Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Presentation (February 2015)
55 slides from Armstrong World Industries's investor presentation, Feb 23, 2015
Slide 1: Armstrong World Industries Investor Presentation
Armstrong World Industries Investor Presentation February 23, 2015 Exhibit 99.4
Slide 2: Forward-looking statements
Our disclosures in this presentation, including without limitation, those relating to future financial results guidance and the separation of our flooring business from our building products business, and in our other public documents and comments contain forward-looking statements within the meanin
Slide 3: Basis of Presentation Explanation
Basis of Presentation Explanation • When reporting our financial results within this presentation, we make several adjustments. Management uses the non-GAAP measures below in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. A
Slide 4: Investment Highlights
Investment Highlights Diversified $2.5 billion global building products company with leading positions in most key markets and products Driving value creation through: – Recovery in North America • U.S. Commercial is our most profitable business with 35-45% incremental margins – Growth in Internatio
Slide 5: Global Business Overview
Global Business Overview
Slide 6: Armstrong's Global Manufacturing Footprint
AUSTRALIA Braeside Somerset, KY West Plains, MO Jackson, MS Vicksburg, MS Beech Creek, PA Titusville, PA Lancaster, PA Stillwater, OK Jackson, TN Oneida, TN Beverly, WV Warren, AR South Gate, CA Kankakee, IL USA - Flooring Plant Armstrong’s Global Manufacturing Footprint St. Helens, OR Marietta, PA
Slide 7: 2014 Business Segment and End-Use Profile
45% 60% 40% Renovation in Americas is ~80% 2014 Business Segment and End-Use Profile Diversified revenue profile across products and end-use applications $715 $510 $1,290 $2,515 20% 25% 10% 35% 5% 65% 35% 40% 5% 15% North America
Slide 8: EBITDA Performance
EBITDA Performance EBITDA growth in all businesses despite challenging macro environment 2010 EBITDA 2014 EBITDA $384M $263M Worldwide Ceilings Worldwide Resilient Wood 2010 2014 2010 2014 2010 2014 Sales $1.1B $1.3B 14.1% $735M $715M (2.6%) $480M $510M 6.4% EBITDA as % of Sales 22% 26% + 350 bps 10
Slide 9: Positioned for a North American Commercial Recovery
• North American plants located in key distribution areas Over 20 plants in North America – aids in distribution, recycling of product and customer relationships • Ability to capitalize on increased volume Current plants are running at ~70% capacity utilization; can support increase in volume A 10%
Slide 10: Positioned for Global Growth
• Emerging markets growth investments Completed three plants in China; 2 commercial flooring plants and mineral fiber ceilings plant with co-located metal manufacturing capability Completed mineral fiber ceilings plant in Russia • Global manufacturing footprint we need for the coming years is in pla
Slide 11: Company timeline and key actions
New CEO and CFO Leverage recap and $800M special dividend $500M special dividend Announced $150M cost out initiative Cost out initiative raised to $165M and then $185M Cost out initiative concluded > $200M in 2012 Simplex ceilings acquisition (Architectural Specialties) Divestiture of Cabinets and P
Slide 12: Creating Two Independent Industry Leaders
Creating Two Independent Industry Leaders [ Armstrong World Industries ] • Global commercial suspended ceiling solutions provider • #1 market position in all major geographies • Poised to deliver margin expansion driven by recovery in North American commercial • Recently completed investments in exp
Slide 13: Separation Details and Closing Conditions
Principal Closing Conditions Structure and Timing Transition Management • Final approval of Armstrong’s Board of Directors • Receipt of opinion of counsel regarding the tax-free nature of the separation • Effectiveness of a Form S-1 filing with the Securities and Exchange Commission Separation Detai
