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, excluding unusual items, were $74 million, compared with $141 million in the previous year, on three percent lower sales of $2,076 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 before unusual items were $56 million. This compares with $125 million in 2008. Volumes were down in Australia, and particularly in New Zealand, due to the slowdown in both economies, although market shares were maintained. Significant increases in the cost of resins, and weaker Australian and New Zealand currencies, reduced earnings. Prices were increased, and in the final quarter of the year resin costs reduced and the Australian and New Zealand currencies strengthened against the United States dollar.

Reduced demand and over-capacity in the industry lead to the announcement of the closure of two of Laminex’s manufacturing facilities in June 2009. These were the MDF plant in Welshpool in Western Australia, and the particleboard facility at Kumeu in Auckland. These restructurings, which position Laminex to optimise its operations by rationalising its manufacturing footprint, reduce costs and better align capacity with domestic demand, were achieved without impacting the supply or distribution of product to domestic customers. Laminex is now well placed to maintain and grow market share in an upturn.

In addition to price increases and plant closures, a number of cost saving initiatives were delivered during the year, to help offset the impact of the global slowdown. Staff numbers decreased by around 15 percent.

Approximately one third of the high pressure laminate (HPL) supplied by the Laminex Group to its Australasian markets is now being sourced from Formica in China. This was a key synergy identified in the acquisition of Formica.

Fifteen new product initiatives were launched during the year to stimulate demand and keep Laminex in a market-leading position. These launches include the Formica rejuvenation, Laminex colour update, the launch of three-centimetre solid-surface products, and veneers. Laminex also achieved re-certification from Good Environmental Choice Australia for low pressure laminates, Raw MDF and E Zero particleboard plus certification for veneers from the Forest Stewardship Council.

Laminex has embarked upon a programme of initiatives across Australia and New Zealand to improve product margins and reduce costs. Areas of focus include:

  • Product and customer optimisation, to differentiate the customer service offering, rationalise the product range, and lift sales force effectiveness.
  • Distribution optimisation, to ensure that channels to market are aligned with the desired service model and are cost effective.
  • Procurement efficiencies, to reduce product and support costs.
  • Manufacturing excellence, with an emphasis on improving efficiencies in the manufacturing process and in inventory control.

Back to topLooking ahead

The Laminex Group will continue to focus on product innovation, achieving synergies with Formica, and business efficiencies that position the business to respond to an upturn in its key markets.

Formica

The Formica Group manufactures and distributes high pressure decorative surface laminates in North America, Europe and Asia. Its main markets are the United States, Canada, Mexico, the United Kingdom, Spain, France, the Nordic regions, the Benelux countries, Taiwan, China and Thailand.

A significant proportion of sales is for commercial purposes, including retail and office fit-outs, schools, hospitals and other developments, but Formica laminate is also widely used in new housing and renovations. The Formica brand is recognised and respected globally. In the countries in which it has manufacturing facilities it either leads the market or holds the second largest market share.

Back to topPerformance overview

The Formica Group's operating earnings before unusual items for the year were $18 million, up 11 percent on the prior year. This was despite the significant impact of the global recession on the Group’s operations in Europe and North America. Sales in the domestic currencies in which Formica operates were down by 14 percent due to a weak United States economy and a rapid and significant deterioration in demand in Europe. The weakening of the New Zealand dollar, however, resulted in overall sales being flat year on year.

Formica Asia recorded another year of solid growth in revenues and earnings. Volumes were lower in Taiwan, Hong Kong and parts of mainland China, but demand remained firm in Thailand and the other Asean countries.

Performance in North America improved substantially in spite of further weakening of the housing market across the United States, and a rapid slowing of non-residential activity. The extent of the fall in non-residential activity, a sector in which Formica has strong exposure, was over 15 percent on the prior year and over 30 percent in residential. Key to Formica’s performance was resolution of the manufacturing issues that had severely impacted performance in the prior year at Formica’s manufacturing facility in Ohio.

In Europe, demand for HPL fell by 24 percent over the prior year. Spain and the United Kingdom, which are the two biggest markets for Formica in Europe, recorded the largest reduction in demand, although demand also fell significantly in Scandinavia.

Although the extent of market contraction and fall in demand for HPL was severe in both Europe and North America, prices generally remained firm. Cost pressure on raw material inputs eased throughout the year, with resin prices falling from the previous year. Other key input prices were generally in line with inflation in each of the major markets.

Throughout the year, the company worked to reduce costs across the business. This included minimising cash usage by reducing working capital (in particular inventories), increasing focus on debtors, and, as some customers with large accounts were under financial pressure, more rigour with provision of credit.

Formica has reduced its reliance on new products for this year. The company is concentrating on enhancing the service capabilities associated with its core products with the specific aim of maintaining and developing market share. An initiative with a number of key customers, in which the company undertook to significantly reduce product delivery lead times, is an example of how service capability is being enhanced. Reduced lead times meant customers could minimise their own inventory holdings. The success of this initiative has seen it extended to a broader range of customers and a greater array of products.

The company reviewed its key activities in detail across all regions. The aim was to identify opportunities for improvement. The review included a full analysis of the profitability of every product group and customer. Full reviews of the company’s product offering, and its global manufacturing footprint, were also undertaken. As a result of these reviews a number of opportunities have been identified to streamline the product portfolio and improve both customer service and distribution.

These activities meant the company recorded an unusual cost of $243 million. The cost included writing off goodwill, some fixed assets, and provisions for redundancies resulting from the rationalisation of manufacturing facilities in Europe. In addition a number of inventories have been written down as part of the company's plans to rationalise the product offering.

Back to topLooking ahead

A number of business transformation projects have been set up in each of Formica’s three regions. A cross-section of key people has been tasked with improving company performance through rationalising and simplifying the existing business model in order to reduce cost, and improve both service levels and working capital utilisation.