Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Presentation (March 2016)
50 slides from Armstrong World Industries's investor presentation, Mar 9, 2016
Slide 1: Armstrong World Industries Investor Presentation March 10, 2016
ARMSTRONG WORLD INDUSTRIES INVESTOR PRESENTATION MARCH 10, 2016 Exhibit 99.3
Slide 2: Safe Harbor Statement
Safe Harbor Statement Our disclosures in this presentation, including without limitation, those relating to future financial results guidance and the possible separation of our flooring business from our building products business, and in our other public documents and comments contain forward-looki
Slide 3: Basis of Presentation and Non-GAAP Adjustments
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 reported results will be footnoted
Slide 4: Agenda
Agenda The New AWI Financial Overview Investment Highlights Q & A
Slide 5: Standout Leader Uniquely Positioned to Drive Value
#1 position in all major markets Unmatched profitability and cash flow Broadest, most innovative portfolio Specification leader among architects, designers and end-customers Best-in-class distribution Strongest brand with experienced and talented organization Standout Leader Uniquely Positioned to D
Slide 6: Leadership Position in Attractive Ceilings Industry
Leadership Position in Attractive Ceilings Industry Strong Leader in Largest Global Profit Pool Consolidated industry structure Large installed base with stable repair & remodel demand Established product specifications Multi-faceted sales process involving architects, designers, distributors, contr
Slide 7: Robust and Expanding Profitability and Cash Flow
Robust and Expanding Profitability and Cash Flow North America EBITDA(1) North America EBITDA less Capex(1) Note: Dollars in millions Includes $42 million of corporate expenses and $6 million of corporate capital expenditures; held constant in historical years for illustrative purposes
Slide 8: Innovating to Penetrate Expanded Addressable Market
Innovating to Penetrate Expanded Addressable Market Mission: A Solution for Every Space Leadership in Attractive Ceiling Tile / Grid Sector $7 billion $3 billion Better performance and aesthetics through innovation Higher price, higher margin Leadership across Broader Ceiling Solutions Space Broaden
Slide 9: Experienced Leadership Focused on Value Creation
Experienced Leadership Focused on Value Creation Leadership Completely Aligned with Shareholders Greater transparency and management accountability to drive performance Pure-play ceiling solutions company with no competition for capital or management attention Intense focus on expanding already high
Slide 10: The New AWI Investment Thesis
The New AWI Investment Thesis Standout Global Leader in Attractive Ceilings Industry 1 Best-in-Class, Stable Cash Flow Through the Cycle Attractive, Multi-Faceted Growth Opportunities Additional Levers to Create Shareholder Value 1 Standout Leader 2 3 4 2 3 4 Best-in-Class Cash Flow 1 3 4 2 Growth L
Slide 11: Agenda
Agenda The New AWI Financial Overview Investment Highlights Q & A
Slide 12: The New AWI Investment Thesis
The New AWI Investment Thesis Standout Global Leader in Attractive Ceilings Industry 1 Best-in-Class, Stable Cash Flow Through the Cycle Attractive, Multi-Faceted Growth Opportunities Additional Levers to Create Shareholder Value 1 Standout Leader 2 3 4 2 3 4 Best-in-Class Cash Flow 1 3 4 2 Growth L
Slide 13: Standout Global Leader in Attractive Ceilings Industry
Standout Global Leader in Attractive Ceilings Industry 1 Standout Leader 2 3 4 Total: $1,285 (1) Stand-out leadership and profitability in highly attractive North American market Significant scale and upside potential in international business Total: $303 (2) #1 in North America #1 in EMEA #1 in Asi
Slide 14: Global Ceilings Leader with Diversified End-Markets
Global Ceilings Leader with Diversified End-Markets Commercial Residential Total: $1,285 (1) 1 Standout Leader 2 3 4 2015 Revenue Mix By End-Market By Product Note: Dollars in millions Includes ~$97 million of revenue from direct sales of WAVE products to customers in certain international markets.
