Fletcher Building Limited · NZX:FBU
Fletcher Building — Investor Presentation (September 2010)
49 slides from Fletcher Building's investor presentation, Sep 13, 2010
Slide 1: Formica North America Presentation to the Investor Analysts
For personal use only FORMICA NORTH AMERICA Presentation to the Investor Analysts September 13, 2010 A FletcherBuilding Company
Slide 2: Agenda
Agenda For personal use only • Overview of the Formica North American Business • Economic Environment • Restructuring & Reset • Positioning for Growth A FletcherBuilding Company 1
Slide 3: North American market mature and highly penetrated, growth in Mexico
The North American market is generally mature and highly penetrated – market growth occurring in Mexico For personal use only FY 2010 Industry Volume by Country Mexico Metrics USA Canada Mexico 8% Population 307 33 111 Canada (million) 13% GDP per 46,400 38,600 13,600 Person (US$) United States Lami
Slide 4: North America Manufacturing and Distribution Footprint
Optimize Make Formica North America operates 2 HPL manufacturing to Stock facilities and 8 internal distribution centers For personal use only North America Manufacturing and Distribution Footprint Vancouver St. Jean Mt. Bethel Bakersfield Mt. Comfort Atlanta Dallas Mexico Puerto Rico City A Fletche
Slide 5: Recent EBIT performance reflects aggressive cost controls
Recent EBIT performance reflects aggressive cost controls in the midst of economic slowdown For personal use only Formica N.A. Revenue and EBIT 2008 (A) – 2013 (P) $25 $350 $20 Revenue $300 $15 $250 $10 $200 $5 $150 $0 2008 2009 2010 $100 ($5) $50 ($10) ($15) $0 EBIT A FletcherBuilding Company 4
Slide 6: Laminate represents 90% of Formica North America sales
Laminate represents 90% of Formica North America’s sales, with an increasing percentage of sales in Premium and Specialty laminate For personal use only FY 2010 Formica Revenue by Product Product Descriptions Core HPL – resin-treated papers, Solid Surface 10% resistant to abrasion and impact, that p
Slide 7: Balance between Commercial and Residential markets, Direct and Distributor
The business is well balanced between Commercial and Residential markets, as well as with Direct and Distributor customers For personal use only End Market Segmentation Channel Segmentation Residential Remodel 30% Commercial Distribution Direct / OEM 55% 55% 45% Residential New 15% Residential Comme
Slide 8: Competitive intensity very high, two manufacturers control most of the market
The degree of competitive intensity in the North American market is very high, with two manufacturers controlling most of the market For personal use only N.A. FY 2010 Share by Manufacturer Regional Share Breakdown Panolam Share USA Canada Mexico 9% Others 10% Formica 31% 50% 30% Wilsonart 47% Wilso
Slide 9: Wilsonart and Panolam represent two different competitive models
Wilsonart and Panalam represent two very different competitive models For personal use only PANOLAM INDUSTRIES • Business model built on differential • Formed by merger of third service capabilities – primarily (Nevamar) and fourth (Pionite) around MTO – which has resulted place HPL players in leadi
Slide 10: Agenda
Agenda For personal use only • Overview of the Formica North American Business • Economic & Business Environment • Restructuring & Reset • Positioning for Growth A FletcherBuilding Company 9
Slide 11: N.A. HPL market expected to grow 4% in FY11
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 For personal use only Estimates of North America Laminate Growth—FY 2009-FY 2013 US FY09 FY10 FY11 FY11 FY12 FY13 Commercial -23.1% -18.2% 1.7% -0.7% 7.1% 6.4% Residential -5
Slide 12: Macro-economic data: fears about US economic recovery
Macro-economic data: fears remain about the strength of the US economic recovery, particularly given continued high unemployment For personal use only Annualised % Change US GDP (Annualised % Change 2005 Constant $) 6% 5% 4% 3% 2% US economic growth 1% slowed between April and 0% -1% June, with GDP
Slide 13: Recession marked by severe contraction in construction starts
The recession was also marked by a severe contraction in both residential and commercial construction starts For personal use only FormicaFormica Commercial Sales vs. MHC Nonres Starts Commercial Sales vs. Non Residential Starts 30,000 2,500 25,000 2,000 • The decline in Commercial construction Form
Slide 14: Current outlook on NA HPL markets
Current outlook on NA HPL markets For personal use only • 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 • Ec
Slide 15: Agenda
Agenda For personal use only • Overview of the Formica North American Business • Economic & Business Environment • Restructuring & Reset • Positioning for Growth A FletcherBuilding Company 14
Slide 16: Operational Recovery restored profitability despite the downturn
Formica’s operational challenges predated the GFC, the Operational Recovery restored profitability despite the downturn For personal use only Formica Business and HPL Market 2005-2012 Strong Market Internal Challenges Operational Recovery Opportunity • Reasonable EBIT • EBIT and service • Aggressive
Slide 17: The Recovery was driven by four key elements
The Recovery was driven by four key elements For personal use only Organizational Restructuring • Aligned variable resources to volumes and Rightsizing • Resized fixed cost base Manufacturing recovery and • Step change improvement in Evendale service model enhancement • Continuous improvement in St.
