CFC International, Inc. (CFCI)
Interview with:
Gregory Jehlik, President and CEO
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chemically complex, multi-layer, transferable coatings, laminates and sophisticated holographic technologies.

 

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Superior chemistry and global facilities are giving CFC International an edge on the competition

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Basic Materials
Chemical Manufacturing
(CFCI - NASDAQ)

CFC International, Inc.

500 State Street
Chicago Heights, IL 60411
Phone: 708-891-3456


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Gregory Jehlik
President and CEO

Interview conducted by:
Lynn Fosse, Senior Editor

CEOCFOinterviews.com
November 2004

BIO:
Gregory M. Jehlik, age 44, joined CFC International, Inc. in June 2002 as President and Chief Operating Officer.  He was named Chief Executive Officer of the company in October 2004 and was named a Director of the Company in July 2002.  Mr. Jehlik was previously President and Chief Operating Officer of American Engineered Components, Inc. from 1999.  Prior thereto, he spent 17 years with the Brady Corporation in a number of management roles including sales, marketing, general management and international operations.  Mr. Jehlik holds a bachelors degree from Indiana University and a Masters of Business Administration from the University of Wisconsin.  Mr. Jehlik also serves as a Director on The A-T Children’s Project.

Company Profile:
CFC International, Inc. is a worldwide specialty coated film company that designs, manufactures and markets chemically complex, multi-layer, transferable coatings, laminates and sophisticated holographic technologies. These innovative coatings and holographic products are not only decorative in nature, but also provide invisible, value-added functionality such as industry-leading abrasion and chemical resistance.

CFC’s extensive history of developing and manufacturing proprietary coatings enable them to create cost-effective, customer focused solutions. While the company serves a diverse group of niche markets, the core technology for every product line is similar. CFC does this by coating rolls of plastic film and selling them to their customers, who transfer the coatings to their products or laminate them on to a substrate for decorative, protective or informative purposes. CFC’s coatings are made by mixing pigments, solvents and resins into formulations that come in many colors, patterns and surface finishes designed to resist chemical and physical abuse. Some also store information. CFC’s technology, add to the functionality and increases the value of a wide variety of consumer and industrial products, around the world.

CEOCFOinterviews: Mr. Jehlik, you have been with CFC International for a little over 2 years and have recently been named CEO; what attracted you and how has your vision developed?

Mr. Jehlik: “I joined CFC in June of 2002, and what was really appealing to me about the organization was where they were at in their evolution. It was an entrepreneurial business that had a number of very strong competencies and differentiating capabilities that were really ready to break out. My skill sets and experiences aligned nicely with the needs that the company had as far as strategic execution and exploiting those initiatives executions and competencies to get the company going to the next level. We are fortunate that it is starting to happen.”

CEOCFOinterviews: What changes have you made and what still needs to be done?

Mr. Jehlik: “We’ve really gone after a few different things. First, we’ve tried to be more thoughtful about strategic planning overall, and moving away from being opportunistic, to being strategic. This means we are being thoughtful about what business opportunities we choose to pursue and what we choose not to pursue, what resources are needed to accomplish our goals, etc. We need to get from the $50 - $60 million range in sales, to the $100 million plus range and you can’t do everything, so you need to be careful about what you select. The strategic planning on the cultural side meant everything from working more closely with our work force around the world and getting them more involved with the changes that we are trying to implement, which are more than just growing sales, it’s operating more efficiently and being more productive. I believe strongly that a lot of those answers lie at the operator level. We need the operators, whatever level they are in, to get involved and be contributing to the lean manufacturing condition or, whatever the case may be. That kind of involvement has been quite helpful for us in reducing scrap and being more productive. Finally, and the last area that the company needs to focus on, and has always focused on, is in product development. I believe product development is the vitality and drive factor for growing CFC, and we’ve historically spent about 3 percent of our revenues in R&D. In that area, for example, we are applying certain disciplines with regard to what we spend money on, what we choose to pursue and looking at how quickly we can go to market.”

CEOCFOinterviews: What is the core of CFC?

