Somnigroup International Inc. · NYSE:SGI
Somnigroup International — Tempur Pedic International — Investor Day (November 2010)
80 slides from Somnigroup International's investor day presentation, Nov 12, 2010
Slide 1: Tempur-Pedic
. <-TEMPUR-PEDIC The most highly recommended bed in America.
Slide 2: Barry Hytinen
Barry Hytinen Senior Vice President
Slide 3: Agenda
Agenda Webcast participants may email questions to: investor.relations@tempurpedic.com November 11, 2010
Slide 4: Forward-Looking Statements
Forward-Looking Statements This presentation may contain “forward-looking statements,” within the meaning of federal securities laws, which include information concerning the Company’s plans, objectives, goals, strategies, future revenues or performance, financing needs and other information that is
Slide 5: Mark Sarvary
Mark Sarvary President & Chief Executive Officer
Slide 6: Key Topics
Key Topics u Overview Of Tempur-Pedic u Industry Update u Tempur-Pedic Strategy u Sources Of Growth In 2011 And Beyond
Slide 7: Overview Of Tempur-Pedic
Overview Of Tempur-Pedic
Slide 8: Unique Range Of Products Utilizing Proprietary Tempur Material
The Sensation Mattress by Tempur ® Unique Range Of Products Utilizing The Proprietary Pressure Relieving Tempur Material The CloudPillow by Tempur-Pedic ® The ComfortPillow by Tempur-Pedic ® The TEMPUR-Cloud ™ Supreme The Advanced Ergo Adjustable Base by Tempur-Pedic ™ The Rhapsody Pillow by Tempur-
Slide 9: Company Thesis
Company Thesis u Established : Worldwide leader in specialty mattresses and premium mattresses Ø Leader in the $5B premium segment of the $13B global mattress market Ø Leader in the fastest growing segments u Differentiated : Consumer preferred, branded product line Ø Most highly recommended brand b
Slide 10: 2010 Year-To-Date Performance
3 rd Quarter Year-To-Date Actual Variance to Prior Year Sales $813 M +39% Gross Margin 49.7% +280 bps Operating Margin 21.4% +470 bps Net Income $111 M +98% EPS $1.51 +104% Shares Repurchased 8.5 million 2010 Year-To-Date Performance For a discussion of the Company’s performance, please refer to the
Slide 11: Management Team In Place to Scale
Management Team In Place to Scale to World’s Favorite Mattress Brand
Slide 12: Expanding Global Presence
Expanding Global Presence Note: China was converted to a joint venture market effective in the first quarter of 2010. All other light green countries are subsidiary markets.
Slide 13: State-of-the-Art Vertically Integrated Manufacturer
State-of-the-Art Vertically Integrated Manufacturer Denmark (500K sq ft) Virginia (500K sq ft) New Mexico (800K sq ft) u Highly automated, ISO-certified plants u > $200 million invested u Significant opportunity to leverage infrastructure (only ~40% utilized)
Slide 14: Tempur-Pedic
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Slide 15: Industry Situational Assessment
Industry Situational Assessment u Mattress industry experiencing growth, but recovery is uneven u “Barbell” recovery appears to be playing out, though industry pricing is generally firm u Retailers report traffic continues to be below “normal” but “off the bottom” u Macro-economic environment progre
Slide 16: US Industry Annual Performance
‘84 - ‘06 ‘06 - ‘09 $ CAGR 7.5% (5.5%) Unit CAGR 2.3% (7.0%) 2010 YTD Sales +8.4% Units +10.3% After Years Of Decline, We Believe Significant “Pent Up Demand” Exists And Will Benefit Industry Sales For Several Years Units (In Thousands) Dollars (In Millions) Note 1: 2009 and 2004 Annual ISPA Report
Slide 17: Industry Growth Has Resumed in 2010
Industry Growth Has Resumed in 2010, Though “Comps” Are Relatively Easy Source: September 2010 ISPA Sales Report ISPA Performance vs. Prior Years by Month
Slide 18: Long-term Secular Shift To Specialty And Premium Has Resumed
Long-term Secular Shift To Specialty And Premium Has Resumed Source: 2009 ISPA Sales Report, ISPA Bedding Barometer Sep 2010, and management estimates Note: Premium mattress category defined as $1,000+ Specialty Share Premium Share u Industry sample year-to-date September 2010 sales performance Ø Sp
Slide 19: Tempur-Pedic Strategy
Tempur-Pedic Strategy
Slide 20: Goal: World's Favorite Mattress and Pillow Brand
