Delivering Growth by Design

Transcription

1 NASDAQ: MLHR Delivering Growth by Design Investor Presentation Third Quarter FY2017

2 Forward looking statements 2 This information contains forwardlooking 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 forwardlooking 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, the success of our growth strategy, employment and general economic conditions, the pace of economic recovery in the U.S, and in our International markets, the increase in whitecollar employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers, competitivepricing pressures, the availability and pricing of raw materials, our reliance on a limited number of suppliers, our ability to expand globally given the risks associated with regulatory and legal compliance challenges and accompanying 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 locate new DWR studios, negotiate favorable lease terms for new and existing locations and the implementation of our studio portfolio transformation, 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 forwardlooking statements.

3 Company Snapshot 3 Headquarters: Zeeland, MI, USA Founded: 1905 Employees: ~8,000 FY16 Revenue: $2.26B FY16 Adj. EBITDA: $259M Over 600 dealers in 109 countries and 31 Design Within Reach retail studios North America 59% Specialty 10% Consumer 13% ELA 18%

4 Investment thesis 4 Our Compelling Story A higher ambition culture Powerful brands deliver design and innovation leadership Unique combination of valuedrivers enabling above industryaverage growth Strong track record of performance and healthy returns on capital Compelling financial outlook and opportunity for margin expansion

5 A higher ambition culture 5

6 A higher ambition culture 6 Driven by a sense of purpose and values A business is rightly judged by its products and services, but it must also face scrutiny as to its humanity. D.J. De Pree, Herman Miller Founder Ten Consecutive Perfect Score in Human Rights Campaign Foundation s Corporate Equality Index Twelve of the Last Thirteen Years on the Dow Jones Sustainability World Index Corporation of the Year in the Commercial sector for 9 of the last 11 years by the Michigan Minority Supplier Development Council

7 7 Powerful brands deliver design and innovation leadership

8 Powerful brands deliver design and innovation leadership An inspiring brand that customers value #1 in Brand that Inspires, Contract Magazine Survey Social Media Followers Over 4X all major competitors combined* * T witter followers as of April 2017 (Herman Miller, Allsteel, Haworth, Knoll, and Steelcase) 8

9 Powerful brands deliver design and innovation leadership 9 A portfolio of leading global brands Design Within Reach Marketplace for authentic modern furnishings Maharam Performance textiles POSH Asia distribution Nemschoff Healthcare Colebrook Bosson Saunders Ergonomic work tools Geiger Craft wood furnishings Herman Miller brands are #1 in six categories, Contract Magazine Survey (2016)

10 Powerful brands deliver design and innovation leadership 10 Commitment to innovation Innovation Priorities: Collaborative and other work points Active/healthy postures Outdoor, lighting, and materials Technology enhanced user experience Average of 22% of our sales were from new products over the past 5 years Introduced over 50 new products and extensions in fiscal 2016 Industryleading investment in design, research and development at 3.4% of sales in fiscal 2016

11 Powerful brands deliver design and innovation leadership 11 An icon remastered the new Aeron Reinforces Herman Miller s worldwide leadership in high performance seating Incorporates the latest in ergonomics and material science innovation Extends a powerful franchise that has sold over 7 million chairs in 134 countries

12 Powerful brands deliver design and innovation leadership 12 Bringing innovative solutions to our customers through the Living Office framework An insightdriven and researchbased framework for making place a strategic asset Delivers measurable results through improved: Workplace Effectiveness Work Activity Support Workplace Experience

13 13 Unique combination of valuedrivers enabling above industryaverage growth

14 Unique combination of valuedrivers enabling above industryaverage growth 14 The global leader dedicated to creating inspiring places Work Heal Learn Live

15 Unique combination of valuedrivers enabling above industryaverage growth 15 Capitalizing on an expanded total addressable market 2011 $24B 2016 $35B North America (Contract) (1) European (Contract) (2) Target Emerging Markets (Contract) (3) Consumer Lifestyle (4) Healthcare/Education/Hospitality (3) Small/Medium Business (3) Textiles (5) $2B $4B $8B $6B $2B $1B $10B $4B $9B Source: (1) BIFMA; (2) CSIL; (3) Company Estimate; (4) Parthenon Group (2014); (5) ACT Financial Survey (2015) $4B $8B

16 Unique combination of valuedrivers enabling above industryaverage growth 16 Unparalleled multichannel reach including direct to consumer Over 600 contract dealers in 109 countries 31 Design Within Reach retail studios Direct to consumer catalog Multiple global ecommerce storefronts Opportunities to grow share of channel/customer wallet 600 Dealers Catalog y 31 Studios ECommerce