Mr. Jehlik: “We manufacture specialty coated films and in that process we apply very thin or thicker coatings to various film carriers; polyester, polypropylene films. Those coatings and films are then used in a number of applications; from transferring information on an IV bag, to film that is laminated to board stock that in turn becomes a toothpaste box. If you pull a credit card out of your wallet you will see the magnetic stripe, the signature panel, the scratch off; all of those are products that we make. If you buy ready to assemble furniture or promotional furniture that is manufactured out of particle board or medium density fiber board, that decorative wood look is either a paper printed to look like wood, or a transfer coating that we make that looks like wood grain. The wood grain coating once transferred then becomes a decorative and functional part of the finished piece of furniture, providing aesthetics and durability. So it’s a wide variety of ultimate applications, but it all comes back to core competencies in specialty coating and chemically complex coating applied to various films.”

CEOCFOinterviews: Do you sell these coating to the manufacturers or do you apply the coating?

Mr. Jehlik: “We will sell the coated film or the laminate film to an OEM typically. If it were a wood grain product we would sell that to furniture manufacturers. If it is a pharmaceutical product that material would be sold to the manufacturers of IV bags, such as Baxter International Inc. (NYSE: BAX) or Abbott Laboratories (NYSE: ABT). What they do is hot stamp the information onto the bag itself, saying, ‘This bag contains medicine’ or ‘this bag contains saline’. Typically, in almost every application, we are a component or ingredient of an end product. For credit card applications we will sell the components, the magnetic stripe, the signature panel to a credit card printer and his customer may be a bank, or retail organization who has ordered these transaction cards and they will source the components to create the cards.”

CEOCFOinterviews: Do you have to maintain much inventory or do you make products based on orders?

Mr. Jehlik: “While the products are made to order, many are custom formulated and many have custom patterns. Holography is a big area for us; we do a lot of holographic packaging. We also do a lot of security applications that utilizes for holography. To help prevent counterfeiting and maintain brand integrity, for instance, a custom holographic image is often used in a security application such as a label or hang tag to prove that a product is genuine and authentic, so those applications are custom.  If we are selling a holographic laminate film that is used to create a toothpaste box for Proctor & Gamble (NYSE: PG), the patterns and the images that we’ve created in that holographic image have been designed for Proctor & Gamble. There are some products that we produce that are considered stock such as the magnetic stripe and signature panel for transaction cards; some stock holographic patterns that we do maintain an inventory of for turnaround, but a vast majority of things are made to order.”

CEOCFOinterviews: You mentioned the holographic area, which is an area of growth for you; what is the HoloLam Plus™ product?

Mr. Jehlik: “HoloLam Plus™ is a full face holographic laminate that is laminated to PVC (Polyvinyl Chloride), and that PVC is what is used to make in transaction cards and gift cards. What HoloLam Plus™ allows a card manufacturer to do is to take a very brilliant background that is print receptive, giving them additional design capabilities and the ability to build in a variety of security layers right in to the card, such as the ability to add security inks.   This product has taken off and contributed to our very strong third quarter.   Moving forward, it should add several million dollars to our sales next year.”

CEOCFOinterviews: You’ve announced your best year ever?

Mr. Jehlik: “We’ve just come off of our best quarter and we’ll end up having our best year ever.”

CEOCFOinterviews: Could you tell us about the industry that you are in and the competition?

Mr. Jehlik: “That’s a good question and the answer varies. While our core competencies are in specialty coating and specialty coated films, we operate and compete in a number of international markets and also in a number of separate and distinct end-user markets. We are in the furniture industry, the pharmaceutical industry, the transaction card printing industry, the packaging industry, as well as a number of other industries. So the competitors that we have sometimes vary by the markets that we are in because we sell different products into different markets. In almost every category what you will find is that they are very niche businesses and applications, with no more than five competitors in any one. In a couple of those areas like wood grain foils we are number one, in the pharmaceutical application for IV bags we are number one and in almost every other area we would be somewhere in the top five. In many cases we have small niche competitors; we may compete with a company that does only holography, primarily holography for packaging. We may compete in other areas with companies that focus on holographic security items. So it really varies by the product and the market that we are serving.”

CEOCFOinterviews: Why are people choosing CFC? Quality? Price? Service?

