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


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


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


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


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


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


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


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


Agenda


• Economic & Business Environment




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


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


The recession was also marked by a severe contraction in both residential and commercial construction starts

Formica Commercial Sales vs. MHC Nonres Starts

0

5,000

10,000

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

0

500

1,000

1,500

2,000

2,500

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

1,100,000

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


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


Agenda


• Economic & Business Environment




0.0

0.2

0.4

0.6

0.8

1.0

1.2

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


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


Organizational restructuring and rightsizing: aggressive actions were taken to resize the business to match lower volumes

0

500

1000

1500

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


Manufacturing Recovery and Service Model Enhancement


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


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


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


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


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


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

0

5

10

15

20

25

30

35

40

45

Jul-0

8Sep

-08

Nov

-08

Jan-

09M

ar-0

9M

ay-0

9

Jul-0

9Sep

-09

Nov

-09

Jan-

10M

ar-1

0M

ay-1

0

Jul-1

0Results:

60% reduction in Incident rate in past 12 months

1 LTI in past 11 months

Safety Incident Rate Key Elements of Program


Manufacturing recovery and service model enhancement: Evendale Key Metrics

50

100

150

200

250

300

July

2008

Sept 2

008

Nov

2008

Jan

2009

Mar

ch 2

009

May

2009

July

200

9Sep

t 200

9N

ov 20

09Ja

n 20

10M

arch

201

0M

ay 2

010Ju

ly 20

10

SF per Man Hour

0%

2%

4%

6%

8%

10%

12%

14%

16%

July

200

7S

ept 2

007

Nov

2007

Jan

2008

Mar

ch 2

008

May

200

8Ju

ly 2

008

Sep

t 200

8N

ov 2

008

Jan

2009

Mar

ch 2

009

May

2009

July

200

9S

ept 2

009

Nov

200

9Ja

n 20

10

Mar

ch 2

010

May

2010

July

201

0

Net Scrap %

Net Finished Board ScrapLabor Productivity

Phenolic Treater OEE Trends

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

May

2008

July

2008

Sep

t 200

8N

ov 20

08Ja

n 20

09M

arch

200

9M

ay 2

009Ju

ly 20

09S

ept 2

009

Nov

2009

Jan

2010

Mar

ch 2

010

May

2010

July

2010

OEE %

T109 T106

Press 26 and 28 OEE Trends

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Sept 2

008

Nov 20

08Ja

n 20

09M

arch

200

9M

ay 2

009Ju

ly 2

009

Sept 2

009

Nov 20

09Ja

n 20

10M

arch

201

0M

ay 2

010

OEE %

Press 26 Press 28

Press OEETreater OEE


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

15.0

17.0

19.0

21.0

23.0

WK38

WK42

WK46

WK50

WK2

WK6

WK10

WK14

WK18

WK22

WK26

WK31

WK35

WK39

WK43

WK47

WK51

WK3

WK7

WK11

WK15

WK19

WK23

WK27

WK31

WK35

Total FG Inventory (HPL)

45

50

55

60

65

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

8.0

Jul'0

7AugSep

tOctNovDec

Jan'08

FebMarAprMay JunJu

lAugSep OctNovDec

Jan'09Fe

bMarAprMay JunJu

lAugSep OctNovDecJa

nFe

bMarAprMay JunJu

lAug

Millions of Sq Ft


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


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


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

n

Apr Jul

Oct Ja

n

Apr

Monthly Revenue 2008-2010

2009

Re

ven

ue

(‘0

00

)

(9,000)

(6,000)

(3,000)

0

3,000

6,000

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Quarterly EBIT 2008-2010

2008

0

100

200

300

400

500

2008 2009 2010

Annual Breakeven Volume 2008-2010

Vo

lum

e (

‘00

0 S

q F

t)

2010

40% reduction


Agenda


• Economic Environment




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


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


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


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


Grow the Core





2

1

3

4




• 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


• 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


• 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


Grow the Core





2

1

3

4




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%)


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


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


Grow the Core





2

1

3

4




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


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


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


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

FORMICA NORTH AMERICA - Fletcher...

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