ARMSTRONG FLOORING, INC. Investor Presentation

Transcription

1 ARMSTRONG FLOORING, INC. Investor Presentation March 2017

2 SAFE HARBOR STATEMENT Disclosures in this release and in our other public documents and comments contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Those statements provide our future expectations or forecasts and can be identified by our use of words such as anticipate, estimate, expect, project, intend, plan, believe, outlook, target, predict, may, will, would, could, should, seek, and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance. Forward-looking statements, by their nature, address matters that are uncertain and involve risks because they relate to events and depend on circumstances that may or may not occur in the future. As a result, our actual results may differ materially from our expected results and from those expressed in our forward looking statements. A more detailed discussion of the risks and uncertainties that could cause our actual results to differ materially from those projected, anticipated or implied is included our reports filed with the U.S. Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update any forward-looking statements beyond what is required under applicable securities law. The information in this presentation is only effective as of the date given, March 6, 2017, and is subject to change. Any distribution of this presentation after March 6, 2017 is not intended and will not be construed as updating or confirming such information. In addition, we will be referring to non-gaap financial measures within the meaning of SEC Regulation G. A reconciliation of the differences between these measures with the most directly comparable financial measures calculated in accordance with GAAP can be found in the appendix section of this presentation. Armstrong Flooring, Inc. competes globally in many diverse markets. References to "market" or "share" data are simply estimations based on a combination of internal and external sources and assumptions. They are intended only to assist discussion of the relative performance of product segments and categories for marketing and related purposes. No conclusion has been reached or should be reached regarding a "product market," a "geographic market" or market share, as such terms may be used or defined for any economic, legal or other purpose. 2

3 NEW, ENERGIZED EXECUTIVE TEAM Motivated Management Team Driving the Business Forward DON MAIER PRESIDENT & CEO 3 years as AFI CEO, 7 years with Armstrong 29 years of operational experience across industries Prior experience with TPG and Hill-Rom JAY THOMPSON SVP & CFO 2 years with Armstrong Flooring Previously CFO at Chobani Prior experience with PepsiCo, TPG, Bain & Co. and Goldman Sachs JOE BONDI SVP CHIEF PRODUCT OFFICER 3 years with Armstrong Flooring Prior experience with CertainTeed, Lutron and Sears 18 years of experience in B2B and B2C BRENT FLAHARTY SVP NORTH AMERICA SALES Joined Armstrong Flooring in Q years experience in general management, sales, and marketing Previously with Maglite, Exemplis, Masonite, and Stanley Black & Decker DOMINIC RICE SVP GLOBAL OPERATIONS & MANUFACTURING 35 years with Armstrong Flooring Experience in general management, manufacturing, and sales across multiple geographies Director and former Chairman of the Resilient Floor Covering Institute (RFCI) 3

4 BUILDING VALUE THROUGH UNIQUE OPPORTUNITIES 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 4

5 AFI - LEADER IN HARD SURFACE FLOORING Segment Mix #1 in US Resilient and Wood Flooring Wood Flooring 40% 2016 Net Sales: $1,193 million 85% U.S. 15% Foreign (primarily Canada and China) Resilient Flooring 60% 2016 Adj. EBITDA (1) : $83 million End-Market Mix Manufacturing Footprint Resilient: 6 US 2 China 1 Australia Wood: 8 US Comm'l Renovation 20% Comm'l New 10% Residential New 20% Residential Renovation 50% 5 (1) See reconciliation tables in appendix

6 POSITIONING IN GROWING HARD SURFACE CATEGORIES E US Market Growth (CAGR) by Category Average Retail Price Per SF (2) 13% $6 9% $5 $5 3% Focus Areas $2 0% LVT Engineered Wood Solid Wood Other Resilient (1) LVT Eng Wood Solid Wood Other Resilient Average Independent Retail Price (Dollars per square foot) Retail Price Range (Dollars per square foot) 6 Source: US FLOOReport (Market Insights LLC and Floor Focus). Indicates units (1) Other Resilient includes VCT, sheet, linoleum, residential tile, residential sheet and laminate (2) Values are based on company estimates and indicative of pricing at specialty flooring retailers. Actual pricing varies significantly by region and retailer