Slide 18: Organizational restructuring and rightsizing
Organizational restructuring and rightsizing: aggressive actions were taken to resize the business to match lower volumes For personal use only North America Headcount 1500 Restructuring and Rightsizing 35% Reduction • Right-sized manufacturing operations to new volume levels 1000 • Streamlined mana
Slide 19: Manufacturing Recovery and Service Model Enhancement
For personal use only Manufacturing Recovery and Service Model Enhancement A FletcherBuilding Company 18
Slide 20: Situation Overview
Situation Overview For personal use only 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 • Employ
Slide 21: NA Operations and Evendale Plant organisation structures
NA Operations and Evendale Plant organisation structures For personal use only Diagnosis Action Operations and supply chain structure • NA VP for Operations responsible for 2 • Consolidate NA Supply Chain and Plant manufacturing sites only Management under new VP of Operations • Global Supply Chain
Slide 22: Shop Floor Management / Performance Measurement and Reviews
Shop Floor Management/ Performance Measurement and Reviews For personal use only Diagnosis Action Shop Floor Management • Implement ‘Model Cell’ approach to achieve • Housekeeping and general work area layouts are poor best practice • Failure to meet production targets commonplace with no sense of u
Slide 23: Employee Training and Involvement / Plant Communication Systems
Employee Training and Involvement/Plant Communication Systems For personal use only Diagnosis Action Employee Training and Involvement • HR to develop training programme for • Training programmes for all production personnel supervisor and line operators extremely weak • Supervisors not accountable
Slide 24: Manufacturing recovery: Capital Program
Manufacturing recovery and service model enhancement: Capital Program For personal use only A disciplined capital deployment process has resulted in a massive increase in key equipment reliability and overall plant performance Example: Evendale Presses May 30, 2080 June 30, 2011 Phases of Capital Pr
Slide 25: Evendale safety performance a key leading indicator
Results: Evendale’s safety performance is a key leading indicator of broader improvements in process discipline, shop floor 5S and team member training For personal use only Safety Incident Rate Key Elements of Program 45 • Implementation of Fletcher Safety Award 40 program 35 • Established joint ma
Slide 26: Evendale Key Metrics: OEE and labor productivity
For personal use only OEE % SF per Man Hour M Ju ay ly 50 100 150 200 250 300 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 20 20 08 08 Ju S ly ep 20 t2 00 Se 08 8 pt N ov 20 20 08 08 No Ja v n 20 20 Ja 08 M 09 ar n ch 20 20 M 09 09 ar ch M 20 ay 09 20 M 09 ay Ju 20 ly 09 20 Ju 09 ly S ep T109 20 t2 Se 09
Slide 27: Service Metrics
Ju For personal use only 45 50 55 60 65 70 75 80 85 l'0 7 A Ju 70% 75% 80% 85% 90% 95% 100% u l'0 S g 7 ep A t ug O S ct ep N O ov ct D N Ja ec n ov '0 D 8 Ja ec n Fe '0 b 8 M Fe ar b A M p ar M r A ay p Ju M r ay n Ju Ju n A l Ju ug S A l ep ug S O ep ct N O ov ct D N Ja ec o n D v '0 Ja ec 9 n '0
Slide 28: Project Reset: cost of complexity and cost-to-serve
Project Reset – a systematic approach to analyzing the cost of complexity and cost-to-serve in Formica’s business For personal use only Project Reset Overview Case Study: Customer Conducted detailed cost of complexity Original VCM : $ (540K) analysis on full product line Yield Change-overs Price Inc
Slide 29: HPL Innovation – impact of premium products
HPL Innovation – impact of premium products For personal use only Premium Products Premium product concept started with differentiated finishes Premium category has expanded to 180 FX incorporate innovative print technology Collectively, premium products have pushed Golden Mascarello the boundaries
Slide 30: Overall impact, restored profitability despite external conditions
Overall impact, restored profitability despite external economic conditions For personal use only Monthly Revenue 2008-2010 Annual Breakeven Volume 2008-2010 35, 000 500 30, 000 Volume (‘000 Sq Ft) Revenue (‘000) 25, 000 400 20, 000 300 15, 000 200 40% reduction 10, 000 100 5, 000 0 n n n l l l r r
Slide 31: Agenda
Agenda For personal use only • Overview of the Formica North American Business • Economic Environment • Restructuring & Reset • Positioning for Growth A FletcherBuilding Company 30
Slide 32: Strategic imperative is to drive top line growth
Moving forward, Formica North America’s strategic imperative is to drive top line growth For personal use only Formica P&L Linkage to Strategic Initiatives Price Price X Volume Volume • Price managed aggressively to • Largest opportunity to drive market dynamics – incremental P&L performance is shar
Slide 33: Formica Framework of Strategic Alternatives
Formica Framework of Strategic Alternatives For personal use only ss cro s Raw material Sales and Wholesale and Postforming/ Retail/ a e Manufacturing nd phi production marketing distribution fabrication installation te r a Ex eog g HPL New Products Extension into new products in core space Compact
