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 Flooring, Inc. Investor Presentation March 2016
ARMSTRONG FLOORING, INC. Investor Presentation March 2016 Exhibit 99.2
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: New, Energized Executive Team
NEW, ENERGIZED EXECUTIVE TEAM Motivated Management Team Driving the Business Forward DON MAIER – PRESIDENT & CEO 1 year as AFI CEO, 6 years with Armstrong 29 years of operational experience across industries Prior experience with TPG and Hill-Rom JAY THOMPSON – SVP & CFO 1 year with Armstrong Previo
Slide 4: Unique Opportunity to Build Value
UNIQUE OPPORTUNITY TO BUILD VALUE Leading hard surfaces flooring company Most recognized brands Expansive product portfolio Renewed focus on innovation Differentiated go-to-market system Operational, financial and organizational transformation
Slide 5: Need for Transformation
NEED FOR TRANSFORMATION Volume, Sales, and EBITDA “Flat” in Growing Market Adjusted net sales based on 2015 budgeted FX rates Division adjusted EBITDA based on current AWI segment reporting basis at 2015 budgeted FX rates; excludes standalone corporate expenses Standalone EBITDA adjusted for $40 mil
Slide 6: Initiatives Starting to Show Results
Initiatives Starting to Show Results Product Go-to-Market Completed Capital Investments People TRANSFORMATION UNDERWAY Focus on product innovation Manage under-performing SKUs Improvements in price and mix Distributor and retailer support Merchandising investments Consumer purchase journey New Luxur
Slide 7: Medium-Term Financial Goals
MEDIUM-TERM FINANCIAL GOALS Growth and Operating Leverage Leading to Bottom-line Expansion TOP-LINE GROWTH REVENUE FLOW THROUGH EBITDA MARGIN 5 - 6% Annualized 10% 20 - 30% Incr. EBITDA Margins Note: “Medium-Term” defined as 3-5 years
Slide 8: Agenda
AGENDA OUR BUSINESS INVESTMENT HIGHLIGHTS FINANCIAL OUTLOOK
Slide 9: Hard Surface Flooring: An Attractive Category
HARD SURFACE FLOORING: AN ATTRACTIVE CATEGORY US Hard Surface Flooring Volume (’12-’16E)(1) US Soft Surface Flooring Volume (’12-’16E) Key Consumer Demands DURABILITY DESIGN FLEXIBILITY EASE OF INSTALLATION CLEANLINESS AESTHETICS AND TEXTURE (1) Hard Surface Growing at 2x Rate of Soft Surface Source
Slide 10: Resilient Flooring Segment & Wood Flooring Segment
RESILIENT FLOORING SEGMENT 2015 Adj. Net Sales: 2015 Adj. EBITDA: Plants: $480 million $39 million(1) 8 US 2015 Adj. Net Sales: 2015 Adj. EBITDA: Plants: $727 million $73 million(1) 6 US, 2 China, and 1 Australia WOOD FLOORING SEGMENT & AFI - LEADER IN HARD SURFACE FLOORING Integrated Business Acros
Slide 11: #1 in US Resilient and Wood Flooring
#1 IN US RESILIENT AND WOOD FLOORING RESILIENT FLOORING Other Domestic Imports Shaw Mohawk & Mullican Somerset Lumber Liquidators Mannington WOOD FLOORING (1) (2) US Market Share Breakdown Source: US FLOOReport (Market Insights LLC and Floor Focus) Represents 2014 wholesale dollars, excludes laminat
Slide 12: Broad Product Mix
WOOD FLOORING(1) RESILIENT FLOORING(1) BROAD PRODUCT MIX Engineered Wood Solid Wood Luxury Vinyl Tile (LVT) Resilient Tile Resilient Sheet Laminate / Other (1) Figures represent AFI 2015 approximate percentage sales breakdown