17 Unique combination of valuedrivers enabling above industryaverage growth 17 Clear path to revenue growth and margin expansion in Consumer business Double digit revenue growth opportunity from Design Within Reach by transforming legacy studios to larger formats and adding new locations 3 to 6 new or expanded studios per year Increase studio count to low forties and square footage to 500,000 by 2020 Increase exclusive product mix from 60% to 70% of revenue Continued ecommerce growth High single digit operating margin target by 2020

18 Unique combination of valuedrivers enabling above industryaverage growth 18 Positioned for global growth ELA Revenue Growing and profitable business outside North America Favorable trends and demographics in AsiaPacific Further growth opportunities: Leverage Herman Miller and POSH brands in AsiaPacific Expand dealer networks and ecommerce platforms Regional R&D and manufacturing capabilities support new product growth Leverage Healthcare, Education and Consumer franchises $290M +7% CAGR $413M

19 19 Strong track record of performance and healthy returns on capital

20 Strong track record of performance and healthy returns on capital 20 Organic revenue growth of 5% at a premium to North America Contract industry growth of 2.8%, and robust EBITDA growth over last 5 years $2.3B 7% Revenue $2.1B CAGR Adjusted EBITDA (1) $1.9B $1.7B $1.8B $1.6B $165M $180M $182M $206M $235M $259M 9% CAGR FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16 (1) Represents a nongaap measure; see Appendix for reconciliation

21 Strong track record of performance and healthy returns on capital 21 Focused acquisition strategy accelerates our performance Entering New Areas: Audience Channel Geography Product +$540 million Net Sales in FY bps Gross Margin in FY16

22 Strong track record of performance and healthy returns on capital 22 Bestinclass lean enterprise delivers leverage Focused improvement through: Customer first orientation Waste reduction Asset efficiency +28% +17% +39% One of three U.S. companies showcased by Toyota Production System Support Center Further opportunity to spread more broadly and deeply through the organization and across the entire value chain West Michigan sales per mfg. square foot Improvement from FY11 to FY16 Manufacturing Quality Engineering lead time for custom requests

23 Strong track record of performance and healthy returns on capital 23 Robust free cash flow generation and disciplined approach to capital allocation drives average annual return on invested capital of 23% over last five years Adj. Free Cash Flow (1) ($ millions) $150 $100 $50 $0 $112 $95 $98 $86 $104 $125 Debt and Pension Liabilities (2) ($ millions) $300 $250 $200 $150 $100 $287 $266 $275 $251 $291 $222 Dividends Paid ($ millions) $50 $40 $35 $30 $25 $20 $15 $10 $5 $0 $5 $5 $19 $30 $33 $35 $41 FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16 (1) Cash flow from operations less CAPEX plus domestic pension contributions; (2) Debt plus domestic pension liabilities FY11 FY12 FY13 FY14 FY15 FY16 CURRENT

24 24 Compelling financial outlook and opportunity for margin expansion

25 Compelling financial outlook and opportunity for margin expansion 25 Supportive industry trends Forecast North America Consumption U.S. Architects Billing Index AIA Consensus Construction Forecast Source: BIFMA (Feb 2016) Jan13 Mar13 May13 Jul13 Sep13 Nov13 Jan14 Mar14 May14 Jul14 Sep14 Nov14 Jan15 Mar15 May15 Jul15 Sept 15 Nov 15 Jan16 Ma16 May16 Jul16 Sept16 Nov16 Dec16 Jan16 Feb16 Source: American Institute of Architects Jan 2017 Office (% YOY Growth) 4.6% 10.6% 7.6% 7.8% 7.8% Existing Home Sales (thousands of units) Housing Starts (thousands of units) 6.5% 6.3% 6.3% History Forecast History Forecast Housing 5,250 5,450 5,573 5,759 1,377 1,174 1,267 1, Source: National Association of Realtors (April 2017) GDP Forecast Source: World Bank (Jan 2017) 1.2% 1.3%1.3% UK 3.3% 3.4% 2.4% 2.8%2.9% 3.1% Europe & Cent. Asia Middle East & N. Africa China India 1.8% Mexico 2.5% 2.8%

26 Compelling financial outlook and opportunity for margin expansion 26 Opportunity for continued aboveaverage revenue performance over the next three to five years Revenue Core Contract Industry 13% New Products and Initiatives 11.5% Consumer Growth 11.5% Estimated Annual Organic Revenue Growth 36% Targeted Acquisitions 12% Estimated Annual Revenue Growth Including Acquisitions 48%