7 #1 IN US RESILIENT AND WOOD US Market Share Breakdown (1) (2) RESILIENT FLOORING WOOD FLOORING Imports Imports & Shaw Other Metroflor Mohawk / IVC Congoleum Tarkett Shaw Mannington Other Domestic Mannington Mohawk Mullican Somerset Lumber Liquidators 7 Source: US FLOOReport (Market Insights LLC and Floor Focus) (1) Represents 2015 wholesale dollars, excludes laminate flooring (2) Represents 2015 wholesale dollars

8 STRATEGIC PRIORITIES Building Value Through Unique Opportunity 1 BUILD ON STRONG BRAND LEGACY New company with 100+ year legacy Focused on flooring success Strongest brand in industry Let the buyer have faith 4 GAIN LVT MARKET LEADERSHIP Significant growth opportunity Aligns to core competencies Attractive margin contribution 2 FOCUS ON INNOVATION 5 ENHANCE WOOD PROFITABILITY Heritage of innovation leadership Differentiated portfolio Reinvesting in core competencies #1 position in wood Improving product mix Driving productivity improvements 3 WIN WITH DISTRIBUTION Unique go-to-market-system Clear opportunity to gain share Accelerate growth with independent retailers to improve mix 8

9 INCREASED RATE OF PRODUCT INNOVATION Key Consumer Demands DURABILITY DESIGN MATERIALS EASY TO INSTALL DIAMOND10 Technology VIVERO Luxury Vinyl Tile LUXE PLANK with Rigid Core Technology Fastak and I-Set Performance Plus Alterna Luxury Vinyl Performance Plus with Tile and Architectural Acrylic Impregnation Remnants 9 Striations BBT Bio-flooring VIVERO with IntegriLock

10 WINNING WITH DISTRIBUTION OPPORTUNITY TO DOUBLE CURRENT DISTRIBUTOR SALES DISTRIBUTION SALES Support to ~15,000 local and regional retailers and contractors Superior coverage, service, and availability Complements AFI specification strengths DIRECT SALES Large, national customers Home centers Direct relationships for cost efficiency Key consumer touchpoint ~55% ~45% DISTRIBUTOR SHARE OF WALLET OPPORTUNITY PERCENT OF AFI DISTRIBUTOR SALES IN 2015 TOTAL $2.6B 10 Current Sales of AFI Products Source: Floor Covering Weekly and AFI internal estimates ~1/3 ~1/3 ~1/3 Addressable Opportunity Non AFI Products

11 POSITIONED TO LEAD IN LUXURY VINYL TILE (LVT) PRODUCT FEATURES ATTRACTIVE TO CONSUMERS Excellent visuals can be made to look like wood, stone, or any other material Improved embossing mimics natural feel and texture Vinyl and stone composition make product waterproof MARKET GROWTH (1) ARMSTRONG FLOORING S OFFERING #1 Consumer Demand is Durability Best-in-Class scratch and stain resistance Manufacturing process covered by multiple patents US LVT Demand +13% CAGR '12 '13 '14 '15 '16 '17 Internal production capacity with continued sourcing LVT was 20% of Resilient segment sales in 2016 vs. 15% in (1) Source: US FLOOReport (Market Insights LLC and Floor Focus); based on demand in square feet

12 DRIVING WOOD PROFITABILITY CORE TO AFI GROWTH STRATEGY US WOOD FLOORING MARKET (1) INITIATIVES TO ENHANCE VALUE 6% CAGR $3.3 B PRODUCT & CHANNEL MIX $2.2 B 45% 55% 40% 60% INNOVATION E 2012 Engineered Solid 2017E Wood Wood OPERATIONAL IMPROVEMENTS 12 Source: US FLOOReport (Market Insights LLC and Floor Focus) (1) Indicates units