Slide 13: Positioned to Leverage Market Recovery
POSITIONED TO LEVERAGE MARKET RECOVERY Outlook Supports Industry Volume Growth US Housing Starts (millions) US Existing Home Sales (millions) US Non-Residential Construction ($Bn)(1) Source: Mortgage Bankers Association, Dodge Data & Analytics and US Census Bureau (1) Includes commercial and institu
Slide 14: Profitability Improving in Pacific Rim
PROFITABILITY IMPROVING IN PACIFIC RIM CHINA ~50% AUSTRALIA ~30% ASIA (EX-CHINA) ~20% KEY FACTS 2015 Pacific Rim Net Sales Breakdown Approximately $100 million in 2015 revenue Strong share positions Advanced manufacturing in place Future alternative supply source for North American Commercial Sheet
Slide 15: Agenda
AGENDA OUR BUSINESS INVESTMENT HIGHLIGHTS FINANCIAL OUTLOOK
Slide 16: Investment Highlights: Competitive Advantages
INVESTMENT HIGHLIGHTS COMPETITIVE ADVANTAGES 1 Most recognized brands Expansive product portfolio Advantaged go-to-market system TRANSFORMATION TOP-LINE GROWTH BOTTOM-LINE DRIVERS 2 3 4
Slide 17: Most Recognized Brands and Most Visited Manufacturer Website
MOST RECOGNIZED BRANDS AND MOST VISITED MANUFACTURER WEBSITE 1 MONTHLY WEBSITE VISITS (2) KEY AFI BRANDS (1) Based on survey completed by The Boston Consulting Group Based on data from CompetePRO.com and Adobe Analytics. US Residential sites only. SHAW MOHAWK MANNINGTON JAN 2015 APR 2015 JUL 2015 OC
Slide 18: Expansive Product Portfolio
EXPANSIVE PRODUCT PORTFOLIO Leadership Position Creates Opportunity 1 AFI MARKET POSITION Source: US FLOOReport (Market Insights LLC and Floor Focus) (1) LVT includes both Residential and Commercial LVT products VCT Commercial Sheet LVT (1) Linoleum Residential Vinyl Tile Solid Wood Engineered Wood
Slide 19: Go-to-Market System Creates Competitive Advantage
GO-TO-MARKET SYSTEM CREATES COMPETITIVE ADVANTAGE Distribution + Direct Model Best Serves Customers 1 DISTRIBUTION SALES DIRECT SALES & Large, national customers Home centers Direct relationships for cost efficiency Key consumer touchpoint Support to ~15,000 local and regional retailers and contract
Slide 20: Investment Highlights: Transformation
INVESTMENT HIGHLIGHTS TRANSFORMATION 2 Positioning to high growth categories Renewed focus on distribution Improved innovation process COMPETITIVE ADV. TOP-LINE GROWTH BOTTOM-LINE DRIVERS 3 4 1
Slide 21: Positioning to Grow in Attractive Hard Surface Categories
POSITIONING TO GROW IN ATTRACTIVE HARD SURFACE CATEGORIES Source: US FLOOReport (Market Insights LLC and Floor Focus). Indicates wholesale sales dollars (1) Other Resilient includes VCT, sheet, linoleum, residential tile, residential sheet and laminate AFI’s Product Segments (1) 2012-2016E US Sales
Slide 22: Winning with Distribution
WINNING WITH DISTRIBUTION OPPORTUNITY TO DOUBLE CURRENT DISTRIBUTOR SALES 2 Source: Floor Covering Weekly and AFI internal estimates DISTRIBUTION INITIATIVES DISTRIBUTOR “SHARE OF WALLET” OPPORTUNITY PERCENT OF AFI DISTRIBUTOR SALES IN 2015 – TOTAL $2.6B Current Sales of AFI Products Addressable Opp
Slide 23: Establishing a Pipeline for Growth
