KEY POINTS:
Once upon a time we even made the stuff here. For more than half a century, thousands of New Zealanders worked at Formica's factory on its 5ha site at 30 Tironui Rd, Papakura.
From 1959 to 2007, we turned out that distinctive product which was then used by
our crafts folk in the now much-prized tables, benches and work surfaces.
Ironically Fletcher Building shut that Papakura plant because its $1 billion purchase of Formica worldwide resulted in the need to move high-pressure laminate production to Shanghai for big cost savings.
Still, the purchase of Formica in May 2007 for US$700 million ($1.3 billion) was met with much excitement. It was almost as if they were buying back a piece of New Zealand history.
Now - as the dramatic collapse of the US housing market starts to bite - the gloss has well and truly rubbed off the purchase.
Would Fletcher be better off if we hadn't bought the entire kitchen? Corporate sceptics say so and are concerned about the future.
This week, it emerged Formica's purchase caused disquiet among some staff early last year.
Senior staff complained through an external arbitrator, KPMG, which Fletcher used to handle a "fair call" or whistleblower system enabling staff to complain about their bosses or board without the fear of being sacked.
The complaints included a warning that the board had not received a fair and balanced view of issues uncovered during due diligence.
It said the risks of buying Formica might have been understated or glossed over, meaning the value of the target business might have been significantly overstated.
Graeme Mackenzie, Formica's New Zealand managing director through the 1980s, called the deal "a bloody scandal" for being so poorly timed at market peak and coming with a high price tag.
Private equity duo Cerberus Capital Management and Oaktree Capital Management bought the business four years ago for just US$175 million, taking it out of bankruptcy.
The two were not willing buyers but Formica's two largest unsecured creditors and assumed around US$427 million in debt.
Jonathan Ling, Fletcher chief executive, yesterday sought to make three points clearly.
"I suppose I'm reacting to the words 'bloody scandal'. The fact is, 2008 operating profit for Formica was positive, albeit disappointing. Second, net earnings per share from Formica in the year to June 2008 were neutral after interest and tax. Third, Formica's 2008 performance has not affected the financial strength of Fletcher Building."
So how is Formica - the Cincinnati-headquartered business owned by a Penrose-based corporate and run by the Manchester-based English boss Mark Adamson - doing?
The only insight into its performance came three months ago in two overheads and the annual results presentation when Ling showed it had made a US$5 million earnings loss for the half-year to June, 2008. Combined with the first half-year's US$16 million profit, the earnings reached just US$13 million.
In the year to December 2006, Ling said Formica had revenue of US$737 million and ebitda of US$75 million.
In August, Ling told how Formica's senior management team had been restructured. He touched on many problems - the downturn in the US building market, significant slowing in house and commercial building, short-term cost rises, increasing input costs and the slowdown in Spain and Britain.
Formica's accounts also flagged issues of dumping product in the manufacturing process and labour and freight issues.
The "successful transfer of production from Papakura ... to China" was about as good as it got, although Ling described Formica's performance in Taiwan and Thailand as "solid".
"A number of unexpected operational issues were encountered during the ramp-up of the Ohio-based Evendale manufacturing facility to cope with the transfer of production from the closure of the Sierra plant in California," he revealed.
Looking ahead, there is concern over the US sub-prime crisis and worsening international economy.
One analyst said wisdom was easy in hindsight: "Anyone who's bought any assets in the last few years now looks like they've paid too much. But the point is with Formica that even at the time it looked like a high price."
Just one shareholder at this month's annual meeting asked about Formica, gently chiding the board by inquiring if it would apologise for the purchase or sell. Both suggestions were politely rejected. Ling can understand shareholder disquiet. "But we're doing our best to manage it well," he said of the situation.
North America accounted for just 35 per cent of Formica's revenue. At least 35 per cent came from Europe and the remaining 30 per cent from Asia.
Ling dealt with Formica when he was at Laminex in Melbourne and it was he who suggested the purchase.
For two years before he became chief executive, Ling said he visited Formica and the purchase process was an extremely diligent and robust one involving large teams of Fletcher staff, executives and the board.
Ling is backing board chairman Rod Deane's predictions that Formica will be "transformational" for the company. The true state of Formica will be revealed in February when its December half-year result will be issued.
Fletcher shares closed yesterday down 12c at $5.58.
