Building Products.

Building Products provides building product solutions, from foundation to roof. The division's core plasterboard, insulation and metal roof tile business streams have leading market positions and respected brands.

Performance overview

The Building Products division reported operating earnings of $111 million, excluding unusual items, down three percent on the $114 million earned in the prior year.

Operating earnings for the plasterboard business were up 16 percent. This was principally due to a gain from the sale and leaseback of the Auckland manufacturing site. This more than offset the impact of the decline in the New Zealand residential construction market in the second half, costs associated with the Canterbury earthquakes, and input pricing pressures.

Operating earnings before unusual expenses for the insulation businesses, Fletcher Insulation in Australia and Tasman Insulation in New Zealand, were down 26 percent. This was largely due to the continuing impact of the sudden withdrawal of the Australian government's insulation subsidy scheme in February 2010. The continued industry-wide over-supply of insulation products has adversely impacted price and manufacturing efficiencies. In New Zealand a reduction in uptake of the government insulation retrofit scheme and weaker construction activity adversely affected earnings. Cost-saving initiatives were undertaken, and the benefits of these will be realised when manufacturing volumes improve.

Increased market share and improved operating performance saw operating earnings from the commercial insulation and ceiling and wall systems business, Forman Group in New Zealand and Tasman Access Floors in Australia, increase significantly.

The Roof Tiles Group has manufacturing plants in New Zealand, Malaysia, Hungary and the USA. Operating earnings for the roof tiles business were down 15 percent but only because the prior year included receipt of insurance proceeds for the 2008 fire at the US plant. Volumes were up in Africa, Europe and Asia despite difficult global trading conditions, but down in the key New Zealand and US markets. US and European markets weakened during the period as a deteriorating economic outlook reduced demand. Cost pressure was experienced from increasing steel prices. Overheads were also up due to investments in product and market development.

Operating earnings for the sinkware and aluminium businesses were up 10 percent on the prior year. The domestic Australian market and export markets for Tasman Sinkware products were both weaker and were affected by the strong Australian dollar, but this was offset by a focus on higher value products and improved input prices. Fletcher Aluminium experienced improvements in margins with market share gains for its window and door systems. Manufacturing performance was strong, although volumes were lower.

The division continued its strong focus on health, safety and sustainability. Key initiatives included a focus on 'working at heights' risks. This included implementation at the plasterboard facilities of a fall arrest system for truck drivers loading product, improved guarding across manufacturing facilities, and measures to reduce manual handling risks. There was also a significant focus on energy efficiency initiatives to offset increased energy costs. Measures to reduce greenhouse gas emissions, such as a $5 million investment in new emissions technology at the Auckland glasswool plant, will be implemented during the coming year.

Back to topLooking ahead

Residential markets remain challenging in Australia and New Zealand. Cost rationalisation undertaken through the downturn, a sharpened strategic focus, and growth initiatives with an emphasis on new product development, have provided a buffer against prevailing economic conditions. These initiatives will offer strong operating leverage in the eventual recovery.

Christchurch rebuild volumes will drive demand as rebuilding gets underway. Demand for roof tiles is also expected to increase as Japan's earthquake and tsunami recovery continues.

In Australia, the division expects to have to continue to tackle the challenges created by the strength of the Australian dollar. This is expected to reduce export demand, and increase competition from relatively cheaper imported product. The Australian glasswool insulation business will focus on strengthening its channels to market. Once it has worked through the remaining inventory of batts left over from the termination of the Australian government insulation scheme the business will be well positioned.