MHK07/03/07
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    MHK07/03/07 MHK07/03/07 Presentation Transcript

    • INVESTOR PRESENTATION Charlotte, NC May 3, 2007
    • SAFE HARBOR STATEMENT Certain of the statements in this presentation, particularly anticipating future performance, business prospects, growth and operating strategies, proposed acquisitions, and similar matters, and those that include the words “believes,” “anticipates,” “forecast,” “estimates,” or similar expressions constitute “forward-looking statements” within the meaning of Securities Act of 1933 and the Securities Exchange Act of 1934. There can be no assurance that the forward-looking statements will be accurate because they are based on many assumptions which involve risks and uncertainties. The following important factors could cause future results to differ: changes in industry conditions; competition; raw material prices; timing and level of capital expenditures; integration of acquisitions; introduction of new products; rationalization of operations; and other risks identified in Mohawk’s SEC reports and public announcements.
    • Welcome Frank Boykin Chief Financial Officer
    • INTRODUCTION Mohawk Management Team Jeff Lorberbaum Chris Wellborn Chairman and CEO Chief Operating Officer Frank Boykin Frans De Cock Chief Financial Officer President Unilin Paul De Cock Guenter Heyen President Unilin N.A. President Unilin U.S. MDF Robert Leahy, Sr. V.P. Sales Roger Farabee, V.P. Marketing Mohawk Hard Surfaces Unilin Flooring N.A. Roy Foster, V.P. Sales Randy Smith, Plant Mgr. Unilin Flooring N.A. Unilin Flooring U.S.
    • AGENDA Thursday, May 3rd – Marriott Charlotte Center in Charlotte, North Carolina 7:00 a.m. to 8:15 a.m. – Management presentations: Jeff Lorberbaum, Chairman and CEO; Frank Boykin, CFO; Paul De Cock, President Unilin North America 8:15 a.m. to 3:15 p.m. – Tour of the Unilin manufacturing facilities in Mt. Gilead, N.C. and Thomasville, N.C. Buses will be provided to both facilities. Box lunch will be provided. 3:15 p.m. Following tour, bus transportation will be provided to Charlotte Douglas International (CLT) and Piedmont Triad International (GSO – Greensboro) Airports
    • Mohawk Overview Jeff Lorberbaum Chairman and CEO
    • MOHAWK HIGHLIGHTS Total Flooring Product Offering Leading Market Positions In All Major Flooring Categories Strong Brand Identity Pervasive Sales Coverage Flexible, Efficient and Vertically Integrated Manufacturing Superior Distribution Infrastructure Consistent Financial Performance and Disciplined Management Mohawk Carpet
    • FINANCIAL DISCIPLINE Consistent Financial Performance 11% Net Sales 17% – AGR 10% $6.70 Earnings Per Share 20% - AGR $8,000 $7.00 19% $7,000 $6.00 $6.06 $7,906 $5.49 5% $6,000 24% $6,620 $5.00 $4.62 $5,000 $5,880 $4.39 18% $4.00 $4,999 15% $4,000 $3.55 40% 43% $3.00 $4,517 $3.00 $3,000 37% $2.61 $3,441 $2.00 $1.86 $3,401 $2,000 $1.30 $3,185 $1.00 $1,000 $2,407 $0 $0.00 $1,992 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (2) (1,2) Sales EPS (1) Adjusted $22 million after-tax for one time non-cash charge for purchase accounting inventory in 2005 Not restated for pooling. (2) 2005 and 2004 restated to reflect favorable impact of change from LIFO to FIFO ($0.43 and $0.03, respectively)
    • U.S. FLOORCOVERING Market Overview (Dollars In Billions) Sales Market 2005 2004 Share Broadloom Carpet $12.4 $11.6 51% Area Rugs 2.9 2.7 12% Soft Surface $15.3 $14.3 63% Ceramic Floor Tile $2.2 $2.1 9% Vinyl & Rubber 2.8 2.8 12% Hardwood 2.6 2.4 11% Laminates 1.3 1.2 5% Hard Surface $8.9 $8.5 37% Total Flooring $24.2 $22.8 100% (Source: May 2006 Floor Focus) Mohawk Rugs
