Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Day (May 2012)
97 slides from Armstrong World Industries's investor day presentation, May 23, 2012
Slide 1: Armstrong World Industries Investor Day 2012
Armstrong World Industries Investor Day 2012 May 23, 2012
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation consists of this slide deck and the associated remarks and comments, all of which are integrally related and are intended to be presented and understood together. Our disclosures in this presentation, including without limitation, those relating to guidance, a
Slide 3: Agenda
@ymstrong: Agenda 12:30-12:35pm Introduction and Agenda ters, Vice President Treasuryand investor Relations 12:35-12:55pm Strategic Overview thew spe. President & CEO 12:85-1:35pm Business Update and Strategic Priority Review ‘and CEO Amstrong Building Products Front Reedy Execute Vice Preirt and GE
Slide 4: Strategic Overview
Strategic Overview Matthew Espe,
Slide 5: What You Will Hear Today
What You Will Hear Today Armstrong has two great global businesses delivering exceptional service, and innovative products and solutions to our customers We have exciting growth opportunities We are committed to delivering outstanding operational and financial results We are constantly focused on cr
Slide 6: Diversified Global Building Products Company
Diversified Global Building Products Company Leading global manufacturer of floors and ceilings for use in renovation and new construction. $2.9 billion in sales in 2011 Market leader in geographies representing over 80% of sales Sales profile 70% domestic - 30% international 60% commercial - 40% re
Slide 7: Management Team
Management Team Matt Espe, President and CEO Frank Ready, EVP and CEO of Armstrong Floor Products Vic Grizzle, EVP and CEO of Armstrong Building Products Tom Mangas, SVP and CFO Mark Hershey, SVP General Counsel and Secretary Don Maier, SVP Operations Tom Kane, SVP Human Resources Steve Poole, VP Bu
Slide 8: Reduced costs by $150 million
Reduced costs by $150 million With planned reduction of $35 million more in 2012 Increased adjusted EBITDA from $296 million in 2009 to $377 million in 2011 Despite lower volume Fixed an inefficient balance sheet and returned $1.3 billion to shareholders
Slide 9: Strategic Priorities
Strategic Priorities Build a competitive cost structure Fix underperforming businesses Deliver profitable growth in our core North America businesses Drive dramatic organic growth in priority emerging markets Expand profit from attractive adjacencies Build a winning team and global organization
Slide 10: Path to Growth
Path to Growth Invest in growing markets Building four plants in China & Russia Added 130 sales and marketing resources in emerging markets Invest in growing adjacencies Architectural Specialties Emphasize breakthrough thinking Recovery in the US and Western Europe
Slide 11: Breakthrough
Breakthrough A change in mindset from limitations to possibilities Outside the box versus incremental improvement Multi-year, strategic and inspirational Armstrong is breaking through... witness cost reduction program... and we’ll do more
Slide 12: Keys to Success
Keys to Success Leverage our position as a trusted brand Deliver innovative products and services to drive mix improvement Win share by being the partner of choice for architects, retail consumers, builders, designers and our entire customer base
Slide 13: Armstrong in the Future
Armstrong in the Future Larger and more profitable More international in our operations and our mindset A globally integrated industry leader in new product development, sustainability and safety
Slide 14: Larger and more profitable
Larger and more profitable More international in our operations and our mindset A globally integrated industry leader in new product development, sustainability and safety
Slide 15: Business Update and Strategic Priority Review
Business Update and Strategic Priority Review
Slide 16: Armstrong Building Products Business Overview
Armstrong Building Products Business Overview Victor Grizzle, Executive Vice President and CEO Armstrong Building Products
Slide 17: Building Products
Building Products Wood Ceilings & Walls Exposed Plenum Solutions Suspension Systems Wet Felt Mineral Ceilings Metal Ceilings & Walls Soft/Fiberglass Ceilings $1.2 billion Worldwide sales 20 Manufacturing facilities in 9 countries 3,300 Team members worldwide 132 Countries have Armstrong ce
Slide 18: WAVE - Armstrong/Worthington JV