Our goal is to become the world’s favorite mattress and pillow brand. Goal
Slide 21: Strong Preference For Tempur
Strong Preference For Tempur u Voted most comfortable mattress by US consumers Ø Tempur-Pedic 41% vs. Springs 21-29% u Highest rating for future purchase intent Ø Tempur-Pedic 26% vs. Springs 8-20% u Consumer Reports: #1 Mattress - “Would definitely buy again” Source: Consumer Reports October 2009 2
Slide 22: 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 23: Make Sure Everyone Knows They Would Sleep Better On Tempur
2004 2006 2008 2010 2004 2006 2008 2010 2004 2006 2008 2010 2004 2006 2008 2010 2004 2006 2008 2010 2004 2006 2008 2010 2004 2006 2008 2010 2004 2006 2008 2010 Make Sure Everyone Knows They Would Sleep Better On Tempur Source: The 2010 Gallup Consumer Mattress Market Study US Brand Awareness US Futu
Slide 24: Make Sure There Is A Tempur Mattress That Appeals To Everyone
US Mattress Feel Preference - % Consumers Who Prefer All Buyers Future Premium Buyers Firm 51% 48% Soft / Medium 49% 52% Source: 2009 SMI/Alcott Mattress Attitude & Usage Study Premium = Will spend $1,000+ for my next mattress set Make Sure There Is A Tempur Mattress And Pillow That Appeals To Every
Slide 25: Better Than Competition
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 u Cloud developed after utilizing extensive head-to-head research Make Sure There Is A Tempur Mattress And Pillow That Appeals To Everyone
Slide 26: TEMPUR-Cloud Collection: Already Our Best Selling Line
TEMPUR-Cloud™ Collection: Already Our Best Selling Line The TEMPUR-Cloud ™ Luxe $3,599 The TEMPUR-Cloud ™ Supreme $2,299 The TEMPUR-Cloud ™ $1,599 Price reflects Queen mattress
Slide 27: Make Sure There Is A Tempur Mattress And Pillow That Appeals
The CloudPillow by Tempur-Pedic ® The Sensation Mattress by Tempur ® Most successful international product launch Building on success of Cloud Collection Entry price point Ergo introduced The Ergo Adjustable Base by Tempur-Pedic ™ Make Sure There Is A Tempur Mattress And Pillow That Appeals To Every
Slide 28: Make Sure That Tempur Is Available To Everyone
Make Sure That Tempur Is Available To Everyone u Distribution gains Ø Flagship stores in Japan, China, emerging markets, and selected European markets u Expanding points of distribution Ø North America: potentially 500 - 1,500 incremental doors Ø International: potentially 2,000+ incremental doors M
Slide 29: Improved Brand Architecture
Price reflects Queen mattress Make Sure That Tempur Is Available To Everyone u Improved brand architecture
Slide 30: Newly Re-launched Website
Make Sure That Tempur Is Available To Everyone u Newly re-launched website
Slide 31: Make Sure Tempur Continues To Deliver The Best Sleep
Make Sure Tempur Continues To Deliver The Best Sleep u Increasing investment in R&D u Recent Innovations Ø TEMPUR- ES ™ material Ø Consumer research Ø Materials research Ø Product characterization Ø Sleep research
Slide 32: Sources Of Growth In 2011 And Beyond
Sources Of Growth In 2011 And Beyond
Slide 33: Driving Growth - Imperatives For 2011 And Beyond
u Maintain strong annual sales growth u Maintain healthy gross margins and EBIT growth u We will invest in those areas that will drive growth 1. Make sure everyone knows they would sleep better on Tempur – Increase awareness and preference in the US, Canada, Europe, and China 2. Make sure there is a
Slide 34: Growth From The North American Segment
Growth From The North American Segment
Slide 35: North American Growth Strategy
North American Growth Strategy u Capitalize on Cloud Collection’s full potential u Improve Ergo Adjustable attach rate u Improve and expand product range u Continue to invest in advertising to build awareness u Continue to invest in sales execution infrastructure u Resumption of category growth and
Slide 36: Capitalize On The Cloud Collection's Full Potential
3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 15% price increase Capitalize On The Cloud Collection’s Full Potential u Generally, new products have a significant ramp following distribution Note: This timeline is not exact. It is intended for illustrative purposes only.
