Leggett & Platt, Incorporated · NYSE:LEG
Leggett & Platt — Investor Day (November 2007)
41 slides from Leggett & Platt's investor day presentation, Nov 14, 2007
Slide 1: Changing Course – Investor Day
CHANGING COURSE Investor Day November 14, 2007 Exhibit 99.2
Slide 2: Forward Looking Statements
Forward Looking Statements Forward Looking Statements Statements in this presentation that are not historical in nature are “forward-looking.” These statements involve uncertainties and risks, including the company’s ability to improve operations and realize cost savings, price and product competiti
Slide 3: Presentation Topics
Presentation Topics Presentation Topics Leggett is Changing Course Why Change? New Strategic Direction Key Changes Expected Results Presentation Team Dave Haffner, President and CEO Karl Glassman, Executive VP and COO Matt Flanigan, Senior VP and CFO Dave DeSonier, VP Strategy and IR
Slide 4: Executive Summary
Executive Summary Executive Summary Becoming Better Stewards of Shareholders’ Capital Historically: Revenue Driven Future: TSR Driven (Total Shareholder Return) Phase 1 (2 - 3 Years) : Improve Returns on Assets Increase Free Cash Flow Phase 2 (2010+) : Profitably Grow > GDP
Slide 5: Why Change?
Why Change? Why Change? Poor Return to Shareholders Inefficient Use of Capital Not Hitting Financial Targets Parts of Portfolio Weighing Us Down
Slide 6: State of the Company
State of the Company State of the Company Strengths Market Leadership Low Cost Converters Product Development Customer Relationships > 20% Foreign Generate Lots of Cash Weaknesses Too Patient Overly Optimistic “We Can Fix It” Strategic Planning
Slide 7: Agenda: Key Changes
Agenda: Key Changes Agenda: Key Changes Phase 1: Clean Up Portfolio & Implement More Rigorous Strategic Planning (2-3 Years) Success = TSR Role-Based BU Management Stronger BU-Level Strategic Planning Eliminate Over 1/5 of Portfolio Higher Returns on Base Portfolio 39% Dividend Increase + Buybacks P
Slide 8: Success = TSR
Success = TSR Success = TSR TSR = ( Price + Dividends) / Initial Price Target Top 1/3 of S&P 500 Several Levers: Earnings = ( Revenue) x ( Margin) Cash Yield = Dividends + Repurchases P/E Multiple Exec and BU Incentives Linked to TSR
Slide 9: Role-Based BU Management
Grow 34% Core 39% Fix 9% Divest 18% Role-Based BU Management Role-Based BU Management Different Goals: Grow: Profitable Growth Core: Maximize Cash Fix: Rapidly Improve Based on Strategy and Returns Capex Skewed 2007 Expected Revenue
Slide 10: Rigorous BU Strategic Planning
Rigorous BU Strategic Planning Rigorous BU Strategic Planning More Formal Process Influences BU “Role” Assess BU Position and Advantages 3-Year Plan to Achieve 10% TBR / yr
Slide 11: Eliminate 1/5 of Portfolio Revenue
Eliminate 1/5 of Portfolio Revenue Eliminate 1/5 of Portfolio Revenue $900m Divested: Aluminum & 6 BUs $100m Pruned from Store Fixtures BU $200m from Poor Performing Plants Aim to Finish by End of 2008
Slide 12: Fix the Store Fixtures BU
“Fix” “Fix” the Store Fixtures BU the Store Fixtures BU Shrink to Higher Profitability Core Prune ~$100m (20%) of Low-Margin Sales Eliminate ~$180m (31%) of Production Capacity • Closing 4 of 14 Facilities; Utilization Increases to ~80% Urgency; Hard Targets and Deadlines Attain Return WACC by Q4’08
Slide 13: Prune Low Profitability BUs
$904 $854 $52 $16 Prune Low Profitability BUs Prune Low Profitability BUs 30% 40% 50% 60% 70% 80% 90% 100% Sales Assets EBIT Cash Flow Divest Fix Core + Grow Net Trade Sales; Assets = Receivables + Inventory + Net PPE + Goodwill + Intangibles; EBIT excludes Non-Recurring items; Cash Flow = EBITDA +
