
Short description of the company

Short overview of Bath & Kitchen

SWOT

Key learnings and overall objectives

Strategy

Where is American Standard vulnerable?
2

3

•
Founded in 1872 as the Pierce Steam Heating Company
•
Stock-listed company since 1929, after the merge with the Standard Sanitary
Manufacturing Company
• Global company with 3 B.U.: Air Conditioning Systems and Services (brand:
TRANE), Bath & Kitchen, and Vehicle Control Systems (brand: WABCO)
•
Each B.U. is a market leader worldwide
• 61,000 employees in 50 countries
•
10 billion $ turnover in 2005 (+8% vs. 2004)
• Main events in past 10 years: in 1988, AS escaped a hostile takeover via a leveraged buy-out and became debtburdened. This explains why AS is less inclined to acquisitions than most of its competitors. Therefore the focus is on organic growth and the sanitation of the balance sheet
•
All company processes based on Six Sigma
4

Repartition of Sales 2005 / EBIT 2005 by Business unit (%)
Vehicle Control Systems
18% / 24%
Bath & Kitchen
24% / 10%
Air conditioning
58% / 66%
Repartition of Sales 2005 by region
Asia/Pacific/Others
11%
Europe
30%
America's
59%
5

Concentrate /focus on a few/strongest Brand(s)
American Standard Companies
Airconditioning Systems
(59%)
Bath & Kitchen products (23%)
Vehicle Control systems
(18%)
Americas Asia
Premium:
Jado
Porcher
Mass market:
American Standard
Premium:
Jado
Mass market
American Standard
6
Europe
Premium:
Jado
Mass market:
Ideal Standard
Value
Armitage Shanks
Ceramica Dolomite

7

• World‘s largest global manufacturer of B&K products, incl. CSW, taps, wellness products and „accessories“ (furniture incl.)
• Total 2005 sales: $ 2.418 billion = 24% of total sales = 10% of company‘s income
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
80%
20%
78%
22%
69%
31%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
55%
45%
America's
95%
5%
Europe
92%
8%
Asia
Residential
Commercial
Classical Distri / Wholesale
DIY
8

Europe
53%
Sales by region 2005
Asia
7%
Americ'a
40%
Sales by segment 2005
Accessories/
Furniture
11%
Acrylic +
Wellness
13%
Fixtures
(CSW)
50%
Fittings
26%
9

America
All brands of the B& K Division
Europe Asien
American Standard
Porcher
Jado
Ideal Standard
Armitage Shanks
Ceramice Dolomite
Sottini, Venesta
Venlo Sanitair
Porcher, Jado
Senesi, Piel
Sangra,Vidima
Senesi, BØrma
10
American Standard
Jado

Sales have developed well in all segments, but the profitability especially for Bath & Kitchen is worrying
Sales in USD x mln
12.000
10.000
8.000
7.465
6.000
1.813
4.000
7.795
1.994
8.568
2.235
2.000
0
9.509
2.440
10.364
2.419
2001 2002 2003
Air conditioning
Vehicle Control
2004 2005
Bath & Kitchen
Total
EBIT in USD x mln
1.200
1.000
800
600
400
200
0
787
148
2001
831
155
838
140
984
197
1.013
102
2002 2003
Air conditioning
Vehicle Control
2004 2005
Bath & Kitchen
Total
11

Bath & Kitchen has never been up to the level of our two other segments, but the performance in 2003 and 2005 calls for stern measures
8%
6%
4%
2%
0%
14%
12%
10%
2001 2002
Air conditioning
2003
Bath & Kitchen
2004
Vehicle Control Total
2005
12

Just as AS, most of our international competitors cover almost the entire spectrum of bathroom products
Presence of main suppliers: by product group
American Standard
Power base
World
Duravit
Grohe
Inax
Europe
Europe
Asia
Kohler
Masco
Roca/Laufen
Sanitec
Toto
Villeroy & Boch
N-America
N-America
Europe
Europe
Asia
Europe
Bathtubs
& trays
XX
X
Shower enclosures
(x)
Whirlpools
(x)
Ceramic
Sanitaryware Hydrotherapy
XXX (x)
(x) XXX (x)
Taps &
Mixers
XX
XX
XX
X
XX
(ES/PT)
XX
XX
XX
X
(x)
XXX
X
X
X
X
X
X
XX
X
X
X
X
XXX
XXX
XXX
XXX
XXX
XXX
X
X
XX
X
(ES/PT)
X
X
X
XXX
X
X
XXX
X
(ES/PT)
XX
XX
Bathroom furniture
(x)
XX
Installation systems
Ceramic
Tiles
XX
XX
XX
XX
X
XX
(x)
X
(ES/PT)
X
XX
X
X
(ES/PT)
XX
X
(ES/PT)
X
XX
Legend: X
XX
XXX
Source: ASD research
= minor weight in sales of company
= medium weight in sales of company
= great weight in sales of company
13

