Somnigroup International Inc. · NYSE:SGI
Somnigroup International — Tempur Pedic International — Investor Presentation (October 2009)
82 slides from Somnigroup International's investor presentation, Oct 22, 2009
Slide 1: Tempur-Pedic: The most highly recommended bed in America
. <-TEMPUR-PEDIC The most highly recommended bed in America.
Slide 2: Barry Hytinen, Vice President
Barry Hytinen Vice President
Slide 3: Webcast and Agenda
Webcast participants may email questions to: investor.relations@tempurpedic.com Agenda
Slide 4: Note Regarding Trademarks and Forward-Looking Statements
Note Regarding Trademarks, Trade Names and Service Marks: Tempur, Tempur-Pedic, The DeluxeBed by Tempur-Pedic, The ClassicBed by Tempur-Pedic, The GrandBed by Tempur-Pedic, The TEMPUR- Cloud Supreme, The TEMPUR-Cloud, The RhapsodyBed by Tempur-Pedic, The AdvantageBed by Tempur-Pedic, The Bella Fina
Slide 5: Mark Sarvary, President & Chief Executive Officer
Mark Sarvary President & Chief Executive Officer
Slide 6: Tempur-Pedic Overview
Tempur-Pedic Overview
Slide 7: Unique Range of Mattresses and Pillows Using Tempur Material
Unique Range Of Mattresses And Pillows Utilizing The Proprietary Pressure Relieving Tempur Material The Grandbed by Tempur-Pedic ® The RhapsodyBed by Tempur-Pedic ® The DeluxeBed by Tempur-Pedic ™ The AdvantageBed by Tempur-Pedic ™ The TEMPUR-Cloud ™ Supreme The SymphonyPillow by Tempur-Pedic ® The
Slide 8: Company Thesis
Company Thesis ® Established: Worldwide leader in specialty mattresses and premium mattresses Ø Leader in the $5B premium segment of the $13B global mattress market ® Differentiated: Consumer preferred, branded product line Ø Most highly recommended brand by owners, most desired brand for non-owners
Slide 9: Independent and Internal Research Confirms Tempur-Pedic Is Preferred
Independent And Internal Research Confirms Tempur-Pedic Is A Preferred Product Source: The 2008 and 2009 Gallup Consumer Mattress Market Study and Update In its October 2009 issue hot off the press, Consumer Reports released the results of a survey in which 17,000 people rated their mattresses. The
Slide 10: Strong Management Team
Strong Management Team With > 150 Years Running Large, International Businesses
Slide 11: Subsidiaries and Third Party Structure
HB subsidiary HB Third Porty ye. Gs TEMPUR-?EDIC
Slide 12: State-of-the-Art Vertically Integrated Manufacturer
Denmark (500K sq ft) Duffield, VA (500K sq ft) Albuquerque, NM (800K sq ft) State-of-the-Art Vertically Integrated Manufacturer u Highly automated, ISO-certified plants u > $200 million invested
Slide 13: Performance
Performance
Slide 14: Strategic Priorities
Strategic Priorities u Maintain a reasonable cushion to financial covenants u Improve cost structure to maximize results in 2009 and to set stronger base for u Improve share versus relevant competitive set, primarily premium and specialty u Set stage for growth in 2010 and beyond Ø Improve retail ef
Slide 15: Progress on 2009 Priorities
Progress on 2009 Priorities u Maintain a reasonable cushion to financial covenants ü Reduced debt by >$100 million year to date (September 2009) ü Lowered Debt to EBITDA ratio to <2.0 times vs. our 3.0 times bank covenant u Improve cost structure to maximize results in 2009 and to set stronger base
Slide 16: Industry Review
Industry Review
Slide 17: Industry Situational Assessment
Industry Situational Assessment u Mattress industry experiencing unprecedented downturn, though the market remains large u 2008 represents the worst year on record for the bedding industry; 2009 still down u Consumer credit, while still available, has tightened u Retailer bankruptcies u Many competi
Slide 18: Historically, a Steadily Growing Industry
Historically, A Steadily Growing Industry Units (In Thousands) Dollars (In Millions) Source: 2008 and 2004 Annual ISPA Report of Sales and Trends
Slide 19: Recent Trends Remain Weak and Unprecedented
Recent Trends Remain Weak And Unprecedented Source: 2009 ISPA Sales Report ISPA Performance (vs. Prior Year)
