Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Day (May 2014)
88 slides from Armstrong World Industries's investor day presentation, May 21, 2014
Slide 1: Armstrong World Industries Investor Day 2014
Armstrong World Industries Investor Day 2014 May 21, 2014
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, are intended to be presented and understood together. Our disclosures in this presentation, including without limitation, those relating to guidance, futu
Slide 3: Basis of Presentation
Basis of Presentation Explanation All figures throughout the presentation are in $ millions unless otherwise noted. Figures may not add due to rounding. When reporting our financial results within this presentation, we make several adjustments. Management uses the non-GAAP measures below in managing
Slide 4: Agenda
Agenda 12:15-12:20pm Introduction and Agenda Thomas Waters, Vice President, Treasury and Investor Relations 12:20-12:50pm Strategic Outlook: Retrospective Review & What's Next for Armstrong Matthew Espe, Chief Executive Officer 12:50-2:00pm Value Creation Model and Strategic Priority Review Victor G
Slide 5: Armstrong Overview
Armstrong Overview Matthew Espe Chief Executive Officer, Armstrong World Industries
Slide 6: Management Team
Management Team Matt Espe, Chief Executive Officer Dave Schulz, Chief Financial Officer Vic Grizzle, Chief Executive Officer Armstrong Ceilings Tom Mangas, Chief Executive Officer Armstrong Flooring Mark Hershey, General Counsel & Chief Compliance Officer Don Maier, SVP Global Operations Ellen Roman
Slide 7: 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 Worldwide Sales 2.7 80% N. American Commercial Distributors have been with AWI for 20+ years 100+ Countries have Armstrong
Slide 8: Inspiring Great Spaces
As a leader in the design and manufacture of floor and ceiling solutions, these powerful words capture what the company provides to its customers This new platform builds on Armstrong's brand legacy of integrity, quality and trust, and extends it to incorporate its focus on innovation and creativity
Slide 9: Armstrong's Global Manufacturing Footprint
Armstrong's Global Manufacturing Footprint AUSTRALIA Braeside Thomastown Warren, AR South Gate, CA Pensacola, FL Kankakee, IL Somerset, KY West Plains, MO Jackson, MS Vicksburg, MS Millwood, MV Hilliard, OH St. Helens, OR Lancaster, PA Marietta, PA Beech Creek, PA Titusville, PA Lancaster, PA Stillw
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: Active and Ongoing Value Creation
Active and Ongoing Value Creation Matthew Espe Chief Executive Officer, Armstrong World Industries
Slide 12: 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 to expand our product line and geographic
Slide 13: Active and Ongoing Value Creation
Position company to benefit from recovery in North American residential and commercial construction Customer focused innovation in ceilings and floors Capture new and increased spend in established and growth markets Capital structure and allocation Active and Ongoing Value Creation (CHART) 2013 $3.
Slide 14: Ways to Drive Value Creation
Ways to Drive Value Creation North American Recovery Growth in International Markets Innovation in Ceilings and Flooring
Slide 15: Macro Economic Drivers: Key North America Metrics
Macro Economic Drivers: Key North America Metrics Dodge commercial starts - 20% of our business GDP - Commercial repair and remodel ~80% of our business and is largely GDP driven ABI - best of the forward indicators but timing is problematic, and it only captures large projects US Census data on new
Slide 16: Leveraging Macro Trends: North America
Leveraging Macro Trends: North America Anticipated multi-year recovery 2014 is an inflection point for the commercial market Expect the beginning of a multi-year recovery based on recent strong new commercial starts Commercial: Residential: New home construction has grown double-digits since 2012 Gr
Slide 17: 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% capacity utilization; can support increase in volume A 10% incr
Slide 18: Ways to Drive Value Creation
Ways to Drive Value Creation North American Recovery Growth in International Markets Innovation in Ceilings and Flooring
Slide 19: Macroeconomic Drivers: International Metrics
Macroeconomic Drivers: International Metrics International commercial macroeconomic market indicators are not as transparent or consistent as North American data Internal knowledge from our leading share position combined with select external indicators provides us with a more informed view GDP - th
Slide 20: Macro Trends: Core International Markets
