fourth quarter and fy 2011 highlights -...
TRANSCRIPT
Dinesh C. Paliwal - Chairman, President and CEOHerbert Parker - Chief Financial Officer
August 10, 2011
Fourth Quarter and FY 2011 Highlights
Forward Looking Information
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Except for historical information contained herein, the matters discussed are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act. One should not place undue reliance on these statements. We base these statements on particular assumptions that we have made in light of our industry experience, as well as our perception of historical trends, current market conditions, current economic data, expected future developments and other factors that we believe are appropriate under the circumstances. These statements involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements, including but not limited to: (1) our ability to maintain profitability in our automotive division if there are delays in our product launches which may give rise to significant penalties and increased engineering expense; (2) the loss of one or more significant customers, or the loss of a significant platform with an automotive customer; (3) warranty obligations for defects in our products; (4) fluctuations in currency exchange rates, particularly with respect to the value of the U.S. Dollar and the Euro; (5) our ability to successfully implement our global footprint initiative, including achieving cost reductions and other benefits in connection with the restructuring of our manufacturing, engineering, procurement and administrative organizations; (6) fluctuations in the price and supply of raw materials including, without limitation, petroleum, copper, steel, aluminum, synthetic resins, rare metals and rare-earth minerals, or shortages of materials, parts and components; (7) the inability of our suppliers to deliver products at the scheduled rate and disruptions arising in connection therewith; (8) our ability to attract and retain qualified senior management and to prepare and implement an appropriate succession plan for our critical organizational positions; (9) our failure to implement and maintain a comprehensive disaster recovery program; (10) our failure to comply with governmental rules and regulations, including the Foreign Corrupt Practices Act and U.S. export control laws, and the cost of compliance with such laws; (11) our ability to maintain a competitive technological advantage through innovation and leading product designs; (12) our failure to maintain the value of our brands and implementing a sufficient brand protection program; (13) acceptance of our mid-platform infotainment systems by original equipment manufacturers and consumers; (14) the outcome of pending or future litigation and other claims, including, but not limited to, the current stockholder and Employee Retirement Income Security Act of 1974 lawsuits; (15) our ability to enforce or defend our ownership and use of intellectual property rights; and (16) other risks detailed in Harman International Industries, Incorporated (“Harman” or “the Company”) ) Annual Report on Form 10-K for the fiscal year ended June 30, 2011 and other filings made by Harman with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statement except as required by law. These supporting slide materials also make reference to the Company’s sales backlog. The Company's sales backlog reflects anticipated net sales from formally awarded new programs and openreplacement programs, less phased-out and cancelled programs. The sales backlog may be impacted by various assumptions embedded in the calculation, including vehicle production levels on new and replacement programs, foreign currency exchange rates and the timing of major program launches.
