FORMICA NORTH AMERICA - Fletcher...
Transcript of FORMICA NORTH AMERICA - Fletcher...
A FletcherBuilding Company
FORMICA NORTH AMERICAPresentation to the Investor Analysts
September 13, 2010
1A FletcherBuilding Company
Agenda
• Overview of the Formica North American Business
• Economic Environment
• Restructuring & Reset
• Positioning for Growth
2A FletcherBuilding Company
The North American market is generally mature and highly penetrated – market growth occurring in Mexico
United States79%
Total = 800 m.s.f.Total = 800 m.s.f.
FY 2010 Industry Volume by Country
Canada13%
Mexico8%
11133307Population (million)
13,60038,60046,400GDP per Person (US$)
0.63.12.0Laminate Sq Ft per Person
64104630Laminate Volume (msf)
MexicoCanadaUSAMetrics
3A FletcherBuilding Company
AtlantaDallas
Mexico
City
Bakersfield
Vancouver
Mt. Comfort
St. Jean
Mt. Bethel
North America Manufacturing and Distribution Footprint
Optimize Make to Stock Formica North America operates 2 HPL manufacturing facilities and 8 internal distribution centers
Puerto Rico
4A FletcherBuilding Company
Recent EBIT performance reflects aggressive cost controls in themidst of economic slowdown
($15)
($10)
($5)
$0
$5
$10
$15
$20
$25
2008 2009 2010
$0
$50
$100
$150
$200
$250
$300
$350
Formica N.A. Revenue and EBIT2008 (A) – 2013 (P)
EBIT
Revenue
5A FletcherBuilding Company
Laminate represents 90% of Formica North America’s sales, with an increasing percentage of sales in Premium and Specialty laminate
Core HPL63%
Total = US$261 millionTotal = US$261 million
FY 2010 Formica Revenue by Product
Premium HPL 18%
Solid Surface10%
Product Descriptions
SpecialtyLaminate
3%
Compact6%
Core HPL – resin-treated papers, resistant to abrasion and impact, that provide design and wear benefits
Premium HPL – higher priced laminates produced with sophisticated textures and designs
Compact – thick, self-supporting laminate frequently used as partitions
Specialty – high end laminates for unique commercial applications –decorative metal laminates and color through laminates
Solid Surface – homogenous polyester based sheets for countertops and work surfaces
6A FletcherBuilding Company
The business is well balanced between Commercial and Residentialmarkets, as well as with Direct and Distributor customers
ResidentialNew15%
ResidentialRemodel
30% Commercial55%
Direct / OEM45%
Distribution55%
• Healthcare
• Hospitality
• Retail
• Education
End Market Segmentation Channel Segmentation
• Single Family
• Apartments
• Home Centers
• K&B Retail
• Third party, multi-product (board, laminate, adhesives, hardware) building products distributors
Distributor Profile Direct / OEM Profile
• Home Centers
• Postformers
• Office Furniture
• Casework
• Manufactured Housing
CommercialResidential
7A FletcherBuilding Company
The degree of competitive intensity in the North American market is very high, with two manufacturers controlling most of the market
Wilsonart47%
Total = 800 m.s.f.Total = 800 m.s.f.