Macro Trends: Core International Markets UK Sales increased more than expected since 2012, driven by share gains Western Europe Weakness in the North and continued declines in the South Australia Impact of past stimulus dampened demand for 2010 - 2013 Market flat in 2014, modest growth in 2015 and b
Slide 21: Macro Trends: Emerging Markets
Macro Trends: Emerging Markets Russia Strong volume growth, continued evolution of price and mix since 2012 Changing population demographics driving growth trends Office down in 2014, growth in 2015 & beyond Healthcare and education growth to continue China Double-digit growth in healthcare and educ
Slide 22: 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 manufacturing footprint we need for the
Slide 23: Ways to Drive Value Creation
Ways to Drive Value Creation North American Recovery Growth in International Markets Innovation in Ceilings and Flooring
Slide 24: Renewed Focus on Innovation
Dynamic strategy driven by customer needs Deploying NPD, R&D, and technical resources globally to the highest value creation opportunities Development of global and multi- generational product platforms Patent applications increased more than 5x since 2010 Differentiation that is valued by customers
Slide 25: Armstrong Ceilings Overview
Armstrong Ceilings Overview Victor Grizzle Chief Executive Officer, Armstrong Ceilings Armstrong Ceilings Armstrong Ceilings
Slide 26: Inspiring Great Spaces
Inspiring Great Spaces "In most of the great buildings in the world, the ceilings are the most spectacular"
Slide 27: Global Ceilings
Global Ceilings 22 Manufacturing Facilities in 8 Countries 3,300 Team Members Worldwide Billion Worldwide Sales 1.3 100+ Countries Have Armstrong Ceilings 50,000+ Architect/Designer Relationships 22 Years of Highly Profitable WAVE JV
Slide 28: Global Ceilings Revenue Mix
(CHART) (CHART) Global Ceilings Revenue Mix Commercial vs. Residential Sales by End-Use Segment Office 30% - 40% Retail 20% - 30% Education 15% - 25% Healthcare 5% - 15% ~90% of business in China is new construction ~80% of business in North America is remodel & refresh New vs. Remodel Worldwide mar
Slide 29: Geographic and Product Mix
(CHART) Geographic and Product Mix 2013 Sales by Geography Total = $1.3B 2013 Sales by Product (CHART) (CHART) Americas EMEA Pacific Rim Architectural Specialties Mineral Fiber Leading share position in all 3 geographies 60% of sales in North America - the core earnings driver of the business Archit
Slide 30: Seamless customer relationship and WAVE JV
Seamless customer relationship - customers buy an Armstrong ceiling system Greater than 100% ROIC 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 efficiency to contractors WAVE - Arms
Slide 31: Our Mission
(CHART) Our Mission To be the best in the world in ceilings solutions...committed to win in the entire ceilings market From: Mineral Fiber Leadership $3 billion market $6 billion market (CHART) Mineral Fiber To: Ceilings Solutions Leadership
Slide 32: 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 recovery Expand margins and drive mix 1 >15% sales CAGR Expanded capacity Build a leadership position in key e
Slide 33: Global Ceiling Sales and EBITDA
Global Ceiling Sales and EBITDA 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 challenges Sales (M) EBITDA Margin (CHART)
Slide 34: Regional Mix
Regional Mix Global improvements led by North America ~20% sales growth in UK, Russia and Middle East Offset by market contraction in Continental Europe Significant Russia plant start- up investment began in 2013 Sales +12% despite lower volumes EBITDA margin expands 900 bps - price, mix, manufactur
Slide 35: China & Russia Investments
China & Russia Investments Growth markets . . . large potential High-end office sector growth below initial expectations in China Second China plant started on time, under budget Russia market and sales growth impacted by current political instability and weakening of the ruble Russia on time/budget
Slide 36: Ceilings Innovation
Ceilings Innovation Design Build Occupy Indoor Environmental Quality: Acoustics matching space needs Healthy buildings Energy efficient Design / Visual: Monolithic visuals Unique solutions/specials "Expressive" designs Engineered Solutions: Pre-fabrication Designed for higher productivity Contractor
Slide 37: Our Winning Formula
Leverage global reach and scale Win specification game Multi-product offering ... 1-stop shopping Supported with design services Remodel opportunity Prepared for demand uptick Capacity to support a 20% increase in volume with a 4% increase in production workforce Our Winning Formula Our Winning Form