Slide 37: Expand Ergo Adjustable Base Distribution And Attach Rates
Expand Ergo Adjustable Base Distribution And Attach Rates u 96% overall satisfaction by Ergo System owners u Recently extended adjustable product range with entry price point u Driving increased Ergo Adjustable Base attach rate The Ergo Adjustable Base by Tempur-Pedic ™ The Advanced Ergo Adjustable
Slide 38: New Product Development
New Product Development u New products and upgrades will be delivered in 2011
Slide 39: Continue To Advertise
Continue To Advertise u Investment will be maintained at 9% u Campaign will evolve to broaden consumer awareness of Tempur-Pedic’s product line breadth u Will be even more focused on expanding Tempur specific retailer advertising in 2011 Ø Highly successful program in 2010
Slide 40: Sales Execution Infrastructure
Sales Execution Infrastructure One-of-a-kind multichannel consumer marketing and selling strategy u Sales Ø Improved call cycles, increased training and stronger account management Ø Retail sales CRM to better track performance versus KPIs u eCommerce and Direct Ø World class selling platform Ø Sign
Slide 41: Industry, Specialty, And Tempur Preference
Industry, Specialty, And Tempur Preference u ISPA’s 2011 sales growth projection is +6% u Secular shift to specialty has resumed Ø This year, Specialty sales +30% as compared to Innersprings +3% u Future purchase intent for Tempur-Pedic now stands at 26%, up from 18% in 2008 u Tempur-Pedic’s share i
Slide 42: Capitalize On Canadian Acquisition
Capitalize On Canadian Acquisition Note 1: Total Retail - 2002 Economic Census; Comparison of US and Canada census data Note 2: Autos - Scotiabank Group, Global Auto Report; September 29, 2010 Note 3: Electronics - 2002 Economic Census; Comparison of US and Canada census data Note 4: Mattresses - Ma
Slide 43: Growth From The International Segment
Growth From The International Segment
Slide 44: Significant International Growth Opportunity Exists
Significant International Growth Opportunity Exists u Over next 5 years, we expect at least $300 million of International growth u Expect 65% of growth will come from four major markets Ø The European “Big 3” (France, Germany, UK) - represents 50% of European Union GDP Ø China 5 Year Sales Growth Ma
Slide 45: Tempur-Pedic
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Slide 46: Europeans Currently Spend Significantly Less On Premium Mattresses
Europeans Currently Spend Significantly Less On Premium Mattresses Than US Consumers Source: 3 rd party research study commissioned by Tempur-Pedic and management estimates Premium normalized to European pricing standards u US premium mattress category growth demonstrates opportunity in other market
Slide 47: Five Factors Account For The Difference Between US And Europe
Consumers’ ability to pay Consumers’ willingness to pay Retail structure Consumers’ mattress replacement cycle and size Manufacturer actions to develop premium Five Factors Account For The Difference Between The US And European “Big 3” Premium Mattress Markets • Lower income structures in Europe vs.
Slide 48: Spending On Premium Products In Europe Versus US
Spending On Premium Products In Europe Versus US u Europeans spend as much or more as US consumers on Premium Source: 3 rd party research study commissioned by Tempur-Pedic Note: Premium category varies by country Note: In 2000, the US Premium mattress share was ~31%
Slide 49: Five Factors Drive The Difference Between US And European Markets
Consumers’ ability to pay Consumers’ willingness to pay Retail structure Consumers’ mattress replacement cycle and size Manufacturer actions to develop premium Five Factors Drive The Difference Between The US And European “Big 3” Premium Mattress Markets • Lower income structures in Europe vs. US •
Slide 50: Five Factors Conclusion
Five Factors Conclusion Per Capita Spend u 60% of the gap between US and Europe, a potential additional $2.50 / capita driven by manufacturer actions Source: 3 rd party research study commissioned by Tempur-Pedic
Slide 51: Brand Awareness Will Be Increased In Europe
Brand Awareness Will Be Increased In Europe u Ad spend positively correlated with brand awareness and market share
Slide 52: Product Range Will Be Broadened And Strengthened
Mattresses Sleep Systems TEMPUR® Original Collection featuring supportive firmer feel Relaxation Supreme Signature Premium Zen Original Supreme Original Royal Original Deluxe Original TEMPUR® Sensation Collection featuring supportive traditional feel Relaxation Sensation Sensation Supreme Sensation
Slide 53: Cloud Collection To Begin International Rollout
Cloud Collection To Begin International Rollout In Early 2011 u Phased rollout by market during 2011 u 3-4 models / price points per market
Slide 54: Tempur-Pedic
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Slide 55: China: Summary Of Key Findings From Recent Research Study
China: Summary Of Key Findings From Recent Research Study u Substantial market potential for premium mattresses in four city focus Ø Existing premium retail market greater than $250 million u Already a significant potential customer base Ø 60 million people in the four city focus u Mattress preferen
Slide 56: China Plan
China Plan u Complete consumer testing to determine Tempur product range u Broaden product collection to meet market specific consumer needs u Adapt retail model to match local market u Quadruple store count by 2014 Management estimates