N.A. FY 2010 Share by Manufacturer
Formica34%
Panolam9%
Others10%
--5%10%Panolam
30%50%31%Formica
34%40%50%Wilsonart
MexicoCanadaUSAShare
Regional Share Breakdown
8A FletcherBuilding Company
Wilsonart and Panalam represent two very different competitive models
PANOLAM INDUSTRIES
• Business model built on differential service capabilities – primarily around MTO – which has resulted in leading share position
• Three HPL facilities: Texas, North Carolina, Montreal
• Strong in design and surface finish technology
• Incremental share provides a scale advantage
• Formed by merger of third (Nevamar) and fourth (Pionite) place HPL players
• Two HPL facilities: Maine, South Carolina
• Strength in niche products and specific segments (Health Care)
• Group includes complimentary TFM product (Panolam brand)
• Went through bankruptcy in 2009
9A FletcherBuilding Company
Agenda
• Overview of the Formica North American Business
• Economic & Business Environment
• Restructuring & Reset
• Positioning for Growth
10A FletcherBuilding Company
Based on key inputs, we now expect the N.A. HPL market to grow 4% in FY11, following declines of 27% and 18% in FY09 and FY10
US
CommercialResidentialRemodel
Total
CanadaCommercialResidentialRemodel
Total
Total
FY11
1.7%4.9%0.1%
6.7%
-0.7%0.9%0.9%
1.0%
5.6%
FY09 FY10
-23.1% -18.2%-5.4% -0.2%-3.1% -3.2%
-31.6% -21.5%
-5.0% -4.9%-3.4% -1.2%0.0% 1.1%
-8.4% -5.0%
-27.1% -18.3%
FY11 FY12 FY13
-0.7% 7.1% 6.4%
5.1% 7.4% 4.5%0.6% 3.1% 4.0%
5.0% 17.6% 14.9%
-1.5% 2.0% 1.2%
0.9% 0.9% 1.2%
1.0% 2.8% 3.8%
0.4% 5.7% 6.1%
4.1% 15.3% 13.2%
HPL Market Volume Model
• Model balances Residential (new and remodel) and Commercial forecasts to reflect HPL market’s historical business mix
• Also balanced forecasts by country to reflect geographic inputs
• Multiple economic forecasts considered—averaged
• Recent stats suggest further weakening possible
Estimates of North America Laminate Growth—FY 2009-FY 2013
11A FletcherBuilding Company
Macro-economic data: fears remain about the strength of the US economic recovery, particularly given continued high unemployment
US economic growth slowed between April and June, with GDP growing by an annualized rate of 2.4%--recently revised to 1.6%
US GDP (Annualised % Change 2005 Constant $)
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
Source - US Department of Commerce
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10
Annualised %
Change
Unemployment rate remains high. While most employers enjoy productivity gains they will remain cautious about hiring until there is a sustained pick-up in business
12A FletcherBuilding Company
The recession was also marked by a severe contraction in both residential and commercial construction starts
Formica Commercial Sales vs. MHC Nonres Starts
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15,000
20,000
25,000
30,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Form
ica Sales-Ths of SF
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500
1,000
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MHC Starts-M
il of SF
Formica Commercial Sales MHC Nonresidential Starts (SAAR)
Formica Residential Sales vs MHC Residential ConstructionStarts in Thousands of Units
600,000
700,000
800,000
900,000
1,000,000
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1,200,000
1,300,000
1,400,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0
500
1,000
1,500
2,000
2,500
Formica Residential Sales MHC Residential Units (SAAR)
• The decline in Commercial construction started well after the Residential sector—recovery also expected to lag Residential
• Formica’s Commercial sales generally track starts closely—exception was 2006-2008 when service challenges impacted Formica’s market share
• Formica’s Residential sales track housing starts reasonably closely, despite significant remodel business
• Sharp drop off began in 2006 and ran unabated through 2009 before stabilizing
Formica Residential Sales vs. Residential Starts
Formica vs.Market Index
Formica Commercial Sales vs. Non Residential Starts
13A FletcherBuilding Company
Current outlook on NA HPL markets
• The HPL category will return to nearly 1 billion sq ft market in time
• Optimism for healthy growth trajectory in 12 to 24 month time frame
• Driven by U.S.A.
