Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Presentation (July 2014)
59 slides from Armstrong World Industries's investor presentation, Jul 28, 2014
Slide 1: Armstrong World Industries Investor Presentation
Armstrong World Industries Investor Presentation July 28, 2014 July 28, 2014
Slide 2: Forward-looking statements
Our disclosures in this presentation, including without limitation, those relating to future financial results guidance, and in our other public documents and comments contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Those statements provide our
Slide 3: Basis of Presentation
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. As
Slide 4: Investment Highlights
Investment Highlights Diversified $2.7 billion global building products company with leading positions in most key markets and productsDriving value creation through: Recovery in North AmericaU.S. Commercial is our most profitable business with 35-45% margins Growth in International MarketsExecuting
Slide 5: Global Business Overview
Inspiring Great Spaces @mstrong Global Business Overview
Slide 6: Armstrong Highlights
Armstrong Highlights 35 Manufacturing Facilities in 8 Countries 30% % of Sales from Innovative New Products Introduced in the Past 5 Years 8,600+ Team Members Worldwide Billion WorldwideSales 2.7 80% North American Commercial Distributors have been with AWI for 20+ years 100+ Countries have Armstron
Slide 7: Armstrong's Global Manufacturing Footprint
Armstrong's Global Manufacturing Footprint AUSTRALIABraeside Warren, ARSouth Gate, CAPensacola, FLKankakee, ILSomerset, KYWest Plains, MOJackson, MSVicksburg, MSMillwood, MVHilliard, OH St. Helens, ORLancaster, PAMarietta, PABeech Creek, PATitusville, PALancaster, PAStillwater, OKJackson, TNOneida,
Slide 8: 2013 Business Segment and End-Use Profile
2013 Business Segment and End-Use Profile Diversified revenue profile across products and end-use applications (CHART) $920 $535 $1,265 $2,720 45% 20% 25% 10% 65% 30% 5% 65% 35% 30% 5% 45% 20% * Residential products are sold in North America only North America R&R in Americas is closer to 80%
Slide 9: EBITDA Performance
(CHART) EBITDA Performance EBITDA growth in all businesses despite challenging macro environment 2010 EBITDA 2013 EBITDA $370M $310M Worldwide Ceilings Worldwide Resilient Wood 2010 2013 2010 2013 2010 2013 Sales $1.1B $1.3B 10.7% $1.0B $920M (9.7%) $480M $535M 11.2% EBITDA as % of Sales 22% 26% + 3
Slide 10: Key Milestones - Positive Momentum
Key Milestones - Positive Momentum Cost Management Initiatives Capital Market Activity Organic Investment Portfolio Management Management 2010 2011 2012 2013 2014 New CEO and CFO Leverage recap and $800M special dividend $500M special dividend Announced $150M cost out initiative Cost out initiative
Slide 11: Positioned for a North American Commercial Recovery
North American plants located in key distribution areasOver 20 plants in North America - aids in distribution, recycling of product and customer relationshipsAbility to capitalize on increased volumeCurrent plants are running at ~70% capacity utilization; can support increase in volumeA 10% increase
Slide 12: Positioned for Global Growth
Executing on emerging markets growth investmentsThree China plants up and runningChina metal ceilings plant on-line by 2015Closely monitoring conditions in Russia; on the ground operations continue as normal, plant scheduled to begin shipping Q1 2015Global manufacturing footprint we need for the com
Slide 13: Armstrong's Business Priorities
Protect and grow our North American businessesInvest and grow in key international and emerging marketsOptimize our portfolio through ongoing evaluation of strategic opportunities by business, by geography and across the company Seek adjacent opportunities to expand our product line and geographic r
Slide 14: Armstrong Ceilings Overview
Armstrong Ceilings Overview
Slide 15: Global Ceilings Revenue and Product Mix