27 Compelling financial outlook and opportunity for margin expansion 27 Operating income growth of 2x to 2.5x the rate of organic revenue growth Structurally higher operating margins driven by: Expanding business and channel mix Consumer growth and higher exclusive product mix Volume leverage Lean enterprise focus Cost savings initiative targeting $25M to $35M in annual savings by FY20

28 Investment thesis 28 Our Compelling Story A higher ambition culture Powerful brands deliver design and innovation leadership Unique combination of valuedrivers enabling above industryaverage growth Strong track record of performance and healthy returns on capital Compelling financial outlook and opportunity for margin expansion

29 Recent Quarterly Financial Trends

30 Recent Quarterly Financial Trends 30 Quarterly Net Sales + Orders ($ millions) Gross Margin and Adjusted Operating Margin (% net sales) $700 $600 $500 $400 $300 $200 $583 Q4 FY16 $606 $599 $596 $578 $576 Q1 FY17 Q2 FY17 $525 $543 Q3 FY17 Net Sales Orders 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 38.7% 8.7% Q4 FY % 9.4% Q1 FY % 8.8% Q2 FY % 7.0% Q3 FY17 Gross Margin % Adjusted Operating Income % Quarterly Operating Expenses ($ millions) Q3 net sales decreased 2.2% while orders increased 6.8% from the prior year, on an organic basis, sales and orders increased 0.1% and 4.8%, respectively, over the prior year. $190 $170 $150 $130 $169 $174 $167 $158 Gross margin in Q3 declined 150 bps from the prior year primarily due to higher commodity costs and discounting levels EPS in Q3 totaled $0.37 per share; $0.39 per share on an adjusted basis. $110 $90 $70 $50 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17

31 Recent Quarterly Financial Trends 31 Quarterly Cash Flow from Operations ($ millions) Rolling 4 Qtr Coverage Ration (EBITDA (1) to Interest) $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 $ $30 $60 $28 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY Bank Covenant > Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q3 ending cash and equivalents totaled $78 million. Rolling 4 Qtr Leverage Ration (Debt to EBITDA) (1) 4.0 Bank Covenant < LT Debt maturity schedule: PPN ($150M) due 2018 PPN ($50M) due 2021 Revolver ($35M) due 2021 Availability of $357 million on the revolving line of credit at the end of Q Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17 CAPEX totaled $24 million in Q2. Expect $90 $95 million for fiscal Q3 dividends paid totaled $10 million and share repurchases of $35 million. (1) Represents a NonGAAP Measure, see Appendix for reconciliation

32 Recent Quarterly Financial Trends 32 Guidance as provided in March 22, 2017 earnings press release: Q4 Fiscal 2017 Net Sales $575 to $595 million Gross Margin % 37.0% to 38.0% Operating Expenses $165 to $169 million Effective Tax Rate 31% to 33% Earnings Per Share, Diluted $0.53 to $0.57

33 Appendix

34 Segment Overviews

35 Appendix Segment Overviews North America Furniture Solutions 35 Overview Description: Design, manufacture and sale of furniture products for office, education and healthcare environments in the United States and Canada FY16 Percent of Consolidated Revenues North America 59% Specialty 10% Consumer 13% ELA 18% MacroEconomic Drivers Source: BIFMA, February 2016 History Five Year Revenue Trend (in US$ millions) FY11 FY12 FY13 FY14 FY15 FY16 5 YEAR CAGR 2% (4% organic) FY16 Adj. EBITDA Margin 13.5% Other Leading Economic Indicators include: Corporate profitability, service sector employment, Architectural Billings Index (ABI), Office vacancy rates, CEO and small business confidence, Nonresidential Construction North America Consumption (in US$ billions) Education Construction Spending (in US$ billions) Healthcare Construction Spending (in US$ billions) $1500 $1300 $1100 $900 $700 $500 Source: U.S. Census Bureau and AIA Fcst, Jan 2017 Source: U.S. Census Bureau and AIA Fcst, Jan 2017 Forecast History Forecast History Forecast ,225 1,219 1,222 1,216 1,242 1, Ongoing revenue Divested dealers