• Residential first, then Commercial
• Cautious regarding 3 to 6 month outlook
• Economic spurt seen in March-May has slowed
• September and October (historically large construction activity months) will be key indicator
14A FletcherBuilding Company
Agenda
• Overview of the Formica North American Business
• Economic & Business Environment
• Restructuring & Reset
• Positioning for Growth
15A FletcherBuilding Company
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2005 2006 2007 2008 2009 2010 2011 2012
Formica Business and HPL Market 2005-2012
Strong Market
• Reasonable EBIT despite high fixed cost structure
Internal Challenges
• EBIT and service challenges due to manufacturing transition
Operational Recovery
• Aggressive Restructuring and Reset efforts
• Restored positive EBIT
Opportunity
• Lower break even
• Healthy EBIT
Sierra Closure
Commercial & Residential Boom
Global Financial Crisis
Slow Recovery Period
HPL Market
Specific
Bill
ion
sq f
t
Formica’s operational challenges predated the GFC, the Operational Recovery restored profitability despite the downturn
16A FletcherBuilding Company
The Recovery was driven by four key elements
• Aligned variable resources to volumes
• Resized fixed cost baseOrganizational Restructuring
and Rightsizing
Manufacturing recovery and service model enhancement
Project Reset
Product innovation
• Step change improvement in Evendale
• Continuous improvement in St. Jean and Supply chain functions
• Leveraged cost to serve model to address product and customer profitability issues
• Launched innovative products to maintain volume and generate price premium
17A FletcherBuilding Company
Organizational restructuring and rightsizing: aggressive actions were taken to resize the business to match lower volumes
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500
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2008 Current
North America Headcount
• Right-sized manufacturing operations to new volume levels
• Streamlined management support functions organization and management structures
• Centralized activities and leveraged technology (e.g., Customer Service)
• Restructured distribution model
35% Reduction
Restructuring and Rightsizing
18A FletcherBuilding Company
Manufacturing Recovery and Service Model Enhancement
19A FletcherBuilding Company
Situation Overview
Organization did not have the right structure or right people
• NA organisation structure including Evendale plant
Evendale Plant lacked basic processes required to succeed
• Shop floor management processes
• Plant performance measurement and reviews
• Employee training and involvement
• Plant communication systems
• Capital budget and equipment maintenance
20A FletcherBuilding Company
NA Operations and Evendale Plant organisation structures
• Full accountability for plant performance to be given to plant manager
• Recruit new managers for Eng, Mfg, HR, EHS, and Maintenance
Evendale Plant Organisation
• Confusing structure with no clear accountability
• Maintenance, HR, EHS, & Eng mgrs lack fundamental plant management capability
• No manufacturing or technical/QA managers within the plant
• Eng Mgr does not report to PM (poor practice)
• Consolidate NA Supply Chain and Plant Management under new VP of Operations
• Disbanded unnecessary project teams
Operations and supply chain structure
• NA VP for Operations responsible for 2 manufacturing sites only
• Global Supply Chain role not appropriate under new organisation
• Distribution and capacity planning detached from VP of Operations
• Multiple project teams caused confusion and lacked accountability
ActionDiagnosis
21A FletcherBuilding Company
Shop Floor Management/ Performance Measurement and Reviews
• Implement standardised KPI’s for QCDSM plant measurement
• Set up company safety committee with employee and union attendance
• Set up cross functional teams for each production area
Performance Measurement and Reviews
• KPI’s not appropriate for plant recovery programme
• PM reviews weak – no accountability or responsibility for KPI reporting
• Too many attendees at plant reviews – no value added
• No structured review process or timing (monthly, weekly, daily, hourly)
ActionDiagnosis
• Implement ‘Model Cell’ approach to achieve best practice
• Implement ‘Quality First’ programme (no defects to be passed to next process)
• Implement 5-S programme to improve discipline and safe practices
Shop Floor Management
• Housekeeping and general work area layouts are poor
• Failure to meet production targets commonplace with no sense of urgency
• Operator working standards and training very poor
• Daily production meeting is ineffective and does not focus on key KPI’s
• No cross functional teamwork exists to tackle scrap reduction & poor output
22A FletcherBuilding Company
Employee Training and Involvement/Plant Communication Systems
