Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Presentation (July 2012)
55 slides from Armstrong World Industries's investor presentation, Jul 30, 2012
Slide 1: Armstrong World Industries Investor Presentation July 2012
Armstrong World Industries Investor Presentation July 2012
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
All figures throughout the presentation are in $ millions unless otherwise noted. Figures may not add due to rounding. 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
Slide 4: Investment Highlights
@mstrong: Investment Highlights
Slide 5: Investment Highlights
Investment Highlights Diversified $3 billion global building products company with leading positions in all key markets and products New leadership team successfully executing strategy to achieve competitive cost structure and lay foundation for growth Significant opportunities for investment and gr
Slide 6: Global Business Overview
(@ymstrong: Global Business Overview Ni
Slide 7: 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% North America - 30% Int'l 60% commercial - 40% resid
Slide 8: 2011 Business Segment and End-Use Profile
2011 Business Segment and End-Use Profile 8 Diversified earnings profile $150 $1,000 $475 $1,225 $2,850 40% 20% 30% 10% 55% 35% 10% 65% 35% 30% 5% 45% 20% 5% 45% 50%
Slide 9: EBITDA Growth in All Businesses Despite Lower Volumes
EBITDA Growth in All Businesses Despite Lower Volumes 9 Excludes unallocated corporate expense 2009 Total EBITDA: $296M 2011 Total EBITDA: $377M Worldwide Ceilings Worldwide Ceilings Wood Wood Worldwide Resilient Worldwide Resilient 2009 2011 2009 2011 2009 2011 Sales $1.10B $1.22B $515M $475M $1.04
Slide 10: Global Presence, Worldwide Market Leader
Global Presence, Worldwide Market Leader 10 North America North America North America Ceilings Floors Commercial 1 1 Residential 1 1 Wood NA 1 Europe, Africa, Middle-East Europe, Africa, Middle-East Europe, Africa, Middle-East Ceilings Floors Western 1 NA Central 1 1 Eastern 1 <5 Africa / Mid-East 1
Slide 11: Global Revenue Mix
Global Revenue Mix 11 Sales by End-use Segment Office Retail Education Healthcare Segment % of Business Office 35% - 45% Retail 20% - 30% Education 15% - 25% Healthcare 10% - 20% Ceilings
Slide 12: Armstrong/Worthington JV (WAVE)
Armstrong/Worthington JV (WAVE) 50% - 50% global joint venture with Worthington Industries - 20 years old Manufactures ceiling suspension systems (grid) Leverage Worthington's strength buying and forming steel, and Armstrong's strength selling and marketing ceilings Invisible to the customer - they
Slide 13: Globally Expanding our View of the Market Opportunity
Globally Expanding our View of the Market Opportunity 13 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 Ceilings
Slide 14: Strategic Summary
Strategic Summary 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 14 Ceilings
Slide 15: Global Revenue and Product Mix
Global Revenue and Product Mix 75% of sales in North America Residential is North America only ~50% of sales are vinyl products* 15 2011 Sales by Geography Total = $1.5B 2011 Sales by Product Residential 54% Commercial 46% Flooring Wood $475
Slide 16: Global Revenue Mix cont.
