Attached files
| file | filename |
|---|---|
| 8-K - KIMBALL INTERNATIONAL, INC. FORM 8-K - KIMBALL INTERNATIONAL INC | form8-kearningsrelease1231.htm |
| EX-99.1 - KIMBALL INTERNATIONAL, INC. EXHIBIT 99.1 - KIMBALL INTERNATIONAL INC | a8kexhibit991pressrelease1.htm |
INVESTOR PRESENTATION
Second Quarter Fiscal Year 2017
Exhibit 99.2
SAFE HARBOR STATEMENT
Certain statements contained within this release are considered forward-looking under the
Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties
including, but not limited to, the risk that any projections or guidance, including revenues,
margins, earnings, or any other financial results are not realized, the outcome of a
governmental review of our subcontractor reporting practices, adverse changes in the global
economic conditions, significant volume reductions from key contract customers, significant
reduction in customer order patterns, financial stability of key customers and suppliers, and
availability or cost of raw materials. Additional cautionary statements regarding other risk
factors that could have an effect on the future performance of the Company are contained in
the Company's Form 10-K filing for the fiscal year ended June 30, 2016 and other filings
with the Securities and Exchange Commission.
1
COMPANY SNAPSHOT
Headquarters: Jasper, IN, USA
Founded: 1950
Employees: ~3,000
Furniture focused since Oct 31, 2014 Spin-off
FY’17 Revenue: $345M (6 months of FY’17)
FY’17 Adj. Operating Profit (1): $28.5M / 8.3%
FY’16 Revenue: $635M
FY’16 Adj. Operating Profit (1): $40.8M / 6.4%
2
_____________________
(1) Unaudited. See Appendix for Non-GAAP reconciliation.
Design Driven and Award Winning Furniture Brands
Evolving Office Environment Driving Demand and Continued Hospitality Growth
Dividend Yield Approximates 1.4%
Accelerating Revenue From New Product Introductions - Increasing Market Share
WHY INVEST IN US
Improving Financial Performance
Capital Available for Growth
3
Strong Return on Capital Relative to Competitors
WHO WE ARE
Kimball International, Inc. creates design
driven, innovative furnishings sold through
our family of brands: Kimball Office,
National Office Furniture, and Kimball
Hospitality. Our diverse portfolio offers
solutions for the workplace, learning,
healing, and hospitality
environments. Dedicated to our Guiding
Principles, our values and integrity are
evidenced by public recognition as a
highly trusted company and an employer
of choice.
“We Build Success” by establishing long-
term relationships with customers,
employees, suppliers, share owners and the
communities in which we operate.
We are committed to sales growth,
profitability and return on capital that is
among the best in each of our markets.
We Build Success
4
HOW WE ARE RECOGNIZED
5
S
ou
rc
e
U
S
B
ur
ea
u
of
E
co
no
m
ic
A
na
ly
si
s
(S
ep
t.
20
16
)
S
ou
rc
e:
U
S
B
ur
ea
u
of
L
ab
or
S
ta
tis
tic
s
(D
ec
. 2
01
6)
S
ou
rc
e:
A
IA
(
D
ec
. 2
01
6)
Continued
Growth
MIXED U.S. FURNITURE LEADING INDICATORS
6
Architectural Billing Index
S
ou
rc
e:
B
IF
M
A
100
105
110
115
120
125
130
6
/1
/2
0
0
4
1
2
/1
/2
0
0
4
6
/1
/2
0
0
5
1
2
/1
/2
0
0
5
6
/1
/2
0
0
6
1
2
/1
/2
0
0
6
6
/1
/2
0
0
7
1
2
/1
/2
0
0
7
6
/1
/2
0
0
8
1
2
/1
/2
0
0
8
6
/1
/2
0
0
9
1
2
/1
/2
0
0
9
6
/1
/2
0
1
0
1
2
/1
/2
0
1
0
6
/1
/2
0
1
1
1
2
/1
/2
0
1
1
6
/1
/2
0
1
2
1
2
/1
/2
0
1
2
6
/1
/2
0
1
3
1
2
/1
/2
0
1