• Implement 5 minute start of shift meetings at all shop floor areas
• Plant manager ‘face to face ’ feedback sessions every month
• Hold regular union reviews to discuss progress and agree policies and rules
Plant Communication Systems
• No plant performance feedback given to employees – daily, weekly, or monthly
• Confusion in almost all aspects of shop floor management
• No clear policies communicated at shop floor level
• Poor communication of information = low morale
ActionDiagnosis
• HR to develop training programme for supervisor and line operators
• Implement standard operation – start with model cell
Employee Training and Involvement
• Training programmes for all production personnel extremely weak
• Supervisors not accountable for production performance – complacency
• Employees not involved in improvement process –low morale everywhere
• ‘Blame’ culture present in all areas
23A FletcherBuilding Company
A disciplined capital deployment process has resulted in a massive increase in key equipment reliability and overall plant performance
Phases of Capital Program:
• Phase 1: improve Asset Reliability
• Phase 2: drive Cost Reductioninitiatives
• Phase 3: Enhance Capabilities and flexibility
Manufacturing recovery and service model enhancement: Capital Program
Main System Subsystem P 20 P 24 P26 P28 P 20 P 24 P26 P28
Build Up Plate alignment
Buildup hoist
Plate Transfer System
Load / Unload Load Elevator
Elevator transfer track
Press Mechanical Infeed rollers
Plate lubrication
Platens - flatness
Hanger trees
Press Steam Hoses
Platens - Thermal
Control Valves
Isolation Valves
Water Systems
Pumps
Press Hydraulic Pumps
Cylinders
Rams
Breakout / Plate
Collation Tables
Pan Conveyors
Hyd Oil Mgmt
Controls Temp / Pressure
Motion Controls
Picker 28 / 4
June 30, 2011May 30, 2080
Example: Evendale Presses
24A FletcherBuilding Company
Results: Evendale’s safety performance is a key leading indicator of broader improvements in process discipline, shop floor 5S and team member training
• Implementation of Fletcher Safety Award program
• Established joint management + Union safety committee
• Formal safety training program undertaken
• Two (internal and external) guarding audits conducted and 100% of recommendations implemented
• Roll out and use of Formica Active audit program
• Development and ongoing implementation of LOTO (isolation) program
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60% reduction in Incident rate in past 12 months
1 LTI in past 11 months
Safety Incident Rate Key Elements of Program
25A FletcherBuilding Company
Manufacturing recovery and service model enhancement: Evendale Key Metrics
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2008
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Net Scrap %
Net Finished Board ScrapLabor Productivity
Phenolic Treater OEE Trends
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OEE %
T109 T106
Press 26 and 28 OEE Trends
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Press 26 Press 28
Press OEETreater OEE
26A FletcherBuilding Company
Manufacturing recovery and service model enhancement: Service Metrics
HPL Line Fill Rate %
Inventory (MSF)
MTO – Average Lead Time (Days)
Backorders (MSF)
Ship Line Fill Rate (all Products)
70%
75%
80%
85%
90%
95%
100%
Jul'0
7AugSep OctNovDec
Jan'08Fe
bMar AprMay JunJu
lAugSep OctNovDec
Jan'09Fe
bMar AprMay JunJu
lAugSep OctNovDec JanFe
bMar AprMay JunJu
lAug
5.0
7.0
9.0
11.0
13.0
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WK38
WK42
WK46
WK50
WK2
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WK10
WK14
WK18
WK22
WK26
WK31
WK35
WK39
WK43
WK47
WK51
WK3
WK7
WK11
WK15
WK19
WK23
WK27
WK31
WK35
Total FG Inventory (HPL)
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50
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60
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70
75
80
85
Jul'0
7AugSep
tOctNovDec
Jan'08
FebMar AprMay JunJu
lAugSep OctNovDec
Jan'09
FebMar AprMay JunJu
lAugSep OctNovDecJa
nFe
bMar AprMay JunJu
lAug
Backordered - (all Products)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
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Jul'0
7AugSep
tOctNovDec
Jan'08
FebMarAprMay JunJu
lAugSep OctNovDec
Jan'09Fe
bMarAprMay JunJu
lAugSep OctNovDecJa
nFe
bMarAprMay JunJu
lAug
Millions of Sq Ft
27A FletcherBuilding Company
Project Reset – a systematic approach to analyzing the cost of complexity and cost-to-serve in Formica’s business
Project Reset Overview
� Conducted detailed cost of complexity analysis on full product line
� Yield
� Change-overs
� Secondary operations
� Inventory
� Conducted detailed cost-to-serve analysis of all customers
� Order quantities and packaging
� Freight
� Marketing support
� Led to targeted list of SKU and customer rationalizations, freight changes, pricing changes, etc.