Slide 20: Long-term Growth of Specialty & Premium Mattress Segments
Long-term Growth Of Specialty & Premium Mattress Segments Source: 2008 ISPA Sales Report Note: Premium mattress category defined as $1,000+ Specialty Share Premium Share
Slide 21: Tempur-Pedic Opportunity & Strategy
Tempur-Pedic Opportunity & Strategy
Slide 22: Very Strong Brand Awareness Among Premium Buyers
2004 2006 2008 2004 2006 2008 2004 2006 2008 2004 2006 2008 Very Strong Brand Awareness, Particularly Among Premium Buyers Source: The 2008 and 2009 Gallup Consumer Mattress Market Study and Update +28% +3% +0% +4% All U.S. Prospective Buyers U.S. Premium Prospective Buyers
Slide 23: Strategic Research Summary
Strategic Research Summary u Tempur-Pedic owners like their beds much better than spring mattress owners Ø Recommend to a friend (top box): Tempur-Pedic: 65%, Spring 24-27% Source: Tempur-Pedic research
Slide 24: Strategic Research Summary
Strategic Research Summary u Tempur-Pedic owners like their beds much better than spring mattress owners Ø Recommend to a friend (top box): Tempur-Pedic: 65%, Spring 24-27% u Tempur-Pedic also has very strong perception among the general population Ø Most comfortable: Tempur-Pedic 41% vs Spring 21-2
Slide 25: Strategic Research Summary
Strategic Research Summary u Tempur-Pedic owners like their beds much better than spring mattress owners Ø Recommend to a friend (top box): Tempur-Pedic: 65%, Spring 24-27% u Tempur-Pedic also has very strong perception among the general population Ø Most comfortable: Tempur-Pedic 41% vs Spring 21-2
Slide 26: Strategic Research Summary
Strategic Research Summary u Tempur-Pedic owners like their beds much better than spring mattress owners Ø Recommend to a friend (top box): Tempur-Pedic: 65%, Spring 24-27% u Tempur-Pedic also has very strong perception among the general population Ø Most comfortable: Tempur-Pedic 41% vs Spring 21-2
Slide 27: Strategic Research Summary: Very Small Market Share
Strategic Research Summary …..and yet Tempur-Pedic has a very small market share Source: 2007 Data - Furniture/Today market research (2008 Bedding Yearbook - Nov. 24, 2008)
Slide 28: Our goal is to become the world's favorite mattress and pillow brand
Our goal is to become the world’s favorite mattress and pillow brand.
Slide 29: How Will We Achieve This Goal?
How Will We Achieve This Goal? 1. Make Sure Everyone Knows They Would Sleep Better On Tempur 2. Make Sure There Is A Tempur Bed And Pillow That Appeals To Everyone 3. Make Sure That Tempur Is Available To Everyone 4. Make Sure Tempur Continues To Deliver The Best Sleep …and make sure our cost struct
Slide 30: Tempur Vision
Tempur Vision People who sleep on Tempur sleep better than those who don’t. Our goal is to become the world’s favorite mattress and pillow brand. To achieve our goal we will: 1. Make sure everyone knows they would sleep better on Tempur 2. Make sure there is a Tempur mattress and pillow that appeals
Slide 31: Implementing The Strategy
Implementing The Strategy
Slide 32: Tempur Vision
People who sleep on Tempur sleep better than those who don’t. Our goal is to become the world’s favorite mattress and pillow brand. To achieve our goal we will: 1. Make sure everyone knows they would sleep better on Tempur 2. Make sure there is a Tempur mattress and pillow that appeals to everyone 3
Slide 33: Make Sure There Is a Tempur Mattress That Appeals to Everyone
1. “It’s too expensive” 2. “It’s too firm” 3. “It’s for ‘other people’” (e.g. older, back pain, etc.) Make Sure There Is A Tempur Mattress And Pillow That Appeals To Everyone Why isn’t Tempur-Pedic already the favorite mattress?
Slide 34: Enormous Potential for Growth Within Current Price Ranges
There Is Enormous Potential For Growth Within The Price Ranges We Currently Compete In Source: Tempur-Pedic estimates based on ISPA, Traqline, and management estimates The AdvantageBed by Tempur-Pedic ™ The ClassicBed by Tempur-Pedic ® Queen Mattress $1,299 Queen Mattress $1,699 49% Retail Price Poi
Slide 35: Why isn't Tempur-Pedic already the favorite mattress?