Establishing a Pipeline for Growth New R&D leader Global R&D organization Regional innovation centers STRUCTURE PROCESS Consumer driven Leverage across products Repeatable processes % of 2015 Sales from New Products(1) ~45% (1) New products defined as those introduced during previous five years 2 RE
Slide 24: Increased Rate of Product Innovation
INCREASED RATE OF PRODUCT INNOVATION DIAMOND10™ Technology Installation Materials Design Performance Plus™ with Acrylic Impregnation VIVERO™ Luxury Vinyl Tile LUXE PLANK® with Rigid Core Technology Striations BBT™ Bio-flooring Fastak™ and I-Set™ Durability 2 Alterna™ Luxury Vinyl Tile and Architectu
Slide 25: Investment Highlights: Top-Line Growth
INVESTMENT HIGHLIGHTS TOP-LINE GROWTH 3 Consumer-centric innovation VIVERO™ LVT Case Study COMPETITIVE ADV. 1 BOTTOM-LINE DRIVERS 4 TRANSFORMATION 2
Slide 26: Top-Line Growth Strategy
TOP-LINE GROWTH STRATEGY Repeatable Process to Drive Disciplined Market Share Gains 4 3 2 1 3 CONSUMER INSIGHT PURCHASE JOURNEY INNOVATION GO-TO-MARKET
Slide 27: Case Study: VIVERO LVT
CASE STUDY: VIVEROTM LVT AFI’s new Luxury Vinyl Tile with DIAMOND10™ Technology
Slide 28: Case Study: VIVERO LVT - Consumer Insight
CASE STUDY: VIVEROTM LVT 3 CONSUMER INSIGHT PURCHASE JOURNEY INNOVATION GO-TO-MARKET “A product that looks great, no matter what life throws at it.” 4 3 2 1 Consumer Demands Increasing Importance Durability Style / Look Price Material Low Maintenance Ease of Installation
Slide 29: Case Study: VIVERO LVT - Innovation
3 CONSUMER INSIGHT INNOVATION 2 1 PURCHASE JOURNEY GO-TO-MARKET 4 3 “Best-in-Class” scratch and stain resistance CASE STUDY: VIVEROTM LVT
Slide 30: Case Study: VIVERO LVT - Purchase Journey
CASE STUDY: VIVEROTM LVT 3 Simplified pricing and marketing “Share of Wallet” Opportunity AFI LVT TOTAL DISTRIBUTOR LVT SALES CONSUMER INSIGHT INNOVATION 2 1 PURCHASE JOURNEY GO-TO-MARKET 4 3
Slide 31: Case Study: VIVERO LVT - Go-to-Market
CASE STUDY: VIVEROTM LVT 3 Retailer training Merchandising Market development Promotional programs Retailer programs that close the sale CONSUMER INSIGHT INNOVATION 2 1 PURCHASE JOURNEY GO-TO-MARKET 4 3
Slide 32: Video Placeholder
VIDEO PLACEHOLDER HERE To view the video included in this presentation, visit: www.armstrong.com/diamond10
Slide 33: Investment Highlights: Bottom-Line Drivers
INVESTMENT HIGHLIGHTS BOTTOM-LINE DRIVERS 4 Portfolio mix Wood economics Continuous improvement COMPETITIVE ADV. 1 TRANSFORMATION 2 TOP-LINE GROWTH 3
Slide 34: Improving Portfolio Mix
2012 to 2016E Market Growth Rates IMPROVING PORTFOLIO MIX Average Retail Price Per SF and Growth Rates(1) 4 (1) Values are based on company estimates and indicative of pricing at specialty flooring retailers. Actual pricing varies significantly by region and retailer KEY FACTS Market growth favoring
Slide 35: Driving Wood Profitability
DRIVING WOOD PROFITABILITY Core to AFI Growth Strategy Engineered Wood Solid Wood $2.2 B $3.1 B 2012 2016E US WOOD FLOORING MARKET(1) Source: US FLOOReport (Market Insights LLC and Floor Focus) (1) Indicates wholesale sales dollars 4 9% CAGR INITIATIVES TO ENHANCE VALUE INNOVATION PRODUCT & CHANNEL
Slide 36: Culture of Continuous Improvement
