invested Capital (ROIC) (Adjusted Net Income as a % of Average Capital) 12.3% 13.1% 13.8% 13.3% 10.9% 11.9% (1) Assumes 10 months at 36% and 2 months at 27% as after U.S. Tax Reform (2) Assumes 4 months at 36% and 8 months at 27% as after U.S. Tax Reform 30

31 2018 Steelcase Inc. Trademarks used herein are the property of Steelcase Inc. or of their respective owners.