Slide 38: 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 effectively meet customer's challenging n
Slide 39: Summary
Summary Leading global position in ceilings . . . financially stronger than ever Global footprint to leverage for speed efficiency and customer value Innovation leader . . . committed to be Broadest portfolio to meet more of our customers' needs Strong, passionate, loyal employee base . . . committe
Slide 40: Architectural Specialties
Architectural Specialties Mike Shirk Vice President, Global Architectural Specialties, Armstrong Ceilings
Slide 41: 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 aesthetic Same customer as mineral fiber ceilings, often combined on the same project Many different materials and product f
Slide 42: A Look Back at The Last Years
A Look Back at The Last 2 Years Actions Established a repeatable growth strategy Redeployed resources to most attractive markets Built best team in the industry - 30+ new leaders, organization and talent development Expanded global capabilities - new solutions, advantaged fulfillment, sales excellen
Slide 43: Exciting New Solutions Recently Launched
Exciting New Solutions Recently Launched Rapid innovation model driven by the voice of our customers Concealed Linear Wood: Floating modular panelized wood with several staggered visuals Design Services: Collaborative early design support to help customers realize visions within budgets Blades Conce
Slide 44: Investing in Our Global Footprint
Investing in Our Global Footprint Network provides advantaged local service and global leverage Armstrong factory Engineering office Montreal, Canada Lancaster, US Stafford, UK Paris, France Moscow, Russia St. Gallen, Switz. Dubai, UAE Shanghai and Beijing, China Mumbai, India Sydney, Australia Guan
Slide 45: The AS Financial Equation
The AS Financial Equation Big Penetration Opportunity Attractive Stand-Alone Economics Total Ceilings Portfolio Synergies $2B market opportunity Highly incremental - low cannibalization of existing sales An attractive ROIC-accretive global growth engine Incremental margin% same as total ceilings ROI
Slide 46: Architectural Specialties Summary
Architectural Specialties Summary Differentiated approach - deliver enhanced value to our customers Attractive economics - incremental growth, high ROIC, portfolio synergies Strategy is working - changed trajectory in last 2 years, broad-based growth Keeping foot on the accelerator - continued capab
Slide 47: Armstrong Flooring Overview
Armstrong Flooring Overview Tom Mangas Chief Executive Officer, Armstrong Flooring
Slide 48: Global Flooring
Global Flooring 19 Manufacturing Facilities in 4 Countries ~4,800 Team Members Worldwide Billion Worldwide Sales 1.5 8,000,000+ Annual Visitors to Global Websites #1 Flooring Brand in North America 45% % of Sales from Innovative New Products Introduced in the Past 5 Years
Slide 49: Global Flooring Revenue Mix
Global Flooring Revenue Mix Commercial 40% Residential 60% Total Business (CHART) Remodel 70% New 30% (CHART) Remodel 75% New 25% Commercial Residential Office 5% - 15% Retail 15% - 25% Education 20% - 30% Healthcare 20% - 30% Other 15% - 25% Balanced exposure to Residential and Commercial recovery
Slide 50: Geographic and Product Mix
Geographic and Product Mix 80% of sales in North America - the core earnings driver of the business Mix of Commercial and Residential in North America Residential is a North American business - business outside of North America is all Commercial 2013 Sales by Geography Total = $1.5B 2013 Sales by Pr
Slide 51: Global Flooring Total Sales and EBITDA
Global Flooring Total Sales and EBITDA 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 declines and investments in China EBITDA Margin Global Flooring Sales and EBITDA Sales (M) (
Slide 52: Resilient Flooring
Resilient Flooring North American performance drives segment profit growth Sales (M) EBITDA Margin Sales down only 2% despite double digit volume declines Margins expand 675 bps despite negative volume leverage (manufacturing productivity, mix and price all improve) Dramatic cost actions have not be
Slide 53: Wood Flooring
Wood Flooring Residentially focused business has grown sales from the trough, but housing starts and remodel activity still significantly below long-term averages Margins depressed by low volumes and inflation, manufacturing and mix challenges in 2013 Disappointing profitability in 2013 given 16% sa
Slide 54: Our Strategy - Commercial Flooring
Where To Play: Win in the Healthcare, Education and Retail sectors Dramatically increase share in fast- growing LVT Protect our leading share position in VCT in North America Drive disproportionate sales and profit growth in fast-growing emerging markets Improve profitability of Commercial Sheet pla
