INVESTOR PRESENTATION. Third Quarter, FY2019

Transcription

1 INVESTOR PRESENTATION Third Quarter, FY2019

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

3 We believe we are positioned to grow in a changing market Our scale and track record of performance presents distinct, significant advantages. MARKET LEADER REVENUE & EBITDA GROWTH STRONG SHAREHOLDER RETURN 3

4 MARKET LEADER We are a respected leader Greatest global market share $3.1 billion revenue in FY ,000+ employees 800+ Steelcase dealer locations Recognized for innovative design, sustainability leadership and civic engagement 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 MARKET LEADER 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** *Most recently published annual data and/or internal estimates **Only office furniture segments included 5

6 MARKET LEADER 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. 6

7 MARKET LEADER 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 % +3% % +5% % +4% Sources: U.S. Census Bureau (in US $,billions) American Institute of Architects forecast 7

8 WHY INVEST IN US Steelcase s growth rate has strengthened

9 REVENUE & EBITDA GROWTH Industry macro-factors remain 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 Non-farm Payroll Growth Unemployment rate Unemployment Rate (%) 8% 7% 6% 5% 4% 3% 2% 1% 0% Q TOTAL U.S. (COMBINED) BIFMA MARKET SIZE (In US$, billions) $20 $15 $10 $5 $0 Forecast Forecast EUROPE OFFICE FURNITURE CONSUMPTION (In US$, billions) Estimate NON-RESIDENTIAL FIXED INVESTMENT (U.S.) Equipment (In US$, billions) ARCHITECTURAL BILLING INDEX (U.S.) (Billings $ billions) THE CONFERENCE BOARD MEASURE OF CEO CONFIDENCE (U.S.) 60 $1, $1, $800 $600 Q Q Jan 2014 October Jan 2014 Jan 2015 Jan 2016 Jan 2017 Jan 2018 Sources: BEA, BLS, CEO Conference Board, AIA, BIFMA and CSIL 9

10 REVENUE & EBITDA GROWTH 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 open, shared work areas Historically, a significant amount of office space was based on private offices and cubicles in the future, we expect the mix of open environments to increase. 10

11 REVENUE & EBITDA GROWTH Space is more important than ever as the war for talent increases and the need for engagement rises U.S. LABOR FORCE EMPLOYEE ENGAGEMENT 23% 13% Nearing retirement Retirement New Recent entrants Entrants 11% Source: U.S. Bureau of Labor Statistics 2017 projections Nearing retirement - percentage of workforce age 55+ Recent entrants - percentage of workforce age Source: 2016 Steelcase Global Report 11

12 REVENUE & EBITDA GROWTH 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 12

13 REVENUE & EBITDA GROWTH We are establishing partnerships with other companies to increase the breadth of our product offering 13

14 REVENUE & EBITDA GROWTH We have invested over $300 million to enhance our offering through acquisitions 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 14

15 REVENUE & EBITDA GROWTH 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 in Western Europe 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 TFQ Future target Munich LINC Learning + Innovation Center 15

16 STRONG SHAREHOLDER RETURN 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 $300 Adjusted EBITDA Margin 10% 9% $200 9% Capital Expenditures vs. Depreciation and Amortization ($ millions) $200 $100 Capital Expenditures D&A $100 8% $0 FY14 FY15 FY16 FY17 FY18 TFQ 8% 7% $0 FY14 FY15 FY16* FY17 FY18 * Includes $26 for Replacement Corporate Aircraft TFQ 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 Q3 FY19 $0 FY14 FY15 FY16 FY17 FY18 TFQ 16

17 STRONG SHAREHOLDER RETURN 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% 12.3% 13.1% 13.8% 13.3% 12.6% 12.0% 10.9% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FY14 FY15 FY16 FY17 FY18 TFQ 17

18 STRONG SHAREHOLDER RETURN Our strong balance sheet provides flexibility through cycles Q3 FY19, $ MILLION PRIORITIES FOR CASH $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 18

19 LEARN MORE Appendix

20 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. 20

21 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 $2,366 $567 $595 $521 $504 $524 $593 $268 $284 $283 $297 $338 $344 FY14 FY15 FY16 FY17 FY18 TFQ FY14 FY15 FY16 FY17 FY18 TFQ FY14 FY15 FY16 FY17 FY18 TFQ AMERICAS ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) EMEA ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) OTHER CATEGORY ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) 11.2% 11.1% 11.4% 10.8% 8.2% 8.3% 1.8% 1.7% 4.0% 4.7% 6.3% 3.8% FY14 FY15 FY16 FY17 FY18 TFQ 4.9% 5.7% 8.5% 3.7% 2.7% 1.2% FY14 FY15 FY16 FY17 FY18 TFQ FY14 FY15 FY16 FY17 FY18 TFQ * Operating income restated due to implementation of ASU No , Compensation - Retirement Benefits (Topic 715). Please see Q1 FY19 10-Q for more information. 21