Slide 14: Armstrong
Armstrong (i) Sey, Inspiring: Great Spaces”
Slide 15: Armstrong's Business Priorities
• Protect and grow our North American businesses • Optimize our portfolio through ongoing evaluation of strategic opportunities by business, by geography and across the company • Build on our core competency of driving specifications in the architect and designer communities while working with our d
Slide 16: Armstrong Ceilings Overview
Armstrong Ceilings Overview
Slide 17: Global Ceilings Revenue and Product Mix
Segment % of Business Global Ceilings Revenue and Product Mix Commercially oriented business with diverse end-use applications Sales by End-use Segment Office Retail Education Healthcare Office 30% - 40% Retail 15% - 25% Education 15% - 25% Transportation / Other 10% - 20% Healthcare 5% - 15% (1) Co
Slide 18: WAVE – Armstrong/Worthington 23 Year JV
• Seamless customer relationship – customers buy an Armstrong ceiling system • ROIC >100% • Over $290 million in cash dividends to Armstrong from 2011 to 2014 • 8 Manufacturing plants in 5 countries • Products and services help drive specifications and deliver efficiency to contractors WAVE – Armstr
Slide 19: Sales and margin growth despite market challenges
Sales and margin growth despite market challenges • Sales up 14% despite flat global volumes • EBITDA margins up 350 bps – price, mix, earnings from WAVE and cost improvement Global Ceiling Sales and EBITDA
Slide 20: Regional Mix
Regional Mix Global improvements led by North America • ~20% sales growth in UK, Russia and Middle East • Offset by market contraction in Continental Europe • Significant Russia plant start-up investment during 2014 • Sales +15% despite lower volumes • EBITDA margin expands 1100 bps – price, mix, ma
Slide 21: Architectural Specialties (AS) Overview
Architectural Specialties (AS) Overview Enhancing our value to core customers in a differentiated way • Specialty ceiling systems targeted at customer need for a design-oriented aesthetic • Same customer as mineral fiber ceilings, often combined on the same project • Many different materials and pro
Slide 22: The AS Financial Equation
Big Penetration Opportunity Attractive Stand-Alone Economics Total Ceilings Portfolio Synergies The AS Financial Equation An attractive ROIC-accretive global growth engine within the ceilings segment • $2B market opportunity • Highly incremental – fragmented regional competition • High incremental m
Slide 23: Case Study: One World Trade Center
“Freedom Tower” - Conde Nast Recently won the ceilings supply for Conde Nast, an anchor tenant for this iconic building, taking 25% of the floors Why Armstrong: • Only company able to combine our acoustical tile, Architectural Specialties and grid solutions to effectively meet customer’s challenging
Slide 24: Global Ceilings Summary
• Leverage global reach and scale • Win specification game Multi-product offering … 1-stop shopping Supported with design services • Remodel opportunity • Prepared for demand uptick Global Ceilings Summary
Slide 25: Armstrong Flooring Overview
Armstrong Flooring Overview
Slide 26: Global Flooring Revenue Mix
Residential 65% Remodel 70% Remodel 75% Global Flooring Revenue Mix Balanced exposure to Residential and Commercial recovery Commercial 35% Total Business New 30% New 25% Commercial Residential Office 10% - 20% Retail 15% - 25% Education 20% - 30% Healthcare 20% - 30% Other 10% - 20% Commercial Sale
Slide 27: Geographic and Product Mix
• > 90% of sales in North America – the core earnings driver of the business • Mix of Commercial and Residential in North America • Residential is a North American business – business outside of North America is all Commercial Geographic and Product Mix 2014 Sales by Geography Total = $1.2B 2014 Sal
Slide 28: Global Flooring Total Sales and EBITDA