Slide 55: Our Strategy - Residential Flooring
Where To Play: Dramatically improve profitability in the Wood segment Significantly increase share in fast- growing LVT Protect our leading share position in Sheet Vinyl Expand accessories and floor care solutions to sweeten the mix Our Strategy - Residential Flooring Goals: Restore wood segment att
Slide 56: Our Strategy - Flooring Worldwide
How To Win: Deliver superior customer and consumer value through best-in-class service, quality and product innovation Reduce non-value-added costs through LEAN approach Win with winning customers Improve gross margins to increase investment in key business drivers Strengthen the product and geograp
Slide 57: 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 38% off peak At trough volumes in 2011 and 2012, EBITDA margins were +10% and ROIC was +8% Nearly $50M in commodity inflation in 2013; estimating an
Slide 58: Emerging Market Investments
Emerging Market Investments Aggressively responding to softer market conditions with countermeasures Thesis - 2010 Enormous and fast growing market opportunity in China, Southeast Asia and India Healthcare and Education growing faster than the overall market Evolution of building standards drives co
Slide 59: Innovation in Commercial Flooring
Innovation in Commercial Flooring Innovation is driving value creation Customer preferences driving New Product Development (NPD) efforts New to market installation methods provide added value Breakthrough coatings to extend product life and reduce maintenance Natural Creations (LVT) Migrations Tile
Slide 60: Innovation in Residential Flooring
Innovation in Residential Flooring Luxe(tm)- Luxury Vinyl Plank Alterna(tm) - Engineered Stone American Scrape(tm) - Hardwood CushionStep(tm)- Vinyl Fiberglass Sheet Driving style and design for unique realistic visuals Differentiated fastening technologies are faster and easier to install and repai
Slide 61: Innovation in Installation and Durability
Innovation in Installation and Durability TRUESHIELD(tm) is a hydrophobic coating for homogeneous sheet flooring Reduces maintenance costs Lower cost of ownership Resists scuff, stain & scratch TRUESHIELD(tm) FLIP(tm) FasTak iset(tm) First-to-market with meaningful solutions FLIP(tm) is a hand-held
Slide 62: Luxury Vinyl Tile growth and investment
LVT is the fastest growing product in the resilient flooring segment Armstrong realizing double digit growth Category has reached the scale where manufacturing vs. sourcing makes sense $41M capital investment within existing Lancaster, PA floor site to produce ~$150M of products High IRR investment
Slide 63: Retail Case Study - Why Armstrong
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• Reliability 2
Slide 64: Armstrong in Healthcare
Armstrong in Healthcare Respected Healthcare (HC) Solutions Armstrong brand and service well respected globally Medintech(r) and Medintech Plus(r) are recognized HC standards Armstrong linoleum, homogeneous and heterogeneous flooring are known for HC performance and design Brand promise and product
Slide 65: Armstrong Flooring Products - 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 Clear strategies to win Armstrong Flooring
Slide 66: Financial Summary
Financial Summary Dave Schulz Chief Financial Officer, Armstrong World Industries
Slide 67: 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 to execute opportunistic acquisitions Generate significant free cash flow to fund investments and return value to shareholders Focused on V
Slide 68: EBITDA History 2006 - 2013
(CHART) EBITDA History Discrete cost-out program 2010 - 2012 drove over $200M of savings in SG&A and Manufacturing Significant volume erosion since peak earnings $400 $370 $310 ($430) ($195) $105 $15 ($50) $215 *Bridge figures rounded to nearest $5M EBITDA History 2006 - 2013
Slide 69: Cash Flow History 2009 - 2013
Created and maintained an efficient balance sheet Prioritized investments in capital expenditures to drive global growth Returned surplus cash via special dividends and share repurchase Cash generation aided by low cash tax rate from Chapter 11 Net Operating Loss (NOL) carry-forward (CHART) Cash Flo
Slide 70: Balance Sheet - 3/31/14
Balance Sheet - 3/31/14 Well positioned and efficient balance sheet Net Debt $975M LTM EBITDA $370M Leverage 2.6x No significant maturities until 2018 Considerable covenant headroom Recent ratings upgrade to BB (positive) from S&P Sufficient liquidity at seasonal low- point Fully funded US pension p
Slide 71: Mid-Cycle Outlook