CULTURE OF CONTINUOUS IMPROVEMENT PRODUCTIVITY SAVINGS 4 (5 yr. avg.) $6 $9 $5 (2 yr. avg.) Average Gross Productivity ($M) $20M / year SELECTED EXAMPLES WOOD Shifted solid wood plants from 3 to 2 shifts through process redesign and technology investment RESILIENT Migrated an off-line, manual packin
Slide 37: Agenda
AGENDA OUR BUSINESS INVESTMENT HIGHLIGHTS FINANCIAL OUTLOOK
Slide 38: Strong Balance Sheet with Focus on Liquidity
STRONG BALANCE SHEET WITH FOCUS ON LIQUIDITY Cash $38 Current Assets 350 PP&E / Other Assets 514 Total Assets $902 Current Liabilities (Excl. Debt) $161 Total Debt 98 Pension & Post Retirement Liabilities 123 Other Liabilities 14 Total Liabilities $396 Shareholders' Equity $505 Total Liabilities & E
Slide 39: Reasons to Believe
REASONS TO BELIEVE PROVEN NEW TEAM MANUFACTURING INVESTMENTS GO-TO-MARKET INVESTMENTS REFOCUSED INNOVATION OPERATIONAL TRANSFORMATION MEDIUM-TERM FINANCIAL GOALS Growth and Operating Leverage Leading to Bottom-line Expansion TOP-LINE GROWTH REVENUE FLOW THROUGH EBITDA MARGIN 5 - 6% Annualized 10% 20
Slide 40: 2016 Guidance
2016 GUIDANCE Negative Positive FREE CASH FLOW(3) 2015 2016 Based on 2016 exchange rates; see appendix for reconciliation to 2015 reported amounts Per AFI Form 10 Free cash flow defined as operating cash flow plus investing cash flow ADJ. NET SALES $1,200 - $1,250 million $1,183 million(1) 1% - 6% g
Slide 41: Video Placeholder
VIDEO PLACEHOLDER HERE To view the video included in this presentation, visit: www.armstrong.com/diamond10
Slide 42: Unique Opportunity to Build Value
UNIQUE OPPORTUNITY TO BUILD VALUE Leading hard surfaces flooring company Most recognized brands Expansive product portfolio Renewed focus on innovation Differentiated go-to-market system Operational, financial and organizational transformation
Slide 43: Appendix
Appendix @mstrong | FLOORING
Slide 44: Flooring product descriptions
Resilient Tile - Highly durable commercial flooring (VCT: “Vinyl Composition Tile”) and economical, easy to install “peel-and-stick” tiles used in residential applications. Resilient Sheet - Vinyl sheet flooring available in a variety of constructions to meet the performance, design and cost needs f
Slide 45: Basis of Presentation: 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. Reconciliations to the nearest GAAP-e
Slide 46: Net Sales Reconciliation
NET SALES RECONCILIATION { J _ 2011 [Adjusted Net Sales at 2015 budgeted FX rates $ 1,229 $1197 $1257 $1223 $ 1,207 2016 comparability FX adjustment (29) (29) (26) (25) (24) 2015 comparability FX adjustment a7 43 35 25 6 |GAAP Net Sales $4247 $1212 _$ 1,265 _$ 1,223 _$ 1,189 [2015 Net Sales J __2015
Slide 47: Resilient Net Sales Reconciliation
RESILIENT NET SALES RECONCILIATION
Slide 48: Wood Net Sales Reconciliation
WOOD NET SALES RECONCILIATION
Slide 49: EBITDA Reconciliation
EBITDA RECONCILIATION (Smilions) |AW/ Flooring Division Adjusted EBITDA at 2015 budgeted FX rates sus $ ue Sundion aor nperieseaticig depreciation and amortization’? sstandlne Aste EDDA 205 dered rates abil 0), __ % 7 aaa Tee (3) (3) (9) a) a $us $m $3 S$ ow Comparability FKadjustment 1 ® 8 - “Multi
Slide 50: Segment EBITDA Reconciliation
SEGMENT EBITDA RECONCILIATION
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