Integrating methodologies in systems and processes to embed in everyday business
Case Study: Customer
� Original VCM : $ (540K)
�Price Increase $ 82K
�Remove Secondary Operations $ 403K
�Product Size Consolidation $ 269K
�Current VCM $ 214K� Actions total $756K
28A FletcherBuilding Company
HPL Innovation – impact of premium products
180 FX
Golden Mascarello
Large Scale Granite
Premium Products
� Premium product concept started with differentiated finishes
� Premium category has expanded to incorporate innovative print technology
� Collectively, premium products have pushed the boundaries of HPL applications
� Moving into applications that require look of natural products combined with HPL performance
� Segment has grown to nearly 20% of HPL market
� Premium products generate incremental pricing and margin
� Additional opportunities are being pursued to expand into additional applications
29A FletcherBuilding Company
Overall impact, restored profitability despite external economicconditions
5, 000
10, 000
15, 000
20, 000
25, 000
30, 000
35, 000
Jul
Oct Ja
n
Apr Jul
Oct Ja
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Apr Jul
Oct Ja
n
Apr
Monthly Revenue 2008-2010
2009
Re
ven
ue
(‘0
00
)
(9,000)
(6,000)
(3,000)
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3,000
6,000
Q1
2008
Q2
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Q4
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Quarterly EBIT 2008-2010
2008
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2008 2009 2010
Annual Breakeven Volume 2008-2010
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q F
t)
2010
40% reduction
30A FletcherBuilding Company
Agenda
• Overview of the Formica North American Business
• Economic Environment
• Restructuring & Reset
• Positioning for Growth
31A FletcherBuilding Company
Moving forward, Formica North America’s strategic imperative is to drive top line growth
Price X Volume
Variable Cost
Variable Margin
Fixed Cost
EBIT
Formica P&L Linkage to Strategic Initiatives
Fixed Cost
• Massive reductions in staffing during recession (2008-2009)
• Fixed cost base is set for future
Variable Cost
• Step change improvement in Evendale and continuous improvement in St. Jean resulted in 5+ points in margin improvement from 2008 to 2010
• Ongoing cost reductions will offset inflation, limited additional margin enhancements
Price
• Price managed aggressively to market dynamics – incremental volume will be competitively bid
Volume
• Largest opportunity to drive P&L performance is share gain driven volume growth
32A FletcherBuilding Company
Formica Framework of Strategic Alternatives
HPL NewProducts
Compact
Core HPL
MFC
Other surfaces &components
Raw material production
ManufacturingSales and marketing
Wholesale and distribution
Postforming/fabrication
Retail/installation
Core:Manufacture/Sale
of HPL
Extension into new products in core space
Forward integration
into fabrication
Forward integration
into distribution
Backward integration
Grow the core (organic, acquisitive)
Extension into adjacent products
Extend ac
ross
geographies
33A FletcherBuilding Company
Positioning for Growth
Grow the Core
Service-driven share gain
HPL Product Innovation
Distribution Optimization
Optimize the Channel
2
1
3
4
Mexican Market Penetration
34A FletcherBuilding Company
Service-driven share gain: Significant recent improvements in service capability have restored customer confidence
Ship Line Fill Rate (all Products)
70%
75%
80%
85%
90%
95%
100%
Jul'0
7AugSe
pOctNovDec
Jan'
08 FebM
ar AprM
ay JunJu
lAugSe
pOctNovDec
Jan'
09 FebM
ar AprM
ay JunJu
lAugSe
pOctNovDec JanFe
bM
ar AprM
ay
Evendale & St Jean with Average
5.0
7.0
9.0
11.0
13.0
15.0
17.0
19.0
21.0
23.0
WK38
WK42
WK46
WK50W
K2
WK6
WK10
WK14
WK18
WK22
WK26
WK31
WK35
WK39
WK43
WK47
WK51W
K3
WK7
WK11
WK15
WK19
AverageMTS – HPL Line Fill Rate % MTO – Average Lead Time (Days)
MTO
• Commercial segments have inherently unpredictable demand (volume or mix) that requires responsive MTO capabilities to serve
• Average Formica lead times approaching competitive levels
MTS