1. “It’s too expensive” 2. “It’s too firm” 3. “It’s for ‘other people’” (e.g. older, back pain, etc) Make Sure There Is A Tempur Mattress And Pillow That Appeals To Everyone Why isn’t Tempur-Pedic already the favorite mattress?
Slide 36: Most Premium Mattress Buyers Prefer Soft / Medium
Most Premium Mattress Buyers Prefer Soft / Medium Source: 2009 SMI/Alcott Mattress Attitude & Usage Study Premium = Will spend $1,000+ for my next mattress set Firm Soft / Medium 51% 49% 48% 52%
Slide 37: Major Research-Driven New Product Program Initiated 9/08
Initiated A Major Research-Driven New Product Program In 9/08 Concept Creation Development & Testing Manufacturing Ramp-Up Commercial- ization Design Consumer Research
Slide 38: Unprecedented Product Research
Unprecedented Product Research u 15 months of consumer research and development u 6 separate rounds of consumer testing u Over 1,150 consumer prototype evaluations u Tested against strong marketplace basket of competitors u Tested via in-home consumer sleep evaluations u Tested among premium buyers
Slide 39: Innovation Research: Blind Sensory Room
Innovation Research: Blind Sensory Room
Slide 40: Innovation Research: Visual Design Room Layout
Innovation Research: Visual Design Room Layout
Slide 41: Research Results Among Consumers Who Previously Rejected Tempur-Pedic
Research Results Are Clear - Among Consumers Who Previously Rejected Tempur-Pedic Source: 2009 Tempur-Pedic company research Note: % of people rating a 6 or 7 on a 7 point scale. Better Than Competition , Different From Classic
Slide 42: TEMPUR-Cloud Supreme: 4th Quarter 2009
TEMPUR-Cloud™ Supreme: 4th Quarter 2009 $1,999 Queen Mattress Featuring our latest formula, TEMPUR- ES™
Slide 43: TEMPUR-Cloud: 1st Quarter 2010
TEMPUR-Cloud™: 1st Quarter 2010 $1,499 Queen Mattress Featuring our latest formula, TEMPUR- ES™
Slide 44: Improved Brand Architecture
TEMPUR® Collection featuring TEMPUR ® material on top AdvantageBed ClassicBed DeluxeBed BellaFina Bed CelebrityBed TEMPUR- HD® C ollection featuring TEMPUR - HD ® material on top RhapsodyBed BellaSonna Bed AlluraBed GrandBed Firm Initial Feel Excellent Pressure Relief Very Supportive Also Introduced
Slide 45: Working on Next Generation of Products
Our Sensation mattress line has a unique, dynamic support base We Are Currently Working On Our Next Generation Of Products And Product Improvements u Our R&D teams are capable of designing products for nearly any consumer requirement u We continue to use consumer research as a foundation
Slide 46: Why isn't Tempur-Pedic already the favorite mattress?
1. “It’s too expensive” 2. “It’s too firm” 3. “It’s for ‘other people’” (e.g. older, back pain, etc.) Make Sure There Is A Tempur Mattress And Pillow That Appeals To Everyone Why isn’t Tempur-Pedic already the favorite mattress?