WAVE - Armstrong/Worthington JV 50% - 50% global joint venture with Worthington Industries Manufactures ceiling suspension systems Leverage Worthington’s strength buying and bending steel, and Armstrong’s strength selling and marketing ceilings Invisible to the customer - they buy an Armstrong ceili
Slide 19: Global Ceilings Revenue Mix
Global Ceilings Revenue Mix Residential $120M Commercial $1,110M Total Business Sales by End-use Segment Office Retail Education Healthcare Segment % of Business Office 35% - 45% Retail 20% - 30% Education 15% - 25% Healthcare 10% - 20%
Slide 20: Geographic and Product Mix
Future manufacturing expansion: Shanghai, China - Mineral fiber ceilings plant (2013) Alabuga, Russia - Mineral fiber ceilings plant (2015) Geographic and Product Mix Recent manufacturing expansion: Pune, India - WAVE plant (2010) Montreal, Canada - Metal ceilings acquisition (2011) Millwood, WV - M
Slide 21: Where We Make Money
Where We Make Money $220M $290M 2009 2011 Worldwide ABP Sales $1.10B $1.22B EBITDA as % of sales 20% 24% Contribution of WAVE JV to EBITDA margin 4% 5%
Slide 22: Business Drivers
Business Drivers We improve the building environment for its occupants.... Acoustics Fire Seismic Hygiene Humidity Environment
Slide 23: Expanding product portfolio to serve an expanded target market
Expanding product portfolio to serve an expanded target market Redefined Target Market Best in the World... Mineral Fiber Ceilings Best in the World... Ceiling Solutions Architectural Specialties $3 Billion $6 Billion
Slide 24: Jin Mao Tower Shanghai, China
Retail space 1st - 2nd floors Grand Hyatt Hotel 53rd - 87th floors Office 3rd to 52nd floors Restaurant & Bar 88th floor Workout facility 38th floor Board room various floors Retail 2nd floor Jin MaoTower Shanghai, China
Slide 25: Opportunities From Expanded Target Market
Low High “Core” markets* “Emerging” markets Opportunities From Expanded Target Market
Slide 26: Our Winning Formula
Our Winning Formula Proven formula to add new growth engines The Armstrong brand The broadest portfolio Win the specification game Best in class distribution Capture the renovation game26
Slide 27: Expanded target market
Expanded target market From $3B to $6B market 2 additional growth engines Emerging markets Architectural Specialties Building blocks to win Industry leading brand...globally Broadest portfolio...getting broader Architectural relationships Global footprint...and growing Summary
Slide 28: Armstrong Floor Products Business Overview
Armstrong Floor Products Business Overview Frank Ready, Executive Vice President and CEO Armstrong Floor Products
Slide 29: Geographic and Product Mix
Geographic and Product Mix 2011 Sales by Geography Total = $1.5B 75% of sales in North America Residential is a North American business ~50% of sales are traditional vinyl products* 2011 Sales by Product Residential 54% Commercial 46%
Slide 30: Global Flooring Revenue Mix
Global Flooring Revenue Mix Commercial $675M Residential $800M Total Business Remodel 80% New 20% Remodel 75% New 25% New vs. Remodel Channel / End-use Segment Segment % of Business Healthcare 25% - 35% Education 25% - 35% Retail 15% - 25% Other 15% - 25% Channel % of Business Big Box ~1/3 Independe
Slide 31: Where We Make Money
Where We Make Money 2009 EBITDA $80M ($M) N. America EBITDA by Business Comm’l Residential 2011 EBITDA $120M Wood Wood 2009 2011 Sales $515M $475M EBITDA 5% 11% Worldwide Resilient Worldwide Resilient 2009 2011 $1.04B $1.00B 5% 7%
Slide 32: Armstrong's Current Position
Armstrong’s Current Position Strong position in North America, but relatively low growth #4 player overall in Western Europe with strength in select products and countries Brazil and Eastern Europe represent opportunity Australia position strong Invest for growth in China and Southeast Asia32 Market
Slide 33: Market Trends
Market Trends Sustainability / Environmental focused on recycled content and Bio-based materialsArmstrong Position Migrations Tile Linoleum
Slide 34: Market Trends
Market Trends Glueless installation ... primarily Residential Armstrong Position Fiberglass Sheet Luxe
Slide 35: Market Trends
Market Trends Luxury Vinyl Tile (LVT) growth ... Residential and Commercial Armstrong Position Natural Creations Alterna
Slide 36: Market Trends
Market Trends Design, design, design ... Armstrong Position Striations Tile Handscraped
Slide 37: Product Leadership
Product Leadership Extending Design Leadership Alterna Reserve New Handscraped Rejuvenations
