Marketing and Distribution Plan 2004 2005

1
Marketing and Distribution Plan 2004 - 2005

• Working together to exceed expectations

2
Overview of Presentation

• History
• Determinations of Success
• Solutions for Success
• Future Growth
• Topics of Discussion

3
Welco History

• Welco since 1983
• Ownership and partnership
• Financial growth and stability
• Mill sales and distribution
• Twelve reloads
• Freight contracts
• Fascia distribution in California
• Manufacturing and distribution since 1984
• Commitment to excellence in distribution
• Canfor relationship
• Commodity and specialty business since 1993
• Volume 2003 - 55 million fbm 2004 - EST. 60
  million fbm

4
Market Potential Housing starts for California

• California housing market should grow 3-6 over
  next 5 years
• 2002-03 up 7.3
• 2003-04 up 3.3 EST.
• 2004-05 up 4.0 EST.

5
Profile of Fascia Usage

• Typical usage per home 300-450 FBM
• Sheer volume of orders and customers to build
  volume
• Limits Silva Star Program volume due to actual
  volume per house
• Fascia usage is shrinking
• siding design 600-800fbm
• stucco design 250-350fbm
• general switch from 2x8 to 2x6 to compress the
  building costs

For 2003 Silva Star has about 35 of California
Fascia Market
6
Profile of Account Base

• Welcos push towards direct sales to Contractor
  Yards
• Value of contract yard to break units into pieces
  for job site delivery
• Top 5 Southern CA Contractor Yards ship almost
  one million FBM per day EACH
• Smaller Contract yards buy minimal amounts of
  Fascia, buy specific tallies from our
  Distribution yard-sometimes one or two units at a
  time

7
Direct Vs Indirect SalesGoal is to reduce
indirect sales
CanforBellinghamMill
WelcoLumberCorp.
DistributorYard OfficeWholesaler
ContractorYard
Framer
CentexType Builder
Profit Margins 4 6-9
12-20 10-15Based on full units only
8
Details of SKU per truckshipments from Welcos
Reload

• Importance to Customer to buy complete orders or
  they will shop elsewhere - inventory outs
  really hurt us
• Very few substitutes allowed by Framers - order
  20ft, need 20ft
• Limited workforce eliminates flexibility
• Up to 18 different SKUs per truck load order
• Importance to have no stock outages - no
  substitutions
• Over 60 of all orders placed must ship with 1
  week
• 20 orders ship 1-2 days
• 45 orders ship within 1 week
• 25 orders ship within 2 weeks
• 10 orders ship within 3 weeks - usually due to
  SKU shortage

9
Major Challenges to Welco Lumber

• Fill rates and shortages
• Longer ship times from Bellingham
• Original plan of 2 week shipment times
• Loss of orders
• percentage of orders lost
• 2002 2 about 500,000 fbm
• 2003 7 about 2,000,000 fbm
• Reasons for lost orders
• 80 Lead time for product
• 20 Price- 2x8 20ft, all 1x2-1x8 Boards, 2002
  - 50 2 weeks or sooner
• 0-2 Quality of Fascia, 2003 - 39 2 weeks or
  sooner
• Competition
• push towards more PROFIT answer Prime
• most Fascia suppliers pushing to supply Primed
  Fascia
• Sierra Pacific, Unity, Western Wood, Fraser
  Pacific, Taiga, Dakeryn, even Golden State
  Lumber (Stockton based Contract Yard)
• competing species, engineered wood, imports
• Price point, Bellingham mill returns show losses
  to Program

10
Major Challenges to Canfor and Silva Star

• Supply - what can be to shorten shipping time
• Better trend and forecasting
• Back up inventory at Bellingham, more finished
  inventory
• Can Welco help source material ?
• Possible quarterly supply program
• Mill Net Returns
• Better order files
• Need higher Net returns for Bellingham

11
Solutions for Success

• Better mill nets for Bellingham
• Move towards more Profitable Primed fascia
• Work towards better reman returns - more
  efficiency
• Increase market share for Primed
• Develop Southern CA market from Green D/Fir to
  Natural KD SPF then to Primed KD SPF
• Develop pull through demand from Builders,
  Designers and Architects
• Become Primed fascia of choice, specified on job
  specs
• ASK FOR IT BY NAME
• Customer trips, Industry shows

12
Increase Bellingham Mill Nets

• Increase add ons for reman
• price points
• what will the market bare?
• Since 50/m price increase on 2x8 20ft
• average profitability drops from 4.2 to - 2.4
• price increase without commitment to supply
• shortages are still common in Bellingham
• 2x8 20ft has become a Lost Leader, very few
  accounts will pay higher price unless stuck for
  product
• switch to KD White Fir or Hem Fir
• 2x8 20ft is 45 of all 2x8 Fascia sales

13
Develop Primed Sales

• Pull through marketing on Primed
• Natural Fascia demand peaked
• switch from 2x8 to 2x6
• Switch Natural Fascia sales to Primed Fascia
• Create new markets in Southern CA
• 1/3 market for green Fir
• Possible Welco distribution yard in Southern CA
• Pull piece orders for Framers
• Measurable success
• Centex Homes, Shea Homes

Million FBM
14
Creating Demand for Silva Star Primed Fascia

• Southern CA switching to Kiln Dried from Green
  Fir
• Example Contract yard with order file of 2x8
  Resawn
• 1996 order file 90 Green Fir and 10 KD White
  Wood or SPF
• 2003 order file 25 Green Fir 75 KD White Wood
  or SPF
• Work with higher end Framers / Builders to boost
  Prime sales
• TWR Framing, Quality Structures, H R Framing,
  Mid Coast
• Centex Homes, Shea Homes, KB Homes, Lennar Homes,
  etc
• Push to supply models on track projects
• Must have Silva Star specified from project
  inception
• 7 Model Homes starting project of 70-150 Homes -
  Centex Stone Canyon

15
Profile of Top Builders in CA

• Identify costs and savings on appropriate
  projects
• Savings on siding projects far higher than stucco
  projects
• More fascia used on Ginger Bread Homes
• Stucco design 250-350 FBM extra cost 40/home
• Siding design 700-1200 FBM extra cost 150/home
• Savings from Painter for not Priming Fascia or
  Soffit - Hard Sell
• Ensure quality prime coat, Olympic PPG with 15
  year Warranty
• No job delays waiting for Painters - Must sell to
  Framers
• One less setup on scaffold or security lines,
  Liability savings
• Very hard sell, might exist but hard to qualify
• Note Large percentage of Builders do not
  perceive a current problem using Natural KD SPF
  Fascia, must show savings per home to switch to
  Pre-Primed Fascia

16
Future Growth of Primed Silva Star

• Marketing directly to Builders and Framers
• More trips to Centex, Shea Homes, KB Homes, etc
• Exposure through Building Supply Shows
• NAWLA, PCBC, Building Industry Show
• Combined marketing in publications or trade shows
• Promote inventory in Woodland, CA. Reload
• Tie Welco Lumber Reload into Canfor advertising
• Merchant Magazine, Softwood Lumber Buyer
• Joint Welco/Silva Star business cards
• Joint logo shirts for Building shows or Customer
  gifts
• Joint Welco/Silva Star information jackets for
  samples

17
Topics of Discussion

• Price increases
• Changes in Raw Material Supply to Bellingham
• Distribution Channels
• Goals for Increases Sales of Primed Fascia
• Joint marketing