3
6
/1
/2
0
1
4
1
2
/1
/2
0
1
4
6
/1
/2
0
1
5
1
2
/1
/2
0
1
5
6
/1
/2
0
1
6
1
2
/1
/2
0
1
6
Service Sector Employment
(millions workers)
0
200
400
600
800
1000
1200
1400
1600
1800
3
/1
/2
0
0
3
9
/1
/2
0
0
3
3
/1
/2
0
0
4
9
/1
/2
0
0
4
3
/1
/2
0
0
5
9
/1
/2
0
0
5
3
/1
/2
0
0
6
9
/1
/2
0
0
6
3
/1
/2
0
0
7
9
/1
/2
0
0
7
3
/1
/2
0
0
8
9
/1
/2
0
0
8
3
/1
/2
0
0
9
9
/1
/2
0
0
9
3
/1
/2
0
1
0
9
/1
/2
0
1
0
3
/1
/2
0
1
1
9
/1
/2
0
1
1
3
/1
/2
0
1
2
9
/1
/2
0
1
2
3
/1
/2
0
1
3
9
/1
/2
0
1
3
3
/1
/2
0
1
4
9
/1
/2
0
1
4
3
/1
/2
0
1
5
9
/1
/2
0
1
5
3
/1
/2
0
1
6
9
/1
/2
0
1
6
US Corporate Profit After Tax
With IVA and CCA adjustment ($billion)
2.0%
7.2%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
F
*
BIFMA
($millions)
*Issued February 2016
3.2%
2.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Luxury Upper Scale Upscale Upper Middle
Scale
Midscale Economy Independents US
2016 2017
Source: PWC Hospitality Directions May 2015
Revenue Per Available Room (RevPAR) Growth Rates Estimated (1)
Stronger demand in calendar Q4 than
expected by PWC improved outlook for
2017
GROWTH IN HOSPITALITY LEADING INDICATORS
7
(1) Source PWC January 2017 Hospitality Directions
(1)
$525.3 $500.0 $543.8 $600.9 $635.1
[VALUE]
-1.4%
1.6%
4.8%
[VALUE]
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Net Sales Adjusted Pro Forma Operating Income from Continuing Operations
Improving Performance
8
($ in millions)
(1) Unaudited. Adjusted Pro Forma Operating Income from Continuing Operations. See Appendix for Non-GAAP reconciliation.
Operating Income (1) +55.9% CAGR
Sales +4.9% CAGR
Best Profit in
15 Years
$163.8 $150.0 $164.7 $175.0 $169.9
[VALUE]
2.8%
3.5%
11.8%
[VALUE]
Q2'16 Q3'16 Q4'16 Q1'17 Q2'17
Net Sales Year Over Year Growth
Sales growth each quarter
9
($ in millions)
(1) Unaudited.
Quarterly sales growth fueled by new product
introductions
(1) (1)
STRONG NEW PRODUCT INTRODUCTIONS
OFFICE FURNITURE (1)
$21 $19 $19 $27 $28 $28 $29 $36 $39 $34
5%
21%
26%
57%
33%
45%
54%
34%
39%
21%
($ in millions)
(1) Unaudited
Year Over Year Growth
10
$168.2 $148.4 $176.4 $177.2 $165.9
[VALUE]
13.4%
2.4%
6.9%
[VALUE]
Q2'16 Q3'16 Q4'16 Q1'17 Q2'17
Orders Received Year Over Year Growth
Orders
11
($ in millions)
(1) Unaudited.
(1) (1)
ORDER TREND RELATIVE TO OFFICE FURNITURE MARKET
12
* Sales and order data are not available for the Hospitality furniture industry (BIFMA
industry data excludes Hospitality furniture). Therefore, to get a comparable industry
comparison, sales and orders for the Hospitality vertical are excluded from the
Kimball International numbers presented in this graph.
13%
6%
6%
3%
0%
0%
-1%
3% 1%
-2%
Q2'16 Q3'16 Q4'16 Q1'17 Q2'17
Kimball Int'l (excluding Hospitality vertical) Office Furniture Industry (BIFMA)
Growth in orders exceeded industry growth for
each of the last 8 quarters
Sales by Vertical – Good Diversification
13
_____________________
(1) Unaudited.
($ in millions)
$52.2
$38.4
$21.6
$14.1
$19.4 $18.1
$52.4
$41.9
$24.9
$14.6
$19.3
$16.8
Commercial Hospitality Healthcare Education Government Finance
Q2'16 Q2'17
(1)
orders by Vertical(1)
14
_____________________
(1) Unaudited.
($ in millions)
$52.3
$38.4
$25.2
$15.6 $17.8
$18.9
$55.7
$36.6
$22.2
$14.3
$18.5 $18.7
Commercial Hospitality Healthcare Education Government Finance
Q2'16 Q2'17
Excluding Hospitality,
orders were flat.
Hospitality decline driven
by decline in custom.
