Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Presentation (October 2014)
57 slides from Armstrong World Industries's investor presentation, Oct 27, 2014
Slide 1: Armstrong World Industries Investor Presentation
Exhibit 99.3 Armstrong World Industries Investor Presentation October 27, 2014
Slide 2: Safe Harbor Statement
Safe Harbor Statement 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 s
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 $2.7 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% margins – Growth in International Markets
Slide 5: Global Business Overview
Inspiring Great Spaces" Global Business Overview
Slide 6: Armstrong Highlights
Armstrong Highlights 2.7 30% 35 8,600+ Billion Worldwide % of Sales from Innovative Manufacturing Facilities Team Members Sales New Products Introduced in in 8 Countries Worldwide the Past 5 Years 9,000+ 80% 100+ 80 Billion Customer Relationships North American Commercial Countries have Armstrong Sq
Slide 7: Armstrong's Global Manufacturing Footprint
Armstrong’s Global Manufacturing Footprint UK Team Valley #1 in ceilings in Europe Stafford GERMANY AUSTRIA Munster Rankwell Deimenhorst Bietigheim #1 in both floors and #1 in ceilings and FRANCE ceilings in North America Top 3 in floors in China Pontarlier CHINA CANADA Wujiang Montreal Shanghai #1
Slide 8: 2013 Business Segment and End-Use Profile
2013 Business Segment and End-Use Profile Commercial renovation R&R in $2,720 Commercial new Americas is closer to 80% $1,265 Residential renovation Residental new 45% $920 65% 45% $535 20% 20% 65% 30% 25% North 30% America 35% 5% 5% 10% Hardwood Flooring Resilient Flooring Ceilings Consolidated (Bu
Slide 9: EBITDA Performance
EBITDA Performance 2010 EBITDA 2013 EBITDA $370M $310M 5% 2% 25% Wood 22% Worldwide Resilient Worldwide Ceilings Corporate* 81% 87% (5%) (17%) 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 2
Slide 10: Key Milestones – Positive Momentum
Key Milestones – Positive Momentum 2010 2011 2012 2013 2014 New global New CFO and global Flooring CEO Management New CEO and CFO Both internal promotions Ceilings CEO Capital Leverage recap $500M special Armstrong repurchases Market and $800M dividend ~5M shares ($260M) Activity special dividend Co
Slide 11: Positioned for a North American Commercial Recovery
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% capacit
Slide 12: Positioned for Global Growth
Positioned for Global Growth • Executing on emerging markets growth investments Three China plants up and running China metal ceilings plant on-line by 2015 Closely monitoring conditions in Russia; on the ground operations continue as normal, plant scheduled to begin shipping Q1 2015 • Global manufa
Slide 13: Armstrong's Business Priorities
Armstrong’s Business Priorities • Protect and grow our North American businesses • Invest and grow in key international and emerging markets • Optimize our portfolio through ongoing evaluation of strategic opportunities by business, by geography and across the company • Seek adjacent opportunities t
Slide 14: Armstrong Ceilings Overview
Armstrong Ceilings Overview
Slide 15: Global Ceilings Revenue and Product Mix
Global Ceilings Revenue and Product Mix 2013 Sales by Geography Sales by Product Form Sales by End-use Segment Americas Mineral Fiber/Grid Segment % of Business $135 EMEA Architectural 15% Office 30% - 40% Pacific Rim Specialties (1) Retail 20% - 30% $350 Education 15% - 25% $780 Transportation / 10
Slide 16: WAVE – Armstrong/Worthington 22-Year JV
WAVE – Armstrong/Worthington 22-Year JV • Seamless customer relationship – customers buy an Armstrong ceiling system • ROIC >100% • Over $225 million in cash dividends to Armstrong from 2011 to 2013 • 8 Manufacturing plants in 5 countries • Products and services help drive specifications and deliver
Slide 17: Strategic Priorities
Strategic Priorities Results 2010 – 2013 1 Strengthen our position in core markets • Americas EBITDA margin • Position to benefit from commercial recovery +900 bps • Expand margins and drive mix 2 Build a leadership position in key • >15% sales CAGR emerging markets • Go-to-market and fulfillment in
Slide 18: Global Ceiling Sales and EBITDA
Global Ceiling Sales and EBITDA Global Ceiling Sales and EBITDA 1,300 26% 1,200 24% 1,100 22% 1,000 20% 2010 2013 Sales EBITDA Margin • Sales up 7% despite flat global volumes • EBITDA margins up 350 bps – price, mix, earnings from WAVE and cost improvement Sales and margin growth despite market cha
Slide 19: Regional Mix
Regional Mix • Sales +12% despite • ~20% sales growth in UK, • Growth in India and lower volumes Russia and Middle East China offset Australia market decline • EBITDA margin expands • Offset by market contraction 900 bps – price, mix, in Continental Europe • Remains an investment manufacturing produ