Global Revenue Mix cont..... 16 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 Indep
Slide 17: Commercial Flooring - Focused on Global Growth
Commercial Flooring -Focused on Global Growth 17 Expanded View of Market Opportunity $4 Billion Market Leader in Vinyl / Linoleum Flooring Market Leader in Commercial Flooring Flooring
Slide 18: Strategic Summary
Strategic Summary Expanded commercial market opportunity globally From $4B to $28B market opportunity Emerging market growth Building blocks to win Industry leading brand...globally Broadest portfolio...getting broader Innovation...market trends and product leadership Global footprint...and growing
Slide 19: Leadership
@ymstrong: Leadership
Slide 20: New Management Successfully Executing
New Management Successfully Executing Majority of senior leadership team joined Armstrong after January 2010 Earnings progress despite lower volumes Building competitive cost structure European turnaround Growth through organic investments, tactical acquisitions and product adjacencies Innovation in
Slide 21: Key Milestones
Key Milestones 21 TPG invests in Armstrong New CEO and CFO Leverage recap. and $800M special dividend Announce $150M cost out initiative New CEO of global ceilings business Cost out initiative raised to $165M Organic growth in emerging markets Construction of three plants in China Fixing underperfor
Slide 22: Recent Accomplishments
Recent Accomplishments Reduced costs by $150 million through 2011 $50 million more planned in 2012 Grew 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 2011 ROIC (7.4%) highest since e
Slide 23: Cost Savings Program
Cost Savings Program 23 Savings driving bottom line results. Manufacturing savings are the result of plant closures and LEAN. Expected Cumulative Savings $35M $150M $200M Cost Out Program Evolution 2010 - program introduced with $150M goal Mid 2011 - increased to $165M Year end 2011 - increased to $
Slide 24: European Floor Products
European Floor Products 24 Business to be profitable in 2012. Transform the Business Sales(1) $360M EBITDA(2) ($15M) Sales(1) $270M EBITDA(2) ($3M) (1)Includes intercompany sales. Sales shown on a comparable foreign exchange basis (2)Excludes restructuring expense Commercial - 87% Commercial - 100%
Slide 25: Strategy
Strategy 25 1. Optimize Product Portfolio Broad product offering and availability Drive mix New product pipeline Quality leader 2. Drive Emerging Market Growth Build manufacturing capacity and tailor products for local consumption Construction of four plants underway, three in China and one in Russi
Slide 26: Growth
Growth 26
Slide 27: Growth Opportunity Highlights
Growth Opportunity Highlights 27 Emerging Markets: Conversion Opportunity Russia China Architectural Specialties
Slide 28: Emerging Markets Growth
Emerging Markets Growth Manufacturing investments in priority markets to make products designed for local consumption Building four plants; three in China and one in Russia Added over 100 sales and marketing resources - primarily in China Sales to emerging markets ~11% of total sales in 2011, an inc
Slide 29: Product Conversion in Emerging Markets Will Drive Growth
Product Conversion in Emerging Markets Will Drive Growth Improvements in building standards and product performance benefits are accelerating conversion 29 Transition to Western building standards drives growth in our product forms Rising wage rates create more favorable installed cost profile for o
Slide 30: Russia
Russia Large market - 3rd largest in the world with significant future growth Armstrong brought the suspended ceiling category to Russia in 1992 30 Russian market is large, fast growing and Armstrong is the leading brand New Build opportunity Projected growth rate Suspended Ceilings Penetration Offi
Slide 31: China - Healthcare and Education Segments
China - Healthcare and Education Segments Infrastructure spending and government investment drives growth Despite Government attempts to cool the over-heated residential sector, commercial market expected to grow mid to high single digits in 2012 Low product form penetration and high economic growth
Slide 32: Architectural Specialties (AS)
Architectural Specialties (AS) 32 Critical attributes are design and aesthetics; functionality is an important added benefit Lower volume, higher "touch", sometimes involving custom design and engineering Higher price per unit, used for "statement" spaces and high-end commercial buildings Incrementa