Gross Profit (1)
15
32.5%
30.5%
32.6%
33.5%
32.8%
1 2 3 4 5
% of Net Sales
Seasonally lower
sales in Q3 results in
lower Gross Profit.
Gross Profit %
improved year over
year despite
inefficiencies related
to restructuring.
_____________________
(1) Unaudited.
Selling and Administrative Expenses (1)
16
($ in millions)
_____________________
(1) Unaudited.
$41.2 $38.8 $42.8 $43.2 $42.7
[VALUE]
25.8%
26.1%
24.6%
[VALUE]
Q2'16 Q3'16 Q4'16 Q1'17 Q2'17
S&A S&A % of Net Sales
OPERATING PROFIT
17
1.3%
-1.4%
1.6%
4.8%
6.4%
7.3%
4.7%
6.6%
8.8%
7.7%
2012 2013 2014 2015 2016 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17
Adjusted Pro Forma Operating Income from Continuing Operations Series 2
Fiscal Year Quarterly
Seasonally
lower sales
effect
_____________________
(1) Unaudited. See Appendix for Non-GAAP reconciliation.
(1)
Strong Adjusted Return on capital (1)
18
21.5%
12.3%
18.5%
25.5%
21.1%
Q2'16 Q3'16 Q4'16 Q1'17 Q2'17
_____________________
(1) Unaudited. See Appendix for Non-GAAP reconciliation.
Among the BEST in the office furniture industry
Adjusted Free Cash Flow (1)
19
($ in millions)
_____________________
(1) Unaudited. See Appendix for Non-GAAP reconciliation.
$20.8
$5.8
$13.8
$16.0
$56.4
Q3'16 Q4'16 Q1'17 Q2'17 Trailing 4 Qtrs
Capital allocation
20
_____________________
(1) Includes total Class A and Class B dividends declared.
Note: All periods presented above are unaudited
($ in millions)
$2.1 $2.1 $2.1 $2.2 $2.3
$2.7 $3.8
Q2'16 Q3'16 Q4'16 Q1'17 Q2'17
Dividends Share Repurchases
$7.4 $7.5 $7.5 $7.7 $8.3
$10.3 $9.7
FY'12 FY'13 FY'14 FY'15 FY'16
Dividends (1) Share Repurchases
Priorities for Capital
• Reinvestment for growth
• Stock buy back offsetting dilution
• Dividends comparable to peers
• Opportunistic acquisitions
$4.3 $3.0 $2.5 $3.5
$13.3
Q3'16 Q4'16 Q1'17 Q2'17 Trailing 4
Qtrs
Capital Expenditures
Fiscal Year Dividends and Share Repurchases
Quarterly Dividends and Share Repurchases
Sales Growth over Prior Year Mid-Single Digits
Operating Income (except Q3 which
tends to be lower due to seasonality)
8 to 9%
Adjusted Return on Capital (1) Exceeding 20%
(1) See appendix for definition.
Mid-Term Outlook
21
APPENDIX
22
ANNUAL NON-GAAP RECONCILIATION (UNAUDITED)
23
(millions $) 2012 2013 2014 2015 2016
Operating Income from Continuing Operations $5.0 -$10.6 $1.9 $17.3 $33.5
Add: Spin Cost – Included in SGA
Add: Restructuring
$1.5 $3.2
$5.3
$7.3
Adjusted Operating Income from Continuing Operations $5.0 -$10.6 $3.4 $25.8 $40.8
Adjusted Operating Income from Continuing Operations as a %
of Sales
1.0% -2.1% .6% 4.3% 6.4%
Add: Employee Retirements – Included in SGA (1)
Add: Other Non-operational – Included in SGA (2)
$3.2 $5.0
$6.8
-$.5
$3.3
Adjusted Pro Forma Operating Income from Continuing
Operations before External Reverse Synergies
$8.2 -$5.6 $9.7 $29.1 $40.8
Deduct: External Reverse Synergies (3) -$1.3 -$1.3 -$1.2 -$0.4
Adjusted Pro Forma Operating Income from
Continuing Operations (3)
$6.9 -$6.9 $8.5 $28.7 $40.8
Adjusted Pro Forma Operating Income from
Continuing Operations as a % of Sales
1.3% -1.4% 1.6% 4.8% 6.4%
_____________________
(1) Estimated cost associated with the retirement and separation of people due to spin. Costs include that for salary, incentive compensation, performance shares, retirement contribution, and payroll tax.
(2) Includes: pre-tax airplane write-off $1.2M and gain from sale of idle property of $1.7M in FY’14.