Global Ceilings Revenue and Product Mix Commercially oriented business with diverse end-use applications Sales by End-use Segment Office Retail Education Healthcare Segment % of Business Office 30% - 40% Retail 20% - 30% Education 15% - 25% Transportation / Other 10% - 20% Healthcare 5% - 15% (CHART
Slide 16: WAVE JV and ceilings customer relationship
Seamless customer relationship - customers buy an Armstrong ceiling systemGreater than 100% ROICOver $225 million in cash dividends to Armstrong from 2011 to 20138 Manufacturing plants in 5 countriesProducts and services help drive specifications and deliver efficiency to contractors WAVE - Armstron
Slide 17: Strategic Priorities
Strategic Priorities Go-to-market and fulfillment investments Results 2010 - 2013 Americas EBITDA margin +900 bps Strengthen our position in core markets Position to benefit from commercial recoveryExpand margins and drive mix 1 >15% sales CAGRExpanded capacity Build a leadership position in key eme
Slide 18: Global Ceiling Sales and EBITDA
Sales and margin growth despite market challenges Sales up 7% despite flat global volumesEBITDA margins up 350 bps - price, mix, earnings from WAVE and cost improvement Global Ceiling Sales and EBITDA Sales ($ Millions) EBITDA Margin (CHART)
Slide 19: Regional Mix
Regional Mix Global improvements led by North America ~20% sales growth in UK, Russia and Middle EastOffset by market contraction in Continental EuropeSignificant Russia plant start-up investment began in 2013 Sales +12% despite lower volumesEBITDA margin expands 900 bps - price, mix, manufacturing
Slide 20: 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 aestheticSame customer as mineral fiber ceilings, often combined on the same projectMany different materials and product for
Slide 21: Investing in Our Global AS Footprint
Investing in Our Global AS Footprint Network provides advantaged local service and global leverage that aligns with how our customers do business Armstrong factory Engineering office Montreal, Canada Lancaster, US Stafford, UK Paris, France Moscow, Russia St. Gallen, Switz. Dubai, UAE Shanghai and B
Slide 22: The AS Financial Equation
The AS Financial Equation An attractive ROIC-accretive global growth engine within the ceilings segment Big Penetration Opportunity Attractive Stand-Alone Economics Total Ceilings Portfolio Synergies $2B market opportunityHighly incremental - fragmented regional competition Incremental margin% same
Slide 23: Case Study: One World Trade Center
"Freedom Tower" - Conde NastRecently won the ceilings supply for Conde Nast, an anchor tenant for this iconic building, taking 25% of the floorsWhy Armstrong:Only company able to combine our acoustical tile, Architectural Specialties and grid solutions to effectively meet customer's challenging need
Slide 24: Global Ceilings Summary
Leverage global reach and scaleWin specification gameMulti-product offering ... 1-stop shoppingSupported with design servicesRemodel opportunityPrepared for demand uptick Global Ceilings Summary
Slide 25: Armstrong Flooring Overview
Armstrong Flooring Overview
Slide 26: Global Flooring Revenue Mix
Global Flooring Revenue Mix Balanced exposure to Residential and Commercial recovery Commercial40% Residential60% Total Business (CHART) Remodel70% New30% (CHART) Remodel75% New25% Commercial Residential Office 5% - 15% Retail 15% - 25% Education 20% - 30% Healthcare 20% - 30% Other 15% - 25% Commer
Slide 27: Geographic and Product Mix
80% of sales in North America - the core earnings driver of the businessMix of Commercial and Residential in North AmericaResidential is a North American business - business outside of North America is all Commercial Geographic and Product Mix 2013 Sales by GeographyTotal = $1.5B 2013 Sales by Produ
Slide 28: Global Flooring Sales and EBITDA
Sales down 3% due to volume declines, product exits in Europe and divestiture of the Patriot distribution businessEBITDA margins improve almost 300 bps despite volume declines and investments in China (CHART) Global Flooring Total Sales and EBITDA Aggressively remixing portfolio to faster growth mar