Slide 38: Product Leadership
Product Leadership Creating New Offers Raffia Striations Commercial Wood High Performance Luxe Installation System Residential
Slide 39: Product Leadership
Product Leadership Driving New Capability New China Plants Homogeneous Heterogeneous Lancaster Glass Plant
Slide 40: Improving our Cost Position
Improving our Cost Position # of Plants 24 Headcount 7,200 SG&A $300 EBITDA % to Sales 8% 4,700 $215 8% 2007 2011
Slide 41: Focus on Commercial Growth
Focus on Commercial Growth Expand Market Participation $3.7 Billion Market Leader in Vinyl / Linoleum Flooring Market Leader in Commercial Flooring
Slide 42: Summary
Summary Current Strong Brand Leader in N. America Investing in China Future Strong Brand Global Commercial Leader Broad Portfolio .. Beyond Resilient Key Drivers Product Leadership Cost Productivity Expansion Beyond Core
Slide 43: Growth Drivers
Growth Drivers
Slide 44: Selected Growth Opportunities Overview
Selected Growth Opportunities Overview Russia China Architectural Specialties
Slide 45: Growth Opportunities in Europe
Growth Opportunities in Europe Edwin de Wolf, CEO, Armstrong Building Products Europe
Slide 46: Russia
Russia Armstrong brought the suspended ceiling category to Russia in 1992 Most seasoned specification sales force Strong brand recognition... 1st mover advantage 60% share of “western” tier market Large market - 3rd largest in the world with significant future growth Very high logistics cost (30% of
Slide 47: Business Evolution
Business Evolution From ‘importing’ to ‘distribution’ model... Improve service to customers with enhanced availability 2015 Local Manufacturing Changing market dynamics with local production 2012 Full Local Distribution & Product Availability Creating advantaged distribution structure 2000 2008
Slide 48: Healthcare and Education Segments
Healthcare and Education Segments Two key market growth opportunities Increase New Build penetration to western levels...>90% Upgrade existing schools / hospitals with no ceiling Major healthcare investment plans 45% of hospitals in need of major renovation $25B National Health Program Educatio
Slide 49: Mid / high end items
+11% +58% +39% Mid / high end items (>$4.6/m2) Low end items (<$4.6/m2) Sales ($M) Mineral Fiber Ceilings Sales Mix Driving sales and profit through price / mix Mix and price gains accelerate sales growth
Slide 50: Optimized cost position
Optimized cost position Demonstrates commitment Leader in the market today - local production strengthens “Winning Formula” Winning Formula Win the Specification Broadest Product Portfolio Strongest Distribution Supports codes and standards Local Manufacturing
Slide 51: Middle East
Al Mafraq Hospital, Abu Dhabi - 60,000m2 Linoleum and Homogeneous Dubai Airport - Custom metal walls, MetalWorks RH200 Custom Planks Middle East Large project opportunities are available for Armstrong’s ceilings and flooring businesses High mix and margin area We have added 12 sales and marketing re
Slide 52: Summary
Summary Russian ceilings market is large, fast growing and Armstrong is the leading brand Significant opportunities in under penetrated healthcare and education segments Local manufacturing to serve local needs and eliminate high logistics costs Current and future opportunities in the Middle East
Slide 53: Growth Opportunities in Asia
Growth Opportunities in Asia Chia-ling Hsueh, Armstrong Flooring Products Managing Director Asia Pacific
Slide 54: Armstrong Flooring Asia
Armstrong Flooring Asia 2009 2011 %? Net sales Asia (US$ million) $61 $96 57% China volume (f2 million) 23.9 37.3 56% Sales and marketing positions - China 23 42 83% Double digit growth for the past three years China volume growth driven by: High economic growth... especially in our segments Price t
Slide 55: Opportunity Space - Asia
Opportunity Space - Asia Asia commercial construction market: Infrastructure spending and government investment drives growth Commercial flooring: Low penetration and high economic growth accelerate resilient growth in the emerging markets Resilient category (CAGR 15%) outpaces overall construction
Slide 56: Opportunity Space - China
Opportunity Space - China Despite Government attempts to cool the over-heated residential sector, commercial market expected to grow ~8% in 2012 Resilient penetration is still low today, ~7%, but growing very fast: Armstrong critical segments of education and healthcare growing faster than the marke
Slide 57: What drives the conversion?