36 Appendix Segment Overviews ELA Furniture Solutions 36 Overview Description: Design, manufacture and sale of furniture products primarily for office settings in EMEA (40% of sales in FY16), Latin America (18% of sales in FY16) and AsiaPacific (43% of sales in FY16) FY16 Percent of Consolidated Revenues North America 59% Specialty 10% Consumer 13% ELA 18% MacroEconomic Drivers $500 $400 $300 $200 $100 $0 Five Year Revenue Trend (in US$ millions) FY11 FY12 FY13 FY14 FY15 FY16 5 YEAR CAGR 7% FY16 Adj. EBITDA Margin 9.1% Regional Office Furniture Consumption (in US$ billions) Source: CSIL (December 2016) GDP Forecast Source: World Bank (June 2016) 6.5% 6.3% 6.3% 7.6% 7.8% 7.8% Region Annual 5 Year CAGR Consumption Europe $ % China $ % India $ % Brazil $ % Mexico $ % 1.2% 1.3%1.3% UK 3.3% 3.4% 2.4% 2.8%2.9% 3.1% Europe & Cent. Asia Middle East & N. Africa China India 1.8% Mexico 2.5% 2.8%

37 Appendix Segment Overviews Specialty 37 Overview Description: Design, manufacture and sale of highcraft furniture products and textiles focused on architect and design specifiers. The Specialty portfolio includes Geiger wood products, Maharam textiles and Herman Miller Collection products. FY16 Percent of Consolidated Revenues Five Year Revenue Trend (in US$ millions) FY16 Adj. EBITDA Margin North America 59% Specialty 10% Consumer 13% ELA 18% MacroEconomic Drivers $250 $200 $150 $100 $ FY10 FY11 FY12 FY13 FY14 FY15 5 YEAR CAGR 24% (9% organic) 10.3% U.S. Architects Billing Index Source: The American Institute of Architects Jan13 Mar13 May13 Jul13 Sep13 Nov13 Jan14 Mar14 May14 Jul14 Sep14 Nov14 Jan15 Mar15 May15 Jul15 Sept 15 Nov 15 Jan16 Ma16 May16 Jul16 Sept16 Nov16 Dec16 Jan16 Feb16 AIA Consensus Construction Forecast (% YOY Growth) Source: The American Institute of Architects, Jan 2017 Annual Fabric Sales (in US$ millions) Source: ACT Financial Survey NonResidential 5.6% 4.9% 1, Commercial Total 8.3% 4.4% Office 10.6% 4.6% Health 4.9% 4.9% Education 6.3% 6.7% Hotel 7.2% 1.8%

38 Appendix Segment Overviews Consumer 38 Overview Description: Sale of modern design furnishings and accessories in North America through multiple channels, including 32 Design Within Reach studios, ecommerce storefronts, direct mailing catalogs and independent retailers. FY16 Percent of Consolidated Revenues Five Year Revenue Trend (in US$ millions) FY16 Adj. EBITDA Margin North America 59% Specialty 10% Consumer 13% ELA 18% MacroEconomic Drivers FY11 FY12 FY13 FY14 FY15 FY16 5 YEAR CAGR 40% 5.8% (12% organic) Existing Home Sales (thousands of units) Housing Starts (thousands of units) Furniture and Home Furnishing Stores Source: National Assoc. of Realtors U.S. Economic Outlook (Nov. 2016) Source: National Assoc. of Realtors U.S. Economic Outlook (Nov. 2016) Annual Sales Growth History 5,250 Forecast 5,450 5,573 5,759 $300 $200 $100 $0 History 1,112 1,174 Forecast 1,267 1, Source: US Census Bureau 2.6% 4.4% 3.6% 3.5% 5.7% 3.5% 0.6%

39 Appendix Reconciliation of NonGAAP Measures 39 This presentation contains Organic Sales Growth, Adjusted EBITDA, Adjusted EBITDA ratios, Adjusted Operating Earnings, and Adjusted Earnings Per Share, all of which constitute nongaap financial measures. Each of these financial measures is calculated by excluding items the Company believes are not indicative of its ongoing operating performance. The Company presents these nongaap financial measures because it considers them to be important supplemental indicators of financial performance and believes them to be useful in analyzing ongoing results from operations. These nongaap financial measures are not measures of financial performance under GAAP and should not be considered alternatives to GAAP. NonGAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company s results as reported under GAAP. In addition, you should be aware that in the future the Company may incur expenses similar to the adjustments presented.

