Fletcher sees Formica sales lift, building products pick-up

Fletcher Building chief executive Jonathan Ling talking about Formica's performance at a briefing in August. Photo / Greg Bowker.

Fletcher Building said Formica sales will rise after the laminates unit completes its global restructuring while demand for building products will increase as global economic growth returns.

The housing market seems to have turned the corner, Formica chief executive Mark Adamson said at an investor presentation.

The commercial sector typically lags 18 months behind a residential pickup, he said in presentation notes released to the NZX.

The laminates and panels division splits its sales across residential and commercial sectors, and profit improvements require positive GDP growth, declining unemployment, looser bank lending criteria and foreclosures and housing stocks to decline, Adamson said.

Commercial projects contribute 50 per cent to 75 per cent of revenue across its Europe, North America and Asian markets.

Architect drawing activity is at an historic low in the US and Europe and sales in those markets won't pick up until that sector is busier, he said. Low interest rates and government spending are helping underpin the commercial sector, he said.

Formica, the largest global laminates company, faces strong local competition in many markets.

"Substitute products exist at price points above and below high performance laminates, and they occupy a specific price and value niche in surfacing products," said Adamson.

"How the relationships of these categories emerge from recession is unknown."

Shares of Fletcher were unchanged at $8 and have soared 42 per cent this year.

Adamson said Formica is aiming to gain market share in North America, while its European manufacturing plants require rationalisation.

In Asia, the company is developing a second brand tailored to those markets. Formica also intends a downstream move into bonded components, he said.

Building Products chief executive Chris Ellis told the same presentation that Fletcher had a degree of cautious optimism for the outlook for plasterboard, insulation and roof tiles groups.

The division has responded to a drop in new building by closing plants, streamlining its manufacturing, reducing waste and reviewing logistics, he said.

"Our key growth drivers in plasterboard are product differentiation and innovation and an increasing average house size," Ellis said.

Its insulation business has been boosted by Australian and New Zealand government energy efficiency stimulus packages and regulatory changes in both countries.

As the world's largest manufacturer of stone chip coated metal roof tiles key growth drivers have been increased penetration into Japan, Europe and Africa, as well as improved distribution growth in its US market.

- BUSINESSWIRE