What drives the conversion? Performance / Benefits we offer Healthcare: Seamless, anti-bacteria Slip resistance Acoustics Warmth Environmental Education: Safety Acoustics Aesthetic design High growth, low category penetration, but conversion is accelerating Before After
Slide 58: Mega projects common in China
Mega projects common in China Designed by German architectural firm Six medical buildings, 2.8 f2 million operating rooms, 2,100 beds Armstrong shipped over 1.7 million f2 of products to this project One of over 100 general hospitals being built or upgraded annually
Slide 59: More recent mega projects
More recent mega projects... Binhai Hospital (2012) - 2.4 million f2 Tongji University, Jiading Shanghai (2011) - 4.3 million f2 Fuchun No. 3 kindergarten (2012) - 208,000 f2 HZ Xiasha Hospital (2011) - 1.3 million f2
Slide 60: Strategic Roadmap
Strategic Roadmap 2010 2011 2012 2013 2014 2015... ...2017 2018 I - 2 plants II - Sales Deployment: Full market access III - Fully Develop Distributor and Wholesaler Network Recruit / train reps Build relationships Leverage sales footprint Expand distributor and wholesaler network Growth in non-coas
Slide 61: Summary
Summary Fast growing market China volume up 56% since 2009 Resilient flooring a small part of the market Large opportunity Material substitution and high growth segments enhance the opportunity Local manufacturing to serve local needs
Slide 62: Growth Opportunities for Architectural Specialties
Growth Opportunities for Architectural Specialties Mike Shirk, Vice President Worldwide Architectural Specialties
Slide 63: What is Architectural Specialties (AS)?
What is Architectural Specialties (AS)? Critical attributes are functionality (acoustics and accessibility), installed cost, sustainability Higher volume, lower “touch” Price/value appropriate for most spaces Critical attributes are design and aesthetics; functionality is an important added benefit
Slide 64: Why is AS attractive?
Why is AS attractive? ~$2B opportunity Incremental profitable growth that strengthens entire business Financially attractive space Large opportunity: $2B global market potential Incremental: penetration play, complements base Above-average ROIC: make/buy, lower fixed capital Adds value to our custom
Slide 65: Range of materials
Range of materials Metal (steel, aluminum, tin, others) Wood (solid, veneer, simulated) Fiberglass Polymer / resin Fabrics Others We have built an industry-leading capability range 1x Mineral fiber tile 4-8x Standard metal 15-20x Standard wood 20-40x Custom systems >25x Open plenum designs Illu
Slide 66: Currently building out a global footprint
Currently building out a global footprint Over 50 engineers and project managers Over 50 supply partners globally Evaluating further organic and inorganic investments in priority geographies Montreal, Canada - 2011 Stafford, UK Guangzhou, China (JV) - 2010 Rankweil, Austria Armstrong factory Enginee
Slide 67: Establishing a global track record of customer success
Establishing a global track record of customer success North America EMEA Asia Club Nokia, California, U.S. Helen Devos Children’s Hospital, Michigan, U.S. Dubai International Airport, UAE Splash Leisure Center, UK Shanghai Huawei R&D Center, China Lucknow Airport, India
Slide 68: Going on offense to accelerate growth
Strategy - Going on offense to accelerate growth $130-150M million in sales Created global leadership team Upgrading talent in every region Restructured Europe & China sales organizations Global leverage - product, supply Capability investments in top markets Further expand system portfolio Go-
Slide 69: Summary
Summary Financially attractive space - $2B opportunity, incremental, above average ROIC Adds value to customers and strengthens base business Not new - leveraging 10+ years of experience Moving forward to build-out capability and global footprint with a more aggressive and purposeful approach