Slide 15: Most Recognized Ceilings Brand Across Categories
Most Recognized Ceilings Brand Across Categories Unaided Brand Awareness Wood Ceilings Among Architects & Designers Metal Ceilings Ceiling Tiles Standard Custom Among Contractors Ceiling Tiles Standard Custom 1 Standout Leader 2 3 4 Source: M/A/R/C Research Note: Data is for North America market onl
Slide 16: Specification Leadership with Architects and Designers
Specification Leadership with Architects and Designers Inferior Customer Value #4 Player #2 Player Fair Value Line Market Perceived Quality/Service Ratio Market Perceived Price Higher Lower Inferior Superior #3 Player Superior Customer Value 1 Standout Leader 2 3 4 Recognized Value Proposition... Sp
Slide 17: Broadest Go-to-Market Coverage
Perfect Order Measure (1) Broadest Go-to-Market Coverage Exclusive, long-term distribution relationships across nearly all regions Strong brand recognition and loyalty Over 15% more distribution points than the #2 player Over 5x the contractor relationships of the #2 player ~150 AWI sales representa
Slide 18: Longstanding Partnership: WAVE – AWI / Worthington JV
Longstanding Partnership: WAVE – AWI / Worthington JV Critical to AWI’s Value Creation 23 year global partnership with Worthington Industries that successfully combines the expertise of both companies Seamless customer relationship – customers buy an AWI ceiling solution complete with grid and other
Slide 19: The New AWI Investment Thesis
The New AWI Investment Thesis 1 Standout Leader 2 3 4 Standout Global Leader in Attractive Ceilings Industry 1 Best-in-Class, Stable Cash Flow Through the Cycle Attractive, Multi-Faceted Growth Opportunities Additional Levers to Create Shareholder Value 2 3 4 Best-in-Class Cash Flow 1 3 4 2 Growth L
Slide 20: Superior EBITDA Growth and Stability through the Cycle
Superior EBITDA Growth and Stability through the Cycle 2 Robust Cash Flow 3 4 1 Historical Indexed EBITDA (2000 = 100) Contractionary Volume Environment Source: Factset. Note: AWI represented on a divisional adjusted basis Peer index includes AOS, AYI, ALLE, APOG, FBHS, JHX, TILE, MAS, MHK, MLM, OC,
Slide 21: Proven, Consistent Ability to Expand Margins
Proven, Consistent Ability to Expand Margins Continuous Price/Mix and Productivity Driving Margins Note: Data is for North America only. AUV change over time is for mineral fiber only Excludes contribution from WAVE JV, impact of pro forma standalone corporate expense of $42 million and pension cost
Slide 22: Best-in-Class Across Building Products Industry
Best-in-Class Across Building Products Industry 2015 Adj. EBITDA Margins 2015 Adj. EBITDA less Capex North America North America 2 Robust Cash Flow 3 4 1 (1) (1) (1) (1) (1) Source: Company filings, FactSet and Wall Street Research as of 3/1/2016 Note: AWI represented on standalone adjusted basis Re
Slide 23: The New AWI Investment Thesis
The New AWI Investment Thesis 1 Standout Leader 2 3 4 Standout Global Leader in Attractive Ceilings Industry 1 Best-in-Class, Stable Cash Flow Through the Cycle Attractive, Multi-Faceted Growth Opportunities Additional Levers to Create Shareholder Value 2 3 4 Best-in-Class Cash Flow 1 3 4 2 Growth L
Slide 24: Attractive Multi-Faceted Growth Opportunities
Attractive Multi-Faceted Growth Opportunities 3 Attractive Growth 4 1 2 Market Recovery Leverage commercial market recovery Expand Average Unit Value Continue to leverage innovation to enhance margins Enlarged Addressable Market Sell into more spaces Sell more into every space Pursue M&A to enhance
Slide 25: Broader Market Recovery will Drive Substantial Profits
Broader Market Recovery will Drive Substantial Profits As Market Normalizes toward Long-Term Averages, each 1% of Annual Volume Growth is Worth ~$20 million of EBITDA by Year 3 Market Recovery Source: Dodge, U.S. ceilings volume data for education, healthcare, office, retail and transportation marke