Slide 29: Resilient Flooring
Resilient Flooring North American performance drives segment profit growth Sales ($ Millions) EBITDA Margin Sales down only 2% despite double digit volume declinesMargins expand 675 bps despite negative volume leverage (manufacturing productivity, mix and price all improve) Dramatic cost actions hav
Slide 30: Wood - A Cyclical Business
Wood - A Cyclical Business With the right strategy, Wood can deliver above cost of capital through cycle Leadership share in North America; sales still ~ 40% off peakAt trough volumes in 2011 and 2012, EBITDA margins were +10% and ROIC was +8%Nearly $50M in commodity inflation in 2013; estimating an
Slide 31: Our Strategy
Our Strategy Residential Flooring Goals: Extend leadership share and returns Where To Play:Significantly increase share in fast-growing LVTProtect our leading share position in Sheet Vinyl Expand accessories and floor care solutions Commercial Flooring Where To Play:Win in the Healthcare, Education
Slide 32: Retail Case Study - Why Armstrong
Retail Case Study - Why ArmstrongProduct Solutions • Design Leadership • Brand RecognitionLVT in all stores / BBT in most storesBamboo & striated visualEnvironmental statement (bio-based tiles)Local access, fast installation and easy to maintainPartnershipConsultative • Service • Reliability2012: St
Slide 33: Armstrong Flooring - Summary
Resilient flooring is a valuable franchise with significant incremental marginsExecuting our plan to restore Wood structural attractivenessDriving strong growth in emerging marketsBetter utilizing our global footprint to lower costs and speed innovationClear strategies to win Armstrong Flooring - Su
Slide 34: Growth through Innovation
Inspiring Great Spaces” Gr mstrong — ae ie 0 eel Growth through Innovation
Slide 35: Renewed Focus on Innovation
Dynamic strategy driven by customer needsDeploying new product development, R&D, and technical resources globally to the highest value creation opportunitiesDevelopment of global and multi- generational product platformsPatent applications increased more than 5x since 2010Differentiation that is val
Slide 36: Leadership in Product Innovation
Inspiring Great Spaces through Leadership in Product Innovation Calla(tm) Now your interior space can have the smoothest textured mineral fiber ceiling panel available. A Calla ceiling has the monolithic visual of drywall with easy access to the plenum. Calla is now available in Colorations(tm), 14
Slide 37: Mix Evolution - Ceilings Americas
(CHART) 2003 2013 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 Bubble size represent percent of
Slide 38: Mix Revolution - Residential Floor Tile
Sales CAGR ~5x volume growth during this time periodDirect Margin $'s grew at a CAGR of >33% Mix Revolution - Residential Floor Tile Innovation led growth driving "mix up" within the category and improved profitability Alterna - Allegheny Slate - Copper Mountain Luxe with FasTak - Groveland - Natura
Slide 39: Financial Summary
Inspiring Great Spaces Financial Summary
Slide 40: Focused on Value Creation
Positioned to benefit from North American commercial recoveryCapture growth in established international and emerging marketsMaintain a flexible balance sheetGenerate significant free cash flow to fund investments and return value to shareholders Focused on Value Creation ROIC is our key long-term f
Slide 41: Adjusted EBITDA History
(CHART) Adjusted EBITDA History ($430) ($195) $105 $15 ($50) $215 A history of driving Price > Inflation $370 ($ Million) $310 2006 2007 2008 2009 2010 2011 2012 2013 2014 Est. Sales $3.26B $3.30B $3.14B $2.66B $2.65B $2.68B $2.62B $2.72B $2.7 - $2.8B EBITDA $400M $433M $401M $310M $310M $376M $402M
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-forwardPrioritized investments in capital expenditures to drive global growthReturned
Slide 43: Well-positioned and efficient balance sheet