Slide 70: Growth Opportunities Summary
Growth Opportunities Summary Three tangible opportunities for significant growth that don’t involve a recovery in the US or Europe Emerging markets and AS can both double in four to six years Emerging markets and AS are both natural extensions of our core businesses Geographic expansion Product cate
Slide 71: Financial Overview
Financial Overview Thomas Mangas, Senior Vice President and CFO
Slide 72: Focused on creating shareholder value
Focused on creating shareholder value Cost reduction and disciplined spending Growth via recovery and aggressive organic investments / mid-cycle outlook ROIC goal driven Balance sheet management
Slide 73: Financial History
Financial History $407 $377 $250 ($435) ($120) $120 $10 ($25) Bridge figures rounded to nearest $5M $205 ($35) 2006 2007 2008 2009 2010 2011 Sales $3.50B $3.54B $3.21B $2.85B $2.83B $2.82B EBITDA $407M $439M $384M $296M $303M $377M 11.6% 12.4% 12.0% 10.4% 10.7% 13.2% Housing starts 1,801 1,355 906 5
Slide 74: 2010 to 2012 Cost Out Program
2010 to 2012 Cost Out Program Savings driving bottom line results. Cumulative Savings $185M
Slide 75: Mid-cycle Outlook
“Mid-cycle” Outlook Building products economic “mid-cycle” will reoccur when: US residential building activity approaches historical norms Global GDP has experienced several years of positive growth Armstrong’s emerging market plants are fully operational
Slide 76: Performance Through the Cycle
Performance Through the Cycle Trough 2009 2012 Guidance “Mid-Cycle” US Housing Starts (000) 554 700 ~1,200 Plants* 40 32 37 Sales $2.85 Billion $2.9 - $3.0 Billion ~$4 Billion EBITDA Margin 10% 14% - 16% ~20% ROIC** 4% 10% - 11% > 15% *January 1 ** As reported Growth through recovery and organi
Slide 77: Performance Through the Cycle
Performance Through the Cycle Trough 2009 2012 Guidance “Mid-Cycle” US Housing Starts (000) 554 700 ~1,200 Plants* 40 32 37 Sales $2.85 Billion $2.9 - $3.0 Billion ~$4 Billion EBITDA Margin 10% 14% - 16% ~20% ROIC** 4% 10% - 11% > 15% *January 1 ** As reported Growth through recovery and organi
Slide 78: Future Cost Discipline
Future Cost Discipline Ongoing LEAN manufacturing and SG&A focus enhances profitability *At mid-point of guidance
Slide 79: Path to Growth - Sales
@kmstrong Path to Growth - Sales 2011 Actual Mid-cycle approximation “Residential ‘North Am Comm. ‘nine Core sslne Emerging om o% 8 cabinets Financial Overview Balanced Execution for Global Growth
Slide 80: Path to Growth - EBITDA margin
Path to Growth - EBITDA margin Incremental Margin Ceilings 30% - 40% Resilient 25% - 35% Wood 25% - 30% Cabinets 20%-30% 30% 20% 10% 0% 30% 20% 10% 0%
Slide 81: Balance Sheet 3/31/2012 - Pro Forma
Balance Sheet 3/31/2012 - Pro Forma* No significant maturities until 2015 Covenant flexibility Fully funded U.S. pension plan Sufficient liquidity to manage operations and execute capital spend $460 Net leverage comfortably within 2-3X EBITDA target range *Pro-forma for $500 million special dividend
Slide 82: Capital Deployment
Capital Deployment Created and maintained an efficient balance sheet Returned surplus cash to shareholders via special dividends $1.3 billion in the last two years Prioritizing investments in capital expenditures to drive global growth * Mid-point of 2012 guidance Projection
Slide 83: Acquisitions
Acquisitions Acquisitions have not been a driver to historical growth, and are not contemplated in mid-cycle guidance... but could be an accelerator Acquisitions must create shareholder value Appealing acquisitions would include: Products that flow through our current channels Touch the same decisio
Slide 84: Focused on creating shareholder value
Focused on creating shareholder value Cost reduction and disciplined spending Growth via recovery and aggressive organic investments ROIC goal driven Balance sheet management
Slide 85: Wrap Up
Wrap Up a ; kK. a?