• Sales down <2% due to volume declines and divestiture of the Patriot distribution business • EBITDA margins improve 320 bps despite volume declines and investments in China Global Flooring Total Sales and EBITDA Remixing the portfolio to higher margin products
Slide 29: Resilient Flooring
Resilient Flooring North American performance drives segment profit growth • Sales down <4% despite double digit volume declines • Margins expand bps despite negative volume leverage (manufacturing productivity, mix and price all improve) • Sales are up 5% as weakness in Australia is offset by growt
Slide 30: Wood – A Cyclical Business
Wood – A Cyclical Business Focusing on higher mix products and channels • Leadership share in North America • At trough volumes in 2011 and 2012, EBITDA margins were +10% and ROIC was ~8% • Nearly $80M in commodity inflation in the last two years
Slide 31: Our Strategy
Our Strategy Residential Flooring Extend leadership share and returns Where To Play: • Significantly increase share in fast-growing LVT • Protect our leading share position in Sheet Vinyl • Expand accessories and floor care solutions Commercial Flooring Where To Play: • Win in the Healthcare, Educat
Slide 32: Retail Case Study
Retail Case Study – Why Armstrong Product Solutions • Design Leadership • Brand Recognition • LVT in all stores / BBT in most stores • Bamboo & striated visual • Environmental statement (bio-based tiles) • Local access, fast installation and easy to maintain Partnership Consultative • Service • Reli
Slide 33: Armstrong Flooring – Summary
• Resilient flooring in North America is a valuable franchise with strong returns and significant incremental margins • Focusing on higher mix/margin products and channels • Growth opportunities in the Pacific Rim • Better utilizing our global footprint to lower costs and speed innovation • Exited u
Slide 34: Inspiring Great Spaces
Inspiring Great Spaces” @y mstrong
Slide 35: Renewed Focus on Innovation
• Dynamic strategy driven by customer needs • Deploying new product development, R&D, and technical resources globally to the highest value creation opportunities Development of global and multi- generational product platforms Patent applications increased more than 5x since 2010 • Differentiation t
Slide 36: Leadership in Product Innovation
Inspiring Great Spaces through Leadership in Product Innovation Complete Data Center Ceiling Systems Prelude XL Max 15/16" Suspension System Now Supports point loads up to 200 lbs. using 3/8" threaded rod and integrated hanging clips to provide: • Flexible and reconfigurable overhead cable tray and
Slide 37: Mix Evolution - Ceilings Americas
Ultima / Optima Fissured / Cortega Acoustics (NRC) Light Reflect Recycle Content Anti Mold/Mildew Warranty 0.70 / 0.90 0.90 86% / 71% Yes 30 Years Acoustics (NRC) Light Reflect Recycle Content Anti Mold/Mildew Warranty 0.55 0.81 / 0.82 41% No 1 Year Mix Evolution - Ceilings Americas Innovation enabl
Slide 38: Mix Revolution - Residential Floor Tile
Alterna - Allegheny Slate – Copper Mountain Luxe with FasTak – Groveland - Natural Standard residential tile offering in 2008 • Sales CAGR ~5x volume growth during this time period • Direct Margin $’s grew at a CAGR of >33% Mix Revolution - Residential Floor Tile Innovation led growth driving “mix u
Slide 39: Inspiring Great Spaces
Inspiring Great Spaces” @y mstrong
Slide 40: Focused on Value Creation
• Positioned to benefit from North American commercial recovery • Capture growth in established international and emerging markets • Maintain a strong balance sheet Focused on Value Creation ROIC focused
Slide 41: Adjusted EBITDA History
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Est. Adjusted EBITDA History Sales $2.94B $2.97B $2.81B $2.35B $2.34B $2.43B $2.40B $2.51B $2.52B $2.53 - $2.63B Non-cash U.S. Pension impact ($50M) ($59M) ($63M) ($58M) ($51M) ($26M) ($12M) ($2M) $1M $22 - $28M Adjusted EBITDA $350M $379M $349M $261
Slide 42: Cash Flow History