Slide 47: Tempur-Pedic Is For Everyone
u Tempur-Pedic is rightly associated with the relief its unique support provides people with back and neck pain… u But, Tempur-Pedic owners are extraordinarily satisfied - and the satisfaction doesn’t vary by age or medical condition u Furthermore, desire for Tempur-Pedic beds is greatest among the
Slide 48: Brand Consideration Is Strongest Among Younger Consumers
Brand Consideration Is Strongest Among Younger Consumers u Which One Brand Are You Most Likely To Buy Next? Source: The 2008 and 2009 Gallup Consumer Mattress Market Study and Update
Slide 49: Tempur Vision
People who sleep on Tempur sleep better than those who don’t. Our goal is to become the world’s favorite mattress and pillow brand. To achieve our goal we will: 1. Make sure everyone knows they would sleep better on Tempur 2. Make sure there is a Tempur mattress and pillow that appeals to everyone 3
Slide 50: Leveraging The Passion Of Our Owners
u On average, Tempur-Pedic owners tell 14 people about their mattress during their first year of ownership u Consumers today trust recommendations from friends, and even strangers, more than advertising from businesses u New advertising campaign designed to communicate that Tempur-Pedic is for every
Slide 51: Unleashing The Power Of Owner Satisfaction & Recommendations
Unleashing The Power Of Owner Satisfaction & Recommendations
Slide 52: Tempur Vision
People who sleep on Tempur sleep better than those who don’t. Our goal is to become the world’s favorite mattress and pillow brand. To achieve our goal we will: 1. Make sure everyone knows they would sleep better on Tempur 2. Make sure there is a Tempur mattress and pillow that appeals to everyone 3
Slide 53: Make Sure Tempur Is Available To Everyone
Make Sure Tempur Is Available To Everyone u Expanding points of distribution Ø Opportunity for distribution growth in the US: Ø Potentially 500 - 1,500 incremental doors Ø Significant opportunity for growth in other developed markets Ø Potentially 1,500 - 2,000 incremental doors Ø Currently laying g
Slide 54: Make Sure Tempur Is Available To Everyone
Make Sure Tempur Is Available To Everyone
Slide 55: Tempur Vision
People who sleep on Tempur sleep better than those who don’t. Our goal is to become the world’s favorite mattress and pillow brand. To achieve our goal we will: 1. Make sure everyone knows they would sleep better on Tempur 2. Make sure there is a Tempur mattress and pillow that appeals to everyone 3
Slide 56: Make Sure That Tempur Continues To Deliver The Best Sleep
Make Sure That Tempur Continues To Deliver The Best Sleep u Tempur is developing new technologies to accurately measure the physical characteristics of mattresses u This is correlated with consumer sensory research to set design parameters for new materials and mattresses
Slide 57: Tempur-Pedic: The most highly recommended bed in America
. <-TEMPUR-PEDIC The most highly recommended bed in America. _—— <-TEMPUR-PEDIC
Slide 58: Dale Williams, Executive Vice President & CFO
Dale Williams Executive Vice President & Chief Financial Officer
Slide 59: TPX Financial Overview
TPX Financial Overview
Slide 60: TPX Net Sales
u Difficult economy negatively affected revenues u Trends improving for two consecutive quarters ($ in millions) For a discussion of the Company’s performance, please refer to the Company’s press release for 3Q09 results and the Company’s prior 10K and 10Q filings. TTM Sept YTD Sept TPX Net Sales
Slide 61: Significant International Segment
For a discussion of the Company’s performance, please refer to the Company’s press release for 3Q09 results and the Company’s prior 10K and 10Q filings. $213M $373M 3Q09 YTD Sales Significant International Segment
Slide 62: Sell Globally Through Four Primary Channels
International Domestic For a discussion of the Company’s performance, please refer to the Company’s press release for 3Q09 results and the Company’s prior 10K and 10Q filings. 3Q09 YTD Sales Sell Globally Through Four Primary Channels
Slide 63: Mattresses Drive Global Business, Yet Significant Revenue In Other Product Lines
International Domestic For a discussion of the Company’s performance, please refer to the Company’s press release for 3Q09 results and the Company’s prior 10K and 10Q filings. 3Q09 YTD Sales Mattresses Drive Global Business, Yet Significant Revenue In Other Product Lines
Slide 64: Cost Imperative: Optimize Cost Structure
Cost Imperative: Make Sure Our Cost Structure Is Optimized To Enable Marketing And Product Development Investments u Achieve Gross Profit of ~50% with Operating Margin at ~25% of Net sales u Invest ~9% of sales in advertising and ~1% of sales in R&D u Optimize effective tax rate u Optimize the use o
Slide 65: TPX Gross Margin
u Channel and product mix has historically been a source of margin pressure u In 1 st year of 4 year productivity program to drive +700 basis points of margin u We plan to invest in our product line to drive value and continue our technological leadership For a discussion of the Company’s performanc