Mid-Cycle Outlook Volumes in North America and Europe down >30% from peak in 2007 Price and mix gains partially mask the severity of the downturn "Mid Cycle" occurs when market conditions support recovery of 2/3 of volume vs. peak in 2007 Timing of end-use sector likely to be uneven Residential lead
Slide 72: Mid-Cycle Sales
Mid-Cycle Sales Market recovery Continued price and mix gains Outsized sales growth in emerging markets and via Architectural Specialties Significant volume growth opportunities, plus price and mix (CHART) $2.6 $2.7 $3.5 - $3.7 $3.3
Slide 73: Mid-Cycle EBITDA
Sales drives profitability via volume recovery and continued price and mix gains Cost reduction activities enhance incremental margins to 25% - 45% Investments in China, Russia and LVT boost future profitability - aided by elimination of startup costs Mid-cycle includes an incremental $80M of non-ca
Slide 74: Acquisition Strategy
Acquisition Strategy Target acquisitions: Enhance our strategic and competitive position in ceilings and flooring Accelerate top and bottom-line growth Open to expansion into other product categories ROIC accretive
Slide 75: Capital Deployment
Free cash flow will increase significantly 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 Acquisitions Return value to shareholders (divide
Slide 76: Closing Comments
Closing Comments Matthew Espe Chief Executive Officer, Armstrong World Industries
Slide 77: Armstrong's Business Priorities
Protect and grow our North American businesses Invest and grow in key international and emerging markets Optimize our portfolio - ongoing evaluation of strategic opportunities by business, by geography and across the company Seek adjacent opportunities to expand our product line and geographic reach
Slide 78: Appendix
Armstrong World Industries Appendix Appendix
Slide 79: Armstrong Attendees
Armstrong Attendees Speakers Matthew Espe, Chief Executive Officer Dave Schulz, Chief Financial Officer Victor Grizzle, Chief Executive Officer Armstrong Ceilings Thomas Mangas, Chief Executive Officer Armstrong Flooring Michael Shirk, VP, Global Architectural Specialties Armstrong Ceilings Thomas W
Slide 80: Armstrong Attendees
Armstrong Attendees Armstrong Flooring Dennis Schemm, VP, Global Finance Armstrong Flooring Dominic Rice, VP & GM, North America Commercial Armstrong Flooring Charles Grogan, VP, Global Operations Armstrong Flooring Tom Ellis, VP, Global Commercial Marketing Armstrong Flooring Mara Villanueva-Heras,
Slide 81: Matthew J. Espe biography
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 from his previous position at Ricoh Americas Corporation,
Slide 82: David S. Schulz biography
David S. Schulz is senior vice president and CFO of Armstrong World Industries, Inc., in Lancaster, Pennsylvania. Mr. Schulz joined Armstrong in 2011 as vice president, finance for Armstrong Building Products. Prior, he served as CFO of Procter & Gamble Company's Americas snacks division, and from 2
Slide 83: Victor Grizzle biography
Victor "Vic" Grizzle is executive vice president and CEO, Armstrong Ceilings, in Lancaster, Pennsylvania. Mr. Grizzle has 23 years of experience in process improvement, sales, marketing and global business leadership. He comes to Armstrong from Valmont Industries, a $2 billion global leader of infra
Slide 84: Thomas B. Mangas biography
Thomas B. Mangas is executive vice president and CEO of Armstrong Floor Products Worldwide, in Lancaster, Pennsylvania. Mr. Mangas joined Armstrong in February 2010 as senior vice president and Chief Financial Officer. In November of 2013, he was appointed executive vice president and CEO of Armstro
Slide 85: Michael F. Shirk biography
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 has responsibility for developing and growing the specialty ceilings b
Slide 86: Thomas J. Waters biography
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 Relations, General Manager of Finance and IT for Building Products Eur
Slide 87: Kristy Rohrbaugh biography
Kristy Rohrbaugh is Investor Relations Manager of Armstrong World Industries, Inc., in Lancaster, Pennsylvania. Ms. Rohrbaugh became Investor Relations Manager in December of 2010 and has responsibility for managing all external investor communications. Ms. Rohrbaugh joined Armstrong in November of
Slide 88: Investor Relations Contact Information
Investor Relations Contact Information Kristy Rohrbaugh, CPA, MBA Investor Relations Manager Armstrong World Industries 2500 Columbia Avenue Lancaster, PA 17604 P: 717-396-6354 F: 717-396-6128 E: ksrohrbaugh@armstrong.com Thomas J. Waters VP, Treasury and Investor Relations Armstrong World Industrie