Laminates & Panels.    Laminex   Formica

The Laminates & Panels division comprises the Laminex Group and Formica Group.

Laminex.

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

Laminex performance overview

Laminex's operating earnings excluding unusual items were $112 million, up 23 percent on the prior year trading earnings of $91 million. One-off costs from asset write downs totalled $9 million for the year, reducing operating earnings to $103 million. Laminex's prior year reported earnings were $107 million which included one-off gains, totalling $16 million, from the closure and sale of the Welshpool and Kumeu sites.

Australian revenues were approximately eight percent above prior year. Revenues in the first six months of the year were strong, driven by improvements in new housing starts and the Government stimulus building educational revolution ("BER") package. In the second half of the year housing starts slowed considerably and the BER work dried up. Conditions in the commercial sector remained constrained throughout the year due to lack of access to funding and land. Laminex successfully continued to release new product during financial year 2011. This contributed to the increase in revenues.

New Zealand revenues were marginally lower than prior year with the economy remaining subdued. Margins remained consistent year on year.

Competitive pressures in Australia and New Zealand have remained strong although some price increases have been achieved during the period in the key decorated product categories. The cost of resin is increasing on the back of general commodity price rises, this is being offset by the stronger Australian and New Zealand currencies.

Manufacturing facilities are running at or around full capacity. The exception is our high pressure laminates (HPL) facility in Melbourne where capacity is matched to local demand. The MDF facility at Gympie in Queensland had a very strong year with production at record levels despite the floods, which restricted wood supply for a number of weeks. Laminex are currently commissioning a new short cycle laminating line in Gympie. This will increase capacity, lower costs and facilitate the introduction of new technically advanced products. The business has also committed to a major upgrade of its particle board facility in Dardanup in WA which will extend the life of the facility for approximately 15 years.

The floods in Queensland and Victoria did not cause any structural, property or inventory damage to our operations although costs and revenues were negatively affected. The Laminex facilities in Christchurch suffered minor earthquake damage which affected day-to-day operations.

The Laminex Reset programme is now complete. This has helped drive EBIT improvement, and has positioned the business for growth. During the year Laminex acquired a small distribution business in Geraldton, Western Australia which has enhanced our footprint. This will open up opportunities to supply product into this growing region of Australia.

Laminex has continued to successfully launch new product which has contributed to revenue, stimulated demand and kept Laminex in a market-leading position.

These launches included the Laminex 2010 Colour Range update, Laminex Metaline Splashbacks, Laminex CrystalGloss, Laminex and Formica LPM Silk gloss surfaces, EZero MDF, Formica HPL gloss and Laminex and Formica EZero low pressure laminate.

Back to topLooking ahead

No near-term improvement from the current reduced level of demand in the housing and alterations and additions sectors in Australia is expected. The short term outlook for the commercial sector is also subdued.

In New Zealand we see market demand remaining at its current historical lows with continued pressure on prices and margins.

Although the economic forecasts show that there will be demand arising from the rebuilds in Canterbury and Queensland, this is not yet occuring.

For the coming year we have a continuing programme of new market-leading product launches.

We have commenced our new profit driver program called Mercury. It is aimed at driving improvements in our strategic themes of product authority, customer intimacy and cost efficiency.

Formica.

Formica manufactures, and distributes high pressure decorative surface laminates in North America, Europe and Asia. The Formica brand is well recognised and highly respected globally. In markets where it has manufacturing facilities it either leads the market or holds the second largest share.

Back to topFormica performance overview

Formica's operating performance for the current year improved significantly over last year despite markets in North America and Europe continuing to perform below expectations.

Formica's operating earnings were $56 million, 65 percent higher than the $34 million earned in the prior year. The improved result was due to continuing operational improvements and efficiency gains in all key areas of the business. Reported sales were six percent lower due to the appreciation of the New Zealand dollar. In local currency terms sales were in line with the previous year, although there were regional variances.

Market conditions remained flat in North America and were down in Europe. The market strengthened in Asia, in particular in China.

Volumes in North America were down three percent on the prior year with continued depressed levels of demand. Activity in the US residential sector has continued to be subdued and there was minimal growth from an extremely low base. Non-residential activity continued to decline during calendar year 2010 and there was very little recovery in the first half of the 2011 calendar year. Despite the fall in volume, revenue in domestic currencies in North America remained unchanged. This was due to improved product mix and pricing.

Both volumes and revenues in domestic currencies were down in Europe. Volumes decreased by six percent and revenue by five percent as demand in the major economies in Western Europe continued to decline. Across the region results varied with Spain down by nine percent, the UK down by eight percent, and France down by five percent. A number of initiatives within the region resulted in revenue growth in some markets. Revenue increased by 51 percent in Russia, and 10 percent in Poland. Export opportunities to Africa were identified and exports were successfully commenced. The establishment of operations in India also saw an increase in revenue in that market over the prior year.

Activity levels in Asia were strong. Revenue was up nine percent in domestic currencies on the prior year. All the key markets performed well. Revenue increased by 10 percent in China, seven percent in Thailand, and six percent in Taiwan. Initiatives to increase exposure in nearby markets saw revenue in Malaysia increase by 53 percent, by 11 percent in Singapore up, by 19 percent in Japan up and by 17 percent in the Philippines.

In 2010 Formica began an extensive rationalisation of its product range and offering. Other initiatives saw us consolidate logistics and freight providers, and improve service delivery lead times and other operational metrics. These initiatives were completed in 2011 and this contributed significantly to improved financial performance at a time when market demand and revenue was flat.

During the year all regions were faced with escalating input costs especially resins, and energy including oil, gas and electricity. This was particularly evident across the major economies in Europe where significant increases in utility charges occurred, and in China where increased demand and government environmental regulation is resulting in large increases year on year.

Prices were adjusted where possible to mitigate the impact of rising input costs, although competitive pressure meant that not all cost increases could be recovered. Improved service, combined with the promotion and extension of premium products, such as large-scale granite and products with enhanced wear properties, did result in improved pricing and margins in some areas.

Significant focus continued on improving the quality of Formica's operational assets through investing in major upgrades and replacements of key pieces of machinery. This included a $10 million installation of a new phenolic paper treater at Formica's site in Montreal, Canada that was commissioned in May. In China, as the current manufacturing site in Shanghai nears full capacity, we began looking for additional capacity opportunities.

Efforts to improve sustainability continue. All products from Formica's 10 international manufacturing sites have achieved GREENGUARD^TM Indoor Air Quality Certification and/or GREENGUARD Children & Schools Certification, the premier marks for low-emitting products. Formica® Laminate and Deco Metal® have achieved GREENGUARD Indoor Air Quality Certification.

Formica is the first laminate manufacturer to be granted the esteemed logo of the British-based Carbon Trust. This recognises that we have initiated programmes and projects to reduce the carbon impacts from our manufacturing sites, distribution centres and offices.

Back to topLooking ahead

Trading conditions in both North America and Europe continue to remain flat and no recovery of significance expected in these markets in the near term. Recent forecasts by leading economic forecasters have recently been downgraded and the timing of any recovery continues to remain uncertain. Growth is happening in China and the South East Asian countries and at this stage the regional outlook remains positive.

Formica will continue to focus on achieving improvements to its operational performance, and capability. As we continue to reshape the business to perform in the face of uncertain economic recovery, our focus will remain on service improvements and product innovation. In addition, we will pursue growth opportunities in Asia and Germany, and developing markets such as India, Africa, Mexico and Eastern Europe.