Slide 66: Significant Effort Across The Business To Improve COGS
Significant Effort Across The Business To Improve COGS
Slide 67: TPX Operating Margin
u Operating Margin has been under pressure due to sales declines u Over the long term, our target for Operating Margin is ~25% Ø Sales growth drives leverage of fixed overheads in SG&A Ø Maintain investment in advertising and R&D For a discussion of the Company’s performance, please refer to the Com
Slide 68: Manufacturing Capacity In Place To Grow Sales ~3x
u We estimate our manufacturing capacity is approximately $2.3 billion of net sales u Based on current plant utilization and net sales levels, believe we could triple manufacturing output with existing plant capacity u In addition, see opportunities to increase capacity ~5% annually above that witho
Slide 69: Depreciation & Amortization vs. Capital Expenditures
u Multi-year add back to Net Income as Depreciation and Amortization should exceed Capital Expenditures u Invested in manufacturing footprint 2001-2006 u Anticipate annual capital expenditures of $20 million or less for the foreseeable future ($ in millions) For a discussion of the Company’s perform
Slide 70: Low Levels Of Capital Should Drive High Returns
For a discussion of the Company’s performance, please refer to the Company’s press release for 3Q09 results and the Company’s prior 10K and 10Q filings. Note: For a reconciliation of 2008 Adjusted Net Income, Return on Assets, Return on Invested Capital and a reconciliation of non-GAAP to GAAP finan
Slide 71: We Are Focused On Driving Balance Sheet Metrics
u We are focused on driving working capital u Significant opportunities exist over the long term u Long term goal of 25 day cash cycle We Are Focused On Driving Balance Sheet Metrics
Slide 72: Days Sales Outstanding
u Strict credit policies u Will continue to drive future improvements For a discussion of the Company’s performance, please refer to the Company’s press release for 3Q09 results and the Company’s prior 10K and 10Q filings. Long Range Target 3Q09 Days Sales Outstanding
Slide 73: Days Payable
u Have been taking early pay discounts, which shortens payables cycle è longer term, see opportunities to extend For a discussion of the Company’s performance, please refer to the Company’s press release for 3Q09 results and the Company’s prior 10K and 10Q filings. Long Range Target 3Q09 Days Payabl
Slide 74: Days Inventory
u Significant improvement in Inventory investment u Optimizing distribution network to drive further improvement u Inventory too low as of 3Q09 è Plan to modestly increase inventory in 4Q09 For a discussion of the Company’s performance, please refer to the Company’s press release for 3Q09 results an
Slide 75: Funded Debt to EBITDA Covenant
1. For a discussion of the Company’s performance, please refer to the Company’s press release for 3Q09 results and the Company’s prior 10K and 10Q filings 2. Please see Appendix A to this presentation for a reconciliation of GAAP to Non-GAAP measures and calculation of Funded Debt to EBITDA ratio. u
Slide 76: Enhanced Earnings Power In Our Business Model
Note 1: For a discussion of the Company’s performance, please refer to the Company’s press release for 3Q09 results and the Company’s prior 10K and 10Q filings Note 2: Management estimates and assumptions. u We believe the actions we have taken have substantially improved our profitability u Ongoing
Slide 77: Tempur-Pedic: The most highly recommended bed in America
. <-TEMPUR-PEDIC The most highly recommended bed in America.
Slide 78: Appendix
Appendix
Slide 79: Reconciliation of EBITDA to Net Income and Funded Debt to Total Debt
Reconciliation of EBITDA to Net Income and Funded debt to Total debt Non-GAAP Measures The Company provides information regarding EBITDA and Funded debt which are not recognized terms under GAAP (Generally Accepted Accounting Principles) and do not purport to be alternatives to Net income as a measu
Slide 80: Reconciliation of Adjusted Net Income to Net Income
Reconciliation of Adjusted Net Income to Net Income TTM 2009 and 2008 and Adjusted Earnings Per Share for 2008 Non-GAAP Measures The Company provides information regarding Adjusted Net income and Adjusted Earnings per share which are not recognized terms under GAAP (Generally Accepted Accounting Pri
Slide 81: Calculation Of Return On Assets
The Company provides information regarding Return on Assets as the Company believes it provides investors with useful information. Return on Assets is calculated by dividing Net Income/Loss by Total Assets as reported in the Company's 10K and 10Q filings. No adjustment for dividends was made in this
Slide 82: Calculation Of Return On Invested Capital
The Company provides information regarding Return on Invested Capital as the Company believes it provides investors with useful information. We consider our Invested Capital to be Total Assets less Accounts Payable and Accrued Expenses & Other Current Liabilities as reported in the company's 10K and
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