    • FLOORCOVERING GROWTH Consumer Advertising Total Industry 5% Broadloom Carpet 2 – 3% Area Rugs 8% Hardwood 8% Ceramic Tile 8% Laminate 10% Vinyl 0 (Source: Management Estimates for future growth)
    • FLOORCOVERING RETAILERS Consumer Advertising Diversified Customer Base Over 30,000 Customers 2005 2% Other Home Centers 17% Specialty 57% Stores Contractors 24% (Source: July 17-31, 2006 Floor Covering Weekly)
    • BEST IN CLASS DISTRIBUTION NETWORK Over 2,300 sales representatives in North America 300 distribution points State-of-the-art logistics system 1,000 trucks
    • MOHAWK GROWTH STRATEGY 1992 to 2000 Focus on Soft Surface Acquisitions 2000 Added Hard Surface Sales Force Began Sourcing All Hard Surface Categories 2002 Acquired Dal-Tile – Leading Ceramic Position 2005 Acquired Unilin – Leading Laminate Position Karastan
    • BUSINESS CLIMATE Business Environment Cycle Management • Slowing GDP growth • Right size infrastructure U.S. • Housing contraction • Increase management effectiveness Economy • Credit tightening • Maximize inventory turns • Positive business investment • Enhance distribution efficiency • Improve productivity & technology • Cyclical downturn • Reduce sales & marketing expenses • Commercial growth • Improve service & fill rates • Postponed remodeling investments • Build organizational excellence Flooring • New housing construction decline • Escalating material costs • Trading down (change in price & mix)
    • Unilin Presentation Paul De Cock President Unilin N.A.
    • OVERVIEW OF UNILIN (1) 2006 Revenues 2006 Operating Income (Before Corporate Elimination) (Before Corporate Elimination) Unilin Unilin 24.5% 15.6% 10% Mohawk 59.9% 10% 28% Dal-Tile Dal-Tile 24.5% 31.1% Mohawk 44.4% Total : $ 7,906 M Total : $ 839 M
    • OVERVIEW OF UNILIN (2) Geographical Revenue Split Product Revenue Split (Excluding IP) Flooring 68.0% Non-US 10% 78.0% 10% 28% U.S. 22.0% Non- Flooring 32.0%
    • UNILIN Historical Sales and EBIT Margin Evolution $ 1,237 % 11.6 437.0 : R CAG S ALE S EBIT Margin (%) $ 1,102 302.0 ($ in millions) $193.0 993 16.3% 17.3% 16.4% $ 348 $ 332 $ 294 EBITDA EBITDA EBITDA FY2004 FY2005 FY2006 Remarks ; FY 2004 and FY 2005 Pro Forma for acquisition related statements
    • A BRIEF HISTORY OF UNILIN 1960’s Foundation of the Unilin Group as a flax board manufacturer located in Ooigem Launch of wood chipboard production 1970’s Diversification into the production of roofing systems 1980’s Start of production of melamine-faced chipboards Start of production of laminate flooring in Wielsbeke 1990’s Launch of Quick·Step Invention of the Uniclic glue-less system Start of production of MDF boards in Bazeilles 2000’s Development in the U.S.: - Acquisition of a laminate flooring production plant and of a MDF/HDF plant in North Carolina - Second green field laminate flooring plant built In Thomasville, NC - Acquisition by Mohawk in 2005
    • LAMINATE FLOORING GLOBAL MARKET UNILIN POSITIONING
    • LAMINATE FLOORING HISTORY Laminate manufacturing has historically been linked to the production of wood panels History of Laminate Flooring 1950s 1980s 1989 Early 90s Mid-90’s 2000s High Pressure Laminate Pergo becomes European wood- Very fast Large flooring laminates flooring first significant panel laminate flooring manufacturers- (HPL) are developed in dedicated manufacturers growth in Shaw, Mohawk, developed for Sweden as a laminate enter the laminate Europe and Mannington furniture new flooring business, in launch product Laminate applications application company particular Kaindl/ line in this flooring of melamine Kronotex, Egger booming segment Unilin also introduced in HPL becomes a Witex also enters North America major the market and competitor plays a part in following promoting the introduction of product DPL technology