Cash Flow History Significant cash investments and returns to shareholders • Created and maintained an efficient balance sheet • Cash generation aided by low cash tax rate from Chapter 11 Net Operating Loss (NOL) carry-forward • Prioritized investments in capital expenditures to drive global growth
Slide 43: Well-positioned and efficient balance sheet
Well-positioned and efficient balance sheet Balance Sheet – 12/31/14 Net Debt $860M LTM EBITDA $384M Leverage 2.2x • No significant maturities until 2018 • Considerable covenant headroom • Sufficient liquidity • Well funded US pension plan; no contributions in >20 years Current Leverage
Slide 44: Path to Growth – Adjusted EBITDA margin
Margin on Incremental Volume Path to Growth – Adjusted EBITDA margin Incremental margins on additional volume can drive margin improvement Ceilings 30% - 45% Resilient 20% - 35% Wood 20% - 30%
Slide 45: Investment Highlights
Investment Highlights Diversified $2.5 billion global building products company with leading positions in most key markets and products Driving value creation through: – Recovery in North America • U.S. Commercial is our most profitable business with 35-45% incremental margins – Growth in Internatio
Slide 46: Financial Overview Appendix
Financial Overview Appendix
Slide 47: EBITDA Bridge – Full Year 2014 vs. Prior Year
EBITDA Bridge – Full Year 2014 vs. Prior Year
Slide 48: Key Metrics – Guidance 2015
2015 Estimate Range (1) 2014 (2) Variance Net Sales (3) 2,525 to 2,625 2,515 0% to 4% Operating Income (4) to (15%) to (1%) EBITDA to (10%) to 0% Earnings Per Share (5) $2.05 to $2.45 $2.38 (14%) to 3% (1) Guidance is presented using 2015 budgeted foreign exchange rates (2) 2014 results are presente
Slide 49: 2015 Financial Outlook
ABP Segment AFP Segment Cash Taxes/ETR Capital Spending Exclusions from EBITDA Corporate Segment 2015 Financial Outlook Sales (1) $1,300-$1,350 million; EBITDA $335-$360 million Sales (1) $1,225-$1,275 million; EBITDA $80-$100 million EBITDA ($65) – ($70) $45 - $55 million; Adjusted long-term ETR of
Slide 50: Full Year Adjusted EBITDA to Reported Net Income
2014 2013 V Full Year Adjusted EBITDA to Reported Net Income EBITDA– Adjusted $384 $372 $12 Depreciation and Amortization (118) (103) (15) Operating Income – Adjusted $266 $269 ($3) Non-cash impact of U.S. pension (2) Foreign Exchange Movements (1) (2) Impairments - Cost Reduction Initiatives Operat
Slide 51: Inspiring Great Spaces
Inspiring Great Spaces” @y mstrong
Slide 52: Matthew J. Espe, Chief Executive Officer and President
Matthew J. Espe, Chief Executive Officer and President In July 2010, Matthew J. Espe was appointed CEO of Armstrong World Industries, Inc., in Lancaster, Pennsylvania. Matt brings 30 years of experience in sales, marketing, distribution and management with global manufacturing businesses to Armstron
Slide 53: Segment CEOs: Don Maier and Victor Grizzle
Don Maier, Executive Vice President, CEO Armstrong Floor Products Worldwide Victor Grizzle , Executive Vice President, CEO Armstrong Building Products Victor “Vic” Grizzle is executive vice president and CEO, Armstrong Building Products, in Lancaster, Pennsylvania. Mr. Grizzle has 23 years of experi
Slide 54: Thomas J. Waters, Vice President Treasury & Investor Relations
Thomas J. Waters, Vice President Treasury & Investor Relations Thomas J. Waters is Vice President, Treasury and Investor Relations of Armstrong World Industries, Inc. Mr. Waters joined Armstrong in 1998 as Manager, Capital Markets. Since then he has held the positions of Director of Investor Relatio
Slide 55: Investor Relations Contact Information
Investor Relations Contact Information Kristy Olshan, CPA, MBA Investor Relations Manager Armstrong World Industries 2500 Columbia Avenue Lancaster, PA 17604 P: 717-396-6354 F: 717-396-6128 E: ksolshan@armstrong.com Thomas J. Waters VP, Treasury and Investor Relations Armstrong World Industries 2500
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