Significant Recent News
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HARMAN Acquires MWM Acoustics
HARMAN Wins Ferrari Innovation Award
Acoustic technology provider for audio and video conferencing systems, automotive active noise control systems, enterprise telephony, and Bluetooth™ headset / hands-free acoustic devices
Blue Chip Customers: Cisco, GM, Jawbone, Magna, Polycom and market leading smart phone and smart tablet makers
Ferrari Chairman Luca di Montezemolo and CEO Amedeo Felisa presented the award to HARMAN for its “high-end audio, navigation and telematics”
Quantum Logic™: HARMAN introduced its surround-sound technology, new Ferrari FF model the first production vehicle to include this unique technology
Automotive awarded business backlog reached all time high level of $14.5B. Scalable Platform to $4.4B
Group Overview – Q4 FY11
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Core Businesses
Automotive Division$2,738M
Navigation, Multimedia, Telematics & Connectivity for High and Mid Systems
High performance, energy efficient audio & noise management systems
Automotive Audio
Automotive Infotainment
$649M$2,089M
Global Leader Global Leader
Professional Division$613M
Premium solutions for recording, broadcast, tour & installed sound
Professional Audio
Global Leader
LTM Rev ~$3.8 B ~12,000 Employees
Consumer Division$420M
Consumer Audio
Premium Niche
Home, multimedia, and mobile audio solutions
Financial Performance – FY11 Q4 and YTD
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($ in millionsexcept EPS) Q4 '11 Q4 '10 % Change FY11 FY10 % ChangeHARMAN
Sales 1,031 851 21% 3,772 3,364 12%Operating Income 35 30 17% 211 116 82%
% Margin 3.4% 3.5% 5.6% 3.4%EPS 0.34 0.30 2.08 0.85
AutomotiveSales 760 627 21% 2,738 2,468 11%
Operating Income 31 33 ‐7% 190 105 80%% Margin 4.1% 5.3% 6.9% 4.3%
ProfessionalSales 171 142 20% 613 523 17%
Operating Income 30 24 28% 97 80 21%% Margin 17.8% 16.7% 15.8% 15.3%
ConsumerSales 100 81 24% 420 373 13%
Operating Income (5) (7) 33% 7 3 NM% Margin ‐4.7% ‐8.5% 1.7% 0.7%
Full YearQuarter Year‐Over‐Year
Income and EPS are non-GAAP measures and exclude non-recurring items
Consistent Improvement Continues – Seven Quarters of Growth At Top and Bottom Line
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2,743
2,926
3,174
3,364
3,453 3,481
3,592
3,772
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
241
274
292
320328
14
83
189
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
LTM Revenues $M LTM EBITDA* $M
LTM – Last Twelve Months * Non-GAAP, excluding restructuring expenses, from continuing operations
434400
190
350
Actual FY09 Actual FY10 Actual FY11 FY11 Target
79 90
153 158
Actual FY08 Actual FY09 Actual FY10 Actual FY11
R&D/Engineering Over Sales (%)
Global Footprint Index (GFI %)
China 5-year Growth Plan ($M)
STEP Change Savings to Date ($M)
Note: Savings earned based on Fiscal ’08 base line
Quarterly Updates Annual Updates
Quarterly Updates Annual Updates
Note: The Global Footprint Index is defined as the sum of percentage of Capex, Sourcing and Workforce in Best-Cost Countries
11.49.6 9.0
8.1 8.0
ActualFY09
ActualFY10
FY11Target
ActualFY11
FY12Target
Dashboard: Long Term Growth Drivers
400667269250
199
333
200
ActualFY10
FY11Target
FY11Actual
FY13Target
FY15Target
Organic growth Inorganic Growth
600
1000
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Executing On All Four Strategic Pillars
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Market Leader with Aggressive Growth Plans
1. Growing Automotive AudioProfit and Market Leader in the industry with $2.8B order backlogGrowing e.g. Toyota. BMW, Fiat and new awards for Chinese automakers
2. Growing Smart Infotainment Profit and Market Leader in the industry with $11.7B order backlog900k ‘Aha’ Mobile Social Media (MSM) units sold to automakersLaunched Toyota Entune™ in NA and EU - scalable platform
3. Growing Emerging MarketsBRIC Countries sales up by 68% to over $400MBuilding three new world class factories in China (2) and Mexico
4. Getting Costs and Capital Structure Right$434M in permanent cost savings, exceeding $400M Step Change targetTotal liquidity up by $154m to $1.5 billion. Dividend increase to $0.30
Automotive Division Highlights - Orders
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Innovation and Execution Drive Continued Growth
Infotainment Solutions (total order backlog $11.7B)Chrysler Group and Fiat vehicles worldwide – Scalable Platform ‘Mid’, approx $2B
VW Group: VW, Audi, Skoda and Seat – Scalable Platforms ‘High’, approx $1.6B
Daimler AG new Mercedes-Benz models
BMW Group
Branded Audio (total order backlog $2.8B)
Maserati to supply QuantumLogic surround technology
Ferrari to supply JBL Professional Audio for the FF, 458 Italia Spider and California
BMW Group for the new MINI Countryman, BMW 1 and 3 Series
China’s BYD for its E6 electric MPV vehicle (GreenEdge)
Joint Venture of China’s BYD & Daimler Benz (GreenEdge)
China’s GEELY Motors for its new luxury segment sedan, the Emgrand EC8
Automotive Division Highlights – SOP Launches
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Technology Drives Cutting-Edge Innovation
Infotainment Solutions launched inToyota (Entune™) in NA and EU – Scalable Platform
New Audi A7, A6 Limousine, Q3 and A1.