Slide 26: Both Mineral Fiber and Specialties Remain Attractive
Both Mineral Fiber and Specialties Remain Attractive Source: Internal study of ceiling attitude and usage for office buildings Note: Data is for North America only Mineral Fiber maintaining large share of overall ceilings market Drywall declining as non-traditional ceiling styles and exposed structu
Slide 27: Expectations of Recovery in Market Demand
Expectations of Recovery in Market Demand Market Recovery 3 Attractive Growth 4 1 2 Given lag between starts and ceilings installations, 2014 and 2015 projects will yield volume in 2016 and beyond 2011 – 2017 Dodge Starts ($ billions)(1) Accelerated growth projected Source: Dodge Data & Analytics No
Slide 28: Actively Driving Core Portfolio to Higher Value Products
Actively Driving Core Portfolio to Higher Value Products Industry Shaping Innovation Accelerating Growth and Margins Cortega $ Ultima $$ Optima $$$ $$$$ Clouds Migration to Premium Products AUV Expansion 3 Attractive Growth 4 1 2 Expansive Product Offering Premium Products More Lucrative
Slide 29: Total Solutions Selling Market Opportunity
Total Solutions Selling Market Opportunity Increases Value Proposition and Strengthens Customer Loyalty Œ Acoustical Tile and Grid 60,000 SF Metal Ceiling 3,000 SF Illustrative 100,000 SF Four Story Building Drywall Grid 15,000 SF Ž Canopies in Open Plenum 1/1000SF Axiom Transitions & Perime
Slide 30: Case Study: Solutions Selling
Case Study: Solutions Selling Office Area = Total Revenue $1.3 million Conference Rooms = $250K Elevator Lobbies / Corridors = $250K Partners Healthcare, USA Additional Solutions (Axiom Trims, Perimeters, MetalWorks) = $372K Additional Revenue of 31% 600,000 SF Building Ultima / Optima / Interlude G
Slide 31: Architectural Specialties is a Global Growth Engine
Architectural Specialties is a Global Growth Engine Large Growth Opportunity Through Organic Expansion and M&A Broadest portfolio of on-trend, specialty ceiling solutions in the world Global footprint to support global projects Leverage existing go-to-market system and advantages to drive expansion
Slide 32: JFK Airport Lounge – Etihad Airways
JFK Airport Lounge – Etihad Airways Architect – Gensler, NY Custom anodized brass finish with triangular perforations and light diffusing layer Potential of 17 more locations across the world $357 per square foot vs. ~$1 per square foot overall average Driven by our design services capabilities Arch
Slide 33: The New AWI Investment Thesis
The New AWI Investment Thesis 1 Standout Leader 2 3 4 Standout Global Leader in Attractive Ceilings Industry 1 Best-in-Class, Stable Cash Flow Through the Cycle Attractive, Multi-Faceted Growth Opportunities Additional Levers to Create Shareholder Value 2 3 4 Best-in-Class Cash Flow 1 3 4 2 Growth L
Slide 34: Additional Levers to Create Value
Additional Levers to Create Value 1 Standout Leader 2 3 4 4 Levers for Value 1 2 3 Continue to pursue productivity and efficiency improvements Cost Improvements Add to technology and product capabilities M&A Expect greater contribution from recent investments and initiatives International Best-in-Cl
Slide 35: Improved Performance Across Europe and Asia
Improved Performance Across Europe and Asia Investments and Initiatives Designed to Drive Future Profits Sales and profits have contracted in EMEA and Asia/Pacific over the past several years Business impacted by market demand, political instability, FX and cost inefficiencies China and Russia repre
Slide 36: Agenda
Agenda The New AWI Financial Overview Investment Highlights Q & A
Slide 37: Historical Financial Performance Drivers
Historical Financial Performance Drivers While volume has been modestly down given absence of market recovery, average unit value in North America increased by 15%, driven by shift to premium products AUV gains and productivity improvements drove ~$75 million increase in North America EBITDA Interna