Slide 86: What You Heard Today
What You Heard Today Armstrong has two great global businesses delivering exceptional products and solutions to our customers We have exciting growth opportunities We are committed to delivering outstanding operational and financial results We are constantly focused on creating shareholder value
Slide 87: Q&A
Q&A
Slide 88: 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., in Lancaster, Pennsylvania. Mr. Waters joined Armstrong in 1998 as Manager, Capital Markets. Since then he has held the positio
Slide 89: 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. He brings 30 years of experience in sales, marketing, distribution and management in global manufacturing businesses to Armstrong fr
Slide 90: Victor Grizzle, EVP, CEO Armstrong Building Products
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 experience in process improvement, sales, marketing and global business leadership
Slide 91: Frank J. Ready, EVP, CEO Armstrong Floor Products
Frank J. Ready, Executive Vice President, CEO, Armstrong Floor Products Frank J. Ready is executive vice president and CEO of Armstrong Floor Products Worldwide, in Lancaster, Pennsylvania. Mr. Ready joined Armstrong in 1983 in Building Products Operations Sales and progressed through positions in M
Slide 92: Edwin de Wolf, CEO Armstrong Building Products Europe
Edwin de Wolf is CEO, Armstrong Building Products Europe, of Armstrong World Industries, Inc., and he is based in Uxbridge, England. Edwin joined Armstrong in January 2012. Prior to Armstrong, Mr. De Wolf was employed by Pregis as managing director, protective packaging Europe. Prior to Pregis, Mr.
Slide 93: Chia-ling Hsueh, Managing Director Asia Pacific
Chia-ling Hsueh, Armstrong Floor Products Managing Director Asia Pacific Chialing Hsueh is Managing Director, Armstrong Flooring Products Asia Pacific, of Armstrong World Industries, Inc., and she is based in Shanghai China. Ms. Hsueh joined Armstrong in January 2011. She has a broad business backgr
Slide 94: Michael F. Shirk, VP Worldwide Architectural Specialties
Michael F. Shirk, Vice President Worldwide Architectural Specialties Michael F. Shirk is Vice President, Worldwide Architectural Specialties, of Armstrong World Industries, Inc., and he is based in Lancaster, PA. Mr. Shirk became Vice President, Worldwide Architectural Specialties in July 2011 and h
Slide 95: Thomas B. Mangas, SVP and Chief Financial Officer
Thomas B. Mangas, Senior Vice President and Chief Financial Officer Thomas B. Mangas is senior vice president and CFO of Armstrong World Industries, Inc., in Lancaster, Pennsylvania. Mr. Mangas joined Armstrong in February 2010. Prior, he was vice president and CFO of the $28 billion beauty and groo
Slide 96: Attendees: Speakers
Armstrong Attendees Speakers Matthew Espe, President & CEO Thomas Mangas, Senior Vice President and CFO Victor Grizzle, Executive Vice President & CEO Armstrong Building Products Frank Ready, Executive Vice President & CEO Armstrong Floor Products Thomas Waters, Vice President Treasur
Slide 97: Attendees
Armstrong Attendees Armstrong Flooring Products Kevin Biedermann, Senior Vice President NA Residential Armstrong Floor Products Julia Pierce, Director Marketing & Design Commercial Armstrong Floor Products Mara Villanueva-Heras, Vice President Residential Marketing Armstrong Floor Products Bill