Slide 14: Higher Returns on Base Portfolio
Higher Returns on Base Portfolio Higher Returns on Base Portfolio BU Bonus Linked to Returns Initiatives: Product Development Pricing Discipline Cost Reduction Consolidation; Prune Underperforming Plants Overhead If BU Return < WACC, 1 Year to Improve
Slide 15: Send More Cash to Shareholders
Send More Cash to Shareholders Send More Cash to Shareholders Generate Much More Free Cash Increase Dividend by 39% To $1.00 / year (from $0.72 / year currently) Requires Additional ~$50m in Cash / Year • More Than Offset by Reduction in Capex, Acquisitions 10m Shares / yr Standing Authorization Mai
Slide 16: Phase 2: Profitably Grow > GDP
Phase 2: Profitably Grow > GDP Phase 2: Profitably Grow > GDP Minimal Growth for 2-3 Years (Phase 1) Focus is “Clean Up”, High Return Longer Term: 4-5% Growth (Phase 2) Base Opportunities Identified in Strategic Plans Possible New BUs; Must Meet Rigorous Criteria Seek Growth, But Not at Expense of T
Slide 17: Agenda: Expected Results
Agenda: Expected Results Agenda: Expected Results Significant Restructuring Costs Lower Sales, Higher Margin 40% Lower Capex, Acquisitions Free Cash More Than Doubles 3-Yr TSR Exceeds Target Levels
Slide 18: Restructuring-Related Costs
Restructuring-Related Costs Restructuring-Related Costs Cost Estimates Not Yet Finalized $150 - 300 million, Virtually All Non-Cash Update 4Q Guidance Once Resolved Issue 2008 Guidance on Jan 24 Annual Guidance Only, Updated Quarterly
Slide 19: Sales: $4.3B in 2010
4.3 5.2 Sales Sales $4.3B in 2010 $4.3B in 2010 Sales in $B 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.4 "Divest" "Fix" Poor Plants Future Growth ASSUMPTIONS: • Exit ~ $1.2 B in Sales • 3% / year Total Sales Growth • Modest Acquisitions; No New BUs
Slide 20: EBIT Margin: 11% by 2010
11 7.5 EBIT Margin EBIT Margin 11% by 2010 11% by 2010 Expected EBIT Margin % "Divest" "Fix" Poor Plants Initiatives Eliminate Poor Performing Plants in Otherwise Healthy BUs • Product Dev. • Efficiency • Purchasing • Pricing excl non-recur
Slide 21: ~40% Lower Capex and Acquisitions
170 124 137 157 160 135 125 125 117 290 252 95 46 120 46 181 83 105 50 159 148 128 164 166 50 25 '01 '04 07E 10E Capex Acquisitions ~40% Lower Capex and Acquisitions ~40% Lower Capex and Acquisitions 3yr: $510m 3yr: $860m
Slide 22: Free Cash Should More Than Double
Free Cash Should More Than Double Free Cash Should More Than Double $B ’03-’06 ’07-’10 Cash from Ops 1.6 1.8 On Smaller Asset Base Divestitures 0.1 0.5 .08 Prime Foam; 0.40 Future Capex (0.6) (0.5) 20% Lower in Future Acquisitions (0.4) (0.2) Assumes No New BUs Free Cash Flow 0.7 1.6 > 2 Times as La
Slide 23: New Strategy, Same Principles
New Strategy, Same Principles New Strategy, Same Principles Changing Success = TSR Portfolio Roles Divesting Several BUs Increased Urgency 39% Dividend Increase Less Capex, Acquisition Modest Growth Targets New Financial Metrics Strategic Plan Process Annual Guidance Continuing Integrity Down-to-Ear
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Slide 25: Back Up Slides
BACK UP SLIDES BACK UP SLIDES
Slide 26: New Mindset is Required
New Mindset is Required New Mindset is Required Future Future Recent History Recent History Overall Goal: High TSR Revenue Growth Capex: Judiciously Allocated Not Adequately Constrained BU Success: Cash Flow Return Revenue & EBIT Growth Portfolio Mgmt: Role Based on Strategy “1 Size Fits All” Acquis