Mercedes-Benz CLS as well as Becker Map Pilot
Porsche Panamera and Cayenne
Branded Audio solutions forLand Rover Range Rover ‘Autobiography’ and throughout the model range
Ferrari´s new FF model platform
New Mercedes-Benz CLS
New Peugeot 508
Consumer Division Highlights
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Speed of Innovation Drives Profitable GrowthInnovation accelerating growth
Several new product launches in FY 2011New products represent more than 37% of revenue for Q4
Rapid sales growth in Brazil, India and China
New technologies, features and category expansion accelerate revenue growth across all BIC markets
Strengthening channels
BDS Home System continues gaining share in Europe and now launches in Americas and Asia
Expanded JBL-Roxy headphone business with new products including Quiksilver and covering both headphones and multimedia
Apple Retail Stores / Disney Retail Stores
Madison Square Garden, NY / Florida Marlins Baseball Stadium, FL
Paramount Studios / Warner Bros LA
Carnegie Hall, NY
HARMAN Soundcraft Si Compact wins MIPA 2011 award for Live Sound Console, the 10th industry award for Si Series in two years
65th Tony Awards use HARMAN Studer Consoles and JBL speakers
Expanding Our World-Class Professional Audio Footprint
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Professional Division Highlights
Awards and Recognition:
JBL tops reader poll in 2011 Pro AV Brand Leaders in two loudspeaker categories.
JBL speakers tops retail sales in MI SalesTrak dealer survey.
JBL Professional PRX600 Series named “Best Loudspeaker for the Staging Market” at June InfoComm.
JBL Control 65P/T Pendant Speaker best in class by Commercial Integrator Magazine.
HARMAN manufacturing facility, in Tijuana certified as one of Mexico’s Top 100 Great Places to Work.
Expanding Our World-Class Professional Audio Footprint
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Professional Division Highlights
Liquidity and Capital Structure
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Total Liquidity Increased to $1.5 Billion
$6
$921
$543
2011 June due 2012 Oct
Un-drawn
Cash
R/C availability
Cash & Short-term Investments
1.25% Convertible Senior Notes
12-24 months Capital / Cash Allocation Considerations
Return to investment grade and reduce cost of capital
Continue to pay dividends at current or higher level
Invest in organic growth (ROIC~20+%)
Invest in CAPEX projects with short-term pay back
Strategic acquisitions with accretive EPS
Buy-back shares
Capital Allocation Considerations
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Cash fromDivestitures + Operations + Financing
Investment opportunities with ROIC >20%
Return capital Yes / No Yes Invest in profitable growth
Share Repurchase Organic GrowthReduce
leverage Inorganic Growth
Growth: CAPEX, Working Capital
Growth: M&A and JVs
Return cash to shareholders as dividend
FY 2011 Highlights
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Q4 sales increase 21% and Operating Income up 17%, full year up 82%
LTM EBITDA $328M or 8.7% of sales. Seven quarters of profitable growth!