(3) Adjusted pro forma operating income includes external reverse synergies representing estimated increases to the cost structure necessitated by the split into two companies. For example, pre-spin Kimball had one board of directors, and such
costs were allocated to Furniture and Electronics. Post spin, there are two boards with each company experiencing a cost increase merely because of the separation. Other examples include IT expenditures and certain insurance cost among
others. The $1.3M per year reflected in the table above is a mid-point of a range estimated to be from $1.0M to $1.5M adjusting the adjusted pro forma operating income from continuing operations to reflect this estimated increase in cost
structure post spin. In addition to external cost, internal reverse synergy cost also exist and are embedded in the calculation of Operating Income from continuing operations reducing income. Different than external cost, these costs do not
have to be separately deducted in this reconciliation because by way of the discontinued operation calculation this cost increase remains within the computed Operating Income from continuing operations. As an example for this type of cost,
pre-spin Kimball had an SEC financial reporting function, and such costs were allocated to Furniture and Electronics. Post spin, there are two separate functions experiencing a cost increase as it takes more resource to perform this function
for two separate companies than one. This cost increase is estimated to be $500k to $1M. So in total, it is estimated that reverse synergy cost will increase cost structure post spin by $1.5 to $2.5M per year as already reflected in the
adjusted results included in the reconciliation above.
Note: We had formerly excluded Supplemental Employee Retirement Plan (SERP) expense from adjusted pro forma operating income. We
are no longer excluding SERP because it does not have a material impact on the trend of operating income. The annual amounts of SERP
expense now included in adjusted pro forma operating income are $1.7M in FY’13, $2.6M in FY’14, and $0.6M in FY’15 and none in FY’12 &
FY’16.
QUARTERLY NON-GAAP RECONCILIATION (UNAUDITED)
24
(1) We had formerly excluded Supplemental Employee Retirement Plan (SERP) expense from adjusted pro forma operating income. We are no longer excluding SERP because it does not have a material impact on the trend of operating income. The
quarterly amounts of SERP expense (income) that are included in adjusted operating income are $0.3 million in Q2’16, $0.1 mil lion in Q3’16, $0.2 million in Q4’16, $0.4 million in Q1’17, and $0.0 million in Q2’17. Because SERP is no longer excluded,
and that was the only pro forma adjustment during the quarters presented, we are no longer reporting pro forma figures for these periods.
(millions $) Q2’16 Q3’16 Q4’16 Q1’17 Q2’17
Adjusted Operating Income – see non-GAAP reconciliation above $12.0 $7.1 $10.8 $15.5 $13.0
Median Effective Income Tax Rate for Trailing Four Quarters 37.4% 38.1% 37.3% 37.2% 36.2%
Median Income Tax Expense $4.5 $2.7 $4.0 $5.8 $4.7
Net Operating Profit After-Tax (NOPAT) $7.5 $4.4 $6.8 $9.7 $8.3
Average Capital (Total Equity plus Total Debt) $139.9 $143.7 $147.4 $152.6 $158.0
Adjusted Return on Capital (annualized) 21.5% 12.2% 18.4% 25.5% 21.1%
(millions $) Q2’16 Q3’16 Q4’16 Q1’17 Q2’17
Operating Income, as reported $10.0 $4.3 $9.5 $17.3 $13.0
Pre-tax Restructuring (Gain) Expense $2.0 $2.8 $1.3 -$1.8
Adjusted Operating Income $12.0 $7.1 $10.8 $15.5 $13.0
Adjusted Operating Income as a % of Sales (1) 7.3% 4.7% 6.6% 8.8% 7.7%
QUARTERLY NON-GAAP RECONCILIATION (UNAUDITED)
25
(millions $) Q2’16 Q3’16 Q4’16 Q1’17 Q2’17
Net Income, as reported $6.5 $2.8 $6.3 $11.0 $8.7
Restructuring After-Tax Expense (Income) $1.2 $1.6 $0.8 -$1.1
Adjusted Net Income – used in Free Cash Flow Calculation $7.7 $4.4 $7.1 $9.9 $8.7
Capital Expenditures -$3.0 -$4.3 -$3.0 -$2.5 -$3.5
Depreciation and Amortization $3.8 $3.8 $3.8 $3.9 $4.0
Non-Cash Stock Compensation $1.4 $1.2 $1.4 $1.8 $1.5
Change in Working Capital -$3.9 $15.7 -$3.5 $.7 $5.3
Adjusted Free Cash Flow $6.0 $20.8 $5.8 $13.8 $16.0