Slide 57: Potential For China To Grow 10x Or More Over Next Five Years
Potential For China To Grow 10x Or More Over Next Five Years $50 - $100 million Management estimates
Slide 58: Summary
Summary u 2009 Objective: Ø “Maintain A Reasonable Cushion To The Covenants” u 2010 Objective: Ø “Moving From Survive To Thrive”
Slide 59: Summary
Summary u 2009 Objective: Ø “Maintain A Reasonable Cushion To The Covenants” u 2010 Objective: Ø “Moving From Survive To Thrive” u 2011 Objective: Ø “Building The Foundation For The World’s Favorite Mattress And Pillow Brand”
Slide 60: Dale Williams
Dale Williams Executive Vice President & Chief Financial Officer
Slide 61: Financial Overview
Financial Overview
Slide 62: Net Sales
Net Sales u Negotiated difficult recession in 2008 - 2009 u 2010 rebound impacted by Cloud, AskMe, and modest industry growth ($ in millions) For a discussion of the Company’s performance, please refer to the Company’s 3 rd quarter 10Q filing and prior 10Kfilings. TTM Sept 10 YTD Sept 10
Slide 63: Mattresses Drive Global Business
Mattresses Drive Global Business, With Significant Revenue In Other Product Lines International North America 3Q10 YTD Sales u US mattress revenue up 46% in 2010, driven by Cloud collection u US “Other” up 52% as Ergo attach rates improving For a discussion of the Company’s performance, please refer
Slide 64: Gross Margin
Gross Margin u In 2 nd year of 4 year productivity program to drive +700 basis points of margin u We plan to invest in our product line to drive growth and continue our technological leadership Long Range Target 3Q10 YTD Sept 10 50%+ For a discussion of the Company’s performance, please refer to the
Slide 65: Significant Opportunity To Improve COGS
Significant Opportunity To Improve COGS
Slide 66: Operating Margin
Operating Margin u Operating margin benefiting from gross margin expansion u Sales growth drives leverage of fixed expenses in SG&A Long Range Target 3Q10 YTD Sept 10 For a discussion of the Company’s performance, please refer to the Company’s 3 rd quarter 10Q filing and prior 10Kfilings.
Slide 67: Excellent Cash Flow Dynamics With Significant Opportunity
Excellent Cash Flow Dynamics With Significant Opportunity To Continue Cash Cycle Improvement 3Q10 Long-term Long-term estimate is intended for illustrative purposes only. Figure not drawn to scale.
Slide 68: Depreciation & Amortization vs. Capital Expenditures
Depreciation & Amortization vs. Capital Expenditures u Multi-year add back to net income as D&A should exceed capex u Anticipate annual capex of $20 million or less for the foreseeable future ($ in millions) For a discussion of the Company’s performance, please refer to the Company’s 3 rd quarter 10
Slide 69: Low Levels Of Capital Should Continue To Drive High Returns
Low Levels Of Capital Should Continue To Drive High Returns Going Forward For a discussion of the Company’s performance, please refer to the Company’s 3 rd quarter 10Q filing and prior 10K filings. *Note: For a reconciliation of 2008 Adjusted Net Income, Return on Assets, Return on Invested Capital
Slide 70: Significant Operating Cash Flow With Commitment To Enhance Stockholder Value
Significant Operating Cash Flow With Commitment To Enhance Stockholder Value u Repurchased >30% of the company since 2005 Ø Diluted share count @ 12/04: ~103 million Ø Diluted share count @ 10/10: ~70 million For a discussion of the Company’s performance, please refer to the Company’s 3 rd quarter 1
Slide 71: 2011 First Look: Sales
2011 First Look: Sales u Anticipate 2011 will be another year of market share gains North America Cloud collection Ergo attach rates New products Advertising Macro Canada Other (pricing, new accounts) International Cloud and other new products New distribution Advertising / awareness Emerging market
Slide 72: 2011 First Look: Margins
2011 First Look: Margins u Anticipate 2011 will be another year of margin expansion partially offset by inflationary commodities outlook and marketing investments Gross Margin + Productivity program + Fixed cost leverage + Product mix - Commodities ? Geographic segment mix Operating Margin + Gross m
Slide 73: Intermediate Term Goals - 2014
Intermediate Term Goals - 2014 u $2 billion Sales u 25%+ Operating Margin u Cash / Stockholder value u World’s Favorite Mattress And Pillow Brand
Slide 74: Tempur-Pedic
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Slide 75: PANCAN Charitable Giving Drive
u 2010 Limited Edition My Tempur-Pedic Teddy Bear® u Supporting the fight against Pancreatic Cancer PANCAN Charitable Giving Drive
Slide 76: Tempur-Pedic
. <-TEMPUR-PEDIC The most highly recommended bed in America.
Slide 77: Appendix
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Slide 78: Non-GAAP Measures: Reconciliation of Adjusted Net Income
2008 2008 GAAP Net Income 58,868 Plus: Q408 Tax provision related to repatriation of foreign earnings 11,631 Adjusted Net Income 70,499 GAAP Earnings per share, diluted $ 0.79 Tax provision related to repatriation of foreign earnings $ 0.15 Adjusted Earnings per share, diluted $ 0.94 Reconciliation
Slide 79: Calculation Of Return On Assets
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 adjustmen
Slide 80: Calculation Of Return On Invested Capital
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 Liabil
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