Jehlik: “I would say that people are choosing CFC for all of those reasons. We try to provide the best quality service that’s out there in each respective area that we compete in. Our chemistry is superior in those areas from a performance standpoint. If it’s a furniture application; once our product is applied to the furniture it has proven to be durable, scratch resistant and can wear and tear like furniture needs to. If it is holographic film that’s being laminated to board stock, we have put topcoats on it that allow it to be printed over; it’s very user friendly from a printer standpoint. Therefore, I think that our superior chemistry is an area of differentiation. In addition, we have global facilities; we have operations in Chicago and almost mirror operations in Germany, so that we can service the European market with like capabilities and products. From a supply standpoint, we have redundancy in backup; each facility can do what the other one does. Across the world we have our own technically-trained sales people; who will go in as consultants and sales engineers and talk about the needs of a customer. In fact, a lot of our product development is based on the needs of our customers. So our sales people will work to cover those needs and come up with solutions for our product development. If you add up those attributes you’ll find what sets us apart.”

CEOCFOinterviews: Do you do much business in the Pacific Rim and where are the areas of growth internationally for you?

Mr. Jehlik: “Right now, we do have business in the Pacific Rim; it is a smaller segment than Europe, but an area that has been growing very quickly. We go from Australia on up to China. Asia in particular has been growing; and as a percent of sales for us, it has come close to doubling this past year. It is a much smaller base, but we do see Asia as growing; we have an individual over there that has significant international experience. He has lived in Singapore and has been focusing on that region of the world.”

CEOCFOinterviews: Do you sell on a project by project basis or do you work on an extended contract basis?

Mr. Jehlik: “It all depends. In some applications we do have multi-year contracts with certain customers. For example, HoloLam Plus™ is pretty much a project by project type of sale.  For instance a bank or retailer may be issuing or reissuing a new card and there may be a run of 20 million transaction cards and that order will be let out to the market, to transaction card manufacturers. We would then see an order for X dollars of HoloLam Plus™ to support that particular transaction card project.”

CEOCFOinterviews: What do you see in the next few years and how do you expect CFC to change under your leadership as CEO?

Mr. Jehlik: “We will continue to do what’s working for us right now. We are spending a lot of time working on our selves from a production improvement standpoint. Looking at the manufacturing industry; so we are doing a lot of process mapping, looking at what’s our current state, what do we want our future state to be and how do we take that non-value added time out of the process, how do we produce less scrap and reduce our lead times. I think that quality is a given in the market and some of the intangibles like service and time are going to be key elements to competing. We are going to continue to focus our energies on product development, because that is how we are structured; we invest a lot of money in that, we have an infrastructure to support that. We will be thoughtful and careful about what we choose to develop and continue to solve customer’s problems and developing new applications going forward. We should continue to grow in new applications and new geographies. We are constantly looking for ways in which other markets can utilize our competencies and capabilities, and do it in a strategic manner. So once again, it’s how do we leverage and exploit some of the things that we know that we do well. Areas that we don’t currently compete in, we are addressing that through a new marketing group that will evaluate new market segments, trends and from a geographic standpoint.”

CEOCFOinterviews: Are your current facilities enough for continued growth?

Mr. Jehlik: “We are good for the next couple of years; earlier this year we purchased an adjoining parcel of land to the headquarters facility in Chicago Heights, Illinois and a 58,000 square foot building. This was in anticipation of in making some stair-step moves in equipment down the road; about three years out. We now have the needed space to expand.”

CEOCFOinterviews: In closing, please address potential investors; why should they be interested and what should they know about CFC that might not jump out when they first look at the company?

Mr. Jehlik: “We are a small to medium sized business, I would consider us old economy, and a lot of our applications are what some people may consider mundane. However, I would say that the industries we serve are highly differentiated, they are all very niche, and they have good gross margins. While the company’s sales growth has been flat for a few years, we are demonstrating in 2004 that as a result of our strategic initiatives, the ability to increase our sales, improve our productivity and deliver positive results for the balance of the year and into the future. Although it is a thinly traded stock, in the last 52 weeks the stock has more than doubled. I think folks are starting to discover us and determine that what is happening here is for real.”

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From a supply standpoint, we have redundancy in backup; each facility can do what the other one does. Across the world we have our own technically-trained sales people; who will go in as consultants and sales engineers and talk about the needs of a customer. In fact, a lot of our product development is based on the needs of our customers. So our sales people will work to cover those needs and come up with solutions for our product development. If you add up those attributes you’ll find what sets us apart.” - Gregory Jehlik

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