Slide 34: Positioning for Growth
Positioning for Growth For personal use only Grow the Core 1 Service-driven share gain 2 HPL Product Innovation 3 Mexican Market Penetration Optimize the Channel 4 Distribution Optimization A FletcherBuilding Company 33
Slide 35: Service-driven share gain: improvements restored customer confidence
Service-driven share gain: Significant recent improvements in service capability have restored customer confidence For personal use only MTS –Line Ship HPL Fill Line Fill Rate (all Rate % Products) MTO –Evendale Average Lead & St Jean withTime Average(Days) Average 100% 23.0 95% 21.0 19.0 90% 17.0 1
Slide 36: Formica upgrading and expanding MTO service commitments
Service-driven share gain: Formica NA is continually upgrading and expanding its MTO service commitments For personal use only Formica MTO Timeline FY2010 FY2011 Next HPL2U Zone 1 Full NA Market • HPL2U pilot program that • Launch aggressive lead time Extend MTO service promise guaranteed MTO lead t
Slide 37: Positioning for Growth
Positioning for Growth For personal use only Grow the Core 1 Service-driven share gain 2 HPL Product Innovation 3 Mexican Market Penetration Optimize the Channel 4 Distribution Optimization A FletcherBuilding Company 36
Slide 38: HPL innovation timeline
HPL innovation timeline For personal use only Butterum Granite Golden Mascarello traditional small Large Scale Granite scale granite 2001 2003 2004 2005 2006 2007/8 2009 • Popular • Formica • Formica • Formica • Formica • Formica residential introduces introduces Honed introduces introduces introduc
Slide 39: Upcoming 180fx launch extends premium laminate to Commercial
The upcoming 180fx launch is about new designs and extending this premium laminate category to the Commercial sector to drive share gain and realize price driven margin enhancement For personal use only • To date 180fx has represented a significant source of both volume growth and price premium • Wh
Slide 40: Exterior Compact extends scope of laminate applications
Exterior Compact is about extending the scope of laminate applications to a growing high volume, high value market For personal use only • Exterior compact technology allows laminate product to be applied to outdoor conditions • Brings wide-ranging design flexibility inherent in laminate products to
Slide 41: Positioning for Growth
Positioning for Growth For personal use only Grow the Core 1 Service-driven share gain 2 HPL Product Innovation 3 Mexican Market Penetration Optimize the Channel 4 Distribution Optimization A FletcherBuilding Company 40
Slide 42: Mexico market has strong fundamentals
The Mexico market has strong fundamentals: a large population, robust GDP growth and low HPL market penetration For personal use only Mexico Market Share by Supplier Imports (8%) Mexico Market Overview Ralph Wilson • Population 106 million Rexcel (34%) (29%) • GDP Growth in 2010—4.4% Formica • Total
Slide 43: Significant volume opportunity exists in Mexico
Given the market fundamentals and Formica’s starting point, a significant volume opportunity exists in Mexico For personal use only Situation Situation Analysis 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 h
Slide 44: Action plan specific to the Mexico market
An action plan specific to the Mexico market is targeted to additional revenue through share gain For personal use only Issue Plan • Functional Alignment • All functional leaders in Mexico now have strong dotted-line to N.A. functional leaders • Systems / Tools to Execute • BPCS integration—kickoff
Slide 45: Positioning for Growth
Positioning for Growth For personal use only Grow the Core 1 Service-driven share gain 2 HPL Product Innovation 3 Mexican Market Penetration Optimize the Channel 4 Distribution Optimization A FletcherBuilding Company 44
Slide 46: North America building products distribution is a mature segment
The North America market for building products distribution is a mature segment, with multiple professional distributors in every market For personal use only Third Party Distribution Examples of Distributors in NA • 100+ locations nationally, a mix of: • Large multi-geography: • Independent single
Slide 47: Formica distributors act as independent wholesalers
Formica distributors act as independent wholesalers, serving a highly fragmented fabricator base For personal use only NA Commercial Distributor Product Flow Product Flow Legend Sheets Finished Products COMMERCIAL DISTRIBUTORS RESIDENTIAL Countertops (Blanks) 60% 40% Countertop (Other) Fabricators (
Slide 48: Distribution Optimization model focused on share gain
Formica’s Distribution Optimization model is focused on achieving share gain For personal use only Attributes of Successful Distribution Markets Key Observations Market Share: 11 Formica’s • Process for tracking share and opportunity by Formica’s Commitment Commitment to to Region Region –– resource
Slide 49: Conclusion
Conclusion For personal use only • 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 18
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