Laminates & Panels

The Laminates & Panels division comprises the Laminex Group and Formica Group which manufacture, market and distribute a range of decorative and durable laminates and panels. These businesses have strong international brand profiles and leading market positions. Operating earnings for Laminates & Panels were $141 million, compared with $74 million in the previous year. Sales were 7 percent lower at $1,930 million.

Laminex

The Laminex Group is the leading Australasian manufacturer, marketer and distributor of decorative surface laminates, component products, particleboard and medium density fibreboard (MDF).

Performance overview

Laminex's operating earnings were $107 million for the year which included $16 million of one-off gains from the closure and sale of the Welshpool and Kumeu sites. Operating earnings excluding these one-off items were $91 million, up 63 percent compared with the prior year.

Australian domestic revenues were marginally higher, driven by improvements in the new housing, and alterations and additions sectors, while conditions in the commercial sector remained constrained. Australian export sales declined year on year as a result of the closure of the Welshpool MDF facility in Western Australia, which more than offset the increase in domestic sales. The tight conditions in the commercial market saw a higher proportion of commodity products sold into the general market.

New Zealand revenues were below the prior year due to low demand continuing in the commercial sector.

Tighter conditions in Australia and the contraction in the New Zealand commercial market lead to intensified competition, with prices either flat or slightly lower. Programmes addressing customer cost-to-serve and product profitability were undertaken during the year. These and other cost saving initiatives have resulted in a reduction in employee numbers and, combined with a reduction in resin costs, have more than offset the impact of the lower revenue and pricing pressure.

The closures of the plant in Welshpool, and the particleboard facility at Kumeu in Auckland have rationalised the manufacturing footprint, reducing costs and better aligning capacity with domestic demand. Laminex is now well placed to maintain and grow market share in an upturn.

Manufacturing facilities performed very well during the year. All sites are now running at or around full capacity with the exception of the high pressure laminate (HPL) facility in Melbourne. A new short cycle laminating line is to be installed, and warehousing and logistics capability improved at the MDF facility in Queensland, with commissioning due late 2011.

Laminex continued to undertake new product initiatives during the year with 25 new product launches and range updates.

Laminex is also continuing to expand the breadth of its Formica range in Australia and New Zealand, which includes releasing 15 new decors and introducing Formica Colourcore and Tightform products into the market. Laminex has also released a new gloss low pressure melamine (LPM) Formica and Laminex range and relaunched its EssaStone range.

Back to topLooking ahead

The business continues to see weak demand in New Zealand with continued price and margin pressures. In Australia, the housing and alterations and additions sectors are forecast to improve modestly but the commercial sector is continuing to decline.

 

Formica

Formica Corporation manufactures, and distributes high pressure decorative surface laminates, in three major regions, namely North America, Europe and Asia. Its main geographic markets within those regions are the USA, Canada and Mexico in North America, the UK, Spain, France, the Nordic regions and the Benelux countries in Europe, and Taiwan, China and Thailand in Asia.

A significant proportion of sales are through the commercial sector, including retail and office fit outs, schools, hospitals and other developments. Formica also has a high exposure to both new housing and renovations. The brand is recognised and respected globally and in countries in which it has manufacturing facilities Formica either leads the market or holds the second largest share.

Back to topPerformance overview

Formica's operating performance for the current year improved substantially over last year largely as a result of continuing operational improvements and efficiency gains in all key areas of the business.

Operating earnings were $34 million, compared with $18 million in the prior year. The result included $7 million of redundancy costs. Sales were 13 percent lower, although this was due to the relative changes in the value of the New Zealand dollar versus trading currencies. In local currencies sales were down by only three percent on last year.

Market conditions however varied significantly across the world. Volumes in North America were down by five percent on the prior year with continued depressed levels of demand. While activity in the new housing sector has shown some recovery in the USA, this was from a low base and had minimal impact on the business. Commercial markets in North America, and to a lesser extent Europe, continued to contract during the year and in both these regions the business has a higher dependency on commercial than residential activity.

Conditions in Europe have been less variable declining by a further two percent over last year. The main markets in Northern Europe showed some improvement, Central Europe and the UK remained relatively flat. Southern Europe, including Spain, was lower. Markets in Asia have remained solid with volumes up by six percent on last year. A moderate pick up in volumes in China and Thailand was achieved after last year's slowing in activity levels, while conditions in Taiwan and other Asian markets have also been firm.

During the year Formica undertook an extensive rationalisation of its product range. Low volume and low margin products were eliminated, and the product range was consolidated across the three regions. This enabled the business to better leverage its scale in purchasing, with larger tonnages of raw material paper able to be procured at lower prices. Initiatives to consolidate logistics and freight providers were also undertaken.

Operations at the main manufacturing and distribution facilities, particularly in North America, continued to improve. Further reductions in manufacturing scrap rates, increased machine utilisation, and reductions in fixed factory operating costs were achieved.

Service levels generally improved across all regions and as a result Formica was able to increase market shares in some of its larger markets while maintaining share in all other significant markets.

Product prices were subject to competitive pressure, but initiatives aimed at improving service, and new product innovations, enabled Formica to improve both pricing and margins in some areas. Input costs for major materials such as resins and papers generally remained stable throughout the year.

Capital expenditure focused on major upgrades and replacements of key pieces of machinery, especially at the largest sites in North America and the United Kingdom.

During FY10 Formica Group launched a major new product, true scale granite. The product, released in North America in August 2009, has been highly successful with over US$10 million of revenue. This product is planned to be released in Europe in FY11.

Europe introduced its new Specification Collection into the commercial market, including the Rigato finish which has already had great success in Asia.

Back to topLooking ahead

Trading conditions in both North America and Europe continue to remain uncertain and no recovery of significance is expected in these markets in the near term. Continuing growth is expected to occur in China, Taiwan and Asean markets. The Group will continue to focus on improving its operational performance, and capability. Service and innovation will be emphasised, especially in developed markets, and growth opportunities will be pursued in Asia and other developing markets.