Well-positioned and efficient balance sheet Balance Sheet - 6/30/14 Net Debt $965M LTM EBITDA $375M Leverage 2.6x No significant maturities until 2018Considerable covenant headroomRecent ratings upgrade to BB (positive) from S&PSufficient liquidityFully funded US pension plan; no contributions in >2
Slide 44: Mid-Cycle Outlook
*Data lagged to correspond to timing of Armstrong sales (CHART) Non-Residential Starts (M sq ft) Housing Starts (K) "Mid-cycle" occurs when market conditions support recovery of 2/3 of volume vs. peak in 2007Timing of end-use sector likely to be unevenContinued price and mix gainsOutsized sales grow
Slide 45: Path to Growth - Adjusted EBITDA margin
Path to Growth - Adjusted EBITDA margin High incremental margins on new business expected to drive increased margins in "mid-cycle" (CHART) (CHART) Margin on Incremental Volume Ceilings 30% - 45% Resilient 25% - 35% Wood 25% - 30% 30% 20% 10% 0% 30% 20% 10% 0%
Slide 46: Mid-Cycle EBITDA drivers
Multiple drivers of future profitability growth and cash flow Sales drives profitability via volume recovery and continued price and mix gainsInvestments in China, Russia and LVT boost future profitabilityMid-cycle includes an incremental $80M of non-cash U.S. pension expense versus the 2007 earning
Slide 47: Capital Deployment
Free cash flow will increase significantly as plant builds wind down in early 2015Partially offset by increased US cash taxes as foreign tax credits are consumed in 2014 and 2015Prioritize use of capitalCapital expenditures to drive organic growthAcquisitionsReturn value to shareholders (dividends a
Slide 48: Investment Highlights
Investment Highlights Diversified $2.7 billion global building products company with leading positions in most key markets and productsDriving value creation through: Recovery in North AmericaU.S. Commercial is our most profitable business with 35-45% margins Growth in International MarketsExecuting
Slide 49: Financial Overview Appendix
Financial Overview Appendix
Slide 50: EBITDA Bridge - Full Year 2013 vs. Prior Year
(CHART) $16 EBITDA Bridge - Full Year 2013 vs. Prior Year 50 ($23) ($9) $29 $6
Slide 51: EBITDA Bridges - 2014 Results vs. PY
(CHART) (CHART) EBITDA Bridges - 2014 Results vs. PY ($10) ($3) ($11) ($8) $1 $10
Slide 52: Key Metrics - Guidance 2014
2014 Estimate Range (1) 2014 Estimate Range (1) 2014 Estimate Range (1) 2013 (2) Variance Variance Variance Net Sales(3) 2,700 to 2,800 2,700 0% to 4% Operating Income(4) 245 to 270 257 (5%) to 5% EBITDA 370 to 400 366 1% to 9% Earnings Per Share(5) $2.15 to $2.40 $1.98 9% to 21% Free Cash Flow 20 t
Slide 53: 2014 Financial Outlook
2014 Financial Outlook $30 - $40 million vs. 2013 Adjusted Gross Margin 25 to 75 bps vs. 2013 Raw Material & Energy Inflation Manufacturing Productivity* Earnings from WAVE Cash Taxes/ETR* Q3 Capital Spending Exclusions from EBITDA* Net sales include foreign exchange impactAs reported ETR of 49% for
Slide 54: Full Year - Adjusted EBITDA to Reported Net Income
2013 2012 V EBITDA- Adjusted $371 $402 ($31) Depreciation and Amortization (109) (100) (9) Operating Income - Adjusted $262 $302 ($40) Foreign Exchange Movements (5) - (5) Cost Reduction Initiatives (18) (13) (5) Accelerated Depreciation and Impairments (not included above) - (12) 12 Impairment - (6
Slide 55: Management Team
Inspiring Great Spaces" Gr mstrong’ Management Team
Slide 56: 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 57: Thomas B. Mangas and Victor Grizzle
Thomas B. Mangas, 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
Slide 58: 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 59: Investor Relations Contact Information
Investor Relations Contact Information Kristy Rohrbaugh, CPA, MBAInvestor Relations ManagerArmstrong World Industries2500 Columbia AvenueLancaster, PA 17604P: 717-396-6354F: 717-396-6128E: ksrohrbaugh@armstrong.com Thomas J. WatersVP, Treasury and Investor RelationsArmstrong World Industries2500 Col
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