Building Products

The division has three core business streams with leading market positions, in plasterboard, insulation and metal roof tiles. These operations constitute the sole New Zealand manufacturer of plasterboard; the market leader in glasswool insulation in New Zealand and Australia, including commercial wall and ceiling systems in New Zealand; and the leading global supplier of metal roof tiles.

The core business streams are complemented by a group of individual businesses, each of which holds the number one or two position in its regional market. These include aluminium windows and door systems in New Zealand, and high-end sinkware and access flooring systems in Australia.

Performance

Sales increased 6 percent to $739 million and operating earnings almost 5 percent to $148 million, despite deteriorating residential housing markets, rising input costs and adverse exchange rate conditions.

The insulation businesses increased earnings by 12 percent, including a full year result from the Forman insulation operations for the first time. In Australia, some earnings lost during the merger of two insulation businesses during the previous year were recovered, retaining the business’s position as the largest insulation supplier in that market. In New Zealand, glasswool volumes and prices remained steady. Increasing material costs and energy prices reduced margins, but the most significant impact was from reduced sales of a building wrap product withdrawn from the market early in the year due to supplier issues. A replacement product launched in March 2008 is recovering lost market share.

Earnings from the metal roof tiles businesses increased 16 percent, against a market affected by rising steel prices. The New Zealand business lifted export sales volumes more than 11 percent. Adverse exchange rates affected trading, but earnings levels were restored as the New Zealand dollar weakened in the fourth quarter. The United States-based business recovered from a fire that destroyed one of its ovens in the first half of the year and generated a $6 million insurance recovery. Despite production constraints, it launched a new tile profile and grew volumes 7 percent in the declining North American housing market, ending the year with a record backlog of orders.

The wallboards business performed strongly, with earnings ahead of those for the previous year until the last quarter. Full-year earnings were down 2 percent. Capital expenditure was concentrated on the acquisition of the indoor air quality business DVS, complementing the company’s healthy homes theme, and the commissioning of the new Christchurch distribution centre.

Results from the aluminium business declined 7 percent due to the deteriorating residential market and higher aluminium prices. The sinkware business grew earnings by 7 percent, driven by increasing sales of the high quality Oliveri brand into the domestic market and by strong margins. The flooring business grew earnings by 14 percent, and remains well positioned as a supplier to Green Star rated buildings, with a strong backlog of commercial work.

Looking to the fundamentals

The insulation businesses are well positioned to benefit as energy efficiency regulation drives increased insulation levels in commercial and domestic buildings. They face increasing costs but are strongly positioned to maintain or increase margins.

A Melbourne-based industrial fabricator business, Baron Insulation, was acquired in July 2008 to expand the product offering. Baron is developing innovative systems to take advantage of increasing building code requirements while improving customer service. Furnace upgrades at the Melbourne and Auckland insulation plants were completed, with state-of-the-art electric arc equipment and industry-leading energy efficiency.

The global niche business in metal roof tiles is investing in capacity expansion through a greenfields manufacturing plant in Hungary and the addition of an accessory oven to the plant in Malaysia. These investments will allow improved service and continued growth in the European and Asian markets.

Product development is a key to the metal roof tile business’s ability to sustain growth. While the business has only a small share of the total world roofing market, there is substantial scope for growth through increased product penetration, particularly in markets where extreme weather conditions prevail. The weakening trend in the New Zealand dollar has lifted earnings and the business is experiencing strong demand.

The plasterboard business has relatively low capital requirements, as well as a seasoned management team with experience of volatile market conditions across the cycle. The business is constantly evaluating growth opportunities, and this has resulted in the acquisition of the DVS home ventilation business and the recent agreement to distribute the market leading Rondo plasterboard fixing system. While its high market share ties its volume to the New Zealand building market, it will increase its commercial sales mix as residential markets soften. A strong focus will be maintained on adjustment of cost levels to match market volumes.

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After two years in the planning, the new melter at the Auckland insulation plant was commissioned in April at a ceremony attended by the
Minister of Energy, the
Hon. David Parker.

Hon. David Parker and Tasman Insulation Operations Manager
Mark Rassie at the
official opening

The upgrade reduced the plant’s carbon dioxide emissions by 1,700 tonnes per year, and energy usage by two-thirds – enough to meet the energy needs of about 500 average New Zealand homes. As New Zealand’s market leader in insulation, the business enjoyed considerable growth in the latest year, assisted by building code modifications.
A higher level of insulation is now required in residential buildings, and a number of new products have been developed to meet this demand.

An additional factor is increasing awareness of the health and social costs associated with the high number of New Zealand homes that are uninsulated or under-insulated. The business continues to be actively involved in government and community led initiatives to address this issue in low income groups and ensure consumers outside these groups are aware of the importance of ‘topping up’ their insulation.