• Strong planning fundamentals and capacity management ensure performance is sustainable
• Confidence in stocked item availability has settled in on customers
A FletcherBuilding Company
Service-driven share gain: Formica NA is continually upgrading and expanding its MTO service commitments
HPL2U
• HPL2U pilot program that guaranteed MTO lead times to 24 selected customers
• Confirmed direct correlation between MTO service and share gain
Zone 1
• Launch aggressive lead time commitment within 1 day shipment from Formica plants
• Includes all customers currently serviced by Mt. Comfort and St. Jean
Full NA Market
� Extend MTO service promise to entire market
� Further tighten lead time commitments
FY2010 FY2011 Next
Portion of Market Addressed
80 msf 300 msf 500+ msf
Formica MTO Timeline
36A FletcherBuilding Company
Grow the Core
Service-driven share gain
HPL Product Innovation
Distribution Optimization
Optimize the Channel
2
1
3
4
Mexican Market Penetration
Positioning for Growth
37A FletcherBuilding Company
• Popular residential laminates: small speckle designs, flat finishes
• Real granite becomes more accessible due to channel consolidation
• Consumers start to aspire to granite looks
• Formica introduces popular Butterum Granite series
• Formica introduces Etchings finish
• Adds more realism / depth to gloss granite patterns
• Formica introduces Honed finish
• Adds realism to low sheen slates / travertine
• Formica introduces Riverwash
• Formica introduces Radiance
• All laminate competitors have similar granite decors/colours
• Challenge to differentiate with chips on a wallboard
• Formica introduces 180fx
• New concept in laminate granite decors that raises the bar for the industry
• Large scale layouts to mimic real large scale exotic granites
2001 2003 2004 2005 2006 2007/8 2009
Golden Mascarello Large Scale Granite
Butterum Granite traditional small scale granite
HPL innovation timeline
38A FletcherBuilding Company
• To date 180fx has represented a significant source of both volume growth and price premium
• While design advantage is not impenetrable, being first to market creates sustainable advantage
• Formica NA will continue to leverage this product with the 2011 launch:
• Commercial – marbles and travertine• Residential – additional granites
• In the future, designs are not limited to stones—anything naturally occurring in large scale is an opportunity (e.g., woodgrains)
The upcoming 180fx launch is about new designs and extending this premium laminate category to the Commercial sector to driveshare gain and realize price driven margin enhancement
39A FletcherBuilding Company
• Exterior compact technology allows laminate product to be applied to outdoor conditions
• Brings wide-ranging design flexibility inherent in laminate products to architects
• Competes against existing alternatives (Aluminum panels, Concrete….)
• Key competitor are imports of exterior compact (Trespa from Holland)
• NA based production is key competitive differentiator (cost, lead time)
Exterior Compact is about extending the scope of laminate applications to a growing high volume, high value market
40A FletcherBuilding Company
Grow the Core
Service-driven share gain
HPL Product Innovation
Distribution Optimization
Optimize the Channel
2
1
3
4
Mexican Market Penetration
Positioning for Growth
41A FletcherBuilding Company
The Mexico market has strong fundamentals: a large population, robust GDP growth and low HPL market penetration
Mexico Market Share by Supplier
Mexico Market Share by Category
Premium(38%)
Commodity(27%)
Local(29%)
Imports(6%)
Mexico Market Overview
• Population 106 million
• GDP Growth in 2010—4.4%
• Total HPL market of 63 msf
• Building Products Growth
– 4.0% in 2010
– 5.6% in 2011
• HPL Market 52% Commercial, 48% Residential
Formica(31%)
Rexcel(29%)
Imports(8%)
Ralph Wilson(34%)
42A FletcherBuilding Company
Given the market fundamentals and Formica’s starting point, a significant volume opportunity exists in Mexico
Situation AnalysisSituation Analysis
• In FY 2008-2010, Formica’s Mexico business grew ~5% p.a.