Slide 38: Our Value Creation Model
Our Value Creation Model Includes pro forma standalone corporate expense of $42 million; excludes pension costs, separation costs and other extraordinary expenses Excludes pension costs, separation costs and other extraordinary expenses; utilizes normalized effective tax rate of 39% Revenue Growth 5
Slide 39: 2015 Pro Forma Balance Sheet
2015 Pro Forma Balance Sheet New $1.05 billion credit facility including $850 million of term loans maturing in 2021 and 2023 and undrawn revolver of $200 million $35 million of tax-exempt bonds BB+/B1 Rating Net Leverage: 2.3x(1) U.S. pension will be well-funded on a PBO basis No cash contributions
Slide 40: Capital Allocation
Capital Allocation Growth and Productivity Investments: Investments where we continue to have high return opportunities Acquisitions: Synergistic bolt-on acquisitions that leverage our powerful business system and expand market penetration Capital Return (Dividends/Share Repurchases): Expect to revi
Slide 41: Capital Expenditures
Capital Expenditures North America Pivoting investments to drive innovation, growth and productivity in most profitable geography Investing ~$20 million annually above normalized $80 million global run rate over the next three years to strengthen capabilities and add capacity for premium products In
Slide 42: 2016E Guidance
2016E Guidance $2.15 – $2.32 6% – 15% YoY Growth $2.09 $2.02 Adjusted EBITDA(2) Adjusted EPS(3) Free Cash Flow Revenue(1) 1% – 3% North America volume growth 2% – 4% International volume growth 1% – 3% average unit value increase $42 million of standalone corporate costs 1% – 2% cost savings over in
Slide 43: Business Quality, Market Leadership and Margins Drive Valuation
Business Quality, Market Leadership and Margins Drive Valuation Building Products Valuations Highly Correlated to Performance Source: Company filings, FactSet and Wall Street Research as of 3/1/2016 Note: AWI represented on standalone adjusted basis North America
Slide 44: Focused on Value Creation
Focused on Value Creation Standout market leader in attractive ceilings industry with unmatched profitability and cash flow Accelerating growth trajectory of the business Intense focus on expanding returns on invested capital Management incentive plan aligned to shareholder value creation
Slide 45: Agenda
Agenda The New AWI Financial Overview Investment Highlights Q & A
Slide 46: Appendix
Appendix Management Biographies Reconciliation of Non-GAAP Financial Measures
Slide 47: Reconciliation of FY2015 Adj. EBITDA to Reported Operating Income
Reconciliation of FY2015 Adj. EBITDA to Reported Operating Income 2015 Armstrong Building Products Segment Adjusted EBITDA (1) $345 Standalone corporate costs, excluding depreciation and amortization (42) Pro Forma Standalone Adjusted EBITDA $303 Depreciation and amortization (2) (81) Pro Forma Oper
Slide 48: 2015 Pro Forma Balance Sheet Reconciliation
2015 Pro Forma Balance Sheet Reconciliation Note: Dollars in millions Assumes $50 million dividend from AFI Debt repayment (includes $2 million in estimated fees and expenses) (2) (1)
Slide 49: Management Biographies
Management Biographies Brian MacNeal Senior Vice President and Chief Financial Officer, Armstrong World Industries Victor “Vic” Grizzle is CEO and President of Armstrong World Industries Inc., in Lancaster, Pennsylvania. Mr. Grizzle has 26 years of experience in sales, marketing and global business
Slide 50: Investor Relations Contact Information
Investor Relations Contact Information Mrs. Olshan is Director Investor & Public Relations of Armstrong World Industries, Inc., in Lancaster, Pennsylvania. Mrs. Olshan joined Armstrong World Industries in November of 2008 as External Reporting Manager, moved into Investor Relations in December of 20
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