Global presence of the main competitors in CSW (year 2004)
500
400
300
200
100
Ceramics
(incl. sinks and showers)
Size (m €)
Villeroy & Boch
American Standard
Duravit
Eczacibasi
Grohe
Inax
Jacuzzi brands
Kludi
Kohler
Masco
Roca
Sanitec
Toto
DE FR UK/IE IT
Europe
BNL Sca ES/PT RU Oth
EUR
JP CN
Asia
IN Rest
S+OA
278 320 378 350 102 165 253 173 372 475 702 186 >700
US
America
CA MX Rest
S-Am
1.209 100 124 >240
Legend: Market share (volume): > 15%
Market share (volume): >5% - <15%
Market share (volume): >2% - <5%
Market share (volume): <2%
14

On the world ranking list, we estimate that we rank #1
Duravit
CISA
Crane
Inax
Jacuzzi
Villeroy & Boch
Toto
Sanitec
Roca
Kohler
American Standard
0%
1,4%
1,8%
2,9%
2,9%
3,0%
2% 4%
Total value as basis:
5,2 billion Euro (ASP)
6,5%
8,3%
10,6%
11,0%
6% 8% 10% 12%
Market shares CSW - World
14%
14,2%
15,4%
16% 18%
World-wide shares of main suppliers of CSW* - year 2003; coverage approx. 80% of the total world market
* V&B incl. Vitromex, Roca incl. acquisitions 2006
* Due to lacking data inclusive ceramic shower trays and kitchen sinks
Source: BSRIA - Consult - ASD research
15

In Europe, however, we are ranked # 2
Jacuzzi Brands
Qualceram Shires
Eczasibasi
Kohler
Duravit
Villeroy & Boch
Roca
American Standard
Sanitec
1,6%
1,8%
2,1%
2,7%
3,5%
10,2%
Total value as basis:
2,2 billion Euro (ASP)
14,7%
0% 5% 10% 15%
Market shares CSW - Europe
Shares of the main supliers of CSW* in Europe - year 2003 -
* Inclusive acquisitions of Roca 2006
*Ceramic Sanitaryware exclusive ceramic shower trays and kitchen sinks
Source: Consult and ASD research
16
19,0%
20%
21,4%
25%

More details on our market shares (1/2)
Share of volume
Ceramic Sanitary Ware
Baths: Synthetic
Baths: Steel
Baths: Cast Iron
Hydromassage Baths
Shower Trays: Synthetic
Shower Trays: Ceramic
Shower Trays: Plastic
Shower Trays: Polyconcrete
Shower Trays: Steel/C. Iron
Shower Enclosures
Bath Screens
Conv. Shower Cubicles
Shower Panels
Bathroom furniture
Taps and Mixers
Inst. Electric Showers
Mixer Showers
Power Showers
Commercial Showers
AT BE CH DE DK ES FI FR GR IE IT NL NO PT UK BG CZ HR HU
7% 13% 6% 8% 4% 10% 1% 16% 29% 28% 45% 3% 2% 4% 25% 47% 10% 10% 4%
4% 11% 5% 2%
2%
15% 16% 24% 22%
8%
3% 2% 14% 33%
6%
1%
3% 0%
8% 17%
25%
5%
9%
4%
1%
24%
14% 21% 5%
4% 13%
1% 4%
18% 28%
8%
6%
45%
1%
1%
0%
11%
0%
6%
4%
3%
0%
83% 32% 68%
1% 4% 1% 1%
4%
0% 2% 4%
0% 5%
11% 5% 12% 13%
0%
1%
0% 4%
0% 1%
14% 12% 15% 14% 26%
6%
8%
4%
0% 11% 94%
6%
3%
2% 2% 1%
17

More details on our market shares (2/2)
Share of volume
Ceramic Sanitary Ware
Baths: Synthetic
Baths: Steel
Baths: Cast Iron
Hydromassage Baths
Shower Trays: Synthetic
Shower Trays: Ceramic
Shower Trays: Plastic
Shower Trays: Polyconcrete
Shower Trays: Steel/C. Iron
Shower Enclosures
Bath Screens
Conv. Shower Cubicles
Shower Panels
Bathroom furniture
Taps and Mixers
Inst. Electric Showers
Mixer Showers
Power Showers
Commercial Showers
LT LV PL RO RU SI SK UA Cent-Am CA MX US AE BH CN KW OM QT SA
1% 6% 1% 5% 1% 15% 9% 0% 35% 25% 29% 16% 6% 6% 2% 12% 6% 26%
1% 6% 0% 1% 1% 7% 2% 13%
4%
9% 9%
2% 13% 3% 33% 4% 8% 21%
4%
6% 2%
1% 2% 1%
2% 1% 1%
45% 63%
1%
1%
8% 10% 11%
8% 8% 53% 10% 15% 9%
0%
0% 0%
9%
0%
1%
2% 1% 5% 2% 2% 8%
2%
10% 3%
2%
8% 4% 4% 2% 13% 3% 10% 9%
18