40 Appendix Reconciliation of NonGAAP Measures Organic Sales Growth (Decline) by Reportable Segment ($ Millions); (unaudited) 40 North America ELA Specialty Consumer Total Sales, as reported $ 1,224.8 $ 1,331.8 $ $ $ 80.2 $ $ 53.8 $ $ 1,649.2 $ 2,264.9 Performance Adjustments Dealer Divestitures Cumulative foreign exchange Acquisitionbase year (99.6) 20.5 (13.0) 35.9 (64.4) 1.0 (107.5) 1.2 (194.3) (99.6) (13.0) 58.6 (366.2) Sales, pro forma $ 1,125.2 $ 1,352.3 $ $ $ 80.2 $ $ 53.8 $ 95.6 $ 1,536.6 $ 1,957.3 Compound Annual Growth Rate, as reported Compound Annual Growth Rate, pro forma 1.7% 3.7% 7.3% 6.7% 23.6% 9.3% 39.9% 12.2% 6.6% 5.0%

41 Appendix Herman Miller Inc. Reconciliation of NonGAAP Measures Adjusted EBITDA by Reportable Segment ($ Millions) (unaudited) 41 NA ELA Specialty Consumer Corporate Consol. NA ELA Specialty Consumer Corporate Consol Actual 2012 Actual Segment Operating Earnings Add: Allocated Depreciation & Amortization Add: Restructuring/Impairment Expenses Adjusted EBITDA Revenue by Segment Adjusted EBITDA Margin Segment Operating Earnings Add: Allocated Depreciation & Amortization Add: Acquisitionrelated Adjustments Add: Legacy Pension Expenses Add: Restructuring/Impairment Expenses Less: POSH Contingent Consideration Reduction Adjusted EBITDA Revenue by Segment Adjusted EBITDA Margin 2015 Actual Segment Operating Earnings Add: Allocated Depreciation & Amortization Add: Acquisitionrelated Adjustments Add: Restructuring/Impairment Expenses Less: Nonrecurring gains Less: Other, net Adjusted EBITDA Revenue by Segment Adjusted EBITDA Margin $ $ $ 1, % $ $ $ 1, % $ $ 24.6 $ % $ $ 34.1 $ % $ (1.3) 2.3 $ 1.0 $ % $ $ 20.9 $ % $ $ 12.9 $ % $ $ 29.8 $ % $ (5.7) 3.0 $ (2.7) $ 0.0% $ (15.9) (0.7) $ (1.3) $ 0.0% $ $ $ 1, % $ (0.7) $ $ 2, % $ $ $ 1, % 2013 Actual 2014 Actual $ $ $ $ $ (1.8) 1.2 $ $ (27.0) $ $ 31.3 $ 5.9 $ 14.2 $ (0.6) $ $ $ 1, % $ % $ % $ % $ 0.0% $ 1, % $ 1, % 2016 Actual $ $179.9 $1, % $ $ 37.8 $ % $ (23.1) 7.6 (2.6) $ 28.1 $ % $ (6.1) $37.7 $ % $ $3.3 $ % $ (5.3) $ 15.1 $ % $ $23.8 $ % $ $ 14.8 $ % $ $ 16.3 $ % $ $16.7 $ % $ (6.6) 5.4 $ (1.2) $ 0.0% $ (26.4) 26.5 $ 0.1 $ 0.0% $(0.3) $0.8 $ 0.0% $ $ $ 1, % $ (25.7) (2.6) $ $ 1, % $ (6.1) 0.5 $258.9 $2, %

42 Appendix Adjusted Operating Earnings and Adjusted Earnings Per Share ($ millions, except for per share amounts) (unaudited) 42 Adjusted Operating Earnings Adjusted Earnings per Share Q3 FY17 Q3 FY17 Net Sales $ Earnings per Share Diluted $ 0.37 Less: NonRecurring Gains $ (0.01) Operating Earnings (GAAP) Operating Earnings (%) $ % Add: Restructuring Expenses Adjusted Earnings per Share Diluted $ 0.03 $ 0.39 Add: Restructuring and Impairment Expenses 2.7 Less: NonRecurring Gains (0.7) Adj. Operating Earnings (nongaap) $ 37.0 Adj. Operating Earnings (%) 7.0%

43 Appendix Adjusted EBITDA and Adjusted EBITDA Ratios (Bank) ($ millions) (unaudited) 43 Adjusted EBITDA (Bank) Ratios Trailing 4Quarter Period Ended Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Earnings Before Income Taxes (EBT) Add: Depreciation Amortization Interest Other Adjustments (1) Adjusted EBITDA Bank $ $ $ $ Total Debt, End of Trailing Period (includes outstanding LC s) $ $ $ $ Rolling 4Quarter DebttoAdj. EBITDA Rolling 4Quarter Adj. EBITDAtoInterest (1) Other Adjustments include, as applicable in the period, charges associated with business restructuring actions, noncash stockbased compensation, as described in lending agreements.

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