22 Select segment statistics (as of February 23, 2018) End of Fiscal Year 2018 AMERICAS EMEA OTHER CATEGORY Number of Steelcase dealer locations ~ 400 ~ 350 ~ 50 Employees non-manufacturing ~2,700 ~ 1,100 ~ 900 Employees manufacturing ~ 5,100 ~ 1,000 ~ 900 Number of primary manufacturing locations Michigan 2 Alabama 1 Mexico 2 France 1 Germany 1 Spain 1 Czech Republic 1 China 1 Malaysia 1 India 1 FY18 VERTICALS IN THE AMERICAS SEGMENT FY18 PRODUCT MIX FY18 LONG-TERM EMPLOYEE BENEFIT OBLIGATIONS FUNDING STATUS ($ millions) 24% Other Total Obligation $146 30% Seating Deferred Tax Asset Health Care Financial Services Education Manufacturing Insurance Services Information Technolo Technical/Profession Federal Government Energy State/Prov/Local Gov Other 46% Product Mix Systems/ Storage $172 Assets (COLI) $95 Liabilities After-tax Obligation * No vertical represented more than 13% of Americas revenue 22

23 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 Q3 FY

24 Historical market data ESTIMATED U.S. OFFICE FURNITURE SHIPMENTS* (USD millions) $14 $12 $10 $8 $6 $4 $2 $ EUROPEAN OFFICE FURNITURE CONSUMPTION** (EUR millions) Sources: * : BIFMA; : internal Steelcase estimates **CSIL 24

25 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. AMERICAS ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) FY14 FY15 FY16 FY17 FY18 TFQ Operating Income (Loss) Margin as Restated * 11.1% 11.6% 11.4% 10.7% 8.2% 8.3% 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% 8.3% * 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. 25

26 Non-GAAP financial measures EMEA ADJUSTED GROSS MARGIN (Percent of Revenue) FY16 FY17 FY18 TFQ Gross Margin as Reported 17.9% 26.1% 27.1% 27.4% Restructuring Costs (Benefits) 2.1% 0.3% - - Adjusted Gross Margin 20.0% 26.4% 27.1% 27.4% EMEA ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) FY14 FY15 FY16 FY17 FY18 TFQ Operating Income (Loss) Margin as Restated * (5.7%) (14.2%) (12.4%) (4.1%) (2.7%) (1.2%) 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%) (1.2%) * 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 Non-GAAP financial measures OTHER CATEGORY ADJUSTED OPERATING INCOME MARGIN * (Percent of Revenue) FY13 FY14 FY15 FY16 FY17 FY18 TFQ Operating Income (Loss) Margin as Restated * (7.7%) (3.1%) 1.7% 4.0% 4.7% 6.3% 3.8% 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% 3.8% * Operating income restated due to implementation of ASU No , Compensation - Retirement Benefits (Topic 715). Please see Q1 FY19 10-Q for more information. 27

28 Non-GAAP financial measures ADJUSTED EBITDA MARGIN $ Million FY14 FY15 FY16 FY17 FY18 TFQ Revenue $2,989 $3,060 $3,060 $3,032 $3,055 $3,304 Income before income tax expense $147 $137 $175 $196 $162 $180 Interest Expense $18 $18 $18 $17 $18 $19 Depreciation and amortization $60 $60 $66 $60 $66 $79 Restructuring costs $7 $41 $20 $5 - - Goodwill and intangible asset impairment charges $ Adjusted EBITDA $245 $256 $278 $279 $245 $278 Adjusted EBITDA Margin (% of Revenue) 8.2% 8.4% 9.1% 9.2% 8.0% 8.4% 28

29 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 $180 Interest Expense $18 $18 $18 $17 $18 $19 Restructuring costs $7 $41 $20 $5 - - Goodwill and intangible asset impairment charges $ Adjusted Income before income tax expense $185 $196 $213 $218 $180 $199 (1) (2) Assumed Long-Term Effective Income Tax Rate % 36.0% 36.0% 36.0% 36.0% 34.5% 27.8% Adjusted Net Income $118 $125 $136 $140 $118 $144 Total Debt $287 $282 $299 $297 $295 $321 Total shareholders equity $677 $664 $737 $767 $813 $855 Total Capital $964 $946 $1,036 $1,064 $1,108 $1,176 Prior Year Total Capital $957 $964 $946 $1,036 $1,064 $1,109 Average Capital $961 $955 $991 $1,050 $1,086 $1,142 Adjusted Return on Invested Capital (ROIC) (Adjusted Net Income as a % of Average Capital) 12.3% 13.1% 13.8% 13.3% 10.9% 12.6% (1) Assumes 10 months at 36% and 2 months at 27% as after U.S. Tax Reform (2) Assumes 1 months at 36% and 11 months at 27% as after U.S. Tax Reform 29

30 2018 Steelcase Inc. Trademarks used herein are the property of Steelcase Inc. or of their respective owners.