    • GLOBAL PRODUCTION OF LAMINATE FLOORING • Europe is the largest manufacturer of laminate products - 551 M m² in 2006 ; + 4 % compared to 2005. • North American production is growing at a healthy rate (+16 % in 2006, + 21 % over the 2002- 2006 period) • China manufactures the largest proportion of Asia originating products • The share of North American manufactured goods is increasing steadily and represents 8 % of global production in 2006. 1000 878 815 900 800 730 700 620 600 533 500 395 365 400 300 243 551 186 528 479 425 200 390 82 136 305 298 100 192 157 120 77 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Europe N+S America Asia/Australia Source: Munksjo Paper
    • CONSUMPTION (M²) OF LAMINATE FLOORING IN THE TOP 10 COUNTRIES • China is the largest consumer of laminate products, followed by the U.S. and Germany • These countries have also shown the largest growth over the 2004-2006 period 200 180 160 140 120 100 80 60 40 20 0 USA Turkey Germany China Britain France Canada Poland Iberia Netherlands Romania Russia 2004 2005 2006 Source: Munksjo Paper
    • UNILIN FLOORING 5 Key Competitive Advantages Key competitive Advantages Strategic Positioning 1. Superior positioning: Unilin benefits from strong brand recognition with a very good positioning, recognized by the floor covering dealer community 2. Product innovation: Unilin is recognized as the innovation and product leader with a strong patent Unilin is the world’s most portfolio respected laminate flooring 3. Vertically integrated producer both designer, manufacturer and in Europe and in the U.S., allowing marketer best-in-class industrialization 4. State-of-the-art manufacturing footprint, allowing best-in-class cost positioning 5. Wide coverage of distribution channels: Unilin enjoys a very strong presence in all distribution channels, both in Europe and in the U.S.
    • 1. UNILIN REGARDED AS TOP MANUFACTURER BY U.S. RETAIL COMMUNITY Source: National Floor Trends 2006
    • 2. UNILIN IS A RECOGNISED INNOVATION LEADER IN LAMINATE FLOORING History of key laminate flooring innovations 1989 1996 2000-02 2002-04 2004-06 Embossed in- V-groove or joint Direct Pressure Glue-less joints New surface Bevelled edging in register Laminate technologies Faster installation wood look laminates Being process (DPL) (up to 50% time Used for both Creates indentation developed by Straight forward saving) stone and between tiles or most pure- and more cost- ceramic look Most laminate planks to give the play tiles and for a efficient floorings have are appearance of a real competitors wide range of now glue-less Developed by joint wood grains Quick·Step a Unilin Patent application Patented by Unilin leader in new Industrialized by (2000) and as the « Uniclic » surface Unilin industrialization by joint which has technologies Unilin become the industry standard One-step process Source: Unilin management
    • 3. UNIQUE INDUSTRIALIZATION PROCESS (1) 1. Unilin is the only fully vertically integrated manufacturer in the U.S. controlling all steps from R&D, HDF supply, chemical development, paper saturation, pressing, cutting, milling to distribution. 2. As a consequence Unilin can innovate at every step of the manufacturing process. 3. All these innovations are blended together into every product and this makes it very difficult for competitors to imitate the product advantages. 4. All innovations are patent protected. Patents and the protection through intellectual property (IP) are an integral part of the innovation process. 5. Patent lawyers and analysts are part of every innovation very early in the product development process and check world-wide IP conflicts and patent filing possibilities.