Total liquidity up by $154m to $1.5 B. Dividend increases from $0.10 to $0.30
$434M in permanent cost savings, exceeding $400M Step Change target
Rapid adoption of scalable platform; 37% of $11.7B infotainment awards
Technology Leadership and Innovation pipeline drives double digit growth
$5.0B in new automotive awards in FY11 increases backlog to record $14.5B
900k ‘Aha’ Mobile Social Media (MSM) units sold to automakers
BRIC Countries sales up by 68% to over $400M
To support growth, building three new world class factories in China (2) and Mexico
Strong Momentum for Shareholder Value Creation
Infotainment Division– Pure-play technology innovator
– Sharpened focus on:
Profitability
Emerging Market Growth
Research and development
– Accelerate advanced driver safety systems (i.e. camera-based system solutions, NHTSA – RCD)
Lifestyle Division– Pure-play branded audio leadership
– Expands revenue opportunities
– Improve take rate of car audio
– Accelerates time-to-market
– Scale leverages R&D, procurement, consumer research and marketing
– Integrated marketing and promotion
Rationale for Change – Profitable Growth
Market Leadership in All Divisions for Pricing Power
– HARMAN serves affluent consumers whose lifestyle demands luxury and high technology
– HARMAN’s innovation leadership delivers simplicity, portability, and connectivity
– HARMAN’s world-class lifestyle brands set the bar for high-performance audio products
Uniquely Positioned to Address Convergence in Car, Home and Office
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Transformed Structure Aligned with Markets
HARMAN FY2011Revenue:$3,772MEBIT: $211M, 5.6%
EBITDA: $328M, 8.7%FY 2011 Structure FY2011 New Structure
Branded Audio
Consumer Audio
Luxury Home Audio
Infotainment
Professional
AUTOMOTIVE
Revenue: $2,738MEBIT: $190, 6.9%
CONSUMER
Revenue: $420MEBIT: $7M, 1.7%
PROFESSIONAL
Revenue: 613MEBIT: $97M, 15.8%
PROFESSIONAL
Revenue: $596MEBIT: $94M, 15.8%
LIFESTYLE
Revenue: $1,087MEBIT: $109M, 10.0%
INFOTAINMENT
Revenue: $2,089MEBIT: $88M, 4.2%
Unaudited 17
$3,364
$3,772
$4,023
FY10A FY11A FY12B
$1,540
$1,836$2,089
FY09A FY10A FY11A
$1,024
$1,087
$1,196
FY10A FY11A FY12B
$477$504
$596
FY09A FY10A FY11A
$2,855$3,364
$3,772
FY09A FY10A FY11A
$838
$1,024$1,087
FY09A FY10A FY11A
New Structure - Revenues
HARMAN INFOTAINMENT
LIFESTYLE PROFESSIONAL
Unaudited 18
($86)
$116 $211
-3.0%
3.4%5.6%
FY09A FY10A FY11A
($140)
$1 $88
-9.1%
0.1%4.2%
FY09A FY10A FY11A
$42
$111 $109
5.1%
10.9% 10.0%
FY09A FY10A FY11A
$61
$76 $94
12.7%
15.0%15.8%
FY09A FY10A FY11A
New Structure – EBIT
Unaudited
HARMAN INFOTAINMENT
LIFESTYLE PROFESSIONAL
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2009 – AVNU was founded -Ethernet AVB
1998 – MOST was founded
MOST = Media Oriented Systems Transport
Distributing Content from “Within Car” to a Cloud-Based “Connected Car”
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Playing a Broader Rolein the Technology Ecosystem
ContentAggregator
EmbeddedCell phone
Mode ofConnection
ContentProvider
Vehicle Head Unit
USB
WiFi
BT
WirelessCarrier
Data over voice
DUN/SPP
“MiFi”
App
licat
ions
Applets
SMS
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HARMAN Connects to the ConsumerAnytime, Anywhere, Anyplace
• User preferences• User behavior• Location services• Predictive search
• Voice network• Adaptive Text-to-Speech (TTS)• Publishing API• Mobile Advertising
API = Application Programming Interface
In the Car On the Go
At Home, Office, or at Concert Hall
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