19

Business impact
• B&K represents 23% of the business but only
10% from EBIT
Product
• CSW is with 50% the biggest business field
• Fitting business represents 26% of sales
• Wellness business makes 13%
Production
Pricing
Distribution
• 57 factories worldwide (33 for CSW), mostly on low cost basis
• aggressive pricing policy
Image l
Orga/Genera
• 50% of sales in Europe, 42% in the Americas and 8% in Asia
• High brand awareness, but unclear positioning
• Strong in commercial/professional business due to plumber heritage
• many personal fluctuations
20

•
Increase our value added revenues by:
– optimize rebate structures
– increasing the share of value added products (features to benefits like water saving, easy installation, easy clean)
– improving product availability and time to market
– increasing investments in marketing support
• Improving productivity by:
– Plant by plant: assortment alignment
– Plant to plant : stabilization of output
– Use plants as logistic turntables
– Enhance cost control and cost reduction
• Simplify our business by:
– Reducing models and SKU’s
– Standardizing and simplifying global processes
=> We will keep improving our performance
21

22

Brand/Image:
• World‘s largest Bathroom & Kitchen manufacturer with international, well-known brands (high brand awareness, e.g. 84% in their core markets)
•
Long history and american heritage, coming originally from the plumbing sector, enables to communicate tradition, experience and technical competence
Assortment:
•
Good image as complete, innovative bathroom supplier with interior designers, decorators, consumers and plumbers , due to
– complete multi-category product lines
– high competence in style and technical features (products with real USP‘s)*
– userfriendly marketing supports (trainings, website, ...)
•
Wide and deep assortment in CSW and fittings, which make 50% / 26% of the business
• Work with internationally well-known designers and architects to meet the tastes and styles of all markets and offer a tailored portfolio (NME, APAC)
Market:
• strong in the segments “value” (e.g. Arm. Shanks, Cera.Dolomite) and “mass” (AS/IS, private labels), therefore particularly price-aggressive and strong in project business
•
Strong own sales organisation in most regions with vertical market specialists
• Competitive cost positioning thanks to international production facilities and standardized processes (e.g. reducing number of factories from 66 to 58)
•
High market shares in I, UK, BUL, US
23
* a few examples: Cadet 3 Toilets, Lifetime Whirlpools, EverClean Faucets

Business:
•
Worst performing division within the company >> restricts investment opportunity (shareholder value mentality!)
•
Decreasing sales in 2005 versus 2004 (-0,9%), and significant decline in profits (-48%), particularly in Europe due to unfavorable mix, as sales migrated to economy products
•
Big, fluctuant organization (risk of work stoppage, frequent management changes,...)
Strategy:
• Unclear strategy for a positioning/segmentation: try to be everybody‘s darling
•
No clear alignment in the portfolio, distribution, production and pricing policies
•
Multi-brand strategy and huge assortment = costly + complex >> lack of synergy, loss of focus
• „Standard“ doesn‘t sound very exclusive and could be a disadvantage for a premium positioning
•
Limited assortment in furniture and Wellness
•
Synergy potentials due to leadership of TRANE (Air Cond.) in project business are not used
Market:
•
Low marketing support in the past = no inspirational brand image
•
Overdistributed and dependant on big customers with focus on DIY or mass market, except with
Wolseley
•
Production/manufacturing problems: product unavailability/supply difficulties, increased energy costs
24

•
Growth in home ownership
• Development of a strong elderly target market worldwide
• Higher spending on bathrooms
• Bathrooms per house increasing
• Housing stock continues to age > growth in the replacement, repair and remodeling, particularly in the U.S.
• Growth in developing countries, particularly in Asia
• Positive development in worldwide logistics
•
Fluctuations in currency exchange rates
• Development at the N.Y. Stock Exchange
• Development of aggressive main competitors (for e.g Roca)
• Aggressive competition of low-cost suppliers in Asia
• Kohler’s relationships with Wolseley
• Distribution concentration of the wholesale and the DIY (e.g. The Home Depot/Hughes)
• Increasing costs for energy and raw materials
• Purchasing high numbers of various components
• Political risks related to operations in many foreign countries
• Labor cost inflation, especially in low cost countries
25

26

to be defined:
Strategic goals
Brands
Communication
Distribution & Logistics
Strategic Alliances
27