• The Mexico business currently accounts for 6-7% of N.A. revenue and has attractive pricing and operating margins
• Results were achieved despite sub-optimal resources and alignment:
• Limited senior management focus
• Limited tools and resources
• Minimal integration into the overall N.A. business (e.g., separate ERP system)
• Distribution facility that was sub-scale and inefficient
Functional alignment, management focus and infrastructure investment are all key to realizing the potential
43A FletcherBuilding Company
An action plan specific to the Mexico market is targeted to additional revenue through share gain
Plan
• All functional leaders in Mexico now have strong dotted-line to N.A. functional leaders
• BPCS integration—kickoff in July 2010
• Move to new warehouse facility in September 2010
• Integrated planning process
• Direct shipments
• MTO service improvement
• Expand distribution network
• Residential furniture segment
• Postform segment
Issue
• Functional Alignment
• Systems / Tools to Execute
• Infrastructure Investment
• Reduced Lead Times
• Segment Share Gain Focus
44A FletcherBuilding Company
Grow the Core
Service-driven share gain
HPL Product Innovation
Distribution Optimization
Optimize the Channel
2
1
3
4
Mexican Market Penetration
Positioning for Growth
45A FletcherBuilding Company
The North America market for building products distribution is a mature segment, with multiple professional distributors in every market
Third Party Distribution Examples of Distributors in NA
• 100+ locations nationally, a mix of:
• Independent single market players
• Mid size (4-6 locations)
• Larger geographic coverage players (15-20 locations)
• Serve local market of small to mid size customers (1,000+ customers per location)
• Carry a broad range of building products: HPL, board, hardware, adhesives, Solid Surfacing
• Economic function:
• Local customer management
• Maintain local inventory
• Extend credit to customers
• Large multi-geography:
• Wurth Group (Baer, Louis, Wurth Wood)
• St. Gobain (Meyer Laminates…)
• Mid Size: Amerhart (Southeast), Holdahl(Midwest)…
• Single location: Suncrest, Cal Panel…
Wilsonart Example:
• Company owned estimated at 5% of overall revenue with limited EBIT contribution
• Used sparingly, either in specific locations or in response to distributor under-performance
• Without complimentary products, lacks operational scale
46A FletcherBuilding Company
NA Commercial Distributor Product Flow
Education
DIYEnd User
Hospitality
Government / Military
Retail
Healthcare
Office / Manufacturing
Fabricators(Millwork, Casework, Panel,
Fixtures)
DISTRIBUTORS
Post-Former
Self-Edge / Cut Station
Builders (Multi/Single)
40%
Kitchen & Bath
RESIDENTIALCOMMERCIAL
Sheets
Product Flow Legend
Finished Products
Countertop(Other)
Countertops(Blanks)
60%
GeneralContractor
Architect / Designer(Influencer)
Home Center
Formica distributors act as independent wholesalers, serving a highly fragmented fabricator base
47A FletcherBuilding Company
Deep Customer Engagement with local customers
Deep Customer Engagement with local customers
Commitment to Service (local market inventory)
Commitment to Service (local market inventory)
Management Focus (HPL a core driver of profit)
Management Focus (HPL a core driver of profit)
Formica’s Commitment to Region – resources in market
Formica’s Commitment to Region – resources in market
Key Observations
Market Share:
• Process for tracking share and opportunity by market
• Management planning tools that mutually develop share gain initiatives
Rules of Engagement:
• Resources applied to key share gain target markets
• Local inventory strategies support share gain targets
• “Rules of engagement” that promote optimal fulfillment behavior
Incentives:
• Distributor compensation program (cash discounts, rebates) reinforces Formica and distributor alignment
Attributes of Successful Distribution Markets
11
22
33
44
Formica’s Distribution Optimization model is focused on achieving share gain
48A FletcherBuilding Company
Conclusion
• Formica NA’s business is on solid financial footing despite current economic climate
• Evendale recovery is behind us, however, continuous improvement opportunities exist
• We will continue to press our design leadership and innovation advantage with incremental 180FX and VIVIX launches
• A set of share gain strategies are being pursued: a combination of short-term tactical actions and longer-term strategic initiatives
• The business is poised to drive additional EBIT by leveraging our existing cost base with incremental volume