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Slide 29: Vv
Vv
Slide 30: Expectations by Portfolio Role
Expectations by Portfolio Role Expectations by Portfolio Role All: Credible Path to 10% TBR Required, else Exit Grow: Provide Profitable Growth ; Return > WACC Invest Capital in Competitively Advantaged Positions Identify Major Organic, M&A, or Rollup Investments Core: Send Cash To Corporate; Return
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Slide 32: Growth Discipline
Growth Discipline Growth Discipline Strat Plan Process Identifies “Grow” BUs Advantaged Positions in Strategically Attractive Markets Charter Desire Growth, But Not At Expense of TSR Growth Capex Purposely Skewed to the “Grow” BUs BUs Encouraged to Explore R&D and Mktg Investments Acquisitions Allow
Slide 33: BU Incentives / Bonus
BU Incentives / Bonus BU Incentives / Bonus Historical: EBIT based 2008: Based on EBIT and Return - new emphasis on returns - linked to BU TBR and LEG TSR Goals 2009+: Linked to BU Strategic Plans
Slide 34: New Financial Metrics
New Financial Metrics New Financial Metrics TSR: Total Shareholder Return Total Benefit Investor Realizes from Owing Our Stock Stock Price + Dividends TBR: Total BU Return Analogous to TSR, but at BU Level BU Value + Free Cash Flow; (Value = EBITDA x Multiple) ROGI: After-tax Return on Gross Investm
Slide 35: Formulae for Financial Metrics
Formulae for Financial Metrics Formulae for Financial Metrics ( Earnings x Multiple) + Dividends TSR = --------------------------------------------------- = Total Shareholder Initial Market Value Return ( EBITDA x Multiple) + FCF TBR = ------------------------------------------------- = Total BU Ret
Slide 36: TSR: Total Shareholder Return
TSR: Total Shareholder Return TSR: Total Shareholder Return Beginning price Quarterly dividends Ending price $23.90 $22.96 $0.16 $0.17 $0.17 $0.17 $0.94 of Price Change Dividends + Price Change 0.67 + 0.94 22.96 = 7.0% Beginning of year price = TSR = Leggett’s TSR for 2006
Slide 37: Several Levers Drive TSR
LEG, 2006 Revenue 4% 1. Earnings + Margin 5% Market Cap 2. P/E Multiple (8)% + Share Count 3% (e.g. share repurchases) 3. Cash Return Dividend Yield 3% = TSR 7% Several “Levers” Several “Levers” Drive TSR Drive TSR
Slide 38: TBR: Total Business Return
TBR: Total Business Return TBR: Total Business Return TSR TBR Change in Stock Price Dividend Yield Change in Value Free Cash Flow Yield CORPORATE value creation: Market based calculation of TSR BUSINESS UNIT value creation: Internal calculation of TBR • EBITDA • EV/EBITDA multiple (= TSR multiple) •
Slide 39: TSR and TBR are Analogous
TSR and TBR are Analogous TSR and TBR are Analogous TBR = Total Business Return = Return Corporate Receives on Its Investment Leggett TSR Business Unit TBR EBITDA EV Multiple x 9.1 x 8.0 x9.1 x8.0 x8.0 x8.0 Value Debt (955) (980) OPER Market Cap LEVERS # Shares Outst. Share Price $22.96 $23.90 3-yr
Slide 40: Anticipated Future Results
Anticipated Future Results Anticipated Future Results TSR of 12-15% per year Dividend Payout of 50-60% Sales Growth (in Phase 2) of ~ 4-5% / year ~11% EBIT Margin Net Debt-to-Cap of 30-40%
Slide 41: Future Portfolio Composition
Future Portfolio Composition Future Portfolio Composition % Sales EBIT Mgn Residential ~50% 10-11% Commercial ~1/6 ~ 9% Industrial ~1/6 8-9% Specialized ~1/6 10-11% Total Company 100% ~11% ~ 30% Foreign Sales (vs. ~ 21% today) Segment margins based on Trade + Intersegment Sales; Company margin based