Slide 20: Architectural Specialties (AS) Overview
Architectural Specialties (AS) Overview What Is AS? What Makes Armstrong Unique? Broadest portfolio of on-trend specialty ceiling solutions in the world A “high Easiest Consistently • Specialty ceiling systems targeted at customer touch” To Do high level need for a design-oriented aesthetic service
Slide 21: Investing in Our Global AS Footprint
Investing in Our Global AS Footprint Stafford, UK New plant being built for Asia, co-located with new mineral fiber plant Wujiang, China Montreal, Canada Moscow, Montreal, Russia Canada Stafford, UK St. Gallen, Switz. Paris, Shanghai and France Dubai, UAE Beijing, China Lancaster, US Capability and
Slide 22: The AS Financial Equation
The AS Financial Equation Big Penetration Attractive Stand-Alone Total Ceilings Opportunity Economics Portfolio Synergies • Unique multi-product specifications • $2B market opportunity • High incremental margins • Customer loyalty • Highly incremental – driver fragmented regional • Lower fixed asset
Slide 23: Case Study: One World Trade Center
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 effe
Slide 24: Global Ceilings Summary
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 24
Slide 25: Armstrong Flooring Overview
Armstrong Flooring Overview
Slide 26: Global Flooring Revenue Mix
Global Flooring Revenue Mix Total Business Commercial Residential Commercial 40% New New 25% 30% Remodel Residential Remodel 75% 60% 70% Commercial Sales by End-Use Segment Education 20% - 30% Healthcare 20% - 30% Retail 15% - 25% Other 15% - 25% Office 5% - 15% Balanced exposure to Residential and
Slide 27: Geographic and Product Mix
Geographic and Product Mix 2013 Sales by Geography 2013 Sales by Product Total = $1.5B Commercial ~40% Pacific Rim VCT $85 Americas 15% Commercial EMEA $190 $310 Hardwood Linoleum 36% Cml Sheet 17% LVT Res Tile Americas 7% 7% Res Residential Sheet Laminate/ $870 10% Other 8% Residential ~60% • 80% o
Slide 28: Global Flooring Total Sales and EBITDA
Global Flooring Total Sales and EBITDA Global Flooring Sales and EBITDA 1,600 8% 1,500 6% 1,400 4% 2010 2013 Sales EBITDA Margin • Sales down 3% due to volume declines, product exits in Europe and divestiture of the Patriot distribution business • EBITDA margins improve almost 300 bps despite volume
Slide 29: Resilient Flooring
Resilient Flooring Americas EMEA Pacific Rim 700 20% 350 0% 100 15% -1% 10% 15% -2% 650 250 75 5% -3% 10% 0% -4% 600 5% 150 -5% 50 -5% 2010 2013 2010 2013 2010 2013 • Sales down only 2% • Dramatic cost actions • Sales flat; Weakness despite double digit have not been in Australia, but China volume d
Slide 30: Wood – A Cyclical Business
Wood – A Cyclical Business Wood Sales and EBITDA 600 15% 10% 500 5% 400 0% 2010 2011 2012 2013 Sept YTD 2014 Sales EBITDA Margin • Leadership share in North America; sales still ~ 40% off peak • At trough volumes in 2011 and 2012, EBITDA margins were +10% and ROIC was +8% • Nearly $50M in commodity
Slide 31: Our Strategy
Our Strategy Residential Flooring Commercial Flooring Where To Play: Where To Play: • Significantly increase share in fast-growing LVT • Win in the Healthcare, Education and Retail sectors • Protect our leading share position in Sheet Vinyl • Dramatically increase share in fast-growing LVT • Expand
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
Armstrong Flooring – Summary • Resilient flooring is a valuable franchise with significant incremental margins • Executing our plan to restore Wood structural attractiveness • Driving strong growth in emerging markets • Better utilizing our global footprint to lower costs and speed innovation • Clea
Slide 34: Growth through Innovation
Inspiring Great Spaces" Growth through Innovation
Slide 35: Renewed Focus on Innovation
Renewed Focus on Innovation Patent Activity • Dynamic strategy driven by customer needs 40 First Filed Utility Applications • Deploying new product development, R&D, 30 and technical resources globally to the 20 highest value creation opportunities 10 Development of global and multi- generational pr
Slide 36: Innovations in installation and design that inspire customers
Inspiring Great Spaces through Leadership in Product Innovation SoundScapes Shapes Calla™ Calla Colorations™ Architectural Remnants - Now your interior space can have Architectural Salvage Colorfully integrated! the smoothest textured mineral fiber Now you don’t have to choose ceiling panel availabl
Slide 37: Mix Evolution - Ceilings Americas
Mix Evolution - Ceilings Americas Ultima / Optima $2.00 Acoustics (NRC) 0.70 / 0.90 Light Reflect 0.90 Recycle Content 86% / 71% Anti Mold/Mildew Yes Warranty 30 Years $1.00 Better products yield better pricing Fissured / Cortega $0.00 Acoustics (NRC) 0.55 2003 2013 Light Reflect 0.81 / 0.82 Bubble