Slide 33: Growth Opportunities Summary
Growth Opportunities Summary Opportunities for growth that don't involve a recovery in the US or Europe Emerging markets and AS can double in 4 to 6 years and are both natural extensions of our core businesses Geographic expansion Local manufacturing in China and Russia Conversion opportunity accele
Slide 34: Innovation
@}mstrong: Innovation
Slide 35: Innovation - Breakthrough Thinking
Innovation - Breakthrough Thinking 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 35
Slide 36: Leadership in Innovation
Leadership in Innovation Bridge to future growth "New to the World" products High performance wood (acrylic infused) DC FlexZone ceiling systems (low voltage DC power electrified grid system) AirGuard ceiling tiles (Removes formaldehyde) Open Innovation and collaboration Sustainability and Life Cycl
Slide 37: Financial Overview
@ymstrong: Financial Overview
Slide 38: Focused on creating shareholder value
Focused on creating shareholder value Performance through the cycle Profitable and cash flow positive throughout the downturn Cost reduction and disciplined spending Achieve price to cover inflation Growth via recovery and aggressive organic investments / mid-cycle outlook ROIC goal driven Strong ba
Slide 39: Financial History
Financial History 39 $407 $377 $250 ($435) ($120) $120 $10 ($25) $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 1,355 906 554 587 609
Slide 40: Performance Through the Cycle
Performance Through the Cycle 40 Trough 2009 2012 Guidance "Mid-Cycle" US Housing Starts (000) 554 700 ~1,200 Plants* 40 32 37 Sales $2.85 Billion $2.75 - $2.85 Billion ~$4 Billion EBITDA Margin 10% 14% - 16% ~20% ROIC** 4% > 15% *January 1 ** As reported Growth through recovery and organic investme
Slide 41: Path to Growth - EBITDA margin
Path to Growth - EBITDA margin 41 Incremental Margin Ceilings 30% - 40% Resilient 25% - 35% Wood 25% - 30% Cabinets 20%-30% 30% 20% 10% 0% 30% 20% 10% 0%
Slide 42: Balance Sheet
Balance Sheet 6/30/2012 42 Maturity Profile No significant maturities until 2015 Considerable covenant flexibility Liquidity Sufficient liquidity to manage operations, and execute capital spend and restructuring plans $495M
Slide 43: Investment Highlights
Investment Highlights Diversified $3 billion global building products company with leading positions in all key markets and products New leadership team successfully executing strategy to achieve competitive cost structure and lay foundation for growth Significant opportunities for investment and gr
Slide 44: Financial Overview Appendix
Financial Overview Appendix 44
Slide 45: EBITDA Bridge - Second Quarter 2012 vs. Prior Year
($19) EBITDA Bridge - Second Quarter 2012 vs. Prior Year 45 $11 $8 $6 $2 $108 $110
Slide 46: EBITDA Bridge - 1H 2012 vs. Prior Year
($31) EBITDA Bridge - 1H 2012 vs. Prior Year 46 ($1)
Slide 47: Key Metrics - Guidance 2012
2012 Estimate Range 2012 Estimate Range 2012 Estimate Range 2011 Variance Variance Variance Net Sales(1) 2,750 to 2,850 2,819 (2)% to 1% Operating Income(2) 290 to 320 272 7% to 18% EBITDA 400 to 430 377 6% to 14% Earnings Per Share(3) $2.40 to $2.70 $2.23 8% to 21% Free Cash Flow 30 to 70 170 (82)%
Slide 48: 2012 Financial Outlook
2012 Financial Outlook $20 - $30 million increase Adjusted Gross Margin +50 to +100 bps vs. 2011 $12 million; 60% manufacturing, 40% SG&A Flat vs. 2011 $10 - $20 million. Adjusted ETR of ~40% Sales $740 - $780 million EBITDA $120 - $140 million $225 - $250 million $10 - $15 million associated with a
Slide 49: Adjusted EBITDA to Reported Net Income
Q2 2012 YTD 2012 FY 2011 EBITDA- Adjusted $110 $192 $377 Depreciation and Amortization (25) (50) (105) Operating Income - Adjusted $85 $142 $272 Foreign Exchange Movements - 1 3 Cost Reduction Initiatives (7) (9) (15) Accelerated Depreciation and Impairments (not included above) (1) (15) (12) Restru
Slide 50: Management Team
@mstrong: Management Team
Slide 51: 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 52: Thomas B. Mangas, Senior Vice President 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 53: 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 54: Frank J. Ready, CEO of Armstrong Floor Products Worldwide
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 Marketing before moving to the company's flooring business in 1996. He se
Slide 55: 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
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