    • 3. UNIQUE INDUSTRIALIZATION PROCESS (2) 6. All R&D and manufacturing skills come together in the transfer of the innovation into an efficient, scalable and cost-effective manufacturing process. 7. The capabilities of innovation, protecting the innovation and industrializing the innovation give Unilin a distinct advantage in the marketplace. 8. Summarizing : • Unilin is the world’s most sophisticated laminate manufacturer • Unilin handles very high degrees of development and manufacturing complexity • Unilin is very cost-competitive
    • 4. STATE-OF-THE-ART PRODUCTION FACILITIES 1. Superior industrial footprint: • 13 production facilities located in Belgium, France, the Netherlands Wielsbeke and the U.S. (Laminate Flooring & Melamine) 2. Competitive scale • The second largest MDF/HDF plant in the world (Bazeilles - 541,000 m3) • 4 laminate flooring plants – each with specific focus • The only HDF plant in the U.S. focused on thin MDF and HDF Bazeilles (MDF & Chipboards) manufacturing 3. Significant investments made in the recent past • High level of automation • State-of-the-art equipment 4. Optimal location, close to raw material sources and main customer base
    • 5. U.S. CHANNEL STRATEGY TO SUSTAIN GROWTH AND GAIN MARKET SHARE Overview of UNILIN Laminate Flooring Channel Coverage Specialty stores through Specialty stores through Home Centers and independent distribution Mohawk direct distribution Warehouse Clubs Multiple branding options – account specific • National Presence through • National presence through • Growing importance a network of 12 regional Mohawk Sales Force • Private Labeling distributors in the U.S. • Captive audience with • Interesting growth • Participating in all major Mohawk Aligned dealers opportunity for specialty buying groups • Increased focus on Unilin/Mohawk • Focus on differentiated alternative segments: products commercial, new home construction
    • U.S. LAMINATE MARKET
    • U.S. LAMINATE FLOORING REVENUE GROWTH $3,000 30% 26.6% $2,500 25% $2,000 20% 13.0% $1,500 15% 11.5% 11.0% 11.2% 9.9% $1,000 10% 4.2% $500 5% $340 $632 $737 $768 $868 $968 $1,226 $1,361 $1,514 $2,438 $0 0% 1997 1999 2000 2001 2002 2003 2004 2005 Est 2006 Est 2011 Fcst Revenue (Millions $) Grow th (CAGR) Source: Catalina Research
    • STRUCTURE OF NORTH AMERICAN MARKET (M²) • The North American Market is still very import driven (58% mainly out of Europe and China in 2006 compared to 63% in 2002). • North American production is growing faster than imports in 2006. This will continue as more capacity comes on stream domestically and existing capacity is fully utilized. • This trend will mitigate some of the margin pressure going forward because import duties and logistical costs are significant. 200 150 North American import 100 North American production 50 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Munksjo Paper
    • PENETRATION IN THE U.S. MARKET IS STILL LOWER THAN IN MOST EUROPEAN COUNTRIES Laminate flooring market share of flooring market (% of total volume) 25% Netherlands 20 France Belgium 15 UK Germany 10 Spain 5 US 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Typical adoption S-curve indicating that Europe is approaching its target penetration level, while penetration in the U.S. is still low and has room to grow Source: Catalina Research
    • LAMINATE PRICING EVOLUTION Price decrease in Europe began when laminate penetration reached an inflexion point. Strong price Prices remain Prices remain stable or decrease slightly decrease stable Laminate flooring market share 25% Netherlands 20 France Belgium 15 UK 10 5 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 Source: B2B 2003, expert and retailer interviews
    • U.S. LAMINATE TRENDS Sales by Channel $1,514 MM $2,438 MM $330 MM 0.3% 100.0% 1.0% 4.0% 6.0% 2.6% 4.0% 75.0% 50.0% 50.4% 50.0% 50.0% 25.0% 46.0% 44.0% 40.0% 0.0% 1997 2006 2011 Specialty Retail Home Center Internet Builder Supply Dealer Source: U.S. FLOOReport – 2006 & Internal Analysis
    • U.S. LAMINATE TRENDS Sales by Segment 1.0% 100% 2.0% 6.5% 7.2% 90% 15.0% 13.2% 14.3% 80% 70% 31.5% Commercial 33.2% 60% Res New 50% Res Remodel DIY 82.0% 40% Res Remodel Pro 30% 48.8% 45.3% 20% 10% 0% 1997 2006E 2011E ($330MM) ($1514MM) ($2438MM) Source: U.S. FLOOReport 2006
    • KEY STRATEGIC OBJECTIVES IN NORTH AMERICA The 5 main objectives for the North American laminate business are: 1. Grow the Mohawk business well above category growth rates using direct distribution advantages and product technology leadership. 2. Establish Quick•Step as the brand and market leader in the Specialty Retail distribution channel. 3. Penetrate new market segments by using Mohawk/Daltile relationships and distribution advantages: – New Residential – Commercial 4. Obtain significant new business in the Home Center Channel, an underdeveloped channel for Unilin. 5. Use product differentiation based on technology and smart product management to generate higher ASP’s and better operating margins than the competition.
