Formica business in disarray when we bought it: Fletcher

Jonathan Ling. Photo / Dean Purcell

The North American Formica business was in a mess when Fletcher Building bought it three years ago, Fletcher says.

Formica presentations on Europe, Asia and North America were posted on the NZX this week and they revealed the American business suffered severe staff, supply chain and structural problems which Fletcher has been fixing since the purchase.

"The organisation did not have the right structure or right people," Fletcher told international investors, showing how it was forced to take "aggressive action" to shrink the business to match lower volumes in North America when the downturn hit.

Formica's North American and Evendale, Ohio, business had a confusing structure with no clear accountability, no manufacturing or technical quality assurance managers and too many project teams which caused confusion and lack of accountability.

Shop floor management was poor, performance measurement and reviews weak, employee training was bad - causing low staff morale - and plant communication systems were confusing and unclear.

Under Fletcher ownership, Formica has disbanded the unnecessary project teams, recruited new engineering, manufacturing, human resources and maintenance managers, introduced new staff training programmes, implemented five-minute start-of-shift meetings in all shop floor areas, ushered in plant manager face-to-face feedback sessions every month and begun regular union reviews to talk about progress and strike new policies and rules.

"The Evendale plant lacked basic processes required to succeed," Fletcher said.

In 2007, Fletcher paid US$700 million (at the time equivalent to $1.28 billion) for Formica, in a bid to become the world's biggest laminate board maker. Formica was in Chapter 11 bankruptcy in 2004. It was restructured then sold three years later in a controversial move which some at Fletcher opposed.

Senior New Zealand-based Fletcher staff complained about the deal through an external arbitrator, KPMG, which is used by the company to handle a "fair call" or whistleblower system enabling staff to complain about their bosses or board without the fear of being sacked.

Formica had operating earnings of just $34 million in the June 2010 year, up on $18 million last year. The latest result included $7 million in redundancy costs.

Fletcher's laminates and panels division, which holds Formica but also the far more lucrative Laminex businesses, made $1.9 billion in sales and had operating earnings of $141 million in the June 2010 year.

Jonathan Ling, Fletcher chief executive, announced in the annual results presentation on August 18 that Formica had cut product ranges, eliminated low volume and low-margin products, and consolidated its product ranges across all three regions of North America, Europe and Asia. Fletcher shares climbed 12c yesterday to $8.48.

FORMICA GROUP
* Owned by Fletcher Building
* 3200 employees
* 11 manufacturing plants
* 27 distribution facilities
* Asia, Europe, North America
* Bought for $1.28bn in 2007
* Made only $34m this year