Slide 38: Mix Revolution - Residential Floor Tile
Mix Revolution - Residential Floor Tile From: Residential Tile Growth $150 $1.00 • Sales CAGR ~5x volume $100 $0.75 growth during this time period $0.50 • Direct Margin $’s grew at a $50 $0.25 CAGR of >33% Standard residential tile offering in 2008 $0 $- 2008 2013 Sales ANSP To: • Growth driven by c
Slide 39: Financial Summary
Inspiring Great Spaces Financial Summary
Slide 40: Focused on Value Creation
Focused on Value Creation • Positioned to benefit from North American commercial recovery • Capture growth in established international and emerging markets • Maintain a flexible balance sheet • Generate significant free cash flow to fund investments and return value to shareholders ROIC is our key
Slide 41: Adjusted EBITDA History
Adjusted EBITDA History A history of driving Price > Inflation Discrete cost-out program 2010 – 2012 drove over $200M of $800 savings in SG&A and $310 $700 Manufacturing $600 $500 $400 $105 $15 $400 $370 $215 ($50) $300 ($430) $200 $100 ($195) $0 2006 Price / Mix Volume Input Costs Mfg Cost SG&A WAV
Slide 42: Cash Flow History
Cash Flow History Includes $275M of strategic $2,500 $1,180 investments $2,000 $1,500 ($655) $600 $1,000 $570 ($260) $500 ($1,300) $135 YE 2009 Borrowing Cash Flow from Capex Special Share YE 2013 Business Dividends repurchase • Created and maintained an efficient balance sheet • Cash generation aid
Slide 43: Balance Sheet – 9/30/14
Balance Sheet – 9/30/14 • No significant maturities until 2018 500 Maturity Schedule • Considerable covenant headroom • Recent ratings upgrade to BB 250 (positive) from S&P • Sufficient liquidity • Fully funded US pension plan; 0 2014 2015 2016 2017 2018 2019 2020 >2020 no contributions in >20 years
Slide 44: Path to Growth – Adjusted EBITDA margin
Path to Growth – Adjusted EBITDA margin 30% 2013 Actual “Mid-cycle” 30% 20% 20% 10% 10% 0% 0% Ceilings Resilient Wood Corp. TOTAL Ceilings Resilient Wood Corp. TOTAL Margin on Incremental Volume Ceilings 30% - 45% Resilient 25% - 35% Wood 25% - 30% High incremental margins on additional volume can d
Slide 45: Capital Deployment
Capital Deployment • Free cash flow will increase as plant builds wind down in early 2015 Partially offset by increased US cash taxes as foreign tax credits are consumed in 2014 and 2015 • Prioritize use of capital Capital expenditures to drive organic growth Return value to shareholders (dividends
Slide 46: Investment Highlights
Investment Highlights Diversified $2.7 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% margins – Growth in International Markets
Slide 47: Financial Overview Appendix
Financial Overview Appendix
Slide 48: EBITDA Bridge – Full Year 2013 vs. Prior Year
EBITDA Bridge – Full Year 2013 vs. Prior Year $470 $450 $16 $29 $430 $410 $402 ($49) $390 ($9) $6 $9 $371 $370 ($23) $(10) $350 2012 Price / Mix Volume Input Mfg Cost SG&A WAVE Pension Change in 2013 Costs Credit D&A 48
Slide 49: EBITDA Bridges - 2014 Results vs. PY
EBITDA Bridges - 2014 Results vs. PY $160 EBITDA Bridge Q3 2014 vs. PY $15 $140 $1 $122 $2 $117 $120 $2 ($12) ($3) $100 ($9) ($1) $80 $60 $40 $20 $0 2013 Price/Mix Volume Input Costs Mfg Cost SG&A WAVE Pension Change 2014 Expense in D&A $360 EBITDA Bridge Sept YTD 2014 vs. PY $46 $340 $320 $297 ($25
Slide 50: Key Metrics – Guidance 2014
Key Metrics – Guidance 2014 2014 Estimate Range (1) 2013 (2) Variance Net Sales(3) 2,680 to 2,720 2,700 (1%) to 1% Operating Income (4) 230 to 245 257 (11%) to (5%) EBITDA 355 to 375 366 (3%) to 2% Earnings Per Share (5) $2.00 to $2.15 $1.98 1% to 9% Free Cash Flow 0 to 40 68 (100%) to (41%) (1) Gui
Slide 51: 2014 Financial Outlook
2014 Financial Outlook Raw Material & Energy Inflation $30 - $40 million vs. 2013 Manufacturing Productivity* Adjusted Gross Margin 0 to 30 bps vs. 2013 SG&A 16.5% to 17.0% of sales Earnings from WAVE $0 - $5 million vs. 2013 Cash Taxes/ETR* $15 - $25 million; Adjusted long-term ETR of ~39%(2) Q4 Sa
Slide 52: Full Year - Adjusted EBITDA to Reported Net Income
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 Impairm
Slide 53: Management Team
Inspiring Great Spaces” @r mstrong Management Team
Slide 54: 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 55: Victor Grizzle, Executive Vice President, 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 56: 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 57: Investor Relations Contact Information
Investor Relations Contact Information Thomas J. Waters Kristy Olshan, CPA, MBA VP, Treasury and Investor Relations Investor Relations Manager Armstrong World Industries Armstrong World Industries 2500 Columbia Avenue 2500 Columbia Avenue Lancaster, PA 17604 Lancaster, PA 17604 P: (717) 396-6354 P:
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