    • KEY ACCOMPLISHMENTS SINCE ACQUISITION (1) 1. Established new U.S. Based Management team 2. Transferred Unilin North America Headquarters to Dallas to leverage Daltile infrastructure: • New marketing team led by VP Marketing Roger Farabee (formerly Mohawk Ceramic) consisting of Daltile and Unilin marketing professionals • New VP Sales – Roy Foster (formerly American Olean) reorganized and strengthened distributor sales force • HQ Finance, IS and HR functions in Dallas • Promoted Supply Chain Director internally to support multi-channel growth strategy • Use Daltile HQ support to set up specific projects and leverage existing capabilities (credit, supply chain, etc …) 3. Developed brand new Mohawk product line which will be introduced over the course of 2006/2007
    • KEY ACCOMPLISHMENTS SINCE ACQUISITION (2) 4. Initiated business in the Home Center Category • Launched first products to Home Depot • Making presentations to other Home Centers 5. Realized significant cost savings (both for Unilin and Mohawk/Daltile) in logistics and supply chain by combining Unilin and Mohawk buying power • Unilin domestic freight is managed by Mohawk national transport group • Unilin trans-Atlantic freight is managed by Daltile international transport group 6. Integrated UNILIN into the Mohawk financial reporting process • Sox compliance • Financial processes
    • Plant Tour Product Details Technological Highlights
    • THE DPL PROCESS • The layers are assembled all at once, pressed together in a single step • Core layer is made of HDF (High Density Fiberboard) • Direct pressure products are manufactured using 20-35 bar of pressure Overlay (protective layer) Decorative paper Core layer Stabilizing layer Newer technology (~20% cheaper than HPL) introduced by Unilin in 1989 Now accounts for almost all of the laminate market Product performance increasingly close to HPL at more attractive price points
    • DPL: GENERIC PRODUCT COMPOSITION INTO FIVE LAYERS Layers Composition Key characteristics Melamine plastic Protective layer Abrasion resistance with aluminum oxide particles Decorative layer Paper, with a Color, pattern printed image of decorative motif Hot-pressed together in a Core High-density Thickness (6-10 mm) single step fiberboard (HDF) Resistance to water Mechanical properties Grooves and edges for assembly, machined into the core Stabilizing Melamine sheet Dimensional stability Water resistance Soundproofing Felt or other soft Only on some products (tend to be high-end): Optional material reduce the sound level, and save laying separate sound-proofing material
    • LAMINATE FLOORING QUALITY VARIES, RESULTING IN LARGE PRICE DIFFERENCES DPL Product HPL charac- Low-end product High-end product teristics Regular abrasion resistance Superior abrasion resistance, Thicker than DPL and more Protective suitable for intensive passage area resistant due to higher pressure in layer manufacturing process Decorative Simple photograph of motif, no Complex finish aspect (matt + Less choice than high-end DPL Fewer producers surface effects glossy); depth of coloring layer Less volume Repetitive patterns Numerous surface effects: V- groove, wood grain, etc. (embossed registered) Numerous motifs to avoid repetition Core 6-7 mm thick, providing basic High thickness (>= 8mm), providing High thickness (>= 8mm), providing mechanical resistance high resistance high resistance Other Limited range of accessories Full range of accessories (skirting Essentially the same as high-end No integrated sound layer boards, etc.) DPL Sometimes integrated sound layer Real plank look, feel and sound Basic product High-end product Niche product Retail price ~ USD 0.99-1.99 /ft2 Retail price USD 1.99-4.99 / ft2 Retail price > ~USD 4.00/ft2
    • VERTICAL INTEGRATION Vertical integration guarantees Unilin manufacturing excellence and undisputed quality • In-house R&D, design, innovation • In-house chemical development • In-house MDF/HDF production [Bazeilles (Fr) and Mount Gilead (USA)] • In-house impregnation • In-house pressing • In-house cutting, milling, packaging • In-house distribution
    • HDF MANUFACTURING PROCESS (1) Conversion of wood and chemicals into Raw HDF panels
    • HDF MANUFACTURING PROCESS (2) Source: Merbok website
    • CONCLUSIONS
    • CONCLUSIONS (1) Unilin - definitely the best positioned player in the U.S. Market with great profitable growth opportunities: 1. Participates in the fastest growing flooring category in the U.S. 2. Is very highly regarded by distribution and retail community 3. The undisputed innovation leader 4. The only vertically integrated manufacturer in the U.S. • With great cost position • Excellent control over product innovation • Unique industrialization process
    • CONCLUSIONS (2) 5. A clear strategy to grow the Mohawk laminate business at above market growth rates • Responding to market trends • Leveraging unique product knowledge • Using excellent access to distribution channels 6. The management team is in place to implement the strategy 7. Leveraging Daltile/Mohawk synergies will further optimize (cost, channel access) Unilin’s position as we move forward