13 KEY HIGHLIGHTS ($ in Millions) YTD 2016 YTD 2015 Y/Y Net Sales $1,193 $1, % Adjusted EBITDA (Wood FIFO) (1) % % of Sales 7.0% 2.7% 430 bps Adjusted EBITDA (Wood LIFO) (1) % % of Sales 6.1% 5.2% 90 bps Free Cash Flow (1) $17 ($6) +$22 Focus on higher growth products offset challenging market environment Full year net sales increased 0.9% excluding foreign currency impact Full year Adjusted EBITDA up $12 million under previous accounting method (LIFO) New $50 million share repurchase program aligned with capital deployment objectives 13 (1) See appendix for reconciliation to GAAP measures.

14 AFI FULL YEAR RESULTS Net Sales ($M) $1,193 $1,189 $486 $475 $707 $ Resilient Wood 2015 Adjusted EBITDA (LIFO) $61M Volume 9 Price (26) Mix/Other (9) Mfg & Input Costs 28 SG&A 9 Key Highlights Sales up 1% excluding foreign currency Wood segment sales up from volume gains, partially offset by competitive price pressures Resilient segment sales impacted by competitive price pressure and lower volumes in traditional resilient products, partially offset by stronger LVT sales Favorable volume offset by negative mix impact Price more than offset by lower input costs and good manufacturing productivity, including LVT operations ramp up SG&A spending lower 2016 Adjusted EBITDA (LIFO) $73M 14 Note: On FIFO basis, 2015 Adjusted EBITDA was $32 million and 2016 Adjusted EBITDA was $83 million

15 FREE CASH FLOW Q Q Q Q Strong improvement in cash flow and leverage metrics during 2016 Full Year 2016 Operating Cash Flow ($29) $53 $31 ($1) $54 Gross Capex (8) (10) (10) ($10) (38) Sale of Assets Free Cash Flow (37) (10) 17 Reduced full year net capex spend helped by efficiency and timing of projects Cash balance of $31 million and outstanding debt of $21 million at year-end Ample liquidity to invest in growth and $50 million share repurchase program 15

16 2017 OUTLOOK ADJ. EBITDA (FIFO) $83 million (1) $75 to $85 million ADJ. EBITDA (LIFO) $73 million (1) $74 to $84 million GROSS CAPITAL EXPENDITURES $38 million $45 to $50 million Expect annualized SG&A savings of $6-7 million from streamlined go to market strategy beginning in 2Q17 Anticipate another year of positive cash flow Expect 1Q17 Adjusted EBITDA year-over-year comparison to be most challenging due to one-time load in activity and lower corporate G&A spend in prior year 16 (1) See appendix for reconciliation

17 MEDIUM-TERM FINANCIAL GOALS REVENUE FLOW THROUGH 20-30% Incr. EBITDA Margins EBITDA MARGIN 10% 17 Note: Medium-Term defined as 4 years

18 BUILDING VALUE THROUGH UNIQUE OPPORTUNITIES 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 18

19 Investor Relations Contact Information Douglas B. Bingham VP, Treasury and Investor Relations Armstrong Flooring, Inc Columbia Avenue Lancaster, PA P: (717) F: (717) E: 19

20 20 Appendix

21 FLOOR TYPE DEFINITIONS 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 for commercial and residential applications. Luxury Vinyl Tile ( LVT ) - Cutting-edge printing and photographic designs on a vinyl foundation layer with design, aesthetic and shape flexibility. Linoleum - Among the greenest of floors, linoleum is made from natural materials, is naturally anti-bacterial and biodegradable. Laminate - High-resolution printed image design layer topped with a synthetic wear layer sealed to a dense, fiberboard core. Solid Wood - Classic oak, maple and other solid hardwood boards milled from a single piece of lumber cut to different widths and lengths. Engineered Wood - Multiple wood veneers bonded together with a hardwood face layer to create a dimensionally stable product offering greater design and installation options than solid wood products. 21

22 EBITDA RECONCILIATION $ million 22 Note: Figures may not foot due to rounding.